Tribunal Rules in Favor of Hotel Operator in Tax Dispute on Booking Fees and Food Delivery

The Tribunal ruled in favor of the appellant, a hotel operator, in a tax dispute regarding the taxability of advance received for booking hotel rooms and cancellation charges under Section 66 E(e) of the Finance Act, 1994. The Tribunal held that the cancellation charges did not qualify as taxable receipts as customers paid for accommodation services, not for refraining from an act. Additionally, the Tribunal exempted the appellant from service tax on food delivery in hotel rooms, as it was considered a sale and not subject to service tax due to the absence of typical restaurant service elements. The appeal was allowed, and penalties were set aside, benefiting the appellant.

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Issues:
1. Taxability of advance received for booking of hotel rooms and cancellation charges under Section 66 E(e) of Finance Act, 1994.
2. Taxability of service for delivery of food in hotel rooms.

Analysis:

Issue 1: Taxability of advance received and cancellation charges:
The appellant, a hotel operator, received advances for booking rooms and retained amounts as cancellation charges. The Revenue argued that cancellation charges qualified as taxable receipts under Section 66 E(e) of the Finance Act, contending that the appellant agreed to refrain from an act or tolerated a situation. However, the Tribunal disagreed, stating that customers paid for accommodation services, not for refraining from an act. The amount retained was for keeping services available, not for tolerating an act. Therefore, the Tribunal held that no service tax was attracted under Section 66 E(e), ruling in favor of the appellant.

Issue 2: Taxability of service for food delivery in hotel rooms:
Regarding the service tax on food served in hotel rooms, the Tribunal noted that the CBEC Circular exempted service tax on food served in rooms if billed separately and not part of the declared tariff. The Circular clarified that service tax could be levied if there was an element of service involved, typical in restaurant settings. However, since the food was served in rooms without the typical restaurant service elements, it constituted a sale and did not attract service tax. As the appellant provided food in rooms, not as part of room service, the Tribunal held that the appellant was not liable for service tax on food delivery in hotel rooms. Consequently, the appeal was allowed, and penalties imposed were set aside, granting consequential benefits to the appellant.

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