Restaurant services exempt from service tax when not serving alcoholic beverages despite hotel liquor license

CESTAT Chennai dismissed the Department's appeal challenging exemption from service tax on restaurant services. The restaurants located within Hotel Sangam premises in Trichy and Thanjavur were clearly demarcated from permit rooms and did not hold separate licenses to serve alcoholic beverages. Since the restaurants failed to satisfy the condition of serving alcoholic beverages required under the Restaurant Services definition, they did not fall under taxable restaurant services category. The tribunal held that Department's interpretation linking hotel's liquor license to restaurant services was legally incorrect. Additionally, Department's appeal contradicted its own Circular No. 139/8/2011-TRU, which is binding on revenue authorities per SC precedent. The original order granting exemption was upheld.

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Issues Involved:
1. Whether the activity rendered by the Respondent qualifies for demand of Service Tax under 'Restaurant Service' in terms of provisions of Section 65(105)(zzzzv) of the Finance Act, 1994, up till 30.06.2012Rs.
2. Whether the appellant is eligible for exemption under Notification No. 25/2012-ST dated 20.06.2012, which is effective from 01.07.2012 and also applicability of the clarification issued vide Circular No. 139/8/2011-TRU dated 10.05.2011Rs.

Summary:

Issue 1: Qualification for Service Tax under 'Restaurant Service' up till 30.06.2012
The Department issued a Show Cause Notice to the Respondent demanding Service Tax of Rs.73,80,436/- on 'Restaurant Services' for the period from 01.05.2011 to 31.12.2012, invoking proviso to Section 73(1) of the Finance Act, 1994. The adjudicating authority dropped the proceedings on the grounds that the essential conditions stipulated under Section 65(105)(zzzzv) of the Finance Act, 1994 were not met, and the Respondent became eligible for exemption under Sl.No. 19 of Notification No. 25/2012-ST dated 20.06.2012. The Tribunal found that the Respondent's restaurants did not fulfill the requirement of having a licence to serve alcoholic beverages in the premises of the restaurant, thus not falling under the ambit of 'Restaurant Services' for the period from 01.05.2011 to 16.03.2012.

Issue 2: Eligibility for Exemption under Notification No. 25/2012-ST and Applicability of Circular No. 139/8/2011-TRU
The Tribunal examined the legal provisions and found that the Respondent's restaurants, though located within the hotel premises, were clearly demarcated from the permit rooms (bars) and did not have licences to serve alcoholic beverages. The Circular No. 139/8/2011-TRU dated 10.05.2011 clarified that Service Tax is leviable only if both conditions of having air-conditioning and a licence to serve alcoholic beverages are met. Since the Respondent's restaurants did not meet these criteria, they were eligible for exemption under Notification No. 25/2012-ST. The Tribunal held that the Department's interpretation was inconsistent with statutory provisions and clarifications issued by the Board.

Conclusion:
The Tribunal upheld the Order-in-Original No. 06/2014-ST dated 20.02.2014, dismissing the Department's appeal and concluding that the Respondent's restaurants were not liable for Service Tax under the category of 'Restaurant Services' for the disputed period. The Tribunal emphasized that Department Circulars and instructions are binding on Revenue authorities, and the impugned order could not have been challenged as it aligned with the Circular issued by the Board. The appeal was dismissed, and the impugned order was affirmed.

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