Restaurant service charges beyond food prices are taxable under section 67, but forfeited hotel booking advances are not taxable under section 66E(e).

CESTAT NEW DELHI held that service charges collected by restaurants beyond food prices are taxable, as they constitute consideration for restaurant services under section 67, regardless of distribution to staff. However, forfeited advance amounts for cancelled hotel bookings ("no show charges") are not taxable under section 66E(e), following precedents in Lemon Tree Hotel and South Eastern Coalfields Ltd. The demand was largely time-barred as extended limitation period was improperly invoked for interpretational issues. Penalty was waived due to interpretational nature. Appeal partly allowed, with only minor demand for normal limitation period on service charges confirmed.

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Issues Involved:
1. Liability to pay service tax on service charges collected in addition to the price of food.
2. Consideration of "no show charges" as a declared service.
3. Applicability of limitation period and imposition of penalties.

Summary:

Issue 1: Liability to Pay Service Tax on Service Charges
The appellants collected service charges from customers besides the price of food while rendering restaurant services. The Tribunal confirmed that this amount is part of the consideration received for rendering taxable services under Section 67 of the Finance Act. Despite the appellant's argument that the amount was distributed among staff, the adjudicating authorities, referencing Rule 2C of the Service Tax (Determination of Value) Rules, 2006, and TRU Circular No.334/3/2011, found that service tax is chargeable on the entire amount collected. Thus, the demand of Rs. 1,73,211/- on service charges was confirmed.

Issue 2: Consideration of "No Show Charges" as a Declared Service
The "no show charges" were alleged to be a consideration for rendering a declared service under Section 66E(e) of the Finance Act, which includes agreeing to tolerate an act or situation. The Tribunal held that the intention of the appellant and the customers was for the supply of accommodation services, not for tolerating a breach of contract. The forfeiture of the amount for non-appearance was to safeguard the appellant's commercial interest and not for tolerating an act. This issue was decided in favor of the appellant, referencing previous Tribunal decisions in Lemon Tree Hotel and South Eastern Coalfields Ltd., which held that such retention does not attract service tax under Section 66E(e).

Issue 3: Limitation Period and Imposition of Penalties
The demand pertained to the period from July 2012 to September 2015, with the Show Cause Notice issued in April 2016. The Tribunal found that the extended period of limitation should not have been invoked due to the appellant's bona fide belief and lack of malafide intent to evade tax. The figures for the demand were collected from the appellant's own records, indicating no suppression of facts. The Tribunal, citing the Chemphar Drugs Liniments case, decided that imposition of penalties was not warranted due to the interpretational nature of the issue. Thus, the extended period demand and penalties were set aside, except for a minor demand for the normal period from April 2015 to September 2015 on service charges.

Conclusion:
The appeal was partly allowed, setting aside the major demand and penalties, except for a minor demand for the normal period on service charges collected. The Tribunal pronounced the judgment in the open Court on 21.12.2023.

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