Service tax demand on Mandap Keeper Services unsustainable; food sales and electricity reimbursements excluded from taxable value

CESTAT Kolkata held that service tax demand on appellant for Mandap Keeper Services was not sustainable. The tribunal ruled that food sale amounts shown separately in agreements are not includible in taxable value under Mandap Keeper Service category, following precedent from Hyatt Resorts case. Additionally, electricity charges collected on reimbursement basis at actual cost without profit margin are not liable to service tax, citing ICC Reality precedent. The tribunal set aside demands for short payment of service tax under both categories and imposed no penalty, allowing only admitted demand already paid by appellant with interest.

---

---

Issues Involved:
1. Short-payment of service tax under "Mandap Keeper Service."
2. Service tax on electricity charges collected on a reimbursement basis.

Detailed Analysis:

Issue 1: Short-payment of Service Tax under "Mandap Keeper Service"
The appellant, engaged in the hospitality business, had registered under "Mandap Keeper Service" and provided banquet halls either on an outright rental basis or under a composite contract including food supply. For composite agreements, separate invoices were raised for food sales and banquet hall rentals, with applicable VAT paid on food and service tax on rent. The appellant disputed the demand for additional service tax on food sales, arguing that food sales are not part of "Mandap Keeper Service" and are subject to VAT, not service tax. The appellant relied on Notification No. 12/2003-ST and Section 65B (44) of the Finance Act, 1994, which exclude sales from the service tax ambit.

The Tribunal, referencing the case of Hyatt Resorts Private Limited, found that the appellant correctly charged VAT on food and service tax on hall rent, as evidenced by separate invoices. The Tribunal noted that as per Section 65B (44), supply of goods deemed as sales is excluded from service tax. Thus, the demand for additional service tax on food sales was set aside.

Issue 2: Service Tax on Electricity Charges
The appellant collected electricity charges from tenants on an actual reimbursement basis, arguing that this constitutes a sale of goods, not a service, and thus should not be subject to service tax. The appellant cited the case of Commissioner of Sales Tax, Madhya Pradesh Vs. Madhya Pradesh Electricity Board and the Tribunal's decision in ICC Reality (India) Private Limited, which exempted electricity from service tax.

The Tribunal found that the appellant charged tenants the same rate as billed by the electricity provider, without profit. Therefore, the reimbursement of electricity charges did not constitute a service. The Tribunal upheld the precedent set in ICC Reality (India) Private Limited, confirming that electricity charges are not liable to service tax.

Conclusion:
The Tribunal concluded that the appellant is not liable for the additional service tax under "Mandap Keeper Service" for food sales, as VAT was already paid, and such sales are excluded from service tax under Section 65B (44). Additionally, the Tribunal held that electricity charges collected on a reimbursement basis are not subject to service tax. Consequently, the impugned order demanding additional service tax was set aside, and no penalties were imposed on the appellant. The appeal was disposed of accordingly.

---