Cancellation charges on hotel bookings are compensation, not consideration for tolerating cancellation, so service tax does not apply.
Forfeited advance amounts retained as cancellation or room-retention charges on hotel booking cancellations are not consideration for a declared service under section 66E(e) because the booking contract is for accommodation, not an agreement to tolerate cancellation. The amounts function as compensation or liquidated damages for breach of contract, reflecting loss of business rather than payment for any service. As such, they do not satisfy the statutory requirement of consideration for tolerating an act, and the service tax demand is unsustainable.
Issues: Whether forfeiture of advance amounts retained as cancellation or room-retention charges on cancellation of hotel bookings constitutes consideration for a declared service under section 66E(e) of the Finance Act, 1994 and is therefore liable to service tax.
Analysis: Liability under section 66E(e) arises only where there is an agreement to tolerate an act and the amount received is consideration for such tolerance. The booking arrangement here was for provision of hotel accommodation, not an agreement to tolerate cancellation. When a customer cancels or does not turn up, the hotel suffers loss of business and the forfeited amount operates as compensation or damages for breach of contract. Such retention charges are in the nature of liquidated damages or penal compensation and do not answer the description of consideration for any service.
Conclusion: The forfeited advance amounts are not taxable as service tax under section 66E(e) and the demand is unsustainable.
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