Branding and promotional arrangements attract service tax, while separately billed room-service food and pass-through electricity recoveries remain outside taxable value.
Exclusive liquor-branding and display arrangements constituted taxable promotional activity rather than trading margins, with service-tax liability limited to the normal limitation period. Separately invoiced food and beverages supplied to hotel rooms did not fall within restaurant service because rooms were not restaurant premises and the supplies constituted sale or transfer of goods. Electricity charges recovered from tenants at actual sub-metered consumption and remitted to suppliers were not consideration for renting services and could not be included in taxable value as reimbursement. Extended recovery was unavailable where the notice did not invoke the statutory proviso and no wilful suppression or intent to evade tax was established.
Issues: (i) Whether separately billed food and beverages supplied by room/grand-room service were taxable restaurant or accommodation services; (ii) Whether consideration for exclusive branding and display of liquor brands constituted taxable sponsorship/promotional activity; (iii) Whether electricity charges recovered at actual consumption from tenants formed taxable consideration; (iv) Whether the demand beyond the normal limitation period was sustainable.
Issue (i): Whether separately billed food and beverages supplied by room/grand-room service were taxable restaurant or accommodation services.
Analysis: Section 65(105)(zzzzv) of the Finance Act, 1994 confined restaurant service to serving food or beverages in the premises of an air-conditioned restaurant licensed to serve alcohol. Hotel rooms were not restaurant premises, and the food was separately invoiced without evidence that its value formed part of the room tariff. Such separately charged food was a sale/transfer of goods excluded from service under Section 65B(44) of the Finance Act, 1994.
Conclusion: The room and grand-room food and beverage receipts were not taxable services. In favour of the assessee.
Issue (ii): Whether consideration for exclusive branding and display of liquor brands constituted taxable sponsorship/promotional activity.
Analysis: The agreements required exclusive branding and promotion of specified liquor brands and mandatory display of branded accessories. The receipts were therefore consideration for promotional and branding activity, rather than trade margins arising solely from liquor sales. For the pre-negative-list period, the arrangements fell within the statutory scope of sponsorship; for the post-negative-list period, they were services under Section 65B(44) of the Finance Act, 1994 and were not covered by Section 66D of that Act.
Conclusion: The branding-related receipts constituted taxable promotional activity and not mere trading income. Against the assessee.
Issue (iii): Whether electricity charges recovered at actual consumption from tenants formed taxable consideration.
Analysis: The charges represented actual electricity consumption recorded through sub-meters, collected from tenants and remitted to electricity suppliers. They were not consideration for renting services. Rule 5(1) of the Service Tax (Determination of Value) Rules could not include such reimbursement in taxable value, having been held ultra vires.
Conclusion: Electricity charges recovered on actual-consumption basis were not taxable consideration. In favour of the assessee.
Issue (iv): Whether the demand beyond the normal limitation period was sustainable.
Analysis: The notice did not invoke the proviso to Section 73(1) of the Finance Act, 1994, and the record did not establish a deliberate act of suppression or other conduct evidencing intent to evade tax. Mere non-declaration or omission did not establish wilful suppression.
Conclusion: Recovery beyond the normal limitation period was unsustainable; the sponsorship-service demand could survive only for the normal period. In favour of the assessee.
Final Conclusion: Only the service-tax liability on sponsorship/promotional activity for the normal limitation period survives; the remaining impugned demands are set aside.