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TMI Blog2024 (1) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... issued under sections 73 and 73A of the Finance Act 1994 [the Finance Act] with interest and penalty. 2. Service Tax Appeal No. 51845 of 2021 and Service Tax Appeal No. 51846 of 2021 have been filed by the Vice President (Finance) and Groups CFO, and the Director of the appellant to assail that part of the order dated 29.07.2021 that imposes penalties upon them. 3. The appellant, which is an Indian online travel company, owns an online platform named 'makemytrip.com' which allows the customers to book hotel rooms, flight bookings, train bookings and bus tickets through its website application. It registered itself with the Service Tax Department for provision of air travel agents services and tour operator services. 4. The online website/ mobile application of the appellant lists various hotels which provide hotel accommodation services. Rooms in these hotels can be booked by the customers on the website of the appellant. The booking process has been explained by the appellant in the following manner: (a) The customers access the appellant's website/mobile application [mobile-app] and fill the requisite details such as the travel dates, place of visit, star ranking of the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission basis. 7. During the relevant period, the appellant discharged the service tax liability on the entire amount received from the customers (which is inclusive of taxes) under the category of 'tour operator services' by availing the benefit of abatement of 90 percent under notification dated 01.03.2006 (till 30.06.2012) and under notification dated 20.06.2012 (w.e.f. 01.07.2012) [the Abatement Notifications]. 8. An investigation was carried out by the Directorate General of Central Excise Intelligence at the premises of the appellant and it was noticed that the appellant had wrongly claimed that it was rendering tour operator services to customers as it was providing short-term hotel accommodation services and was not discharging service tax liability under this category. 9. The show cause notice and the Statement of Demands were issued to the appellant primarily containing the following allegations against the appellant: (i) The appellant is engaged in the provision of service of short term hotel accommodation and thus liable to pay service tax under the category of short-term accommodation service taxable under section 65(105)(zzzzw) of the Finance Act (pre-1.7.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at which the hotel room is sold to the customer by the appellant is fixed and decided by appellant on its own and not as per the express authorization of the hotels; (iii) The appellant is not entitled to avail the abatement of 90% under the Abatement Notifications as tour operator as it does not plan or conduct any tours in respect of its standalone hotel bookings and has failed to submit any defense against paragraph 4.8 of the show cause notice, which specifies three conditions to be fulfilled for service to qualify as 'tour operator' service; and (iv) The appellant has collected amount from the customers as representing service tax on hotel accommodation service and service tax assessment was done under tour operator service. Thus, the amount collected by the appellant is in excess of the service tax paid by it and thus, both the conditions stipulated under section 73A of the Finance Act have been satisfied. 12. To appreciate how the demands have been proposed under sections 73 and 73A of the Finance Act, it would be useful to reproduce the conclusions drawn in the show cause notice dated 17.10.2016. It is as follows: "CONCLUSIONS 14. From the foregoing, it appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Act, and the demand dropped: Show Cause Notice dated Period Involved Demand of Service Tax under Demand dropped (if any) Section 73/ (in Rs.) Section 73A /(in Rs.) Except hotels located in J & K and of hotels having room tariff less than Rs. 1000/- For hotels located in J&K For hotels having tariff less than Rs. 1000/- 17.10.2016 May 2011 to September 2015 143,83,73,710 82,44,25,109 1,55,89,142 73,94,424 22.10.2018 October 2015 to March 2016 99,61,68,684 46,59,22,753 1,18,72,148 60,28,437 40,73,81,206 (abatement extended in respect of short- term accommodation service) 12.04.2019 April 2016 to June 2017 380,83,50,090 249,32,48,127 3,85,80,813 2,26,81,143 173,97,69,058 (abatement extended in respect of short- term accommodation service) TOTAL 624,28,92,484 378,35,95,989 6,60,42,103 3,61,04,004 214,71,50,264 15. The following chart would give a summary of the demand proposed in the show cause notice, the demand confirmed by the Adjudicating Authority and the demand dropped by the Adjudicating Authority. Demands Proposed in SCN (in Rs.) Confirmed by the Order (in Rs.) Dropped by the Order (in Rs.) Demand under Section 73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78A of the Finance Act on the Vice President (Finance) and Groups CFO and Director of the appellant as mens rea cannot be alleged on their part. 17. Shri Mihir Ranjan, learned special counsel appearing for the department, however, supported the impugned order and made the following submissions: (i) The appellant provided short-term accommodation to its customers in the rooms under its control. The appellant offers a list of hotels to its customers on the website and the customers pay the amount online to the appellant at the time of booking as per the price displayed. The appellant assures basic facilities in the hotel and the customer approaches the appellant for any deficiency the hotel. The customer does not pay the amount to the hotel and settles all account with the appellant; (ii) As per the Agreement entered into by the appellant with the hotels, the appellant holds inventories of the hotels and the appellant sells these rooms to its customers on its terms and conditions. The appellant, in books of account, booked the whole amount paid to hotels as purchases and has shown the amount received from the customer as sales. It is, therefore, clear that it was the appellant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is from May 2011 to June 2017. 20. The main issues involved in the appeals are: (i) Whether the appellant provided 'short-term accommodation' service made taxable under section 65(105) (zzzzw) of the Finance Act, or 'tour operator' service made taxable under section 65(105)(n) of the Finance Act; (ii) Whether the appellant was entitled, as a tour operator, to abatement of 90% on the gross amount charged under the Abatement Notifications in respect of service of a tour operator; and (iii) Whether the Department is justified in invoking section 73A of the Finance Act in requiring the appellant to pay the alleged taxes collected from the customers and passed on to the hotels for their payment of tax under hotel accommodation services. Whether the appellant is providing short-term accommodation services 21. The contention of the department is that the appellant is providing short-term accommodation service and not tour operator service and, therefore, the demand under section 73 of the Finance Act has been confirmed under this head. It has, therefore, to be determined whether the appellant is providing short-term accommodation or not. 22. To examine this issue, it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int, unless it is due to an error on part of MMT and established with written confirmation from hotels email ID. xxxxxxxxxx 5. Rates and Commission: 5.1 Parties agree that the inventory rates, the blocking and releasing timelines for booking done shall be as agreed from time to time. 5.2 A commissionable rate of 35% for the Financial Year 2012-13. The Commissions for each subsequent year shall be mutually agreed between the parties. 6. Payment terms: Hotel will deduct the payment for each booking from the Deposit amount less the commission and share a monthly reconciliation report for adjustments made and remaining Deposit to the mentioned email ID of [email protected]. The said commission adjustment shall be exclusive of any taxes. xxxxxxxxxx 8. Obligations of the Hotel: 8.1 The information about the facilities available at the Hotel, the vicinity details, star rating, extra adult/child policy etc. shall be as mentioned on the hotel website or shall be informed by email to MMT from time to time. 8.2 Hotel shall never deny honoring MMT bookings. In the event of any such occurrence, it shall offer an alternative equivalent accommodation. If hotel fails ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , partners, collaborators, joint-venture or principal-agent between the parties hereto. The parties shall be independent contractors and neither party shall bind the other by its acts, deeds or omissions, other than to the extent set out in this Agreement." (emphasis supplied) 23. The following relevant points emerge from the aforesaid Agreement: (a) The Hotel is in the business of providing hotel accommodation services and has expressly represented to the appellant through the Agreement that the Hotel is capable of providing hotel accommodation to the customers; (b) The hotel shall provide services to the customers as per best industry practice; (c) The hotel pays consideration to the appellant in form of commission for the provision of services of concluding online booking of hotel rooms for the lodgers; (d) The hotel has agreed to defend and indemnify the appellant against the claims, demands, suits/proceedings, liabilities, losses, damages etc. asserted against the appellant arising out of or in relation to: * any consumer complaints arising out of hotel's services including but not limited to unavailability, deficiency and/or misbehaviors by the employees of the ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or facilitating the booking services shall not be responsible for any such circumstances and the customers have to contact that service provider directly for any further resolutions and refunds. ... RESPONSIBILITES OF THE USER VIS-I-VIS THE AGREEMENT The User expressly agrees that use of the services is at their sole risk. To the extent MMT acts only as a booking agent on behalf of third party service providers, it shall not have any liability whatsoever for any aspect of the standards of services provided by the service providers. In no circumstances shall MMT be liable for the services provided by the service provider. The services are provided on an "as is" and "as available" basis. MMT may change the features or functionality of the services at any time, in their sole discretion, without notice. MMT expressly disclaims all warranties of any kind, whether express or implied, including, but not limited to the implied warranties of merchantability, fitness for a particular purpose and noninfringement. No advice or information, whether oral or written, which the User obtains from MMT or through the services shall create any warranty not expressly made herein or in the terms a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d business license, (vii) service tax registration for the hotel (viii) VAT Registration 31. The contention of the learned counsel for the appellant is that the appellant cannot provide the service of short-term accommodation to the customers in the absence of requisite licenses, infrastructure and, therefore, the appellant cannot be said to be a hotel. 32. This submission of learned counsel for the appellant deserves to be accepted. Under section 65 (105)(zzzzw), it is necessary that the service provided or to be provided to any person has to be by a hotel and there is nothing on the record to indicate that the appellant is a hotel. The show cause notice and the impugned order have placed reliance upon clauses of the Privilege Partnership Agreement entered into between the appellant and the hotels. The show cause notice nor the impugned order mention that the appellant is a hotel. The appellant is merely a booking agent and not an agent of the hotel, as is evident from Privilege Partnership Agreement and the User Agreement entered into between the appellant and the customers. It is the hotel that has provided the service of short-term accommodation to the customers, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mphasis supplied) 37. It is clear that any person who is engaged in the business of planning, scheduling, organizing, arranging tours, including accommodation, would be a tour operator. The appellant is engaged in business of arranging tours, including accommodation through online portal. It would, therefore, qualify to be a tour operator. 38. It is, therefore, not possible to accept the contention of the learned special counsel for the department that the appellant does not satisfy the definition of a tour operator. 39. The Central Government, by a Notification dated 01.03.2006, notified partial exemption for services provided by 'a tour operator' for the period upto 30.06.2012 and the relevant portion of the Notification is reproduced below: Sl.No. Description of taxable service Percentage Conditions 2. (b) a tour, if the tour operator is providing service solely of arranging or booking accommodation for any person in relation to a tour 10 (b) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation; and (ii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or stay and may also include other facilities such as food, guide services etc., an abatement of 60% of the total amount charged may be given for the purposes of the service tax provided that the bill issued for this purpose clearly indicates that it is inclusive of such charges. In other words, service tax would be leviable on 40% of the total amount charged in cases where the tour operator provides a package tour and the price of which mandatorily includes charges for accommodation for stay provided during the course of the tour (Notification No. 39/97-S.T. refers). Further an abatement of 90% from the gross amount charged to the client has been provided where the tour operator provides the services solely of booking or arranging accommodation and the bill issued for this purpose includes cost of such accommodation (Notification No. 40/97-S.T. refers). However, this abatement will not be allowed in case the bill issued does not include the cost of such accommodation." 43. From the aforesaid it is clear that a tour operator can provide for a host of services, including booking of accommodation, transportation and food facility. However, when a person, otherwise is qualified as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the invocation of section 73A of the Finance Act, it is necessary that the amount collected has been collected as representing service tax. In the present case, the amount which has been collected by the appellant is termed as 'taxes and fees', which include all taxes collected on behalf of the hotel. This amount has also been remitted to the hotels. The contention of the appellant is that it is not collecting any amount representing as service tax and so the provisions of section 73A of the Finance Act could not have been invoked. It is also the contention of the learned counsel for the appellant that the amount of hotel taxes collected from the customer has duly been remitted to the hotels and no amount of tax has been retained by the appellant. 48. To substantiate that the appellant collected taxes under the head 'hotel taxes and fees' and paid it to the hotel and no part of it has been retained by the appellant, the appellant has referred to a sample hotel confirmation voucher of Booking ID NH2115510482641 issued by the appellant to Mr. Jatinder Singh (customer). This sample voucher shows that the total amount charged by the appellant from the customer is Rs. 4751/- out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sense of the word. The spirit of the provision lends force to the construction that "collected" means "collected and kept as his" by the trader. If the dealer merely gathered the sum by way of tax and kept it in suspense account because of dispute about taxability or was ready to return if eventually it was not taxable, it is not collected. "Collected", in an Australian Customs Tariff Act, was held by Griffth C.J., not 'to include money deposited under an agreement that if it was not legally payable it will be returned' (Words & Phrases p. 274). We therefore, semanticise 'Collected' not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer." (emphasis supplied) In the present case, the DGCEI fails to make out even a prima facie case that some portion of the service tax collected by the Petitioners from the customers 'as representing service tax' or otherwise has been 'retained' by them. Without such prima facie conclusion, it cannot be inferred that the Petitioners have violated Section 73A (1) of the FA." (emphasis supplied) 54. While interpreting a provision using the same words in the U.P. Sales Tax Act, 1948 the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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