Amounts Collected From Dhabas Under 'Yatri Plaza Yojna' Not Taxable To Service Tax: CESTAT Allahabad

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, has set aside a service tax demand of ₹3.85 lakh against the Uttar Pradesh State Road Transport Corporation (UPSRTC) over amounts collected from roadside dhabas under its “Yatri Plaza Yojna”.

The tribunal held that the arrangement was a public welfare measure to ensure passenger safety and convenience, not a commercial transaction involving a taxable service.

Under the scheme, UPSRTC designated roadside dhabas where its buses could stop so passengers could use clean toilets, access drinking water and buy food that met prescribed quality and pricing standards. The Corporation also required bus conductors to issue ₹25 tickets to dhaba owners to ensure that drivers and conductors followed the designated stopping arrangements.

A bench of Judicial Member P.K. Choudhary and Technical Member K. Anpazhakan found that there was no quid pro quo relationship between UPSRTC and the dhaba owners. It observed that designating approved stopping points for buses was an administrative measure to ensure passengers had access to hygienic food, clean drinking water, toilets and safe halts.

The tribunal observed, “We are still unable to comprehend that who has provided services and to whom i.e. who is the service provider and who is the service recipient. Neither the UPSRTC is providing any service to the Dhaba Owners or to the Passengers of the buses nor the Dhaba Owners are providing any taxable service to UPSRTC and also to the bus passengers.”

The appeal was filed by the Regional Manager of UPSRTC, Ayodhya, challenging an order by the Commissioner (Appeals), CGST and Central Excise, Allahabad, which had upheld the service tax demand.

UPSRTC, a public sector undertaking of the Uttar Pradesh Government, introduced the scheme after finding that bus drivers and conductors were stopping at roadside eateries of their choice without adequately considering the cleanliness of toilets, hygiene or food quality.

The agreements required dhaba owners to provide dining space, purified drinking water, separate toilets for men and women, and other basic amenities. They also had to use specified food products, maintain food quality and sell meals at prescribed prices.

The Department, however, alleged that the amounts collected constituted dhaba income or licence fees received by UPSRTC for facilitating the restaurants' and dhabas' businesses and promoting its own business. It classified the activity as a “declared service” under Section 66E(e) of the Finance Act, 1994.

A show cause notice issued on December 30, 2020, demanded service tax of ₹3.85 lakh for the period from October 2014 to June 2017, along with interest and penalties.

The adjudicating authority confirmed the demand and imposed a penalty equal to the tax amount under Section 78 of the Finance Act. It also levied a further penalty of ₹2,000 under Section 77(1). The Commissioner (Appeals) subsequently upheld the order.

Before the tribunal, UPSRTC argued that the scheme was intended to ensure passenger safety and convenience and prevent bus crews from making unauthorised stops. It submitted that the ₹25 collected from dhaba owners was an administrative charge to enforce discipline and compliance, not consideration for a commercial service.

The Corporation also challenged the use of the extended limitation period, arguing that the notice covered a period beyond the normal limitation period under Section 73(1) of the Finance Act. The Department defended the order and sought dismissal of the appeal.

After examining the agreements, the tribunal found that the scheme was intended to ensure buses stopped at safe and convenient locations for passengers. It noted that the arrangement did not seek to promote the dhabas' businesses or grant their owners exclusive rights.

The tribunal ruled that the Department had wrongly classified the activity as a declared service under Section 66E(e), which covers agreeing to an obligation to refrain from an act, tolerate an act or situation, or do an act.

The tribunal observed, “We find that there is a complete absence of a quid pro quo relationship between the Appellant and the Dhaba owners. The arrangement is not a commercial bargain but a public welfare measure. The classification of this activity as a "declared service" under Section 66E(e) ("agreeing to the obligation... to do an act") is a misinterpretation.”

It held that stopping a bus at a designated dhaba was not an independent service being sold to its owner. Instead, it was an inseparable part of the transportation service provided to passengers, with the scheme regulating stops to ensure safety and quality.

The tribunal further ruled that the arrangement did not amount to promotion or marketing classifiable as Business Auxiliary Service. Nor did it involve the renting of property.

It accordingly set aside the order confirming the demand and allowed UPSRTC's appeal with consequential relief in accordance with law.

For Appellant: Madhukar Anand, Consultant

For Respondent: Santosh Kumar, Authorised Representative