CESTAT Grants Relief To Bharat Hotels, Sets Aside Service Tax On Forfeited Booking Advances

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has recently set aside a service tax demand against Bharat Hotels Limited on amounts retained upon cancellation of hotel room bookings.

A coram of Judicial Member Binu Tamta and Technical Member P.V. Subba Rao allowed the appeal and held that advance amounts forfeited as “room retention charges” cannot be taxed under Section 66E(e) of the Finance Act, 1994.

The tribunal recorded that Bharat Hotels had discharged service tax at the time of receipt of advances under the Point of Taxation Rules, 2011. Where customers cancelled bookings or failed to turn up, the advances were retained to compensate for losses caused by blocked inventory.

The bench noted that the issue stands covered by earlier decisions, including Indian Hotels Company Ltd., The Lalit, Shiv Vilas Resorts, Lemon Tree Hotel, and Narayan Builders and Developers, which have held that such amounts are not consideration for any service.

The tribunal also referred to South Eastern Coalfields Ltd., affirmed by the Supreme Court, to note that damages or penal charges for breach or non-performance do not constitute consideration for a taxable service. Accordingly, the order against it was set aside, and the appeal was allowed.

For Appellant: Advocate Kunal Agarwal,

For Respondent: Mehboor Ur Rehman, Authorised Representative for the Respondent