CESTAT Kolkata Sets Aside ₹13.20 Lakh Service Tax Demand On Restaurant Over Revenue-Sharing Arrangement

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a ₹13.20 lakh service tax demand on a Kolkata-based restaurant.

It held that the amounts received under a revenue-sharing arrangement with a caterer were not consideration for providing Business Support Services.

The bench comprising Justice Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) held that sales incentives received from distributors of alcoholic beverages, linked to the volume of sales, could not be treated as consideration for Advertisement Services.

The restaurant (appellant) had entered into an agreement with West End Caterers Pvt. Ltd. for running the kitchen at its restaurant.

Under the arrangement, the caterer prepared, served and sold food and non-alcoholic beverages, while alcoholic beverages were sold by the appellant. The caterer paid 23% of its sales turnover to the appellant, which was recorded as “License and Facility Charges”.

The Department treated these receipts as consideration for providing Business Support Services, alleging that the appellant had provided premises and infrastructure to the caterer for carrying out its business activities.

A service tax demand of ₹13.20 lakh was raised for the period October 2007 to February 2013, along with interest and penalties.

The restaurant contended that the arrangement was one of revenue sharing and did not involve provision of any service.

The Tribunal examined the agreement and noted that the appellant was entitled to 23% of the caterer's net turnover as “license and facility charges”.

It held that the arrangement was in the nature of revenue sharing, with the parties operating on a principal-to-principal basis.

Referring to CBEC Circular No. 109/3/2009-ST and the CESTAT decision in Ambience Hospitality Pvt. Ltd. v. Commissioner of Central Excise, Delhi-IV, the Tribunal held that there was no service element involved in the revenue-sharing arrangement. Accordingly, the demand under Business Support Services was set aside.

"...we hold that the arrangement between the Appellant and WEC is in the nature of “Revenue sharing” and it cannot be considered as rendering of BSS service. Thus, we hold that the demand of service tax confirmed under the category of BSS in the impugned order is not sustainable and hence the same are set aside.", the Court said.

The Tribunal also considered the demand relating to “payouts” received from distributors of the UB Group for displaying alcoholic beverages in the restaurant.

It noted that the amounts were received as sales incentives, either in the form of stock or cash, based on the volume of sales under specific agreements.

The Tribunal held that these amounts were linked to sales and could not be treated as consideration for Advertisement Services.

"...we observe that the said 'payouts' received by the Appellant cannot be considered as consideration received for rendering of 'Advertisement Service'. Thus, we hold that the demand of service tax on the sales incentives received under the category of 'Advertisement Service' is not sustainable and hence the same are set aside", the Court said.

Accordingly, the demand on the sales incentives was also set aside, and the appeal was allowed.

For the Appellant: S. P. Siddhanta, Consultant

For the Respondent: A. Mukherjee, Authorized Representative