The Hindu Business Line : Monopoly menu that put the taxman in a mandap soup

CKP Mandal is a charitable trust registered under the Bombay Public Trust Act. It owns a building with halls that are given on hire for official, social and business functions. CKP entered into a contract with Saideep Caterers and Decorators, giving the latter exclusive rights for rendering catering and decoration services to hirers using the halls. For this, Saideep paid CKP Rs 9,80,000 during 1997-2000, and Rs 8,35,000 in 2001-2002.

In 2001, the Superintendent of Service Tax issued notice to CKP asking for service tax on the sums received from Saideep. CKP paid the demanded amount, and then claimed refund. However, the Assistant Commissioner of Central Excise rejected the refund claim. Aggrieved by the order, CKP took the issue before the Commissioner (Appeals), who set aside the order passed by the Assistant Commissioner.

Unrelenting, the Department approached the Tribunal, which in turn set aside the Commissioner's order. Beaten again, CKP brought the case before the Bombay High Court, where Justices R.M. Lodha and J.P. Devadhar heard the case.

They noted the terms of the agreement between CKP and Saideep, as follows:

Saideep had exclusive rights to render the services of catering and decoration at the rates mutually agreed upon and specifically mentioned.

CKP could not let out its halls to any person who refused to use Saideep's services.

Hirer was bound to make use of catering and decoration services from Saideep, if the hirer required such services.

The court studied the provisions of service tax law as contained in the Finance Act, 1994, especially the ones about catering and mandap hiring. For instance, `caterer' is defined as "any person who supplies, either directly or indirectly, any food, edible preparations, alcoholic or non-alcoholic beverages or crockery and similar articles or accoutrements for any purpose or occasion."

Mandap means "any immovable property as defined in Section 3 of the Transfer of Property Act, 1882 (4 of 1882) and includes any furniture, fixtures, light fittings and floor coverings therein let out for consideration for organising any official, social or business function."

`Mandap keeper' refers to "a person who allows temporary occupation of a mandap for consideration for organising such functions. `Taxable service' that he provides to a client is service in relation to the use of mandap in any manner including the facilities provided to the client in relation to such use and also in services, if any, rendered as a caterer."

Looking at the facts in the CKP case, the judges observed that the halls given out on hire are covered by the definition of mandap, and that CKP is a `mandap keeper'. There was no dispute that the hire charges received by CKP from hirers for the use of halls for official, social or business functions should be chargeable to service tax.

"The question in this appeal relates to the amount of consideration received by the appellant from the caterer (Saideep Caterers) to whom monopoly rights have been given by the appellant for providing catering and decoration services to the hirer if they so require," clarifies the text of the judgment dated April 25.

"Can it be said that by according right of monopoly to Saideep Caterers to be the only caterer entitled to provide catering services and decoration to the hirer is the `taxable service' and the consideration received from Saideep Caterers is chargeable to service tax?" asked the court, summing up the dispute.

"The answer is plainly in the negative," reads the verdict. Reason is that taxable service, in relation to the use of mandap, is the service to the hirer. The agreements with Saideep were not service, said the court. "It is true that any person who supplies, either directly or indirectly any food, edible preparations, alcoholic or non-alcoholic beverages or crockery and similar articles or accoutrements for any purpose or occasion is a `caterer' within the meaning of Section 65 but the appellant (CKP) is not providing any direct or indirect service of any food, edible preparations, alcoholic or non-alcoholic beverages or crockery and similar articles or accoutrements to the hirer," elaborated the court. "Catering and decoration services to the hirer is provided by Saideep Caterers."

Thus, there was no relationship of `mandap keeper' and `client' between CKP and Saideep, said the court. "It is so because Saideep Caterers have been given monopoly rights to render the catering and decoration services to the hirer but Saideep Caterers has not taken the halls on consideration for organising any official, social or business functions. The stipulation in the agreements that the appellant shall not give halls to any hirer who does not avail of the catering and decoration services of Saideep Caterers shall not mean that the appellant is a service provider to the Saideep Caterers."

On the part of the Department, it was argued that giving monopoly rights to Saideep meant indirectly providing catering services to the hirer. And that the expression "in relation to" in the tax law implied comprehensiveness, to include the exclusive rights of catering and decoration given to Saideep. To this, the court said, "We are afraid, the contention of the revenue cannot be accepted."

The court underlined that what is of paramount importance for `taxable service' is the service provided to a client by the `mandap keeper' in relation to the use of mandap in any manner, including the facilities of any nature. "But the service to be a taxable service must be a service provided to a client (hirer) by a mandap keeper," insisted the court.

Howsoever expansive, wide and comprehensive meaning one may give to the expression `in relation to', the consideration that CKP received from Saideep for the exclusive and monopoly rights cannot be covered by `taxable service' as defined in Section 65, declared the judges.

Tailpiece

"Beauty is a form of genius," says Oscar Wilde!

"A grotesque Form can be the genius of bureaucracy," frets the assessee.

http://Detaxification.blogspot.com

D. Murali

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