By TIOL News Service

NEW DELHI, DEC 12, 2016: THE appellant is in the business of operating Hotels under its various brands.

Any entrepreneur interested in running a Hotel under Fortune banner signs an "Operating Agreement" with Fortune Park Hotels Ltd.

A 'service fee' is charged under the aforesaid "Operating Agreement" for operating and running the agreement. There is no dispute regarding fee paid.

The dispute is only confined to the "expenses" reimbursed by the hotel to the Appellant towards the actual expenses incurred. This is explained below.

The appellant sends its senior manager on 'secondment' (deputation) to such hotels who are involved in the actual operation and running of the hotel. Such employees are not employed by the Hotel and they continue to be in the employment of the Appellant. Though they continue to be on the rolls of the Appellant company they, in fact, work for the hotel in the actual day-to-day operation and running of the hotel. This also ensures that proper standards are maintained in the actual operation of the Hotel so as to protect the valuable brand of FPHL under which the hotel is run. The 'salaries' and 'expenses' of such officers are continued to be paid by the Appellant but the same are reimbursed by the hotel on actual basis (without any markup).

The Bench observed that the question, as to whether such reimbursable expenses can be subjected to service tax u/s 67 of the FA, 1994, by treating the same as part of the 'gross amount' charged by the service provider 'for services provided' by him, is now dealt with and settled by the judgment of the High Court of Delhi, in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. vs. UOI - 2012-TIOL-966-HC-DEL-ST wherein it is held that reimbursable expenses cannot form part of the gross value of the services being provided by the service provider.

The CESTAT further noted that the demand is barred by limitation as the issue involved is a bonafide issue of interpretation of legal points which were the subject matter of various decisions and, therefore, it cannot be said that there was any suppression or misstatement with any malafide intention to evade tax.

The impugned order was set aside & the appeal was allowed.

(See 2016-TIOL-3207-CESTAT-DEL)