Recently, the Excise and Taxation Department, Chandigarh took suo motu cognizance when the video of actor Rahul Bose revealing a whopping price of Rs 442.50 charged for two bananas including GST at 18 percent by Hotel JW Marriott, Chandigarh went viral over the internet.
According to news reports, the department issued a show-cause notice to probe into the levying of tax on ‘banana’ which is an exempted good. The tax authority concluded in its order that the banana supplied by the hotel is a supply of goods which is exempt from payment of tax. Keeping that in mind as per the Department, JW Marriott has illegally collected GST on an exempt supply, thereby contravening the provisions of the GST laws.
As a penal consequence for the contravention of the provision of the GST laws, a penalty of Rs 25,000 was levied by the tax authority on JW Marriott for collecting GST on the supply of bananas.
From the perspective of the department, in the entire episode, the activity of serving banana as part of room service is a mere supply of goods which is exempt from tax as per the notification issued under the GST laws. The department’s contention is that there is no element of service involved in the entire transaction wherein the fruits are served in the room to the customers and therefore there cannot be a case of involvement of a service element.
What this has done is that departments from other parts of the nation have taken note of this and notices are being issued to other hotels wherein fresh fruits are served as part of room service. In this episode, what is interesting to note is that the entire service of serving food as part of room service wherein cutlery/crockery and delivery service is being provided has been ignored. Visibly also, the act of consumption of food within the premises of a 5-star hotel cannot be equated with the supply of fruits as such which is commonly understood as over the counter sale.
In order to appreciate the entire controversy, let us step back to the earlier legal position and understand whether there is a substantial shift in the terms of the provisions.
Under the erstwhile regime of sales tax/VAT and service tax, both the State Government and Central Government were levying sales tax and service tax respectively on the food served from restaurant or room service. In such past practice, there is no controversy or dispute which arose relating to the levy of service tax on serving of food items as a part of room service.
Taking a cue from the history books also, the Hon’ble Supreme Court in its landmark decision in the case of K Damodar Swami has observed that what you pay for in a five-star restaurant is for the ambience, cutlery and service which is the major component and not the goods that you consume.
Referring to the relevant provisions of the GST law which treats a supply of goods, being food or any other article for human consumption or any drink (other than alcoholic drink) as supply of service, it becomes interesting to note the approach adopted by the department where they are going against the basic tenets of law. Drawing a comparison of room service with the sale simpliciter is unjust and glaring.
In our view, the facts of the present matter under consideration needs to be brought to the notice of the Department that room service is comprehensive involving serving food in the room which encompasses a host of amenities such as delivery, provision of linen, crockery/cutlery, etc. In the author's view, such a transaction involves dominant element of service wherein the customer has requested food in his room rather than a restaurant.
To the above controversy, FHRAI (Federation of Hotel and Restaurant Associations of India) has also come in support of JW Marriott by issuing a statement that it has correctly and legally charged GST at the rate of 18 percent inasmuch as the element of service involved in such transactions cannot be negated.
The above case is going to open a Pandora’s Box for the hospitality industry wherein the element of service involvement cannot be ruled out. Such action by the Department would push the long-established practice in hospitality into a spiral and there would actually be no beneficiary to it.
(The writer is Partner, Lakshmikumaran & Sridharan Attorneys)
Updated Date: Aug 05, 2019 13:00:11 IST