Services of letting out of rooms to be used in connection with the functions organised under a composite contract would not be covered under ‘Mandap Keeper Services’.

Commissioner of Central Excise, Jaipur v. Rambagh Palace Hotels (P.) Ltd.

High Court of Rajasthan

D.B. Central Excise Appeal No. 20 of 2012

Category: Classification & Valuation of Services – Mandap Keeper Services

Date of Judgment: 8 November 2017

Relevant Sections: Section 65(66), 65(67), 65(105)(m), 67, 68, 73(1), 75, 76, 78, 80 of Finance Act, 1994; Rule 5 of the Service Tax (Determination of Value) Rules, 2006

Facts of the Case

1. Rambagh Palace Hotels (P.) Ltd. let out its banquet halls, gardens, and rooms under composite contracts for social functions, especially marriages, and charged separately for room rent and function premises. The Department contended that the entire charges including room rent should be taxed under “Mandap Keeper Services” as per Section 65(105)(m) of the Finance Act, 1994. [Para 1, 5.6]
2. The Department issued a show cause notice alleging suppression of facts and proposed invoking extended period under Section 73(1) along with penalties under Sections 76 and 78. [Para 5.9, 5.10]
3. The original and appellate authorities upheld the demand and imposed penalties stating rooms were an integral part of the mandap service when let under a composite contract for organizing a function. [Para 5.6–5.10, 14]

Question(s) in Consideration

Whether charges collected for room bookings under a composite contract for organizing functions are includible in the value for “Mandap Keeper Services” and liable to service tax under Section 67 of the Finance Act, 1994? [Para 2]

Observation of the Court

1. The High Court referred to the Tribunal’s decision in Merwara Estate v. CCE, Jaipur, which had held that hotel rooms let out for boarding/residence are distinct from mandap services. It emphasized that the definition of Mandap Keeper does not cover use of hotel rooms unless directly used for the function. [Para 4]
2. It was noted that no function was held inside the rooms and they were merely used for stay purposes, not as part of the event venue. Thus, their rent could not be included in the taxable value under Mandap Keeper Service. [Para 4–5]
3. The court concluded that the Tribunal rightly drew a distinction between room rent and mandap services, aligning with logical interpretation of the law. [Para 6]

Judgement of the Court

1. The High Court upheld the Tribunal’s ruling that room rents cannot be included in the taxable value of Mandap Keeper Services unless the rooms themselves are part of the venue for organizing the function. [Para 7]
2. The Department’s appeal was dismissed, and the issue was decided in favour of the assessee. [Para 8]

Between Fine Lines

• Renting hotel rooms separately, even under composite contracts for social functions, does not automatically make them liable to service tax under Mandap Keeper Services.
• Only the space directly used for the function (banquet hall/garden) is taxable as mandap.
• Stay of guests in rooms is treated as independent hotel accommodation.
• Mere bundling of services in an agreement doesn’t blur the classification of services.
• Tribunal’s view emphasizing functional usage of rooms was upheld as legally sound.

Summary of Referred Cases

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