Page 127 - GSTL_11th June 2020_Vol 37_Part 2

2020 ] GATEWAY HOTELS v. COMMISSIONER OF CUSTOMS, C. EX. & S.T., COCHIN 213
and restaurant income, both of which became taxable only w.e.f. 1-5-2011 and no
reversal of Cenvat credit was made under Rule 6(3) of CCR. He further submit-
ted that the dispute during the period is whether the accommodation income
and restaurant income can be considered as an exempted service as defined un-
der Rule 2(e) of CCR and reversal of credit under Rule 6(3) of CCR is required, he
further submitted that as per sub-section 3 of Section 64, the act itself applies on-
ly to taxable services and the taxable service has been defined under Section
65(105) of the Act as those services which are expressly specified under the said
provisions. Therefore, it may be understood that taxable services covers only
those services which are expressly specified under Section 65(105) of the Act and
which are either exempted from service tax or on which no service tax is leviable
under Section 66 of the Act. He thereafter referred to the definition of exempted
service as provided under Rule 2(e) of the CCR during the relevant period,
which is reproduced herein below :-
Rule 2(e) “exempted services” means taxable services which are exempt
from the whole of the service tax leviable thereon, and includes services on
which no service tax is leviable under Section 66 of the Finance Act,”
He further submitted that in view of the definition of exempted service during
the relevant period, if a particular service does not fall within the scope of Sec-
tion 64 itself, it cannot be treated as a service on which service tax is leviable un-
der Section 66 of the Act, since the Act itself does not apply to such services.
Therefore, the service provided by the appellants being outside the scope of Sec-
tion 64 of the Act, would not be covered by the definition of exempted service
under Rule 2(e) of the CCR and hence, the relevant rules of the CCR would not
be applicable to the appellants in the instant case. He further submitted that with
respect to hotel accommodation there exists only renting of space which is akin
to renting of immovable property and the same cannot be considered to fall with-
in the conventional meaning of the term ‘services’. As regards restaurant income,
he submitted that the same involves both supply of food and beverages and also
services. He referred to the decision of the Hon’ble Apex Court in the case of
State of HP v. Associated Hotels of India Ltd. [1972 29 STC 474 (S.C.) = 2017 (50)
S.T.R. 80 (S.C.) = 2015 (330) E.L.T. 3 (S.C.)] wherein the Apex Court held that the
transaction in question cannot be considered as sale liable to sales tax as the same
is a combination of both sale and service, which warranted a Constitutional
Amendment to enable the state to tax it. He further submitted that both the ac-
commodation income and restaurant income do not fall within the definition of
exempted service. He also relied upon the decision of Kerala High Court in the
case of Kerala Classified Hotels and Resorts Association and others v. UOI [2013 (31)
S.T.R. 257 (Ker.)] wherein it has been held that both the restaurant service and
accommodation service cannot be subjected to service tax. This finding of the
Single Member was upheld by the Division Bench of the High Court of Kerala in the
case of UOI v. Kerala Bar Hotels Association [2014 (36) S.T.R. 1205 (Ker.)]. The
Learned Counsel submitted that in view of the decision of the Kerala High court,
both accommodation income and restaurant income do not fall within the defini-
tion of exempted service and hence the requirement for reversal of credit is un-
sustainable.
Demand for the period from 1-5-2011 to 30-6-2012
During this period, the exempted service has been defined under Rule
2(e) as below:-
GST LAW TIMES  11th June 2020  127