F. No. 332/82/97-TRU, dated 24-9-1997

I am directed to state that certain points have been raised for clarification regarding the applicability of service tax on services rendered by mandap keepers & outdoor caterers :

( i ) whether hotels and restaurants fall within the meaning of the word “mandap” for purposes of levy of service tax on services rendered by “mandap keepers” and whether service tax is attracted when the hotel/restaurants let out their halls, rooms etc. for social, official or business functions?;

( ii ) whether service tax can be levied on food or any other article for human consumption, when supplied by a hotel, keeping in view that the State Governments also charges sales tax on food and drinks vide Clause 29(A)(f) of Article 366 of the Constitution (46th Amendment) Act, 1982?;

( iii ) whether mere supply of food or drinks (without any other accoutrements) by a restaurant or hotel will attract service tax (under the category of services rendered by outdoor caterers)?;

( iv )whether service tax is attracted in cases where premises  and/or connected facilities are let out on rent to clubs and cultural organisations for the purposes of holding programmes relating to Dance, Drama & Music?

2.The points raised have been examined. The definition of `mandap’, as contained in the Finance Act, 1997 is wide in its scope as it covers any immovable property as defined in Section 3 of the Transfer of Property Act, 1882 and includes any furniture, fixtures, light fittings and floor coverings therein, let out for consideration for organising any official, social or business function. Therefore, for the purposes of service tax, the term `mandap’ has to be interpreted as it has been defined and not otherwise. Thus the term `mandap’ covers within its ambit any immovable property which is let out by any person for a consideration for organising any official, social or business function. Further, `Mandap keeper’ has been defined to mean a person who allows temporary occupation of a mandap for consideration for organising any official, social or business function. It is therefore clarified that hotels and restaurant which let out their banquet halls, rooms, gardens etc. for holding/ organising any marriages, parties, conference, shows etc. are covered under the definition of a `Mandap keeper’.

3.It is essential to note that to attract the service tax on services rendered by mandap keepers it is mandatory that the mandap keeper has let out some room, space or hall for some period of time and during such period the room, space or hall is essentially in exclusive (temporary) possession of the person to whom it is so let out. In other words there is a certain exclusivity which has been afforded to the person to whom it has been let out. For instance, the activity of mere reservation of seats in a restaurant shall not attract service tax.

4.It is argued that supply of food is termed as a “deemed  sale” which is charged to sales tax by the State Governments and as such it is not liable to service tax. In this context it may be clarified that deeming the supply of food in a restaurant as a sale does not in any way bar the levy of service tax on the service provided by outdoor caterers which is primarily a tax on service rendered by an outdoor caterer. It is pertinent to note that the service rendered by outdoor caterers is clearly distinguishable from the “indoor” services rendered in a restaurant or hotel. In the case of outdoor catering service the food/eatables/drinks are of the choice of the person who partakes of the service; he is free to choose the kind, quantum and the manner in which the food is to be served. As against this while eating in restaurant or hotel where the customer’s choice of the food is bound by the menu card. Again in the case of outdoor catering the customer is at liberty to choose the time and place where food is to be served. In the case of an outdoor caterer the customer negotiates each element of the catering service, including the price to be paid to the caterer. Outdoor catering has an element of personalised service provided to the customer the service element is the more weighty, visible and predominant aspect in the case of outdoor catering.

5.It may also be clarified that sale of food across the  counter, as in fast-food joints/restaurants or serving of food in a restaurants/hotels do not fall within the ambit of outdoor catering. Nor does mere free delivery (or delivery at a nominal cost to cover transport charges) of food by a fast food joint, restaurant etc. shall be subject to service tax as in such cases there is no service element and only a mere sale of food. This answers point number (iii) referred to in para 1 above.

6.As regards the point whether renting out of hall etc. for the purposes of holding a dance, drama or music programme or competition is chargeable to service tax, the answer lies in the affirmative. The contention that holding a dance, drama or music programme it is not a social function is not tenable. Culture is an inalienable element of a civilised society and is an integral part of our social ethos and is infact a form of social intercourse. Programmes of dance, drama and music are social function. In case rental is being charged by the owner or caretaker of any premises for holding such functions, they are liable to pay service tax. Apparently, such renting out of premises is for a monetary consideration and thus has a pecuniary aspect. In case no charges/rental is being paid i.e. the premises are given out free of cost to hold such function, there would be no service tax liability.