2026-VIL-456-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Employer-Employee Relationship - The appellant entered into a Hotel Operating Agreement with Hilton International Manage LLC USA for the management and operation of the hotel. The appellant was paying management/operator fees to Hilton US and its other foreign affiliates and discharging service tax under reverse charge mechanism – Service Tax demand alleging that the General Manager and other department heads of the hotel were actually employees of Hilton US and their salaries paid by the appellant should be included in the "gross amount charged" by Hilton US for the purpose of service tax – HELD - In case of similar hotel owners operating under the Hilton brand across India, the adjudicating authorities and appellate authorities have held that the General Manager and other department heads are not employees of Hilton overseas entities and the salary paid to them is not exigible to be taxed as a part of the management fee/operating fee paid to Hilton Overseas entities Consequently, the same view would have to be taken in the instant case – Further, the Operating Agreement clearly states that the general manager and other department heads are employees of the appellant and the power of hiring/transfer and termination of the employees lay with the appellant. The appellant had fulfilled all the statutory obligations of an employer, such as PF contribution, Form-16, etc. which established the employer-employee relationship between the appellant and the general manager and other department heads. Accordingly, no service tax is liable to be paid by the appellant on the salaries paid to the General Manager and other department heads and set aside the impugned order – The appeal is allowed - Valuation of Taxable Service - The department had alleged that the salaries paid by the appellant to the general manager and other department heads should be included in the "gross amount charged" by Hilton US for the purpose of service tax – HELD - As per Section 67 of the Finance Act, 1994, the value of taxable service is the gross amount charged by the service provider for such service. The Supreme Court in Union of India vs. Intercontinental Consultant and Technocrats Pvt. Ltd. held that the valuation of taxable service cannot be anything more or less than the consideration paid as quid pro quo for rendering such a service. Consequently, no service tax is liable to be paid by the appellant.
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