The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the renting of an immovable property for the purpose of being operated as a hotel falls squarely within the specific exclusion provided under clause (d) of Explanation 1 to Section 65(105)(zzzz) of the Finance Act, 1994. The CESTAT clarified that the inclusion of ancillary facilities such as a restaurant, banquet hall, bar, or health club does not disqualify the property from this exclusion, as these are considered integral to the functioning of a ‘Full-Service Hotel’ and do not constitute a separate or independent commercial use.
Consequently, the CESTAT asserted that the Explanation 2 to Section 65(105)(zzzz), which deems a property with mixed-use as being used for business or commerce, is not attracted in such cases. Therefore, the activity of leasing a building to be used as a hotel is not a taxable service under the head ‘Renting of Immovable Property Service’. Accordingly, the CESTAT quashed the service tax demand of about Rs 56.84 lakh against Tamil actor R. Rajinikanth.
The Division Bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) observed that the central issue was whether a building leased for use as a hotel, which also includes facilities like a restaurant, banquet hall, conference hall, bar, and health club, qualifies for the specific exclusion provided under Section 65(105)(zzzz) of the Finance Act, 1994.
The Tribunal noted that the term ‘hotel’ is not defined in the Finance Act, 1994, and in trade parlance, a hotel providing such additional facilities is recognized as a ‘Full-Service Hotel’. It observed that these facilities are not standalone but are integral and incidental to the primary activity of running a hotel, intended to cater to the needs of hotel guests and enhance the hotel’s commercial viability.
Further, the Tribunal found that the existence of these facilities does not lead to a bifurcation of the premises’ use or support an inference that the property is partly used for independent commercial activities; they remain a part of the hotel.
Briefly, the appellant, R. Rajinikanth, owns a multi-storey building that was leased to M/s. Vasantha Bhavan Hotels India Pvt Ltd. to be run as a hotel. The tax authorities alleged that the appellant had not paid service tax for this commercial use, which they contended was taxable under ‘Renting of Immovable Property Service for furtherance of business or commerce’ as per Section 65(105)(zzzz) of the Finance Act, 1994. Consequently, a Show Cause Notice and a Statement of Demand were issued for the period from June 2007 to June 2012, demanding a total service tax of Rs. 56.84 Lakh along with interest and penalties.
The original adjudicating authority confirmed the demand, which was largely upheld by the Commissioner (Appeals), leading to the present appeals before the CESTAT. The appellant argued that the transaction was specifically excluded from service tax as it constituted the renting of an immovable property for use as a hotel. Opposing the same, the respondent contended that since the premises were used not only for accommodation but also for other commercial activities like a restaurant, banquet hall, and bar, Explanation 2 to Section 65(105)(zzzz) was applicable, making the entire property deemed to be used for business or commerce and thus taxable.
Appearances:
Advocate T.T. Ravichandran, for the Appellant/ Taxpayer
AR, O.M. Reena, for the Respondent/ Revenue
