The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand of over ₹56 lakh raised against actor Rajinikanth for leasing a property to a hotel operator [R Rajinikanth Vs Commissioner GST & Central Excise].
A Bench of Member (Technical) M Ajit Kumar and Member (Judicial) Ajayan TB held that buildings used as hotels are excluded from service tax under the Finance Act, 1994.
Hence, it allowed the appeals filed by Rajinikanth and ruled that renting a building for use as a hotel does not attract service tax under the “renting of immovable property service” category when the premises are used for hotel accommodation.
The dispute arose after the tax department alleged that Rajinikanth had leased a multi-storey building in Chennai to Vasantha Bhavan Hotels India for running a hotel and had failed to pay service tax on the rental income.
Authorities issued a show cause notice demanding ₹46.81 lakh for the period June 2007 to December 2011 and ₹10.02 lakh for January to June 2012, along with interest and penalties under the Finance Act, 1994.
After adjudication, the Commissioner (Appeals) confirmed the service tax demand and imposed penalties under Section 78 of the Act, though the penalty under Section 77 was set aside.
Rajinikanth then approached CESTAT challenging the order.
His counsel argued that the lease was executed for the purpose of running a hotel and therefore, fell within the statutory exclusion provided under Section 65(105)(zzzz) of the Finance Act, 1994.
The provision excludes buildings used for accommodation such as hotels, hostels and boarding houses from the scope of taxable “renting of immovable property service”.
The Tax Department contended that the premises were not used solely for hotel accommodation. It pointed out that the property also housed facilities such as a restaurant, banquet hall, conference hall, bar and health club, which according to the department amounted to commercial use of the property.
Based on this, the department argued that the premises were partly used for commercial activities and therefore, fell within the ambit of taxable renting of immovable property.
The CESTAT rejected the department’s interpretation and held that such facilities are integral to the functioning of modern hotels.
It observed that hotels often provide additional amenities such as restaurants, banquet halls, bars and health clubs, which are intended to serve hotel guests and enhance the viability of the hotel business.
“These facilities like restaurant, banquet hall, conference hall, bar and health club etc., are not stand alone but are integral and incidental to the activity of running a hotel and are intended to cater to the needs of hotel guests,” the Tribunal noted.
It further held that the presence of these facilities does not mean that the property is being used partly for independent commercial purposes. Instead, they remain part of the overall hotel operation.
Accordingly, the CESTAT held that the premises continued to qualify as a building used by a hotel and fell within the specific exclusion from service tax provided under Section 65(105)(zzzz) of the Finance Act.
“The premises continue to qualify as a building used by a hotel, squarely falling within the specific exclusion provided under Section 65(105)(zzzz),” the Bench held.
Holding that the tax authorities had wrongly applied the provisions relating to renting of immovable property for business or commerce, the Tribunal concluded that the orders confirming the demand were unsustainable.
Hence, it set aside the service tax demand against Rajnikanth.
Rajinikanth was represented by advocate TT Ravichandran.
The Tax Department was represented by OM Reena (Authorised Representative)
[Read Judgment]