Custom, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai: In an appeal filed against order passed by the Commissioner of Service Tax (Appeals — II) wherein demand of service tax under “Renting of Immovable Property Service for furtherance of business or commerce” under Section 65(105)(zzzz), Finance Act, 1994 (Finance Act) was upheld, the Division Bench of M. Ajit Kumar (Technical Member)* and Ajayan T.V. (Judicial Member) set aside the demand holding premises continued to qualify as a building used by a hotel, falling within the specific exclusion provided under Section 65(105)(zzzz), Finance Act.
Background
The appellant-R. Rajinikanth owner of multistorey building, had leased out it to Vasantha Bhavan Hotels India Pvt. Ltd. for rent as a hotel or used for the furtherance of business or commerce, but allegedly had not paid service tax for commercial use, even though the same was applicable under “Renting of Immovable Property Service for furtherance of business or commerce” under Section 65(105)(zzzz), Finance Act. Hence show-cause notice and statement of demand were issued for the period June 2007 to December 2011 and from January 2012 to June 2012 demanding an amount of Rs 46,81,870 and Rs 10,02,705 respectively along with interest and for imposing penalties. The Commissioner of Service Tax confirmed the levy of service tax along with appropriate interest but set aside the penalty imposed under Sections 77 and 78, Finance Act. Hence, the present appeal.
The appellant submitted that the dispute arose from the lease deed executed in favour of Vasantha Bhavan Hotels India Pvt. Ltd. for running a hotel. The transaction constituted renting of immovable property for use as a hotel, which was specifically excluded from service tax under Section 65(105)(zzzz), Finance Act. It was submitted that authority below erred in invoking Explanation II to Section 65(105)(zzzz), Finance Act as the said Explanation was not applicable to the facts of the present case. It was further submitted that the statutory exemption was available to buildings used by hotels.
Moot Point
Whether, the building leased out for use as a hotel with other facilities like a restaurant, banquet hall, conference hall, bar and health club, qualifies for the specific exclusion/exemption provided under Section 65(105)(zzzz), Finance Act in respect of buildings used as hotels?
Analysis, Law and Decision
The Tribunal observed that the term “Hotel” has not defined in the Finance Act. In the trade parlance, hotels providing additional facilities such as restaurants, banquet hall, conference hall, bar and health club are recognised as “Full-Service Hotel” – which is the opposite of a “Limited-Service Hotel” or a “Budget-Friendly Hotel”, with bare or limited facilities. Hence, the degree of services offered by a hotel varies depending upon its category or class. Facilities like, restaurant, banquet hall, conference hall, bar and health club etc., were not stand alone but were integral and incidental to the activity of running a hotel and were intended to cater to the needs of hotel guests.
The Tribunal further observed that in the present case the facilities had not shown to result in a bifurcation of the use of the premises nor support the inference that the property was partly deployed for independent or distinct commercial activities. The Tribunal thus held those services to be a part of the hotel. Accordingly, Explanation 2 to Section 65(105)(zzzz) was not attracted. It was held that the premises qualified as a building used by a hotel, squarely falling within the specific exclusion provided under Section 65(105)(zzzz), Finance Act.
The Tribunal relied on Grand Royale Enterprises Ltd. v. CST, 2018 SCC OnLine CESTAT 10999, where it was held that renting of a building for a hotel is covered by the exclusionary clause and does not fall within the ambit of taxable service.
The Tribunal held that the leased premises continued to qualify as a building used by a hotel and therefore fell squarely within the exclusion under Section 65(105)(zzzz), Finance Act.
Accordingly, the Tribunal held that the service tax demand was unsustainable and set aside the impugned orders. It was further held that the appellant wase entitled to consequential relief in accordance with law, including refund of the pre-deposit.
[R. Rajinikanth v. CCE & GST, Final Order No. 40317 & 40318 of 2026, decided on 4-3-2026]
*Order by M. Ajit Kumar, Technical Member
Advocates who appeared in this case:
For the Appellant(s): T.T. Ravichandran, Advocate
For Respondent(s): O.M. Reena, Authorised Representative