The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal set aside a Rs 56 lakh service tax demand against actor Rajinikanth, ruling hotel buildings are exempt from service tax under the Finance Act, 1994 provisions.
CHENNAI: The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand exceeding Rs 56 lakh imposed on actor Rajinikanth for leasing a property to a hotel operator.
The Bench, comprising Member (Technical) M Ajit Kumar and Member (Judicial) Ajayan TB, determined that buildings utilized as hotels are exempt from service tax under the Finance Act, 1994.
Consequently, the Tribunal accepted the appeals submitted by Rajinikanth, ruling that renting a building intended for hotel use does not incur service tax under the “renting of immovable property service” category when the premises are designated for hotel accommodation.
The matter stemmed from allegations by the tax department that Rajinikanth leased a multi-storey building in Chennai to Vasantha Bhavan Hotels India for operating a hotel and failed to remit service tax on the rental earnings.
Authorities issued a show cause notice demanding Rs 46.81 lakh for the period from June 2007 to December 2011 and Rs 10.02 lakh for January to June 2012, along with interest and penalties under the Finance Act, 1994.
Post-adjudication, the Commissioner (Appeals) upheld the service tax demand and applied penalties under Section 78 of the Act, while dismissing the penalty under Section 77.
Rajinikanth subsequently appealed to CESTAT, contesting the order.
His counsel argued that the lease was specifically executed for hotel operation and thus fell under the statutory exemption outlined in Section 65(105)(zzzz) of the Finance Act, 1994.
This provision excludes buildings used for accommodation, including hotels, hostels, and boarding houses, from the taxable category of “renting of immovable property service.”
The Tax Department countered that the premises were not exclusively used for hotel accommodation, pointing out that the property also contained facilities such as a restaurant, banquet hall, conference hall, bar, and health club, which the department contended constituted commercial use.
Based on this reasoning, the department claimed that the premises were partially used for commercial activities, thereby rendering them subject to taxable renting of immovable property.
CESTAT dismissed the department’s interpretation, asserting that such amenities are essential to the operation of modern hotels.
The Tribunal noted that hotels typically offer additional services like restaurants, banquet halls, bars, and health clubs, aimed at enhancing the experience of hotel guests and supporting the hotel’s business viability.
The Tribunal remarked,
“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,”
Furthermore, it determined that the presence of these facilities does not imply that the property is being utilized partially for independent commercial purposes, but rather that they remain a part of the overall hotel operation.
As a result, the CESTAT concluded that the premises continued to qualify as a building used by a hotel, falling within the specific exemption from service tax provided under Section 65(105)(zzzz) of the Finance Act.
The Bench stated,
“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 Tribunal found that the tax authorities had incorrectly applied the provisions relating to the renting of immovable property for business or commerce, leading to the conclusion that the orders confirming the demand were untenable.
Thus, the CESTAT set aside the service tax demand against Rajinikanth.
Rajinikanth was represented by advocate TT Ravichandran, while the Tax Department was represented by OM Reena (Authorised Representative).
Case Title: R Rajinikanth Vs Commissioner GST & Central Excise
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