Hotel Property Lease Exempt from ‘Renting of Immovable Property’: CESTAT Sets Aside Service Tax of ₹9.63L [Read Order]

The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) allowed the appeal of Valvan Village Resorts, quashing the service tax demand of ₹9,63,562 along with interest and penalty, that had been confirmed under “Renting of Immovable Property Service.”

The appellant, Valvan Village Resorts, engaged in the hotel business at Lonavala with its corporate office in Mumbai, faced two notices that are show cause and demand notices dated 15.10.2012 and 25.03.2013. These notices covered the periods April 2011 to March 2012 and April 2012 to July 2012, alleging liability of ₹6,87,098 and ₹2,76,464 respectively, totaling ₹9,63,562.

The demand was raised for “renting of immovable property service” and confirmed by the adjudication authority.

The Tribunal heard submissions from both sides and examined the statutory framework. Referring to Section 65(105)(zzzz) of the Finance Act, 1994, the Bench observed that the definition of “Renting of Immovable Property Service” includes buildings rented for business or commerce but explicitly excludes “buildings used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.”

The show-cause notice, Order-in-Original, and Order-in-Appeal prove that the appellant was engaged in hotel business. Accordingly, the Tribunal held that the property fell within the exclusion clause of Section 65(105)(zzzz).

The Bench comprising Dr. Suvendu Kumar Pati (Judicial Member) and Anil G. Shakkarwar (Technical Member) emphasized that the provision, introduced retrospectively from 01.06.2007, always retained this exclusion. Therefore, the demand raised under “renting of immovable property services,” despite the property being used for hotel accommodation, was “not in conformity to the Finance Act as well as Article 265 of the Constitution of India.”

The Tribunal also noted that while the service might have been considered under “hotel accommodation service” as defined in Section 65(105)(zzzzw) of the Finance Act, 1994, that provision only applied where accommodation was provided for a continuous period of less than three months. Since the conducting agreement contained no such stipulation and no demand was raised under that category, the classification was irrelevant to the case.

The Tribunal ruled that the demand confirmed against the appellant under “Renting of Immovable Property Service” was unsustainable in law and on the facts.

Accordingly, the appeal was allowed.

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