Service Tax Payable on Complimentary Room Nights and Food Discounts Given by Hotel - Lessee to Lessor of Building: CESTAT [Read Order]

The Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ), New Delhi bench, has upheld a service tax demand, finding that complimentary room nights and food discounts provided by a hotel lessee to the lessor of the building constitute additional non - monetary consideration forming part of the taxable value under the Finance Act, 1994.

The tribunal confirmed the findings of the lower authorities that such privileges received by the lessor were part of the overall rental consideration for the “Renting of Immovable Property Service.”

An audit of Hotel President Planet for the period from October 2016 to June 2017, which revealed that under a lease agreement dated March 25, 2008, the appellant had leased out its hotel property to Hotel Lemon Tree.

In addition to the contracted monthly lease rent based on turnover, the lessor (Hotel President Planet) was entitled to certain benefits, including 75 complimentary room nights per annum for family and friends of the lessor’s promoters and directors, and a 50% discount on food, beverages, laundry, and other consumables, whether availed during stay or otherwise.

The Department held that the value of these non-monetary benefits, the free stays and discounts ought to have been included in the gross value for service tax computation.

The Tribunal noted Section 67 of the Finance Act, 1994, which governs valuation of taxable services. The provision states that where the provision of service is for a consideration not wholly or partly consisting of money, such amount in money, with the addition of service tax charged, is equivalent to the consideration.

The section further defines ‘consideration’ to include any amount that is payable for the taxable service provided or to be provided and any reimbursable expenditure or cost incurred by the service provider and charged in the course of providing such service.

Applying this, the Tribunal noted that the lease agreement clearly provided both monetary and non-monetary consideration.

While the appellant received lease rent in money, it simultaneously received non-monetary benefits in kind specifically, free room nights and food discounts. Thus, the consideration for the service was “not wholly in money”, bringing it within the ambit of Section 67(1)(ii).

The CESTAT observed that the free stays and discounts were granted by virtue of the leasing arrangement and were not independent hospitality privileges, as they arose directly from the commercial agreement governing the property rental.

The Tribunal also dismissed the appellant’s plea regarding alleged over-calculation of the value of complimentary stays and discounts, noting that no documentary evidence had been produced to substantiate this claim. It held that reassessment of the value was not permissible at the appellate stage.

Consequently, Dr. Rachna Gupta (Judicial Member) confirmed the confirmation of service tax liability of ₹66,362 along with interest and upheld the imposition of penalty, while maintaining the earlier finding that insurance costs borne by the lessee were not taxable.

The appellate bench concluded that the complimentary room nights and discounts enjoyed by the lessor’s promoters, directors, and their families were clearly additional consideration over and above lease rent, forming part of the taxable value under “Renting of Immovable Property Service.”

The appeal was accordingly dismissed.