Actor Rajinikanth Gets Relief As CESTAT Chennai Sets Aside ₹56.84 Lakh Service Tax Demand On Hotel Lease

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) at Chennai on Wednesday set aside a service tax demand of about Rs 56.84 lakh against veteran Tamil actor Rajinikanth, holding that renting a building for use as a hotel is excluded from service tax under the Finance Act even if the premises contain facilities such as a restaurant, banquet hall, conference hall, bar, and health club.

A bench of Judicial Member Ajayan T.V. and Technical Member M. Ajit Kumar observed, "Their presence enhances the commercial viability of the hotel, commensurate with its category or class. While such facilities may, in certain cases, be operated by entities other than the principal lessee, they continue to function predominantly for the benefit and use of hotel guests. Importantly, the existence of the impugned facilities has not been shown to results in a bifurcation of the use of the premises nor supports the inference that the property is partly deployed for independent or distinct commercial activities. They are hence a part of the hotel."

The tribunal was hearing appeals filed by the actor against an order of the Commissioner of Service Tax (Appeals), Chennai, which had upheld a service tax demand on rent received from a multistory building owned by him in Kodambakkam, Chennai. 

The building had been leased to Vasantha Bhavan Hotels India Pvt. Ltd. for running a hotel. The department alleged that the actor had not paid service tax on the rent under the category of renting of immovable property service for the period between June 2007 and June 2012 despite the property being put to commercial use. Authorities issued a notice seeking about Rs 56.84 lakh in tax along with interest and penalties.

Counsel for the veteran actor argued that the transaction was excluded from service tax because the building had been leased for use as a hotel.

The counsel submitted that the Finance Act, 1994, excludes buildings used for accommodation, including hotels, from the scope of taxable renting of immovable property. It was argued that the authorities wrongly relied on Explanation 2 to treat the premises as commercial property.

The department argued that the premises were not used solely for accommodation. It pointed out that the hotel also had facilities such as a restaurant, banquet hall, conference hall, bar, and health club. According to the department, a property partly used for business or commerce must be treated as property used in the course of business and therefore taxable.

Rejecting the department's interpretation, the tribunal held that such facilities are integral to the operation of a hotel and do not amount to independent commercial use.

The bench held, “The premises continue to qualify as a building used by a hotel, squarely falling within the specific exclusion provided under Section 65(105)(zzzz) of the Finance Act, 1994.”

The tribunal therefore set aside the tax demand and held that the appellant was entitled to consequential relief in accordance with law

For Appellant: Advocate T.T. Ravichandran

For Respondent: O.M. Reena, Authorized Representative