Tribunal Rules in Favor of Hotel Property Lease Exclusion under Finance Act, 1994
In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Chennai has exempted the renting of immovable property used as a hotel from service tax under the Finance Act, 1994. The judgment, dated March 4, 2026, was delivered by a bench comprising Member (Technical) M. Ajit Kumar and Member (Judicial) Shri Ajayan T.V.
The appellant, R. Rajinikanth, had leased a multi-storey building to M/s. Vasantha Bhavan Hotels India Pvt. Ltd. for use as a hotel. The Commissioner of GST and Central Excise had previously demanded service tax on the grounds that the property was used for commercial purposes, including facilities such as restaurants and banquet halls. This led to a legal dispute over whether such leasing falls under the taxable service category of "Renting of Immovable Property" under Section 65(105)(zzzz) of the Finance Act, 1994.
The Tribunal, however, concluded that renting properties for hotel use, which include additional facilities like restaurants and conference halls, fall under a specific exclusion in the Act. The bench emphasized that these facilities are integral to hotel operations and enhance the commercial viability of the hotel without bifurcating the property's use.
CESTAT's decision referenced previous judgments, including those in the cases of Grand Royale Enterprises Ltd. and Jai Mahal Hotels Pvt. Limited, which were upheld by the Supreme Court. These rulings affirmed that properties leased for hotel purposes are not subject to service tax, aligning with the exclusionary provisions under the Finance Act.
The ruling is expected to provide significant relief to the hospitality industry, ensuring that properties leased for hotels are not burdened by service tax, provided they meet the criteria outlined in the Act.
Bottom Line:
Renting of immovable property for use as a hotel, including facilities such as restaurants, banquet halls, conference halls, bars, and health clubs, is specifically excluded from service tax under Section 65(105)(zzzz) of the Finance Act, 1994.
Statutory provision(s):
- Finance Act, 1994, Section 65(105)(zzzz)
- Finance Act, 1994, Section 65(90a)
