Renting of immovable property used as a hotel, including ancillary facilities like restaurants and banquet halls, is excluded from service tax under Section 65(105)(zzzz) of the Finance Act, 1994, as such facilities are integral to hotel operations and do not constitute separate commercial use.

Per M. Ajit Kumar,

These appeals are filed by the appellant against Order in Appeal No.27&28/2016 (STA–II) dt. 23.2.2016 passed by the Commissioner of Service Tax (Appeals – II), Chennai (impugned order).

Brief facts of the case are that the appellant owns a multistorey building and has leased out the same to M/s. Vasantha Bhavan Hotels India Pvt. Ltd. for rent as a hotel and was also used in the course of or for the furtherance of business or commerce, but allegedly had not paid service tax for commercial use, even though the same attracted service tax under ‘Renting of Immovable Property Service for furtherance of business or commerce’ under section 65(105)(zzzz) of the Finance Act, 1994. Hence Show Cause Notice and Statement of Demand were issued for the period June 2007 to December 2011 and from January 2012 to June 2012 demanding an amount of Rs.46,81,870/- and Rs.10,02,705/- respectively along with interest and for imposing penalties. After due process of law, the impugned order confirmed the service tax along with appropriate interest and imposed penalty under sections 77 and 78 of the Finance Act, 1994. The appeals preferred by the appellant was dismissed by the Ld. Commissioner (Appeals) except for setting aside penalty imposed under section 77 of the Act. Hence the present appeals.

The learned Advocate Shri T.T. Ravichandran appeared for the appellant and Ld. Authorized Representative Smt. O.M. Reena appeared for the respondent.

Shri T.T. Ravichandran the Ld. Counsel for the appellant submitted that the dispute arises from a lease deed executed in favour of M/s. Vasantha Bhavan Hotels India Pvt. Ltd. for running a hotel. The transaction constitutes renting of immovable property for use as a hotel, which is specifically excluded from service tax under Section 65(105)(zzzz) of the Finance Act, 1994. The Ld. Counsel submitted that the authorities below erred in invoking Explanation II to Section 65(105)(zzzz), as the said Explanation is not applicable to the facts of the present case. The appellant stated that the statutory exemption was available to buildings used by hotels and submits that the revenue’s interpretation unduly narrows the scope of the exemption, contrary to settled principles requiring a liberal construction of exemption provisions. In support, he placed reliance on decisions of the Hon’ble CESTAT, including JAI MAHAL HOTELS PVT. LIMITED Vs COMMISSIONER OF C. EX., JAIPUR [2014 (36) STR 669 (Tri. – Del.)], the order of the Delhi Bench in Orient Express Co , Final Order No. 54918/2016, dated 20.10.2016. the Chennai Bench decision in GRAND ROYALE ENTERPRISES LTD. Vs COMMISSIONER OF S.T., CHENNAI-I [2019 (31) G.S.T.L. 453 (Tri. - Chennai)], which according to him have settled the interpretation of Section 65(105)(zzzz) in favour of the assessee. He hence prayed that the order of the revenue is liable to be set aside along with refund of the predeposit made by the appellant wile filing the above appeal.

The Ld. A.R. Smt. O.M. Reena, stated that the contention of the assessee that the impugned service is excluded from taxability under clause (d) of the exclusion clauses to Section 65(105)(zzzz) of the Act is not acceptable. The said contention is based on an isolated reading of clause (d) and ignores the statutory mandate of Explanation 2 to Section 65(105)(zzzz) of the Act. Explanation 2 clearly provides that where an immovable property is used partly in the course of or for the furtherance of business or commerce and partly for residential or any other purpose, such property shall be deemed to be used in the course of or for the furtherance of business or commerce. In the present case, it is an admitted fact that the leased premises were not used solely for providing accommodation as a hotel. The premises were also used for various commercial activities such as running a restaurant, banquet hall, conference hall, bar and health club. Accordingly, by operation of Explanation 2, the propert