Whether premises given to run the hotel business is leviable to service tax under “Renting of Immovable Property”?

PJ/Case Law/2014-15/2152

Case:- PARADISE MEHAK PROPERTIES PVT. LTD. VERSUS COMMR. OF C.EX., JAIPUR-I

Citation:- 2013(32) S.T.R. 236 (Tri.-Del.)

Brief Facts:-Service Tax of Rs. 19,50,612/- stands confirmed against the applicant for the period June, 2007 to June, 2008 on the ground that they have rendered the taxable service of renting of immovable property to Royal Orchid Banjara Pvt. Ltd. and as such are required to pay the Service Tax.

Appellant Contentions:-The appellant took a categorical stand before the lower authorities that in terms of definition of immovable property, the same does not include building used solely for residential purposes and building used for the purpose of accommodation including hotels, hostels, boarding houses, holidays accommodation, tents, camping facility etc. Accordingly, the premises given on rent to be used solely for the purposes of hotels cannot be made leviable to service tax.

Respondent Contention:-The counsel for the respondent reiterates the findings of the learned Commissioner (Appeals) who has observed as under:
"24 ...... .The appellant had contested that hotels are exempted from payment of tax under the said category, I find that the appellant has rented out/lease of the land along with the entire building, swimming pool and restaurant, bar, parking etc. with all the facilities as provided in the base building and the amenties and facilities under an agreement on monthly rental basis and a hotel is being run in the said building by M/s. Royal Orchid Banjara Pvt. Ltd. The said building is admittedly not for accommodation purpose of the lessee. The building provided by the appellant is being used by M/s. Royal Orchid Banjara Pvt. Ltd. to run the hotel business which is commercial in nature. The building premises provided by the appellant on rental basis, is not used as residence by the lessee himself. The exemption under the explanation 1(d) of the Section 65(105)(zzzz) of the Finance Act, 1994, is available to the hotels, hostels etc. who provides rooms on rent to their clients and not in respect of immovable property which is rented out to run the hotel business which is without any doubt a commercial activity and is not governed by the exclusion clause (d) of the Explanation-1 to Section 65(105)(zzzz) of the Act."

Reasoning of Judgment:-We have considered the submissions from both sides and perused the record. In this regard, we find that Commissioner held in above para that the exemption is available to the hotels, hostels etc. who provides rooms on rent to their clients and not in respect of immovable property (building) which is rented out by a person to another person to run the hotel business, therefore, the argument advanced by the appellant has no force.

We do not find any force in the above reasoning adopted by the Commissioner (Appeals). The Explanation-I to the entry is to the clear effect that for the purpose of said clause, immovable property does not include the following:
"(d) building used solely for residential purposes and buildings used for the purpose of accommodation including hotels, hostels, boarding houses, holiday accommodations, tents, camping facilities."

In view of the above, we are of the opinion that the appellant had good prima facie case in its favour so as to allow the stay petition unconditionally.

Decision:-Stay granted.

Comment:-The essence of this case is that immovable property which is rented out to run the hotel business is governed by the exclusion clause (d) of the Explanation-1 to Section 65(105)(zzzz) given with respect of renting of immovable property. Hence, the stay application was allowed.

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PJ/Case Law/2014-15/2152

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