Services to Overseas Group Entities Qualify as Export; CESTAT Quashes Rs. 33 Crore Service Tax Demand on Marriott Hotels

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai has struck down major service tax demands raised against Marriott Hotels India Pvt. Ltd., its Director, and Area Vice President, holding that the services rendered by the Indian entity to its Hong Kong–based group company qualify as export of services and are not taxable in India. The bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) has observed that Marriott India provided services directly and contractually to Marriott Hong Kong, not to hotel owners in India. Foreign exchange payments received by the appellant were not disputed. CBIC Circular 141/10/2011-TRU supports the interpretation that benefit accruing outside India qualifies as export even if some activities occur in India. Following the Larger Bench ruling in Arcelor Mittal (2023), the place of the ultimate hotel customers is irrelevant; only the location of the service recipient matters. The appellant, Marriott Hotels India Pvt. Ltd., incorporated in 1993, operates as part of the global Marriott International group. Its Indian operations include providing hospitality-related support, brand-standard compliance, management functions, and regional business development services for Marriott-branded hotels. In 2012, the DGCEI (now DGGI) initiated investigations, conducted searches, and examined records, alleging that the Indian entity provided Business Auxiliary Services (BAS) and other taxable services to overseas affiliates. Remuneration received from Marriott Hong Kong constituted taxable services consumed in India. Salaries of certain hotel personnel should be added to taxable value. Reimbursements from foreign group entities were taxable. A show cause notice proposed various demands namely Rs. 24.56 crore – remuneration received from Marriott Hong Kong, Rs. 5.05 crore – salaries of key hotel personnel treated as part of value and Rs. 3.67 crore – foreign currency reimbursements Penalties were also proposed on the company and two senior executives. The Commissioner had confirmed the entire demand in November 2015. Marriott India argued that services provided to Marriott Hong Kong were business development, marketing, and operational oversight functions rendered entirely to an overseas entity, with foreign exchange earnings—fulfilling the Export of Services Rules, 2005. These were not services to Indian hotel owners, who had separate contractual arrangements with other Marriott global entities. The Commissioner incorrectly treated overseas entities and Indian hotel owners as the same beneficiaries. Marriott India argued that salaries of hotel personnel could not be included in the taxable value because employees were on the payroll of hotel owners, not Marriott India and employee remuneration is excluded from the definition of “service” under Section 65B(44). Reimbursement of expenses was merely cost allocation within the group, not consideration for services—supported by judicial precedents. The Department contended that Marriott India’s services ultimately supported hotel operations in India; hence they were consumed domestically. Agreements were “structured artificially” to avoid tax. Employee salaries and reimbursements formed part of the consideration. The extended period was rightly invoked on grounds of suppression. The Tribunal held, “It is abundantly clear that the services provided by the appellants to the overseas entities qualify as ‘export’… The conclusion of the Commissioner is unsustainable.” The bench salaries pertained to employees of hotel owners, not Marriott India. Such remuneration is not considered for services. Salaries are expressly excluded from the statutory definition of “service.” The Tribunal allowed all appeals, setting aside the entire service tax demand, interest, penalty on the company and penalties imposed on the Director and Area Vice President. It also allowed the Miscellaneous Application to update the respondent’s name following GST related jurisdictional changes. Case Details Case Title: Marriott Hotels India Private Limited Versus Principal Commissioner of CGST & Central Excise Case No.: Service Tax Appeal No. 85571 of 2016 Date: 03.12.2025 Counsel For Appellant: V. Sridharan Counsel For Respondent: Shashank Kumar Yadav Click Here To Read Order Read More: Supreme Court Affirms GST Exemption on Leasing of Residential Premises Used as Hostels

Services to Overseas Group Entities Qualify as Export; CESTAT Quashes Rs. 33 Crore Service Tax Demand on Marriott Hotels

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