The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench while quashing the service tax demand against Rajinikanth held that leasing a building for the purpose of running a hotel does not attract service tax under the category of “renting of immovable property” when the premises are used as a hotel along with incidental facilities such as restaurants, banquet halls, or conference halls.
The bench of M. Ajit Kumar (Technical Member) and Ajayan T.V. (Judicial Member) examined the statutory provisions and noted that the term “hotel” is not defined under the Finance Act, 1994.
The bench observed that in trade parlance, hotels commonly provide additional facilities such as restaurants, banquet halls, bars, and conference halls, which are considered part of a full-service hotel. The facilities are incidental and integral to the operation of a hotel and are meant to cater to the needs of guests. Their presence enhances the commercial viability and category of the hotel but does not convert the property into a separate commercial establishment.
The ruling came in an appeal filed by R. Rajinikanth challenging an order of the Commissioner (Appeals) which had confirmed service tax demand on the rental income derived from leasing a multi-storey building to Vasantha Bhavan Hotels India Pvt. Ltd..
The appellant owned a multi-storey property in Chennai which had been leased to Vasantha Bhavan Hotels India Pvt. Ltd. for operating a hotel. The tax department alleged that the premises were rented for commercial use and therefore attracted service tax under the category of “Renting of Immovable Property Service” under Section 65(105)(zzzz) of the Finance Act, 1994.
Show cause notices were issued demanding service tax of ₹46.81 lakh for the period June 2007 to December 2011 and ₹10.02 lakh for the period January 2012 to June 2012, along with interest and penalties. The adjudicating authority confirmed the demand and imposed penalties under Sections 77 and 78 of the Finance Act, 1994. Although the Commissioner (Appeals) later set aside the penalty under Section 77, the tax demand and other penalties were largely upheld, prompting the present appeal before the tribunal.
The appellant contended that the property was leased for operating a hotel and therefore fell within the statutory exclusion provided under Section 65(105)(zzzz) of the Finance Act, 1994. According to the appellant, buildings used for accommodation such as hotels are specifically excluded from the scope of taxable “renting of immovable property” services.
It was argued that the authorities had wrongly invoked Explanation 2 to the provision, which deems a property partly used for business or commerce as commercial. The appellant maintained that the entire premises functioned as a hotel establishment and the additional facilities such as restaurants, banquet halls, conference halls, bars, and health clubs were integral components of hotel operations rather than independent commercial activities. The appellant also relied on earlier tribunal rulings including Jai Mahal Hotels Pvt. Ltd. and Grand Royale Enterprises Ltd. to support the claim that renting property for use as a hotel is not taxable.
The Revenue argued that the premises were not used solely for hotel accommodation. According to the department, several commercial facilities such as restaurants, banquet halls, conference halls, bars and health clubs were operated in the premises, indicating that the property was partly used for commercial activities.
Relying on Explanation 2 to Section 65(105)(zzzz), the department contended that when a property is partly used for business or commerce and partly for other purposes, it is deemed to be used for business purposes. Therefore, the renting of the property should be treated as a taxable service.
Importantly, the tribunal found that these facilities were not independent businesses operating separately from the hotel but were part of the hotel ecosystem. Therefore, their existence could not lead to a conclusion that the property was partly used for separate commercial purposes.
The tribunal also relied on its earlier decision in Grand Royale Enterprises Ltd., which followed the ruling in Jai Mahal Hotels Pvt. Ltd.. In those cases, it had been held that renting of buildings used for hotels falls within the exclusion clause under Section 65(105)(zzzz) and does not constitute taxable renting of immovable property service.
The tribunal noted that the decision in Jai Mahal Hotels Pvt. Ltd. had subsequently been affirmed by the Supreme Court, reinforcing the legal position that leasing property for hotel use is outside the scope of the taxable service.
In light of the statutory exclusion and binding judicial precedents, the tribunal held that the premises leased by the appellant continued to qualify as a building used for a hotel. As a result, the exclusion under Section 65(105)(zzzz) applied, and the demand of service tax could not be sustained.
The tribunal set aside the impugned orders and allowed the appeals, granting consequential relief to the appellant in accordance with law.
Case Details
Case Title: R. Rajinikanth Versus Commissioner of GST & Central Excise
Citation: JURISHOUR-225-CES-2026(CHEN)
Case No.: Service Tax Appeal No. 40776 & 40777 of 2016
Date: 04/03/3036
Counsel For Appellant: T.T. Ravichandran, Advocate
Counsel For Respondent: O.M. Reena, Authorised Representative
