Case Law Details

Case Name : The Lake Palace Hotel and Motels P Ltd. Vs Commissioner of Central Excise (CESTAT Delhi)
Appeal Number : Service Tax Appeal Nos. 60259/2013 & 51448 of 2014, Service Tax Stay Application No. 61180 of 2013
Date of Judgement/Order : 12/01/2016
Related Assessment Year :
Courts : All CESTAT (169) CESTAT Delhi (53)

CA Urvashi Porwal

Urvashi PorwalBrief of the Case

In the case of The  Lake Palace Hotel and Motels P Ltd. vs. Commissioner of Central Excise Jaipur, it was held that service tax is not payable on the notional interest accrued on the security deposit received on providing immovable property on rent.

Facts of the Case

The facts of the case are that the appellant is owner of  land and building which has been rented out by them to M/s. Indian Hotels Company Ltd. for renting the hotel and the said building  on  profit sharing basis.   The appellant also received the security deposit of Rs.20 crores.   Revenue is of the view that appellant  has leased out the building i.e. immovable property to M/s. Indian Hotels Company Ltd..   Therefore, they  qualify to pay service tax under the category of renting of immovable property service.  It was also proposed that as appellant has received a security deposit of Rs.20 crores, therefore, the notional interest on the security deposit, appellant is liable to pay the service tax.   In these set of facts,  a show cause notice was issued  to the appellant  for the period 2010-2011 and 2011-2012 to demand service tax as discussed above.   The matter was adjudicated, demand of service tax was confirmed along with interest and various penalties were imposed.  Aggrieved from the said order, appellant was before Tribunal.

Contentions of the Assessee

The appellant submits  that renting of immovable  property to Indian Hotel Company Ltd. is outside the ambit of taxable service under section 65 (105) (zzz)  of the Finance Act, 1994.    Therefore, the appellant  is not liable to pay service tax.  It was also submitted that in their own case for the earlier period as reported in [2014-TIOL-2156-CESTAT-DEL] this Tribunal held that appellants are not liable to pay service tax under the category of renting of immovable property service.  It was further submitted that they are not required to pay  service tax  and notional interest accrued on the security deposit as held by this Tribunal in the case of K Raheja Corp. Ltd vs CCE, Pune III – [2015-TIOL-100-CESTAT-MUM]. Therefore, impugned order is liable to be set aside.

Contentions of the Revenue

The Revenue submitted that at the time of leasing out the property to the Indian Hotel Company Ltd., it was only of immovable property and not a hotel.   Therefore, the appellant is liable to pay service tax under the category of renting of immovable property  service.

Held by Hon’ble CESTAT

As the issue has  already been settled in appellants own case for earlier period, that the appellant is not liable to pay service tax under the category of renting  of immovable property service as leasing out the property to Hotel under the deemed provision of section 65 (105)(zzz) of the Finance Act, 1994.  Therefore, it was held that appellant is  not liable to pay service tax under the renting of immovable property service.  It was further found that in the case of  K Raheja Corp. Pvt. Ltd. (supra), this Tribunal has held that notional interest on security deposit cannot  be added to  rent agreed upon between the parties and this Tribunal has observed as under:-

“5. Considering the submissions made by both sides, we find that this issue has been extensively considered by this Tribunal in the case of Magarpatta  Township Developers & Construction Co. (supra), wherein this Tribunal held that notional interest on security deposit cannot be added to rent agreed upon between the parties for the purpose of levy of service tax for renting of immovable property.   Therefore, we hold that the appellant is  not required to pay service tax on notional interest on security deposit under the category  of renting of immovable property service.”

Accordingly, it was held that appellant is not liable to pay service tax on the notional interest accrued on the security deposit.  In these terms, impugned order is set aside, appeal of the assessee is allowed with consequential relief , if any.

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