CESTAT: Appellant not liable for service tax on property rented to hotel; granted cum-tax benefit

The Appellate Tribunal CESTAT BANGALORE held that the appellant was not liable to pay service tax on the portion of the property rented out to a hotel, as it fell outside the scope of renting of immovable property service. The Tribunal granted the cum-tax benefit and found that the appellant had fulfilled their tax obligations with the amount already paid. Due to reasonable cause for non-payment during the relevant period, no penalty was imposed. The impugned order was set aside, and the matter was remanded for quantification of the demand and verification of payments made by the appellant.

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Issues: Liability to pay service tax on renting out immovable property for commercial purposes, applicability of penalty under Section 80 of Finance Act, 1994.

In this judgment by the Appellate Tribunal CESTAT BANGALORE, the appellant had rented out their property to various tenants, including one using a portion for running a hotel. The authorities initiated proceedings to demand service tax totaling to &8377; 7,11,232/- with interest for the period from June 2007 to January 2010, and imposed a penalty. The appellant contended that the portion rented out for the hotel should be excluded from service tax liability, and they had already paid an amount exceeding the tax due, which should cover the entire liability if cum-tax benefit is considered. They also argued that due to conflicting views on liability during the relevant period, there was a reasonable cause for non-payment of tax, invoking Section 80 of the Finance Act, 1994.

Upon review, the Tribunal found that the definition of renting of immovable property service excludes buildings used for accommodation, such as hotels. Since the portion rented to the hotel was excluded, the rent collected from that tenant should not be subject to service tax. The Tribunal agreed that the appellant was entitled to the cum-tax benefit, and if the amount already paid covered the tax due with interest, the appellant had fulfilled their obligation under the law. Considering the reasonable cause for non-payment of tax during the relevant period, the Tribunal held that no penalty was imposable, even under Section 80(2) of the Finance Act, 1994.

Consequently, the impugned order was set aside, and the matter was remanded to the original adjudication authority for quantification of the demand and verification of the amount paid by the appellant. The appeals were allowed by way of remand, ensuring a fair assessment of the tax liability and payments made by the appellant.

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