Service tax on hotel building rentals: excluded until June 2012, then 40% abatement applies under Section 65(105)(zzzz)

The CESTAT New Delhi ruled in favor of the appellant regarding service tax on renting immovable property. For the period up to June 2012, renting of hotel buildings was excluded from taxable services under Section 65(105)(zzzz) exclusionary clause. From July 2012 onwards, the service became taxable but appellant was entitled to 40% abatement under Notification 26/2012, making them liable for service tax on only 60% of rental value. The tribunal held that supply of tangible goods service was not applicable as complete control and possession were transferred. Penalties were set aside as the issue involved interpretation and transactions were properly recorded. Appeal allowed.

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Issues:
1. Liability for service tax under 'renting of hotels' and 'letting out of Plant/Machinery' under 'Supply of Tangible Goods'.
2. Applicability of abatement notification for service tax.
3. Liability for service tax on letting out of Plant/Machinery under 'supply of tangible goods'.
4. Imposition of penalty under Section 77 and 78.

Analysis:

Issue 1: Liability for service tax under 'renting of hotels' and 'letting out of Plant/Machinery' under 'Supply of Tangible Goods':
The appellant contested the demand of service tax under the categories of 'renting of hotels' and 'supply of tangible goods' for letting out a building to M/s. Mahindra Holidays and Resorts India Limited. The Adjudicating Authority confirmed the demand under 'renting of immovable property services' and 'supply of tangible goods services'. The Commissioner (Appeals) upheld this decision. However, the Tribunal referred to previous orders and concluded that renting of buildings for accommodation purposes, like hotels, falls under an exclusionary clause and does not amount to 'immovable property' for service tax purposes. Regarding the supply of tangible goods, it was determined that the appellant had transferred complete control and possession of goods, making them exempt from service tax under this category.

Issue 2: Applicability of abatement notification for service tax:
The appellant argued that they paid service tax on 60% of the value of the rental amount received for letting out the hotel building, as per Notification No.26/2012. The Tribunal found the appellant eligible for abatement to the extent of 40%, resulting in liability for service tax only on 60% of the value, and no further payments were required.

Issue 3: Liability for service tax on letting out of Plant/Machinery under 'supply of tangible goods':
The Tribunal analyzed the definition of 'supply of tangible goods' and relevant provisions to determine that the appellant, by giving complete control and possession of goods to M/s. Mahindra Holidays and Resorts India Limited, was not liable to pay service tax under this category.

Issue 4: Imposition of penalty under Section 77 and 78:
The Tribunal found that the issue was based on interpretation, and since the transactions were duly recorded in the books of accounts, no grounds for penalty imposition were established. Consequently, the impugned order was set aside, and the appeal was allowed.

This detailed analysis of the judgment showcases the Tribunal's thorough examination of the issues raised and the legal provisions involved, leading to a comprehensive decision in favor of the appellant.

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