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2018 (10) TMI 656 - AT - Service TaxRenting of Immovable Property Services or not - assignment of entire business of the hotel to IHCL - scope of definition - immovable property buildings used for the purpose of accommodation including hotels, whether comes within the scope of Renting of immovable property or not? - Nature of receipt of License fee. Held that - The renting of immovable property as defined in Section 65 (90a) of the Finance Act includes renting, letting leasing, licensing or similar arrangements of immovable property. In the present case, however, the agreement between the appellant and IHCL is not merely for renting of the hotel or land appurtenant thereto etc., but is license to run, conduct and operate Connemara hotel together with all the related facilities and business appertaining thereto . It appears to reason that not just the immovable property portion of the hotel, but also, the employees and other staff, goodwill and other paraphernalia are also taken into consideration by the two parties involved while framing the license agreement. It is also relevant to note that there is no fixed rent that is payable as would be expected in a normal renting of immovable property transaction - the license fee that would accrue to the appellant is only a percentage of the turnover. Since the turnover is never static but is dynamic and will go up or down in every succeeding year, the lease license fees would also wax or wane in resonance. In the recent decision in the case of Ex Maharani Mahendra Kumari Vs CCE ST Jaipur 2017 (4) TMI 1136 - CESTAT NEW DELHI presided over by the then president of CESTAT, the Tribunal further ruled that presence of other incidental facilities related to entertainment, personal care etc. does not exclude the building from the category of hotel . Time limitation - Held that - Verifications had been initiated with SIHL as far back as on 09.11.2005. However in spite of SIHL having given all the necessary clarification through their letters dt. 15.12.2005 and 26.06.2006, including copies of the agreement concerned, the department did not issue the SCN till 17.03.2014. Hence the proceedings are clearly hit by limitation. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Applicability of service tax on license fees under "Renting of Immovable Property Service." 2. Interpretation of the agreement between the appellant and IHCL. 3. Limitation period for issuing the Show Cause Notice (SCN). 4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994. Detailed Analysis: 1. Applicability of Service Tax on License Fees: The primary issue was whether the license fees received by the appellant from IHCL for operating the hotels fell under the category of "Renting of Immovable Property Service" as defined in Section 65 (105) (zzz) of the Finance Act, 1994. The appellant argued that the definition excludes immovable properties used for accommodation, including hotels. The Tribunal agreed, stating, “the transaction between the appellant and IHCL is definitely not one of ‘renting of immovable property’ but a business transaction where the consideration is dependent on the annual performance and profits of the hotel.” 2. Interpretation of the Agreement: The appellant contended that the agreement was not merely for renting out the hotel properties but for assigning the entire business operation of the hotels to IHCL. The Tribunal noted that the agreement included running, conducting, and operating the hotels, which involved more than just renting the property. The consideration was a percentage of the annual sales, not a fixed rent, indicating a business arrangement rather than a simple rental agreement. The Tribunal emphasized, “the license fee that would accrue to the appellant is only a percentage of the turnover,” thus supporting the appellant’s interpretation. 3. Limitation Period for Issuing SCN: The appellant argued that the SCN issued on 17.03.2014 was time-barred as all relevant information had been provided to the department as early as 2005 and 2006. The Tribunal found merit in this argument, noting that despite receiving all necessary details, the department delayed issuing the SCN. The Tribunal concluded, “the proceedings are clearly hit by limitation.” 4. Imposition of Penalties: Given the Tribunal’s findings on the primary issues, it was deemed unnecessary to impose penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The Tribunal stated that since the appellant had provided all required details and the case involved interpretation of provisions, the imposition of penalties could not be sustained. Conclusion: The Tribunal ruled in favor of the appellant on both merits and limitation. It held that the license fees received were not subject to service tax under "Renting of Immovable Property Service" and that the SCN was time-barred. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief as per law.
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