The Chennai bench of  Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) held that the transaction between licensee and licensor does not fall under renting of immovable property and sets aside the Demand of Service Tax.

The said transaction was a business transaction between the two since the consideration was not like regular rent but depended on the annual performance and the profits generated. M/s. Peninsula Hotels (P) Limited, the appellant had agreed with M/s. GRT Hotels and Resorts Private Limited ( “GRT” ), by which GRT had obtained a lease of the premises in question, for providing ‘Outdoor Catering Services’ and ‘Mandap Keeper Services’. There was an amendment insofar as the Licence Fee payable was concerned and hence, the amendment was incorporated in the above said lease agreement on 01.08.2012, to highlight that the Licence Fee payable shall be inclusive of the Service Tax plus any other levy that may be imposed from time to time during the term of the licence.

The Revenue entertained a doubt that the Licence Fee paid, as above, was nothing but rent paid by the lessee towards renting of the premises and since a part of the hotel premises was used as Mandap, the entire Licence Fee received was liable to Service Tax under ‘renting of immovable property service’, which prompted the issuance of two Show Cause Notices both dated 15.02.2012 inter alia demanding Service Tax under the above head, apart from penalties under Sections, 76, 77 and 78 and appropriate interest under Section 75 of the Finance Act, 1994. It appeared that the appellant filed a reply denying any liability, much less under renting of immovable property service, but the adjudicating authority confirmed the proposals made in the Show Cause Notices and the demands therein. On appeal, the Commissioner ( Appeals ) rejected their appeals thereby upholding the demands in the Show Cause Notices. In the case of M/s. Grand Royale Enterprises Ltd. v. Commissioner of Service Tax, it was held that the transaction between the licencee and the licensor therein was not one of renting of immovable property but a business transaction between the two since the consideration was not like a regular rent but depended on the annual performance and the profits generated.

A two-member bench comprising  Mr P Dinesha, Member ( Judicial ) And Mr  K Anpazhakan, Member ( Technical ) observed that there is no change in the facts and circumstances of the case on hand and the one decided by the co-ordinate Bench for earlier periods ( supra ) and hence, the decision arrived at in the earlier order squarely covers the issue in the case on hand as well. The CESTAT held that the demands sustained under ‘renting of immovable property service’ against the appellant cannot be sustained and set aside the order. Ms. S. Akshaya, Advocate for the Appellant and Shri N. Satyanarayanan, Assistant Commissioner for the Respondent