The facts of the case are that Green Royale Enterprises Ltd., the appellants herein, are engaged in the business of running hotels. The business assets of Hotel Connemara, Madras, Westend Hotel, Bangalore and Savoy Hotel, Ooty owned by Spenser & Co. were transferred at book cost to M/s. Spencer International Hotels Ltd. (SIHL) vide an agreement dt. 28.06.1978. which also granted long term lease of the land of the said three hotels to the latter. In a subsequent agreement dt. 20.03.1984, SHIL granted licence to M/s International Hotels Company Limited (IHCL) to run, conduct and operate the above three hotels along with related facilities and business appertaining thereto for 25 years. M/s. IHCL deposited with “SIHL” a sum of Rs. 5 crores as interest free deposit of which the latter would refund an amount of Rs. 2.50 crores at the end of 15 years and the balance would be refunded on the expiry of the agreement. As per para 4.1 of the agreement a consideration agreed was asunder:

“a. The license fee equivalent to 15% of the Annual Sales from the operation of the said three hotels till such time SIHL return half of the security deposit i.e. 2.5 Crores.

b. The license fee equivalent to 20% of the Annual Sales from the operations of the said three hotels from the date on which SIHL return half of the security deposit i.e. 2.5 Crores.

Provided, however, that IHCL shall pay to SIHL a minimum license fee of Rs. 120 Lakhs per annum for the initial period of three year and a minimum license fee of Rs. 150 Lakhs per annum from the fourth year onwards”.

Subsequently, Hotel Connemara undertaking was transferred to the appellant by way of de-merger scheme approved by the Hon'ble Madras High Court vide order dt. 27.02.2009. In consequence, the IHCL started paying license fee in respect of Connemara Hotel undertaking to appellant from 2009-10 onwards under the same conditions. As the “license fee” received by the appellant was based on a certain percentage of the income from operations of the hotel business, it appeared to the department that appellant has rented out the immovable property for conducting hotel and other related business for furtherance of business or commerce against license fee, hence the appellants are liable for payment of service tax under “Renting of Immovable Property Service” w.e.f. 01.06.2007. Accordingly, proceedings were initiated by issue of a SCN dt. 17.03.2014 wherein inter alia, service tax liability of Rs. 3,21,94,224/- under the category of Renting of Immovable Property Service for the period 2009-10, 2011-12 and 2012-13 was proposed to be demanded with interest thereon. SCN also proposed imposition of penalties under Section 76, 77 & 78 of the Finance Act, 1994. In adjudication, the Commissioner vide impugned order dt. 09.03.2015 confirmed demand of Rs. 2,51,85,330/- with interest thereon, imposed equal penalty under Section 78 ibid and also imposed penalty under Section 77(1) and 77(2) ibid. Aggrieved the appellants are before this forum.

2. Today when the matter came up for hearing, on behalf of the appellant, Shri Sachin Chitnis, Ld. Advocate made oral and written submissions which can be broadly summarized as under:—

i) In the definition of “Renting of Immovable Property Services” under Section 65(105)(zzz) of the Finance Act, 1994, immovable property buildings used for the purpose of accommodation including hotels are not included within the scope of the definition. Hence license fees received by the appellant from IHCL is not chargeable to service tax under the head “Renting of Immovable Property Service”

ii) The main object of agreement between the appellant and IHCL is to assign entire business of the hotel to IHCL and not for renting of immovable property. The license fees is received by the appellant as a percentage of net sales. Hence transaction between the appellant and the IHCL is of sharing of business profit and not merely renting of immovable property.

iii) Permitting the usage of hotel property and giving the hotel property for running the hotel is incidental to the assigning of running the entire hotel business and by applying the predominance test, it is the assigning of the entire hotel business for conducting which is the predominant activity. Permitting usage of property is merely incidental, which cannot be taxed separately based on the ratio of following judgments:

(i) Dr. Lal Path Lab., 2006 (4) STR 527 (T) upheld by P & H — HC, 2007 (8) STR 337 (P & H)

(ii) B.E. Gelb Consultancy, 2009 (14) STR 241 (T)

(iii) N. Rajashekar& Co., 2008 (12) STR 760 (T)

(iv) Jai Mahal Hotels Pvt. Ltd., 2014 (36) STR 669 (T)

(v) Ambience Constructions India Ltd., 2013 (31) STR 343 (T)

(vi) Paradise Mehak Properties Pvt. Ltd., 2013 (32) STR 236 (T)

(vii) Orient Express Co. Ltd. — Stay Order No. ST/SO/55044/2013-CU[DB] dt. 28.12.2012 passed by CESTAT-Delhi

(viii) Paradise Mehak Properties, 2014-TIOL-2156-CESTAT-Del.

iv) The issue has been settled by the Tribunal in the following cases:

S/Nos. Case Laws 01 Ambience Constructions, 2013 (31) STR 343 (T) 02 Jai Mahal Hotels, 2014 (36) STR 669 (T) 03 Paradise Mehak, 2014-TIOL-2156-CESTAT-DEL 04 The Lake Palace Hotel, 2016-TIOL-2140-CESTAT-DEL 05 Orient Express Co. Ltd., 2016-TIOL-3227-CESTAT-DEL 06 Ex Maharani Mahendra, 2017-TIOL-2072-CESTAT-DEL

The ratio of the above cases are squarely applicable to the present case, as licensee in all the above cases (except in Ambience Constructions (supra) is IHCL and the license agreement in all these cases are worded similarly.

v) As an alternative plea, the proceedings per se are hit by limitation. In response to a letter dt. 09.11.2005 issued by the Superintendent, SIV Chennai, the erstwhile owners SHIL vide their letter dt. 15.12.2005 had given the information sought and also attached balance sheets for the years 2003-04 and 2005-06. Vide a further letter dt. 26.06.2006, the Superintendent (SIV), Chennai requested for copies of the license agreement dated 20.3.1984 entered into between SHIL and IHCL, details of license fee received from IHCL during the years 2003-04, 2004-05 and 2005-06, details of service charges received for the same period and details of payment made to holding company namely Spencer & Co. All these required details were submitted by letter of SHIL dt. 26.06.2006. Although all the information had been submitted, the SCN was issued only on 17.03.2014 for the period 2009-10 to 2012-13. Based on the same agreement dt. 27.06.1984 between SHIL and IHCL and subsequent agreement dt. 18/2010 entered into between SHIL and the appellant hence the entire proceedings are hit by limitation.

vi) The present case involves interpretation of provisions and further appellant had provided all the details sought for by the department. In the circumstances, the imposition of penalties cannot be sustained.

3. On the other hand, Ld. A.R. Shri B. Balamurugan supports the impugned order. He also made the following submissions:

i) As far as exclusion from the definition of immovable property for the purpose of Section 65(105)(zzz) is concerned, only such property exclusively used for the purpose of residential accommodation is alone excluded and where renting of immovable property being single composite contract involving part of property for use in business or commerce and part of it for residential/accommodation purposes, the entire property under the contrary is treated as property for use in commerce or business and will not be excluded from service tax liability as per CBEC letter dt. 28.02.2007. In the instant case, the property includes guest rooms, conference halls, dining rooms, barbeque, ball room, restaurant etc. which are used for commerce or business purposes. Hence the impugned activity is very much renting of immovable property and will attract service tax liability.

ii) The license fees which is paid as a percentage of operating income is only for the purpose of property of the appellant to run the business of hotels in the said properties. Appellants apart from letting out property to use by IHCL do not have any say in the day to day running of the business.

iii) The activity of the appellant is akin to that of a normal activity of renting since they are guaranteed a fixed minimum amount; do not have a say in the day to day running of the business and are not responsible for any loss incurred by the ICFL in their operation. Hence there is service provider and recipient relationship between the appellant and the IHCL.

4. Heard both sides and have gone through the facts of the case.

5.1 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. What is immovable property is defined in Section 65(105)(zzz) ibid is as under:

“Explanation 1. — For the purposes of this sub-clause, “immovable property” includes—

(i) Building and part of a building, and the land appurtenant thereto;

(ii) Land incidental to the use of such building or part of a building;

(iii) The common or shared areas and facilities relating thereto; and

(iv) In case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate,

(v) Vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce;

But does not include—

(a) Vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;

(b) Vacant land, whether or not having facilities clearly incidental to the use of such vacant land;

(c) Land used for educational, sports, circus, entertainment and parking purposes; and

(d) Building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

Explanation 2 — For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce”.

5.2 From an analysis of the above definitions, in our opinion, to fall within the taxable entry of “renting of immovable property”, the immovable rented out should be the genre exemplified in Explanation 1 reproduced supra. 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. On the other hand, the consideration for license to run, conduct and operate the hotel is a “license fee” equivalent to 15%/20% of the annual sales from the operation of the hotels. This being so, 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. The license fees are accruing to the appellants therefore have an umbilical card relation with the turnover and profits of the hotel business under IHCL. In our view therefore, the transaction between the appellant and IHCL is definitely not one of “renting of immovable property” but a business transaction between the two, where the consideration is not like a regular rent but is dependent on the annual performance and profits of the hotel.

5.3 We find that the same view has been reiterated in a number of Tribunal's decisions cited by the Ld. Advocate (supra).

5.4 In Jai Mahal Hotels Pvt. Ltd. (supra), in a Bench presided over by the then President of CESTAT, in a case where the appellant had similarly leased its hotel to IHCL, the Tribunal held as under:

“9. In our considered view the above interpretation adopted by the Authorities below is fundamentally flawed. The taxable service falling within the scope of Section 65(90a) and enumerated to be a taxable service under Section 65(105)(zzzz) is the renting of immovable property. A reading of clause (90a) and clause (zzzz) would indicate that a complex drafting methodology is adopted. Even in clause (90a) there are inclusionary and exclusionary clauses. Under this provision renting of immovable property or similar arrangement for use in course of or furtherance of business or commerce but excluding renting of immovable property by a religious body or to a religions body; renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre, are excluded. The Explanation under clause (90a) further defines the expression for use in the course or business or commerce and also incorporate a clarificatory clause for removal of doubts, not necessary for the purposes of these appeals. Similarly, in clause (zzzz) there are inclusionary or exclusionary clauses embedded.

10. On a true and fair construction of provisions of the exclusionary clause under Explanation 1 to Section 65(105)(zzzz); and in particular sub-clause (d) thereof, we are compelled to the conclusion that renting of buildings used for the purpose of accommodation including hotels, meaning thereby renting of a building for a hotel, is covered by the exclusionary clause and does not amount to an “immovable property”, falling within the ambit of the taxable service in issue.

11. This Tribunal in Ambience Construction India Ltd. v. Commr. of S.T., Hyderabad, 2013 (31) S.T.R. 343 (Tri.-Bang.), having considered the identical provision categorically ruled that renting of immovable proper for a hotel is expressly excluded from the ambit of the taxable service in Section 65(105)(zzzz). We are in respectful agreement with the said judgment passed by a learned single Member of this Tribunal.

12. It also requires to be noticed that in respect of the same appellant as herein, the appellate Authority, namely the Commissioner (Appeals), Central Excise and Customs, Jaipur-I vide the order dated 19-12-2013 in Order-in-Appeal No. 222/BC/ST/JPR-I/2013 has recorded a diametrically contrary conclusion, that the legislative intent of sub-clause (d) of Explanation 1 under Section 65(105)(zzzz) is not to tax immovable property used for accommodation which includes hotels; the legislative intent is clear, namely not to tax immovable property used for hotels; and that the definition of renting of immovable property excludes buildings used for the purpose of hotels.

13. Since we have concluded that the transaction in issue falls wholly outside the ambit of the taxable service, is not necessary to deal with the other contention urged on behalf of the appellant to impeach the impugned order namely, that since the appellant had entered into a joint venture with M/s. Indian Hotels Company Limited there is no relationship of a service provider and a service recipient, that is susceptible to the levy of service tax, qua the agreements between the parties”.

5.5 The Jai Mahal Hotels decision (supra) was followed by the Tribunal in Paradise Mehak Properties Pvt. Ltd. v. CCE & ST Jaipur-I (supra) where also the hotels had been licensed by the appellant therein to IHCL.

5.6 In Orient Express Co. Ltd. (supra), where the hotel was licensed by the appellant therein to IHCL for running, conducting and operating, under a similar agreement, the Tribunal found that there is no dispute on the fact that the entire property/space is used as hotel only and hence relying on jai Mahal Hotels decision (supra). The Tribunal held that Revenue's stand that service tax is liable for renting of subject property is not correct and is untenable in law.

5.7 Even in the recent decision in the case of Ex Maharani Mahendra Kumari v. CCE & ST Jaipur (supra) 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”. The relevant portion of the decision is as under:

“6. The appellants claimed exclusion under the category of buildings used for the purpose of accommodation including hotels. Admittedly, the building and the land as appurtenant thereto are used for the purpose of running the hotel. The term “hotel” is not defined in the Finance Act, 1994. As generally understood, a hotel is for temporary accommodation of people paying for their rooms and meal. Many hotels will have various other incidental facilities relating to entertainment, personal care, etc. The presence of these facilities does not exclude the building from the category of “hotel”.

5.8 We also note 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.

6. In view of the discussions and findings herein above and also following the ratio of the cases laws referred to supra, we find in favour of the appellant on merits as well as on limitation. In these circumstances, the impugned order cannot then sustain, and will have to be set aside, which we hereby do. Appeal is allowed with consequential relief, if any, as per law.