Service Tax Payable on Free Room Nights & Food Discounts Received Under Hotel Lease Arrangement: CESTAT
Pranav B Prem
The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal has held that free room nights and food-and-beverage discounts provided by a hotel lessee to the lessor form part of the gross taxable value for the purpose of service tax. The decision came from the Bench of Dr. Rachna Gupta (Judicial Member), which examined whether such non-monetary benefits, received under a lease agreement, qualify as additional consideration.
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The case involved the appellant, owner of a hotel property in New Delhi, which had been leased out to Hotel Lemon Tree under a detailed lease agreement. During an audit of the appellant’s records for October 2016 to June 2017, the department found that apart from receiving monthly lease rent (based on turnover), the appellant was also entitled to non-monetary benefits. These included 75 free room nights per year for the family and friends of the appellant’s promoters and directors, and a 50% discount on food, beverages, laundry and other hotel services irrespective of whether such persons were staying in the hotel.
The department concluded that these non-monetary privileges amounted to additional consideration and should have been included in the assessable value for service tax. A show-cause notice was issued alleging non-payment of tax. The adjudicating authority confirmed the demand in part and dropped the portion relating to insurance expenses. The Commissioner (Appeals) upheld this order, leading to the present appeal.
Before the Tribunal, the appellant argued that the free nights and discounts were merely conveniences extended to enable periodic verification of the leased property, and not part of the consideration. They also disputed the valuation of the free nights, contending that only 44 complimentary nights had been used during the relevant period, not the higher number considered by the department. The appellant further argued that the extended limitation period was wrongly invoked, as their agreement dated 25 March 2008 had been consistently audited in the past without objection.
The Tribunal rejected these contentions. It examined Section 67 of the Finance Act, 1994, which governs valuation in cases where consideration is paid partly in money and partly in kind. Dr. Gupta noted that the agreement clearly conferred monetary and non-monetary benefits upon the appellant and therefore the consideration was not wholly in money. The value of the free room nights and food discounts was thus directly linked to the service of renting immovable property and had to be included in the taxable value. The Tribunal emphasised that the use of the term “such service” in Section 67 removes any ambiguity: when a benefit is received for the very service rendered, even if received in kind, its monetary equivalent must be taxed.
On the appellant’s argument of excessive valuation, the Tribunal held that no evidence had been placed on record to substantiate the alleged lower usage of complimentary nights. At the appellate stage, no fresh verification was permissible. Regarding limitation, the Tribunal found no merit in the challenge. Concluding that the free nights and discounted services constituted additional consideration over and above the lease rent, the Tribunal dismissed the appeal and upheld the service tax demand as confirmed by the lower authorities.
Appearance
Counsel for Appellant/ Assessee: Krishan Garg
Counsel for Respondent/ Department: Rohit Issar
Cause Title: M/s. Hotel President Planet v. Principal Commissioner of CGST & Central Excise, Indore
Case No: Service Tax Appeal No. 50157 of 2025
Coram: Dr. Rachna Gupta (Judicial Member)
