Free Nights & Food Discounts Offered To Lessor Under Hotel Lease Must Be Included In Gross Taxable Value: CESTAT

The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that service tax is payable on free room nights and food discounts received in kind under a lease agreement with a hotel. Dr. Rachna Gupta (Judicial Member) was examining whether the complementary nights extended by the lessee to the lessor, along with the respective food discount, are to be considered as part of the gross value/taxable value. In this case, the assessee/appellant owned a hotel property in New Delhi, which they leased to Hotel Lemon Tree under a lease agreement. It was observed from the said lease agreement that, in addition to the agreed contracted lease rent, the assessee had received various additional considerations as follows: As per the agreement lessor was entitled to use the privilege of stay during the term, use of 75 room nights per annum for family and friends of the promoters and directors of the lessor, free of all charges. One of the considerations was Food, liquor and beverages, laundry and other services and consumables, which were agreed at a 50% discount whether such person/s are staying in the hotel or not. The department opined that the cost of free room charges and discounts, and the insurance expenses should have been included in the gross value calculated for discharging the tax liability. A show-cause notice was issued to the assessee proposing the recovery of service tax. The adjudicating authority confirmed the demand made in the show cause notice. The Tribunal noted that vide one single agreement of renting/leasing of immovable property, the assessee, in addition to receiving the rent based on monthly turnover, i.e. the amount in money, has simultaneously agreed for getting certain room nights free of cost and discount on food and beverage services, i.e. in kind. It is clear that the consideration received by the assessee was not wholly in money but was also in kind, i.e. the value of free nights and discount on food and beverages, noted the bench. The Tribunal referred to Section 67 of the Finance Act, 1994 and observed that, as per clause (ii) of section 67(1), the value shall be such amount in money as charged either wholly in money or partly consisting of money or for something for which the amount is not ascertainable. But it should be received for providing 'such service' as is either agreed to be provided or is provided. The bench opined that if any other amount in money or otherwise is charged which is not paid in relation to taxable service provided or to be provided, the service tax will not be payable on such charge. The bench agreed with the adjudicating authority that the value of free nights and the discount on food and beverages availed by the assessee are liable to be included in the taxable gross value. The Tribunal further upheld that the privileges availed by the assessee's directors/promoters and their family and friends are clearly an additional consideration, over and above the amount of lease rent received time to time from the recipient of service. In view of the above, the Tribunal dismissed the appeal. Case Title: M/s. Hotel President Planet v. Principal Commissioner of CGST & Central Excise, Indore Case Number: Service Tax Appeal No. 50157 of 2025 Counsel for Appellant/ Assessee: Krishan Garg Counsel for Respondent/ Department: Rohit Issar Click Here To Read/Download The Order

Free Nights & Food Discounts Offered To Lessor Under Hotel Lease Must Be Included In Gross Taxable Value: CESTAT

Mehak Dhiman

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