CESTAT Chennai Allows Seven Appeals by Adayar Gate Hotel: Vague Show Cause Notices, TDS Valuation & CENVAT Credit on Leased Premises

Overview of the Dispute

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, in a consolidated order pronounced on 17.04.2026, allowed seven interconnected appeals preferred by Adayar Gate Hotel Ltd. against the Commissioner of GST & Central Excise. The appeals arose from service tax proceedings spanning an extended period from April 2007 to June 2017, touching upon three principal issues: service tax liability under the reverse charge mechanism on payments made to foreign service providers, the inclusion of tax deducted at source (TDS) in the taxable value, and the denial of CENVAT credit on rent paid for business premises.

The Tribunal concluded that the show cause notices and statements of demand forming the foundation of the impugned orders were fundamentally defective and could not sustain the demands raised thereunder. All service tax demands, along with consequential interest and penalties, were accordingly set aside.

Background and Chronology of Proceedings

Registration and Audit

Adayar Gate Hotel Ltd. was a registered service provider engaged in rendering outdoor catering service, mandap keeper service, health club fitness service, dry cleaning service, internet services, and renting of immovable property services. During an audit conducted by officers of CERA, Chennai, it was noticed that the appellant had been receiving architectural and other allied services from foreign service providers. The Department formed the view that certain amounts — specifically TDS payments — had been excluded from the taxable value while computing service tax under the reverse charge mechanism, resulting in an alleged short payment.

Show Cause Notice No. 259/2010 dated 27.05.2011

The Department issued the first Show Cause Notice (SCN) covering architectural fees for the period 2008-2009 to 2009-2010. The notice demanded service tax, applicable interest, and proposed penalties under Section 76 and Section 78 of the Finance Act, 1994. The extended period of limitation under the proviso to Section 73(1) was invoked on the ground that the short payment would not have surfaced but for the CERA audit. The Adjudicating Authority vide Order-in-Original (OIO) No. 171/2012 dated 31.08.2012 confirmed the demand and imposed an equivalent penalty under Section 78. The Commissioner (Appeals) upheld this order vide Order-in-Appeal (OIA) No. 198/2015 (STA-II) dated 10.08.2015, leading to Appeal No. ST/42288/2015 before the Tribunal.

SCN No. 309/2012 dated 15.10.2012

A subsequent SCN was issued covering the period from April 2007 to March 2011. On verification of the appellant's ledger accounts, profit and loss accounts, and other records, the Department alleged that the appellant had received maintenance and repair service, air travel agent service, technical inspection and certification service, architect services, and business auxiliary service from foreign service providers, for which payments were made in foreign currencies. The notice further alleged that CENVAT credit on service tax paid under renting of immovable property had been wrongly availed in respect of premises not registered under the appellant's registration certificate. The extended period was again invoked. OIO No. 1/2015 dated 27.07.2015 confirmed demands with equivalent penalties under Section 78, leading to Appeal No. ST/42197/2015.

Subsequent Statements of Demand

Multiple Statements of Demand (SODs) were issued thereafter:

  • SOD No. 104/2013 dated 18.04.2013 — referring to SCN No. 309/2012, proposing denial of CENVAT credit and service tax demands on services from foreign providers.
  • SOD No. 25/2014 dated 16.07.2014 — covering April to June 2012.
  • SOD No. 247/2014 dated 18.09.2014 — covering July 2012 to March 2013.
  • SOD No. 5/2015 dated 09.01.2015 — covering April 2013 to September 2014.

These four SODs were adjudicated by a common OIO No. CHN-SVTAX-002-COM-8-11-2016-2017 dated 27.01.2017, confirming demands and imposing penalties under Section 76 of the Finance Act, 1994 read with Rule 15(1) of the CENVAT Credit Rules, 2004 (CCR). Appeals ST/41011/2017 and ST/41023-41025/2017 arose therefrom.

  • SOD No. 4/2017 dated 13.10.2017 — covering October 2014 to June 2017, again proposing denial of CENVAT credit on renting of immovable property. OIO No. 1/2018 dated 13.04.2018 confirmed the demand with equivalent penalty under Section 76 read with Rule 15 of CCR. The Commissioner (Appeals) rejected the further appeal vide OIA No. 508/2018 (CTA-I) dated 24.09.2018, giving rise to Appeal No. ST/42739/2018.

The Tribunal identified four core questions for determination: