Service Tax on Air Conditioned Restaurants is unconstitutional

By | November 24, 2016

HIGH COURT OF KERALA

Kerala Classified Hotels & Resorts Association

v.

Union of India

A.M. SHAFFIQUE, J.

W.P. (C) NO. 19277 OF 2013

OCTOBER  31, 2016

V. Krishna Kumar, G. Subodhan, Surendradas B., N. Vijayan Pillai, K.V. Rajappan Pillai and K.K. Radhakrishnanfor the Petitioner. N. Nagaresh, Ramavarma Reghunathan Thamburan, John Varghese and M.M. Jasmin for the Respondent.

JUDGMENT

 

This writ petition is filed seeking the following reliefs:

“(a) to issue a writ of declaration or any other appropriate writ, order or direction declaring that Section 66E(i) r.w.s. 65B (22) and section 65 B(44) as inserted by the Finance Act 2012 by the amendment made to the Chapter V of the Finance Act, 1994 to the extent the said provisions declares the service provided by the restaurant, eating joints or mess, in relation to serving of food and beverages (whether or not intoxicating) having Air Conditioning or Central Air heating in any part of the establishment at any time during the financial year; as ‘Declared Service’ under section 66E r.w.s 65B(22) and accordingly bringing under the definition of “Service” under section 65B(44) for the purpose of charging to service tax under section 66B of the Act’ is illegal, ultravires, beyond the legislative competence of the parliament and unenforceable and liable to be struck down as unconstitutional, null and void and of no effect;
(b) to issue a writ of declaration or any other appropriate writ, order or direction declaring that Notification No:3 of 2013 dated 1-3-2013 and Notification No: 25 of 2012 dated 20-6-2012 (Sl.No.19) issued from the office of Ministry of Finance (Department of Revenue), Government of India read along with sections 66E(i), 65B (22) and 65 B (44) of the Finance Act, 1994 as amended by the Finance Act 2012; to the extend it seeks to levy service tax on the service provided by the restaurant, eating joints or mess, in relation to serving of food and beverages (whether or not intoxicating) having Air Conditioning or Central Air heating in any part of the establishment at any time during the financial year is illegal, ultravires, beyond the legislative competence of the parliament and unenforceable and liable to be struck down as unconstitutional, null and void and of no effect;
(c) to issue a writ of prohibition or any other appropriate writ or order prohibiting the respondents from enforcing sections 66B, 66E(i) r.w.s. 65B (22) and Section 65 B (44) as inserted by the Finance Act 2012 by the amendment made to the Chapter V of the Finance Act, 1994 and notification No.3 of 2013 dated 1st March 2013 and Notification 25 of 2012 dated 20-06-2012; to the extend the said provisions seek to levy service tax on the service provided by the restaurant, eating joints or mess, in relation to serving of food and beverages (whether or not intoxicating) having Air Conditioning or Central Air heating in any part of the establishment at any time during the financial year.”

2. The short facts involved in the writ petition would disclose that in the Finance Act, 2012 relating to levy and collection of service tax, a provision has been incorporated by which service provided by restaurant, eating joints or mess, in relation to serving of food and beverages (whether or not intoxicating) having Air Conditioning facility is part of service as defined under Section 65B(44) of the Finance Act, 1994 for the purpose of charging service tax. Petitioner is an association of Hotels and a few Hotels have approached this Court.

3. Counter affidavit has been filed on behalf of respondents 1 to 3 supporting the stand taken in the statement. It is, inter alia contended that service tax is levied under the residual power of taxation in the Centre in terms of Entry 97 of List I., legislative competence of which has been upheld in various judgments of the Apex Court. Further, reliance is also placed on the judgment of the Apex Court in Assn. of Leasing & Financial Service Companies v. Union of India [2011(2)SCC 352] and also BSNL v. Union of India [(2006) 3 SCC 1] in order to contend that even if there is overlapping, when the transaction involves two or more taxable events in its different aspects, but overlapping does not detract from distinctiveness of aspects and therefore the imposition of service tax is well within the boundaries of legislative competence of the Central Government.

4. On the other hand, learned counsel for the petitioner placed reliance on the judgment of this Court in Kerala Classified Hotels and Resorts Association v. Union of India [2013(4) KLT S.N 13 (C.No.11)]. This Court had placed reliance on the judgment of the Constitution Bench in K.Damodarasamy Naidu & Bros. v. State of Tamil Nadu and others [(2000) 1 SCC 521] and had passed the following judgment:

“(i) It is declared that sub Clauses (zzzzv) and (zzzzw) to Clause 105 of Section 65 of the Finance Act 1994 as amended by the Finance Act 2011 is beyond the legislative competence of the Parliament as the sub Clauses are covered by Entry 54 and Entry 62 respectively of List II of the Seventh Schedule.
(ii) That if any payments have been made by the petitioners on the basis of the impugned clauses, they are entitled to seek refund of the same.”

5. That was a case relating to charge of service tax on air conditioned restaurants where they were vending liquors and has licence to serve liquor. Since this case also stands in the same footing, I am of the view that the judgment in Kerala Classified Hotels (supra) applies to the fact situation of the present case also. The judgment in Kerala Classified Hotels(supra) has been upheld by the Division Bench of this Court in Union of India v. Kerala Classified Hotels and Resorts Association [2014 (4) KLT S.N.68 (C.No.85)]. It is submitted by the learned counsel for the respondent that the matter is pending before the Supreme Court. Further, no stay has been granted in the matter. Therefore, right now, I am inclined to follow the law laid down by this Court and accordingly, this writ petition is allowed. The declaration sought for is granted and service tax already collected shall be refunded to the respective parties.

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