Parliament can impose Service Tax on Restaurants & Hotels

Parliament can impose Service Tax on Restaurants & Hotels

Bombay High Court dismisses writ filed by Indian Hotels and Restaurant Association and upholds validity of service tax levy on air-conditioned restaurants serving liquor u/s 65(105)(zzzzv) of Finance Act and held the levy as constitutional.
Rejects Kerala HC’s single Judge ruling in Kerala Classified Hotels and Resorts Association for want of categorical finding that tax in question covered by State List –

The learned Single Judge of Kerala High Court beyond referring to three Supreme Court judgments, namely, Associated Hotels of India Ltd. (supra), Northern India Caterers Limited (supra) and K.Damodarasamy Naidu (supra), neither observes or holds that the tax in question is covered by the State List (Entry 54). A categoric finding in that regard is necessary. The analysis of the learned Single Judge and of the Constitutional definition, with respect, cannot be accepted. The attempt by the learned Single Judge to get over the judgments of the Honourable Supreme Court relied upon by the learned Additional Solicitor General, does not commend to us. The learned Single Court Judge has not underscored and noted the distinction, with respect, referred by us in detail. We are, therefore, unable to agree with the view of the learned Single Judge of Kerala High Court.

HC accepts Revenue’s reliance on SC ruling in Tamil Nadu Kalyana Mandapam pertaining to catering services- The Honourable Supreme Court, with respect, held that the concept of catering admittedly includes a concept of rendering service. The fact that the tax on sale of goods involved in the said service can be levied, does not mean that the service tax cannot be levied on the service aspect of catering. With respect, this means that when a restaurant renders to any person a service, the tax on sale of goods involved in the said service can be levied.

That does not mean that a service tax cannot be levied on the act of serving food at a restaurant. That is the tax in this case imposed by the Parliament. There could be a sale during the course of rendering of service at a restaurant and therefore, a sales tax could be imposed by the State Legislature. So long as there is no prohibition against imposition of service tax on the services rendered, then it must be held that the Parliament is competent to impose a service tax in question. Mr.Sridharan has not pointed out any provision which would enact a prohibition against the imposition of service tax by the Parliament.

It is not his argument that the levy in question is hit by Double taxation. If only the lack of competence in the Parliament is the argument, then, that can be dealt with and disposed of by holding that the Honourable Supreme Court does not rule out, but rather permits imposition of a tax on service even if during rendering of the same, the sale of goods takes place.For the reasons aforestated, we are of the view that there is no merit in the Writ Petition.

Hon;ble High Court has Further held that Just because assessee is liable to pay Value Added Tax on sale involved in supply of goods at canteen, it cannot be held that it is not liable to payment of service tax
Source-Indian Hotels and Restaurant Association Versus Union of India (Bombay High Court), WRIT PETITION NO.2159 OF 2011, Date of Pronouncement – 08th April, 2014

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