Case Law Details
Advocate Arun Raj
HIGH COURT OF KERALA DECLARES THE LEVY OF SERVICE TAX ON AC BAR RESTAURANTS AND ON HOTELS PROVIDING SHORT TERM ACCOMMODATION AS UNCONSTITUTIONAL AND BEYOND THE LEGISLATIVE COMPETENCE OF THE PARLIAMENT
By the Finance Act, 2011 amendment has been made to the Section 65 Clause 105 of Chapter V of the Finance Act whereby the service provided or to be provided to any person by (1) restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises and (2) hotel, inn, guest house, club or camp-site, by whatever name called, in relation to providing of accommodation for a continuous period of less than three months; are brought under the definition of taxable service.
The constitutional validity of the aforesaid amendment was challenged before the Honourable High Court of Kerala by the Kerala Classified Hotels and Resorts Association vide W P (C) 14045 of 2011 and other Hotels and Restaurants contenting that the aforesaid levy by the Centre transgress upon the subject matter falling under State List -Entry 54 and Entry 62 respectively of the List II of the Seventh Schedule of the Constitution and therefore beyond the legislative competence of the Parliament.The Honourable Court at the time of admission had granted stay against any coercive steps for recovery of service tax or against any proceedings for imposing penalty for a period of 2 months, which was later extended until further orders.
The matter was finally heard by the Honourable High Court and has pronounced the judgment on 3-7-2013 allowing the writ petitions on the following lines:
“Writ Petitions are allowed as follows:
i) It is declared that Sub Clause (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 clauses are covered by Entry 54 and Entry 62 respectively of List II of 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.
Mr. Manoj Agarwal
Kindly clarify whether you are referring to Clause (e) and (f) of Section 66D- Negative list.
Mr. Kulvinder Singh Dhami
Thanks for the compliment. You can contact me at [email protected] with your address.
Dear Mr Arun Raj ji , Congrats to you & your team for this landmark judgement from our BENGAL ZONE FOREIGN LIQUOR SHOP OWNERS WELFARE ASSOCIATION. Sir , as our association has also moved a prayer through our lawyer to the Service Tax Commisioner here. So , it would be very kind of you to send us a copy of the judgement . It will be immensely helpful to us for our further move . Thanks & Regards , K.S.Dhami. +91 9434060533.
And further, this landmark judgement has yet to pass the STRICT scrutiny of the Hon’ble Supreme Court of India. The Central Government is expected to go into APPEAL.
Regards,
Manoj Agarwal, Rourkela
E:Mail : [email protected]
Advocate S. Arun Raj Ji,
I completely agree with you that though the challenge was made on the sections introduced by the Finance Act 2011 with respect to the service tax on AC Bar restaurants, the same reasoning would be applicable in the subsequent amendment. However, the point raised by me is that even before passing of this important judgement, in my view, the trading/manufacturing activity of food & beverages was never taxable as it is covered under negative list w.e.f. 01-07-2012. Kindly correct my understanding, if it’s wrong. Thanks.
Mr. Manoj Agrarwal..
The point is even after the introduction of the negative list theory and the new scheme of service tax, the position would remain the same.i.e the parliament has no competence to legislate on the subject matter which falls under the state list. That is what the High Court of Kerala has held and declared in the case of Kerala Classified Hotels and Resorts Association’s case and connected batch cases.Though the challenge was made on the sections introduced by the Finance Act 2011 with respect to the service tax on ac bar restaurants, the same reasoning would be applicable in the subsequent amendment.
Will update you more on this new amendment and the constitutional challenge soon…
Mr. O.P Jain.
The judgment was pronounced on 3rd of July 2013. I have applied for the certified copy of the judgment. i will surely furnish a copy of the judgment as soon as the same is received..
SEND ME FULL TEXT OF JUDGMENT BY E-MAIL;
Adv. Arun Raj Ji… kindly select and copy the link and paste in your browser’s address bar, it works.
Anyway, I would like to draw attention to New Section 65B of the Act:-
(44) “service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include….”
(22) “declared service” means any activity carried out by a person for another person for consideration and declared as such under section 66E;
(51) “taxable service” means any service on which service tax is leviable under section 66B;
66B “There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent, on the value of all services, other than those services specified in the negative list…”
Now, no doubt, the service portion in supply of food & beverages is a declared service listed u/s 66E, and covered u/s 66B(44) as service, but that need not necessarily make it ‘TAXABLE SERVICE’. Declared Service is not same as Taxable Service. The activity of ‘Manufacturing’ and ‘Trading’ of food & beverages, irrespective of whether supplied by a restaurant or anyone else, may fall under Negative List u/s 66D(e) and (f) and there is NO LEVY of Service Tax on any service which falls under the negative list.
THUS, IN MY VIEW, SERVICE TAX SHOULD NOT BE CHARGED ON TRADING AND/OR MANUFACTURING ACTIVITY OF FOOD & BEVERAGES BY ANY PERSON, INCLUDING RESTAURANTS, EATING JOINTS & MESS, AS THE SAME IS COVERED UNDER NEGATIVE LIST. KINDLY COMMENT
linkedin.com/groupItem?view=&gid=1991053&type=member&item=253498584&commentID=148686574&report%2Esuccess=8ULbKyXO6NDvmoK7o030UNOYGZKrvdhBhypZ_w8EpQrrQI-BBjkmxwkEOwBjLE28YyDIxcyEO7_TA_giuRN#commentID_148686574
Mr. Manish Agarwal-The link relating to the discussion u have mentioned is not correct and doesnt work. kindly post the correct link
The said judgement dated yesterday, i.e. 03-07-13 of the Hon’ble Kerala High Court dealt with the erstwhile section 65(105) of the Finance Act, 1994 (The Act) defining ‘taxable services’ and particularly relating to restaurants (zzzzv) and hotels (zzzzw), which has become redundant/inoperative after the introduction of Negative List approach w.e.f. 01-07-2012. But, the same may hold good even under the new approach. For more, kindly read the discussion:
linkedin.com/groupItem?view=&gid=1991053&type=member&item=253498584&commentID=148686574&report%2Esuccess=8ULbKyXO6NDvmoK7o030UNOYGZKrvdhBhypZ_w8EpQrrQI-BBjkmxwkEOwBjLE28YyDIxcyEO7_TA_giuRN#commentID_148686574