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.