Kerala HC Strikes Down ST on Restaurants and Hotels
THE Kerala High Court has held sub Clauses (zzzzv) and (zzzzw) to Clause 105 of Section 65 of the Finance Act, 1994 as amended by the Finance Act, 2011 as beyond the legislative competence of the Parliament.
zzzzv - service by restaurant in serving food or beverage.
zzzzw - service by a hotel, inn, guest house, club or camp-site for providing of accommodation.
The High Court observed that when food is supplied or alcoholic beverages are supplied as part of any service, such transfer is deemed to be a sale. Apparently, the transfer is during the course of a service and when the deeming provision permits the State Government to impose a tax on such transfer, there cannot be a different component of service which could be imposed with any service tax in exercise of the residuary power of the Central Government under Entry 97 of List I of the Constitution of India.
The High Court relied on Article 366 (29A) (f) of the Constitution which defines "tax on the sale or purchase of goods" to include a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating).
The High Court also held that if the petitioners have made any payments, they are entitled to seek refund of the same.
The High Court order is for the period prior to 1.7.2012.
What is the position from and after 1.7.2012? Section 66 E (i) of the Finance Act,1994 as introduced vide Finance Act, 2012 declares the following activity as a service.
"service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity".
Though this was not an issue before the High Court as the Writ Petition was filed in 2011 when the concept of declared services and negative services were yet to be born, the principle should apply and the service would not be taxable even after 1.7.2012.
Not the End: This is certainly not going be the end of the story. The Government is sure to take the matter further up in appeals. Retrospective amendment does not seem to be an option in this case.
Since DDT reported about this case last Thursday (), we have been flooded with calls and mails requesting for a copy of the order and we had to patiently explain that the High Court judgements are not immediately available and that once we get the order, we don't delay its publication.
We bring you this important judgement today.