Kerala High Court Strikes Down Service Tax on Restaurants and Hotels - AGAIN
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.
As Netizensare aware, a Single Judge of the Kerala High Court in the case of Kerala Classified Hotels and Resorts Association reported in had 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.
While reporting this in DDT 2146 - 11.07.2013 we had commented, "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".
And Revenue promptly filed a writ appeal before a Division Bench of the High Court. In the meanwhile in the Indian Hotels and Restaurants Association case reported in , the Bombay High Court did not agree with the judgement of the Single Judge of the Kerala High Court and upheld the levy.
Now, the Division Bench of the Kerala High Court has confirmed the judgement of the Single Judge and has not agreed with the Bombay High Court judgement. The Division Bench observed, it is beyond dispute that by virtue of the provision in Article 366 (29A) of the Constitution, even the service part involved in the supply of food and other articles of human consumption, is deemed as a sale to enable the States to impose tax on the same. The point, therefore, is as to whether, having characterised constitutionally the subject matter of supply of food in a restaurant, including the service part of it, as a sale, can the Parliament characterise the same transaction as a service for imposition and levy of service tax. We are of the view that since the whole of the consideration received by a restaurant owner for supply of food and other articles of the human consumption, including the service part of the transaction, is exigible to tax by the State by virtue of the constitutional definition, it is not open to the Union to characterise the same transaction as a service for imposition and levy of service tax. We are, therefore, unable to agree with the view taken by the Bombay High Court."
Now we have two contradicting High Court judgements each having considered the other opinion, rejecting it.
So, the situation is service in restaurants in Maharashtra is taxable, while it is not taxable in Kerala.
What about other States?
In meantime another High Court - the Allahabad High Court in another context in the case of Indian Coffee Workers Co-operative Society reported in has observed, "The charge of tax in the cases of VAT is distinct from the charge of tax for service tax. Entry 54 of the State List to the Seventh Schedule to the Constitution empowers the state legislatures to impose a tax on the sale of goods. Article 366 (29A) was introduced by the Forty Sixth Constitutional Amendment so as to provide a deeming definition of the expression ‘sale' to comprehend situations within the purview of its several sub-clauses including the sale of goods involved in the execution of a works contract. The charge of service tax is not on the sale of goods but on a taxable service provided. Unlike a tax which is imposed on the sale of goods, the charge of service tax is on the provision of a taxable service provided by the assessee. Hence, the fact that the assessee may be paying VAT on the sale of goods on the supply of food and beverages to those who consume them at the canteen, would not exclude the liability of the assessee for the payment of service tax in respect of a taxable service provided by the assessee as an outdoor caterer."
And the Indian Hotels and Restaurants Association has filed an SLP in the Supreme Court and the Supreme Court is most likely to hear the petition on 21st November 2014.
Finally the Supreme Court has to decide the issue and fortunately in this case, retrospective amendment is not a solution.
Today we bring you the Kerala High Court judgement - Please see Breaking News