2012 (10) TMI 975 - HC - VAT and Sales Tax

Court rules Kerala Tax on Luxuries Act not applicable to hospitals pre-2008. Upholds legislative competence.

The court ruled in favor of the petitioner regarding the applicability of the Kerala Tax on Luxuries Act, 1976, to hospitals, holding that the Act could ... Demand notice for the production of the documents - whether the petitioner's establishment is a hotel or not? - powers conferred on the State Legislature under entry 62 of List II of the Seventh Schedule to the Constitution of India challenged Held that:- Once the respondents themselves have chosen to initiate proceedings on the basis that it is a hospital, they cannot turn around and contend before this court that establishment of the petitioner is a hotel and not a hospital. Therefore, the first contention raised by the petitioner deserves acceptance. Consequently, the Act cannot have application to the petitioner's hospital for any period prior to April 1, 2008 and hence the demand for production of documents and details for any prior period is illegal. Legislature is always within its rights to specify the items of luxury. It is accordingly that for using the accommodation for residence and the amenities and services provided in hospitals, which levy gross charges of rupees one thousand or more per day have been defined as 'luxury provided in hospitals' for the purpose of the Act and in determining the gross charges, what is charged for food, medicine and professional services is excluded. By this process, the Legislature has kept out of the purview of the Act, hospitals which charge less than rupees one thousand per day. Such provisions of the Act, are within the legislative competence of the State and consequently, there is no basis for the contention that, the Act to the extent it covers hospitals, is ultra vires the Constitution. Therefore, the second contention raised by the petitioners is rejected. Issues:1. Applicability of luxury tax on hospitals under the Kerala Tax on Luxuries Act, 1976.2. Legislative competence of the State Legislature under entry 62 of List II of the Seventh Schedule to the Constitution of India.Analysis:Issue 1: Applicability of luxury tax on hospitals under the Kerala Tax on Luxuries Act, 1976The petitioner, an ayurvedic hospital, challenged the applicability of the Kerala Tax on Luxuries Act, 1976, to hospitals following an amendment in 2008. The petitioner argued that the Act became applicable to hospitals only from April 1, 2008, and not for any period prior to that. The respondents contended that the establishment could be treated as a hotel, justifying their demand for documents from 2003. However, the court noted that the respondents themselves initiated proceedings based on the establishment being a hospital, making it untenable for them to later claim it was a hotel. The court held that the Act could not be applied to the hospital for any period before April 1, 2008, thereby ruling in favor of the petitioner on this issue.Issue 2: Legislative competence of the State Legislature under entry 62 of List IIThe petitioner also challenged the legislative competence of the State Legislature under entry 62 of List II to levy luxury tax on hospitals. The court referred to the principles laid down by the apex court in a relevant judgment, emphasizing that luxury tax can be levied only on activities of indulgence, enjoyment, or pleasure, not on goods or articles. The court analyzed the provisions of the Act, defining 'hospital' and 'luxury provided in a hospital,' and the mechanism for levying luxury tax based on charges for accommodation and amenities. The court concluded that the Act's provisions were within the legislative competence of the State Legislature, as they focused on the luxury of using hospital amenities and services, satisfying the requirements of entry 62 of List II. Therefore, the court rejected the petitioner's contention on this issue.In conclusion, the court upheld the provisions of the Act levying tax on luxury provided in hospitals, quashed the notice demanding documents from the petitioner, and awarded no costs in the matter.