2016 (11) TMI 1006 - HC - Service Tax

Service tax on AC restaurants declared illegal under Finance Act, 2012

KERALA CLASSIFIED HOTELS AND RESORTS ASSOCIATION AND OTHERS Versus UNION OF INDIA, NEW DELHI AND OTHERS

The court, following the precedent set by the Kerala HC, allowed the writ petition challenging the legality of levying service tax on air-conditioned ... Constitutional validity of levy of service tax on restaurants - Validity of sub clause (zzzzv) of clause 105 of Section 65 of the Finance Act, 1994 - Legislative competency of Parliament - Sale of food and drinks - Whether 'taxes on the sale and purchase of goods' in Entry 54 of List II of the seventh schedule covers service in the light of the definition of 'tax on sale and purchase of goods' under Article 366 (29A) (f) of the Constitution of India - Held that: - reliance placed on the judgment of this Court in Kerala Classified Hotels and Resorts Association v. Union of India [2013 (7) TMI 431 - KERALA HIGH COURT] - That was a case relating to charge of service tax on air conditioned restaurants where they were vending liquors and has licence to serve liquor. Since this case also stands in the same footing, I am of the view that the judgment in Kerala Classified Hotels (supra) applies to the fact situation of the present case also - the matter is pending before the Supreme Court. Further, no stay has been granted in the matter. Therefore, right now, I am inclined to follow the law laid down by this Court and accordingly, this writ petition is allowed. The declaration sought for is granted and service tax already collected shall be refunded to the respective parties. Issues:Challenge to the legality of levying service tax on air-conditioned restaurants serving food and beverages under the Finance Act, 2012.Detailed Analysis:1. Legality of Levying Service Tax:The writ petition challenged the legality of levying service tax on services provided by air-conditioned restaurants serving food and beverages under the Finance Act, 2012. The petitioner sought a declaration that specific sections of the Act were unconstitutional, ultra vires, and unenforceable. The argument centered on the contention that the provisions exceeded the legislative competence of the parliament and should be struck down. The petition also challenged the validity of certain notifications issued in this regard.2. Position of Respondents:The respondents, in their counter affidavit, supported the legality of levying service tax under the residual power of taxation vested in the Centre as per Entry 97 of List I. They relied on various judgments, including those of the Apex Court, to establish the legislative competence of the Central Government to impose service tax. The respondents argued that even in cases of overlapping taxable events, the distinctiveness of aspects justifies the imposition of service tax within the boundaries of legislative competence.3. Judicial Precedents:The petitioner's counsel referred to a judgment by the Kerala High Court in a similar case involving air-conditioned restaurants serving liquor. The court had declared certain provisions of the Finance Act, 1994 as beyond the legislative competence of the Parliament. The judgment allowed for refunds of service tax collected based on the impugned clauses. Given the similarity of the present case to the aforementioned judgment, the court found it applicable and allowed the writ petition. The court noted that the matter was pending before the Supreme Court with no stay granted, hence, it decided to follow the precedent set by the Kerala High Court.4. Final Decision:Based on the above analysis and the precedent set by earlier judgments of the Kerala High Court, the court allowed the writ petition. It granted the declaration sought by the petitioner, declaring the imposition of service tax on air-conditioned restaurants serving food and beverages as illegal. The court ordered the refund of service tax already collected to the concerned parties, in line with the judgment's findings.In conclusion, the judgment by the Kerala High Court in this case addressed the legality of levying service tax on air-conditioned restaurants serving food and beverages under the Finance Act, 2012. The court relied on legal arguments, judicial precedents, and the principle of legislative competence to reach a decision in favor of the petitioner, granting the relief sought and ordering the refund of collected service tax.