2024 (7) TMI 297 - HC - VAT and Sales Tax

Hotel wins Convention Centre luxury tax case but loses on Ayurveda Centre revenue arrangements

STATE OF KERALA Versus M/s. M FAR HOTELS LTD

The Kerala HC ruled on luxury tax and service tax levies on a hotel's revenue-sharing arrangements and Convention Centre charges. The court upheld that ... Levy of luxury tax - charges received by the assessee from its customers out of the amounts paid to the Ayurveda Centre functioning in the premises of the hotel operated by it - charges received by the assessee from its customers out of the amounts paid to a Beauty Parlour functioning in the premises of the hotel operated by it - charges collected by the assessee from clients/customers for the use by the latter of the Convention Centre operated by it. Levy of service tax on charges received by the assessee from its customers out of the amounts paid to the Ayurveda Centre functioning in the premises of the hotel operated by it - HELD THAT:- The invoices raised on the customers, for the services provided by the independent third persons, also show that the services were provided by them and not by the assessee hotel. No doubt, the petitioner has a case that there was an agreement between the assessee hotel and the independent third persons who were providing the service to customers, for sharing of the revenue earned by the latter - As rightly found by the Appellate Tribunal, the revenue sharing arrangement, between the assessee on the one hand and the independent third persons on the other, had to be seen as an arrangement providing for the receipt of rent by the assessee for letting out space within its hotel premises for the business activities of the independent third persons - it is found against the petitioner on the said issues by confirming the impugned order of the Tribunal. Levy of luxury tax on the amounts received by the assessee for the use of the Convention Centre - HELD THAT:- There are force in the submission of the learned Senior Counsel for the assessee that prior to the amendment of Section 4(2)(c) of the Act, there was no levy envisaged for charges collected in connection with the use of a Convention Centre. The levy was introduced for the first time only through the amendment brought in through the Kerala Finance Act, 2006 with effect from 01.07.2006. Being an amendment to a substantive provision that introduced a new levy, the levy can operate only prospectively and not retrospectively - it is found against the petitioner-State on the issue of levy of luxury tax on the amounts received for use of the Convention Centre in the assessment years 2004-05 and 2005-06. There are no reason to interfere with the orders of the Appellate Tribunal that are impugned in these Original Petitions - petition dismissed. Issues involved:1. Levy of luxury tax on charges received by the assessee from its customers for services provided by an Ayurveda Centre within the hotel premises.2. Levy of luxury tax on charges received by the assessee from its customers for services provided by a Beauty Parlour within the hotel premises.3. Levy of luxury tax on charges collected by the assessee from clients/customers for the use of the Convention Centre operated by the hotel.Detailed Analysis:1. Levy of luxury tax on charges received by the assessee from its customers for services provided by an Ayurveda Centre within the hotel premises:The court examined whether the charges received by the assessee from its customers for services provided by the Ayurveda Centre functioning within the hotel premises attract the levy of luxury tax under the Kerala Tax on Luxuries Act. The Assessing Authority initially decided against the assessee for all assessment years, but the First Appellate Authority allowed the claim of the assessee regarding non-taxability of the charges received in connection with the Ayurveda Centre for various assessment years, except for 2003-04. The Appellate Tribunal affirmed this decision. The court found that the Ayurveda Centre was operated by an independent third party, not directly by the hotel. The invoices raised on the customers showed that the services were provided by the independent third persons. The court concluded that the revenue-sharing arrangement between the hotel and the third party was essentially for renting out space within the hotel premises and did not constitute the hotel providing those services directly to its clients. Therefore, the court confirmed the Tribunal's order, finding against the petitioner on this issue.2. Levy of luxury tax on charges received by the assessee from its customers for services provided by a Beauty Parlour within the hotel premises:Similar to the Ayurveda Centre, the court examined whether the charges received by the assessee from its customers for services provided by the Beauty Parlour functioning within the hotel premises attract the levy of luxury tax under the Kerala Tax on Luxuries Act. The First Appellate Authority allowed the claim of the assessee regarding non-taxability of the charges received in connection with the Beauty Parlour for various assessment years, and the Appellate Tribunal affirmed this decision. The court found that the Beauty Parlour was also operated by an independent third party, and the invoices raised on the customers showed that the services were provided by the independent third persons. The revenue-sharing arrangement was seen as an arrangement for renting out space within the hotel premises. Therefore, the court confirmed the Tribunal's order, finding against the petitioner on this issue as well.3. Levy of luxury tax on charges collected by the assessee from clients/customers for the use of the Convention Centre operated by the hotel:The court examined whether the charges collected by the assessee for the use of the Convention Centre attract the levy of luxury tax under the Kerala Tax on Luxuries Act. The First Appellate Authority confirmed the levy of luxury tax for the assessment years 2006-07 and 2007-08 but allowed the contention of the assessee regarding non-taxability for the assessment years 2004-05 and 2005-06. The Appellate Tribunal affirmed this decision. The court found that the amendment to Section 4(2)(c) of the Act, which brought the income from Convention Centres within the ambit of luxury tax, was introduced only with effect from 01.07.2006. As this amendment introduced a new levy, it could only operate prospectively and not retrospectively. Therefore, the court found against the petitioner-State on the issue of levy of luxury tax on the amounts received for the use of the Convention Centre for the assessment years 2004-05 and 2005-06.Conclusion:The court dismissed the Original Petitions, confirming the orders of the Appellate Tribunal. The charges received by the assessee for services provided by the Ayurveda Centre and Beauty Parlour, operated by independent third parties within the hotel premises, were not subject to luxury tax. Additionally, the levy of luxury tax on the use of the Convention Centre was applicable only prospectively from 01.07.2006 and not for the assessment years 2004-05 and 2005-06.