Bombay HC upholds service tax levy on AC restaurants; Differs from Kerala HC ratio

Bombay HC upholds service tax levy on AC restaurants; Differs from Kerala HC ratio

Bombay HC dismisses writ filed by Indian Hotels and Restaurant Association, upholds validity of service tax levy on air-conditioned restaurants serving liquor u/s 65(105)(zzzzv) of Finance Act; Rejects assessee’s challenge to Parliament’s competence to tax sale / purchase of goods by way of / as part of any service, covered under “State List”

read with Article 366(29A)(f) of Indian Constitution; Tax on sale / purchase of goods and tax on services two distinct concepts; To say that Parliament is denuded of its competence to tax restaurant services entails violence to plain language of Constitutional provisions; Service tax does not tax sale of goods, but services provided in such sale; Entry 54 in List II does not envisage service tax on services rendered by restaurant to any person, as referred u/s 65(105)(zzzzv); Rejects Kerala HC’s single Judge ruling in Kerala Classified Hotels and Resorts Association for want of categorical finding that tax in question covered by State List; HC accepts Revenue’s reliance on SC ruling in Tamil Nadu Kalyana Mandapam pertaining to catering services  : Bombay HC

In Kerala Classified Hotels and Resorts Association [TS-71-HC-2013(KER)-ST] ruling, Kerala HC struck down the levy of service tax on restaurants, included in the service tax ambit vide Finance Act 2011. HC had concluded that State Govt. alone has legislative competence to enact a law imposing tax on service element forming part of sale of goods and there could not be a different component of service which could be imposed with service tax invoking residuary power vested with the Central Govt under Entry 97 of List I of Constitution of India