Kerala High Court
State Of Kerala vs M/S. M Far Hotels Ltd on 4 June, 2024
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE SYAM KUMAR V.M.
TUESDAY, THE 4TH DAY OF JUNE 2024 / 14TH JYAISHTA, 1946
OP (TAX) NO. 24 OF 2016
AGAINST THE ORDER/JUDGMENT DATED 04.08.2015 IN TA NO.124
OF 2010 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM
PETITIONER
STATE OF KERALA
REPRESENTED BY THE DEPUTY COMMISSIONER(LAW),
COMMERCIAL TAXES, ERNAKULAM
.
BY SR. GOVERNMENT PLEADER-SRI.V.K.SHAMSUDHEEN
RESPONDENT
M/S. M FAR HOTELS LTD
KUNDANNOOR, MARADU P.O., ERNAKULAM.
BY ADVS.
SRI.P.J.ANILKUMAR
SRI.A.KUMAR
SMT G.MINI1748
SRI.P.S.SREE PRASAD
THIS OP TAX HAVING COME UP FOR ADMISSION ON 04.06.2024,
ALONG WITH OP (TAX).28/2016, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:
O.P(Tax) No.24 and 28 of 2016
2
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE SYAM KUMAR V.M.
TUESDAY, THE 4TH DAY OF JUNE 2024 / 14TH JYAISHTA, 1946
OP (TAX) NO. 28 OF 2016
AGAINST THE ORDER/JUDGMENT DATED 04.08.2015 IN TA NO.13 OF
2013 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM
PETITIONER
STATE OF KERALA
REPRESENTED BY THE DEPUTY COMMISSIONER (LAW),
COMMERCIAL TAXES, ERNAKULAM
BY ADV GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN
RESPONDENT:
M/S. M FAR HOTELS LTD.
KUNDANNOOR, MARADU P.O, ERNAKULAM PIN 682 011
BY ADVS.
SRI.P.J.ANILKUMAR
SRI.JACOB JOHN TRIVANDRUM
SRI.A.KUMAR
SMTG.MINI 1748
SRI.P.S.SREE PRASAD
THIS OP TAX HAVING COME UP FOR ADMISSION ON
04.06.2024, ALONG WITH OP (TAX).24/2016, THE COURT ON THE
SAME DAY DELIVERED THE FOLLOWING:
O.P(Tax) No.24 and 28 of 2016
3
JUDGMENT
============
Dr. A.K.Jayasankaran Nambiar, J.
As all these Original Petitions deal with the common
issues, they are taken up for consideration together and dispose
of by this common judgment.
2. In O.P(Tax) No.24 of 2016, the order of the Kerala Value
Added Tax Appellate Tribunal dated 4.8.2015 is impugned which
deals with the assessment year 2003-04. In O.P(Tax)No.28 of
2016, the same order of the Kerala Value Added Tax Appellate
Tribunal dated 4.08.2015 is impugned to the extent it disposes
four appeals preferred by the Revenue in relation to the
assessment years 2004-05, 2005-06, 2006-07 and 2007-08.
3. The State of Kerala is the petitioner before us in both
these Original Petitions impugning the common order of the
Kerala Value Added Tax Appellate Tribunal on three issues that
O.P(Tax) No.24 and 28 of 2016
were decided against it by the Tribunal. Those issues are as
follows:
1) Whether the 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 would
attract the levy of luxury tax under the Kerala Tax on Luxuries
Act?
2) Whether the 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 would
attract the levy of luxury tax under the Kerala Tax on Luxuries
Act ?
3) Whether the charges collected by the assessee from
clients/customers for the use by the latter of the Convention
Centre operated by it would attract the levy of luxury tax under
the Kerala Tax on Luxuries Act?
4. We find from a perusal of the orders of the Assessing
Authority, First Appellate Authority and the Appellate Tribunal
that the issues were decided against the assessee for all
assessment years by the assessing authority at the first instance.
O.P(Tax) No.24 and 28 of 2016
In the appeals preferred before the First Appellate Authority,
while the First Appellate Authority allowed the claim of the
assessee regarding non taxability of the charges received by
them in connection with the operation of the Ayurveda Centre
and Beauty Parlour for the various assessment years (except for
2003-04 when the charges received by the Ayurveda Centre was
subjected to tax), it confirmed the levy of luxury tax in respect of
the charges collected for use of the Convention Centre for the
assessment years 2006-07 and 2007-08, but allowed the
contention of the assessee with regard to the non taxability of
the said income for the assessment years 2004-05 and 2005-06
respectively. The said findings of the First Appellate Authority
were affirmed by the Appellate Tribunal in the orders that are
presently impugned before us in these Original Petitions. For the
sake of completion of facts, we might also note that for the
assessment year 2003-04, the order of the First Appellate
Authority rejecting the contention of the assessee with regard to
non taxability of the income received through the Ayurveda
Centre and the Beauty Parlour was reversed by the Appellate
Tribunal in an appeal preferred by the assessee before it.
O.P(Tax) No.24 and 28 of 2016
5. Before us, it is the submission of Sri. Shamsudheen, the
learned Government Pleader appearing on behalf of the
petitioner State that the charging provision of the Kerala Tax on
Luxuries Act, 1976 ('the Act' for short) clearly mandates that
luxury tax shall be levied and collected in respect of a hotel, for
charges of accommodation, residence and other amenities and
services provided in the hotel. It is his contention, therefore, that
so long as there is an 'amenity' or 'service' provided in the hotel,
the mere fact that the service was provided through a separate
entity, would not alter the liability of the hotel, and its proprietor,
to pay tax on the amounts collected for the amenity or service
provided to the customer. It is his specific case that the stand of
the assessee before the authorities below, that what was
received by it from the provider of services in the hotel was only
a rent for the space let out within the hotel premises, cannot be
legally countenanced since luxury tax is a tax on the provision of
luxury and, in the instant case, the luxury was provided in the
hotel. As regards the levy of tax on the amounts collected by the
assessee for use of the Convention Centre, it is his submission
that, while for the assessment years 2006-07 and 2007-08, the
amendment introduced in the Kerala Finance Act, 2006 with
O.P(Tax) No.24 and 28 of 2016
effect from 01.07.2006 clearly brought the income from the
Convention Centres within the ambit of the charge to luxury tax,
for the prior period, covering assessment years 2004-05 and
2005-06, the said charges would have attracted the levy of
luxury tax as applicable to Convention Centre on interpreting
the provisions of Section 4(2)(c) of the Act in a manner that
would include Convention Centres by applying of the principle of
ejusdem generis. He places reliance on the decisions in
Brunton Boatyard v. State of Kerala [2013 (4) KLT 37], State
of Kerla v. M/s. Kumarakom Lake Resorts (P) Ltd.
[2018/KER/45898 (W.P(C)No.9148 of 2009)] and New Horizons
Limited and another v. Union of India [(1995) 1 SCC 478].
6. Per contra, it is the submission of Sri. A Kumar, the
learned Senior Counsel appearing on behalf of the respondent-
assessee, duly assisted by Advocate Smt.G.Mini, that the scheme
of the Act has been clearly delineated by a Division Bench of this
Court in the decision reported in Madhavaraja Club v.
Commercial Tax Officer (Luxury Tax) [2023 (3) KLT 475].
Going by the said decision, the tax on the enjoyment of a luxury
as envisaged under the Act is attracted at a point in time when
O.P(Tax) No.24 and 28 of 2016
such luxury is provided by a proprietor of the hotel to another
person for the latter's enjoyment. In that sense, therefore, it is
only in cases where the hotel is actually providing the Ayurvedic
treatment service or the Beauty Parlour service directly to a
customer, without the intervention of an independent entity, and
raising invoices directly to the said customers, that the
service/luxury could be seen as provided by the hotel. HE points
out that in the instant case, as rightly found by the Appellate
Tribunal, the service/amenity in question was provided by
independent third persons, who were invoicing their customers
directly for the services rendered by them, although in some
instances the customers made the payment for the said services,
against the invoices so raised, through the asessee hotel at the
time of settlement of their bills with the hotel. He points out that
the mere collection by the assessee hotel, of the amounts due to
the independent service providers, could not entail a tax liability
on the assessee hotel when the taxable event under the Act was
the provision of service by the independent third persons. As
regards the liability to tax on the amounts received for the use of
the Convention Centres, it is his submission that the amendment
to Section 4(2)(c) of the Act having been introduced only with
O.P(Tax) No.24 and 28 of 2016
effect from 01.07.2006, and the amendment having been of a
substantive provision, it had necessarily to be seen as
prospective in its operation and effect, and when so viewed, the
tax liability on the charges received for use of the Convention
Centre had to be confined to the assessment years subsequent to
the date of the amendment. He also lays emphasis on the
findings of the Appellate Tribunal that clearly spell out why the
principle of ejusdem generis cannot be pressed into service in
the instant case where a Convention Centre, by its very nature
cannot be seen as similar to Halls and Kalyanamandapams that
were earlier dealt with in Section 4(2)(c) of the Act. He places
reliance on the following judgments;
i) Cochin International Airport Ltd. v. Commissioner
of S.T., Cochin [2010(19) S.T.R.225 (Tri-Bang)
ii) Commissioner of Central Excise v. Cochin
International Airport Ltd. [2011(24) S.T.R. 20 (Ker)
iii) Windsor Castle v. Commercial Tax Officer, (Works
Contract) & Another [(2012) 20 KTR 321 (Ker)],
iv) Brunton Boatyard v. State of Keral a [(2013) 66 VST
533 (Ker.)]
O.P(Tax) No.24 and 28 of 2016
and
v) Madhavaraja Club v. Commercial Tax Officer
(Luxury Tax) [2023 (3) KLT 475].
7. We have considered the rival submissions and we find
that in a judgment rendered by one of us in Madhavaraja Club
v. Commercial Tax Officer (Luxury Tax) [2023 (3) KLT 475]
the scheme of taxation under the Kerala Tax on Luxuries Act was
delineated as follows:
"5. When construing the provisions of any taxing
statute, it is useful to keep in mind the test that is often
applied by courts to determine whether the tax in question
is one that is backed by the authority of law viz., that for a
levy to exist in point of law four components must exist-the
nature of the tax which prescribes the taxable event, the
person on whom the levy is to be imposed, the rate of the
tax and the measure or value to which the rate will be
applied (See: Govind Saran Ganga Sarana v. CST (1985
KLT Online 1248 (SC)=AIR 1985 SC 1041). The test, when
applied, provides the answers to four cardinal questions
viz. (i) what is taxable event or the event that attracts the
tax? (ii) who has to pay the tax? (iii) how much tax has to
be paid and (iv) how does one pay the tax?. The answers
to the above questions must be found in the taxing statute
O.P(Tax) No.24 and 28 of 2016
concerned for, in the absence of a clear charge or
machinery to levy and assess tax in the primary
legislation, the imposition of tax cannot be done [(See:
Commissioner, Central Excise and Customs, Kerala v.
Larsen and Toubro Limited & Anr. (2015 (3) KLT Suppl. 75
(SC) + (2016) 1 SCC 170))
6. The answer to question (i) is usually provided by the
charging section of the statute concerned. It could be the
earning of income as in the Income Tax Act, the manufacture
of goods as in the Central Excise Act, the import of goods as
in the Customs Act or the supply of goods and services as in
the GST Act. Section 4 of the Kerala Tax on Luxuries Act is
the charging section thereunder and it provides for the levy
of a luxury tax on "luxury provided" by various entities and
hence the taxable event under that Act is the "providing of
luxury". Question (ii) seeks to find the person who is made
responsible under the statute concerned to pay the tax to the
Government. Under the Kerala Tax on Luxuries Act, Section
4(3) identifies that person as the 'Proprietor' which term is
defined under Section 2(h) therein as meaning the person
who, for the time being, is in charge of the management of
the hotel, house boat, hall, auditorium, home stay, hospital or
kalyanamandapam or place of like nature, as the case may
be. Question (iii) seeks to find the measure of the tax i. e , the
value on which, and the rate at which, the tax is to be paid.
Sub-sections (2), (2A), (4) and (5) of Section 4 of the Act
answer the said question by providing the value and the rate
of tax applicable when various kinds of luxury are provided.
O.P(Tax) No.24 and 28 of 2016
The answer to question (iv) that seeks that manner in which
the tax is to be paid, is contained in the various provisions of
the Act that deal with the procedure for registration of the
'proprietors' who provide the luxury, the collection of tax by
the said 'proprietors' from the persons who enjoy the luxury
so provided, the manner of payment of the tax so collected by
the 'proprietors' to the Government exchequer by filing
returns, and the assessment of the 'proprietor' to determine
whether the tax has been correctly paid.
7. A reading of the provisions of the KTL Act therefore
clearly reveals that it is a tax on the enjoyment of a luxury,
that is attracted at a point in time when such luxury is
provided by a 'proprietor' to another person for the latter's
enjoyment. The incidence and levy of the tax is on the
'proprietor" although the ultimate impact of the tax may be
on the persons who enjoys the luxury that is provided. The
'proprietor' is also the person who is made responsible under
the Act to register himself, collect the tax from the person
who enjoys the luxury, pay the applicable tax to the
Government exchequer along with the filing of his returns
and subject himself to an assessment under the Act."
8. When we consider the issues raised in these Original
Petitions in the backdrop of the scheme of the Act as enunciated
above, we find that in relation to the Ayurveda Centre and the
Beauty Parlour, that are functioning in the premises of the
O.P(Tax) No.24 and 28 of 2016
assessee hotel, the documents perused by the authorities below
clearly showed that the provision of the luxury was by the
independent third persons and not directly by the assessee hotel.
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. This, in our view, would not affect the levy
of tax under the Act. 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. At any
rate, through the said arrangement, it could not be said that the
assessee hotel was providing those services directly to its clients
for the purpose of attracting the levy of luxury tax. We therefore
find against the petitioner on the said issues by confirming the
impugned order of the Tribunal.
O.P(Tax) No.24 and 28 of 2016
9. As regards the levy of luxury tax on the amounts
received by the assessee for the use of the Convention Centre,
we find force in the submission of the learned Senior Counsel for
the assesee 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. We therefore find 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.
10. Resultantly, we see no reason to interfere with the
orders of the Appellate Tribunal that are impugned in these
Original Petitions.
O.P(Tax) No.24 and 28 of 2016
The Original Petitions fail and are accordingly dismissed.
Sd/-
DR. A.K.JAYASANKARAN NAMBIAR
JUDGE
Sd/-
SYAM KUMAR V.M.
JUDGE
smm
O.P(Tax) No.24 and 28 of 2016
APPENDIX OF OP (TAX) 24/2016
PETITIONER EXHIBITS
EXHIBIT P1 A COPY OF THE ASSESSMENT ORDER
DTD.20.2.2009.
EXHIBIT P2 A COPY OF THE ORDER IN STA NO.93/09.
EXHIBIT P3 A CERTIFIED COPY OF THE ORDER OF THE
SALES TAX APPELLATE TRIBUNAL, ADDITIONAL
BENCH, ERNAKULAM IN TA NO.124/10 & TA
NO.13/13 TO 15/13, 37/13 & 56/13.
EXHIBIT P3(A) A COPY OF EXT.P3.
O.P(Tax) No.24 and 28 of 2016
APPENDIX OF OP (TAX) 28/2016
PETITIONER EXHIBITS
EXHIBIT P1 TRUE COPY OF THE ASSESSMENT ORDER OF THE
YEAR 2004-2005
EXHIBIT P2 TRUE COPY OF THE ASSESSMENT ORDER OF THE
YEAR 2005-2006
EXHIBIT P3 TRUE COPY OF THE ASSESSMENT ORDER OF THE
YEAR 2005-2006 (REVISED)
EXHIBIT P4 TRUE COPY OF THE ASSESSMENT ORDER OF THE
YEAR 2006-2007
EXHIBIT P5 TRUE COPY OF THE ASSESSMENT ORDER OF THE
YEAR 2007-2008
EXHIBIT P6 TRUE COPY OF THE ORDER OF THE 1ST
APPELLATE AUTHORITY FOR THE ASSESSMENT
YEARS 2004-2005 TO 2007-08
EXHIBIT P7 A TRUE COPY OF THE ORDER OF THE TRIBUNAL
DATED 04-08-2015
