[2014] 51 taxmann.com 365 (Kerala) Union of India vs. Kerala Bar Hotels Association, Cochin

Facts:
The department filed appeal against judgment of the single judge in case of [2013] 35 taxmann.com 568 (Ker) Kerala Classified Hotels & Resorts Association vs. UOI in which (i) levy of service tax on restaurants; and (ii) levy of service tax on renting of hotels was held as unconstitutional as it was challenged that the Union is incompetent to levy service tax on “Restaurant Service” [65(105)(zzzzv)] and “short-term accommodation service” [65(105)(zzzzw)].

Held:
The High Court observed in regard to the restaurant service that prior to 46th Constitutional amendment in relation to supply of food and beverages in a restaurant, the law was that the whole transaction is a service and therefore, the same would not come within the scope of “sale of goods”, for the purpose of imposition and levy of tax by the States. However, as a result of amendment in Article 366 (29A) (f), supply of goods, by way of service or otherwise, being food and other articles of human consumption, were deemed to be sale of those goods by the person making the transfer or supply to whom such transfer or supply is made. Relying upon decision in the case of K. Damodarasamy Naidu & Bros. vs. State of Tamil Nadu [2000] 117 STC 1, the High Court held that by virtue of the Constitution (Forty Sixth Amendment) Act, supply of food and beverages in a restaurant was also deemed to be a sale, conferring authority on the States to tax on the whole consideration received by the person making the supply of food and beverages. In other words, in view of the aforesaid constitutional amendment, it cannot be said that there is any service involved in the supply of food and other articles of human consumption in a restaurant. The High Court therefore affirmed the decision of the single bench. The High Court distinguished the decision of Tamil Nadu Kalyana Mandapam Assn. vs. Union of India [2006] 4 STT 308 (SC), on the ground that, it dealt with the variety of services extended by such mandap keepers to their customers and does not deal with the supply of food in a restaurant. The supply of food and other consumables in a restaurant cannot be equated with the services rendered by a mandap keeper in relation to the use of mandaps and also the services, if any, rendered by him as a caterer. The High Court did not agree with the decision of the Bombay High Court in the case of Indian Hotels & Restaurant Association vs. Union of India [2014] 44 taxmann.com 455 (Bom.).

As regards service tax on short-term accommodation service, the High Court after analysing the provisions of Kerala Tax on Luxuries Act and following the decision of the Supreme Court in case of [2005] 2 SCC 515 Godfrey Phillips India Ltd. vs. State of U.P. held that the matter covered by section 65 (105)(zzzzw) is a matter enumerated in Entry 62 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter and therefore cannot be liable to service tax.