1990 (2) TMI 259 - SC - VAT and Sales Tax

DISCRIMINATION SALE OF COOKED FOOD TAX IMPOSED ON SALE OF COOKED FOOD IN POSH HOTELS AND RESTAURANTS

Issues Involved:
1. Constitutional validity of sales tax imposition on cooked food in luxury hotels while exempting modest eating houses.
2. Allegation of hostile discrimination under Article 14 of the Constitution.
3. Classification of sales tax based on the status of the hotel or restaurant.
4. Nexus between classification and the object sought to be achieved.
5. Analysis of statutory provisions under Kerala and Tamil Nadu Acts.
6. Judicial precedents on valid classification in taxation statutes.

Detailed Analysis:

1. Constitutional Validity of Sales Tax Imposition on Cooked Food in Luxury Hotels:
The core issue revolves around whether the imposition of sales tax on cooked food in luxury hotels, while exempting modest eating houses, violates the equality guarantee under the Constitution. The Kerala High Court upheld the tax imposition, while the Madras High Court found it discriminatory.

2. Allegation of Hostile Discrimination:
The contention is that the tax burden should be shared equally by all consumers of cooked food, and not selectively imposed on the affluent who frequent luxury hotels. The argument is that the common purpose of cooked food, regardless of where it is sold, is to appease hunger, and thus, taxing based on the place of sale is discriminatory.

3. Classification of Sales Tax Based on Status of the Hotel or Restaurant:
The judgment emphasizes that it is well-settled that in order to tax something, it is not necessary to tax everything. The classification must be based on an intelligible differentia and have a rational nexus with the object sought to be achieved. The Court found that the classification based on the status of the hotel or restaurant (luxury vs. modest) is permissible as it aims to tax only the more costly cooked food consumed by the affluent, thereby not burdening the common man.

4. Nexus Between Classification and Object Sought to be Achieved:
The object is to raise revenue from taxing the sale of costlier food alone, placing the burden on the affluent. The Court held that the classification bears a rational nexus with this object, as it aims to achieve economic and social justice by taxing those who can bear the burden. The classification is reasonable and does not violate Article 14 of the Constitution.

5. Analysis of Statutory Provisions Under Kerala and Tamil Nadu Acts:
- Kerala Act: The Kerala General Sales Tax Act, 1963, was amended to impose sales tax on cooked food sold in luxury hotels while exempting modest eating houses. The Kerala Finance Act, 1987, further amended the provisions, which were upheld by the Kerala High Court.
- Tamil Nadu Act: The Tamil Nadu General Sales Tax Act, 1959, was amended to impose sales tax on food and drinks sold in three-star and above hotels. The Madras High Court found this discriminatory, but the Supreme Court upheld the classification.

6. Judicial Precedents on Valid Classification in Taxation Statutes:
The Court referred to several precedents, emphasizing that classification in taxation laws is permissible if it is based on an intelligible differentia and has a rational nexus with the object sought to be achieved. The Court cited cases like Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh and S. Kodar v. State of Kerala, which upheld classifications based on economic superiority and ability to pay tax.

Conclusion:
The Supreme Court held that the classification of taxing only the sale of costlier cooked food in luxury hotels while exempting modest eating houses is valid. The classification is based on an intelligible differentia and has a rational nexus with the object of raising revenue from those who can bear the burden. The challenge to the constitutional validity of the impugned provisions in both Kerala and Tamil Nadu Acts was rejected. Consequently, the appeals against the Kerala High Court judgment were dismissed, and the appeals against the Madras High Court judgment were allowed, resulting in the dismissal of the writ petitions challenging the levy.

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