1993 (7) TMI 319 - HC - VAT and Sales Tax

Issues Involved:
1. Authority of the State to levy sales tax on food and beverages supplied in hotels/restaurants.
2. Validity of the Forty-sixth Amendment to the Constitution.
3. Validity of entries in the Bombay Sales Tax Act, 1959, imposing sales tax on food articles supplied in hotels/restaurants.
4. Alleged violation of Article 14 of the Constitution due to discriminatory tax rates in old entry 22.
5. Alleged violation of Article 14 of the Constitution due to discriminatory classification of hotels/restaurants in new entries 22 and 22A.

Detailed Analysis:

1. Authority of the State to Levy Sales Tax on Food and Beverages Supplied in Hotels/Restaurants:
The petitioner, a private limited company engaged in the hotel business, challenged the State's authority to levy sales tax on food and beverages supplied in its hotels. The Court noted that the levy of sales tax on food served in hotels/restaurants has been a longstanding practice under the Bombay Sales Tax Act, 1959, and its predecessor, the Bombay Sales Tax Act, 1946. The Court upheld the State's authority to levy such a tax, referencing the historical context and legislative provisions.

2. Validity of the Forty-sixth Amendment to the Constitution:
The petitioner questioned the validity of the Forty-sixth Amendment, which allowed the State to levy sales tax on the supply of food in hotels/restaurants. The Court referred to the Supreme Court's judgment in Builders Association of India v. Union of India, which upheld the validity of the Forty-sixth Amendment. The Amendment enlarged the scope of entry 54 in List II, conferring legislative competence to the State Legislature with retrospective effect. The Court concluded that the challenge to the constitutional amendment did not survive.

3. Validity of Entries in the Bombay Sales Tax Act, 1959:
The petitioner contested the validity of old entry 22 and new entries 22 and 22A in Schedule "C" of the Bombay Sales Tax Act, 1959. The Court explained that these entries were amended to align with the constitutional amendment. The old entry 22 imposed a graded tax rate based on the total price of food and drinks served per person, while the new entries classified hotels/restaurants based on their star rating, imposing higher tax rates on establishments with a "three star" or above status. The Court found no arbitrariness or unreasonableness in these entries, stating that the tax rates were based on the "sale price" of food and drinks.

4. Alleged Violation of Article 14 Due to Discriminatory Tax Rates in Old Entry 22:
The petitioner argued that old entry 22 was discriminatory and violated Article 14 of the Constitution because it taxed the total price of food and drinks served at one time per person, rather than the sale of goods involved in the transaction. The Court rejected this argument, stating that the tax rate was based on the "sale price" and not on the total quantum of price. The Court emphasized that legislative policy determines tax rates and unless the statute is totally unreasonable or discriminatory, the Court should not interfere.

5. Alleged Violation of Article 14 Due to Discriminatory Classification of Hotels/Restaurants in New Entries 22 and 22A:
The petitioner contended that the classification of hotels/restaurants under the gradation of "three star" and above was discriminatory. The Court disagreed, stating that the classification was based on the facilities available in such establishments, which were recognized by the Tourism and Civil Aviation Department. The Court noted that the tariff in hotels depends on their star status, and the object of the tax was to target food sold at higher tariffs. The classification was found to have a rational nexus with the object of the Act and was upheld as constitutional.

Conclusion:
The Court dismissed the writ petition, upholding the validity of the Forty-sixth Amendment and the entries in the Bombay Sales Tax Act, 1959. The Court found no violation of Article 14 of the Constitution in the tax rates or the classification of hotels/restaurants. The petitioner's applications for leave to appeal to the Supreme Court and for continuation of interim relief were also rejected.

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