2005 (9) TMI 611 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of the Karnataka Tax on Luxuries Act, 1979, as amended by Karnataka Act No. 5 of 2000.
2. Definition and scope of the term "hotel" under the amended Act.
3. Legitimacy of retrospective application of the amended Act.
4. Alleged discrimination and violation of constitutional rights under Articles 14, 19, 265, 301, and 304(b) of the Constitution of India.

Detailed Analysis:

1. Constitutional Validity of the Amended Act:
The petitioners challenged the constitutional validity of the Karnataka Tax on Luxuries Act, 1979, as amended by Karnataka Act No. 5 of 2000. They argued that the amendment, which included clubs within the definition of "hotel," was a colorable piece of legislation encroaching upon judicial powers and violating Articles 14, 19, 265, 301, and 304(b) of the Constitution of India. The court, however, upheld the legislative competence of the State to enact such amendments. The court noted that the amendment aimed to augment state revenue and was within the legislative domain of the State under entry 62 of List II of Schedule VII to the Constitution.

2. Definition and Scope of "Hotel":
The amendment to Section 2(4) of the Act redefined "hotel" to include clubs, lodging houses, and holiday resorts, irrespective of whether the accommodation was provided in the course of business. The petitioners contended that this definition was artificial and that the Explanation added to the definition was at cross-purposes with the main clause. They argued that the Explanation should not alter the meaning of the main definition. The court, however, held that the Legislature was competent to define terms within the statute and that the Explanation served to clarify the legislative intent to include clubs within the tax net, irrespective of the business aspect.

3. Retrospective Application of the Amended Act:
The petitioners argued that the retrospective application of the amended definition was unconstitutional as it imposed tax liabilities for periods when the charging section did not cover such entities. They claimed this deprived them of the opportunity to pass on the tax liability to consumers. The court dismissed this argument, stating that the Legislature could enact laws with retrospective effect if it was within its competence and served a legitimate purpose. The court referenced the Supreme Court's decision in Widia (India) Ltd. v. State of Karnataka, which upheld the Legislature's power to amend laws retrospectively.

4. Alleged Discrimination and Violation of Constitutional Rights:
The petitioners argued that the amendment resulted in discriminatory treatment by taxing clubs differently from other entities providing lodging accommodation. They claimed this violated the equality clause under Article 14 and their right to carry on business under Article 19(1)(g). The court found that the classification of clubs as a distinct category for taxation purposes was reasonable and had a rational nexus to the object of the Act, which was to levy tax on luxury accommodations. The court cited the decision in Magaji Mhavarsa Kamakshi Bai v. Assistant Commissioner of Commercial Taxes, which upheld the Legislature's wide latitude in choosing subjects for taxation.

Conclusion:
The court concluded that the amendment to the Karnataka Tax on Luxuries Act, 1979, as introduced by Karnataka Act No. 5 of 2000, was constitutionally valid. The inclusion of clubs within the definition of "hotel" and the retrospective application of the amendment were upheld. The court dismissed the writ petitions, affirming the legislative competence and the reasonableness of the classification for taxation purposes.