2011 (1) TMI 1250 - HC - VAT and Sales Tax

Whether the interpretation placed by the learned single judge on section 3D is correct or not? Held that - All the writ appeals are allowed.The interpretation placed by the learned single judge in so far as section 3D is concerned, is hereby set aside. Consequently, all the assessment orders passed by the authorities are restored. However, the orders imposing liability prior to March 1, 2003 cannot stand and consequently, it is set aside. If there are no assessment orders passed yet, the authorities are at liberty to issue proposition notices, hear the clubs and pass the assessment orders in accordance with law

Summary

Issues Involved:
1. Interpretation of Section 3D of the Karnataka Tax on Luxuries Act, 1979.
2. Constitutional validity of Section 3D.
3. Tax liability based on the provision of luxury facilities versus actual use by members.

Detailed Analysis:

1. Interpretation of Section 3D of the Karnataka Tax on Luxuries Act, 1979:
The primary issue in these writ appeals is the interpretation of Section 3D of the Karnataka Tax on Luxuries Act, 1979, which deals with the levy and collection of tax on luxuries provided in a club. The learned single judge interpreted the section to mean that tax is levied only on the member who utilizes the facility, not on the mere existence of the facility. However, the State contended that the tax liability arises when the club provides luxury facilities and members are required to pay any amount as a fee, deposit, or donation, irrespective of actual usage.

2. Constitutional Validity of Section 3D:
The respondents challenged the constitutional validity of Section 3D, but the learned single judge upheld its validity. This part of the judgment was not contested by the respondents in the appeals, and thus, the constitutional validity of Section 3D has attained finality.

3. Tax Liability Based on Provision of Luxury Facilities Versus Actual Use by Members:
The core question addressed in the appeals is whether the liability to pay luxury tax under Section 3D arises when the club provides luxury facilities and members are required to pay a fee, or only when the members actually use the facilities and pay the fee. The court examined the plain language of Section 3D, which specifies that tax is levied on luxuries provided in a club to members who are required to pay any amount as a fee, deposit, or donation. The court noted that the legislative intent is clear from the language used in the section, which does not indicate that the liability to pay tax arises only upon actual usage of the facilities.

The court referred to the precedent set by the Constitution Bench of the Supreme Court in Express Hotels Private Ltd. v. State of Gujarat, which held that the taxable event need not necessarily be the actual utilization or consumption of the luxury. The court emphasized that once the nexus between the taxing power and the subject of tax is established, the measure of the tax is a matter of legislative policy. The court concluded that the liability to pay luxury tax arises the moment the luxury is provided and members are required to pay for it, regardless of actual usage.

Final Judgment:
1. All the writ appeals are allowed.
2. The interpretation placed by the learned single judge on Section 3D is set aside.
3. All the assessment orders passed by the authorities are restored, except for those imposing liability prior to March 1, 2003, which are set aside. Authorities are at liberty to issue proposition notices and pass assessment orders in accordance with the law.