2011 (9) TMI 895 - HC - VAT and Sales Tax

Liability to pay luxury tax on halls used for conducting birthdays anniversaries and get-togethers for which requisite charges are collected - Held that - a club is not included in the hotel as on today. Section 3B applies only to hotels and not to clubs. Therefore the impugned order passed by the authorities levying luxury tax under section 3B of the Act on the club is one without authority of law and cannot be sustained. Accordingly all the impugned orders are set aside. However it is made clear that this order is subject to the ultimate decision to be rendered by the apex court - Following decision of Century Club v. State of Karnataka 2005 (9) TMI 611 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Whether the assessee is liable to pay luxury tax on halls used for events under the Karnataka Tax on Luxuries Act, 1979.
2. Interpretation of Section 3B of the Act in relation to the definition of "hotel" and its applicability to clubs.
3. Challenge against the definition of "hotel" to include clubs and its impact on the levy of luxury tax.

Analysis:
1. The assessee, a cultural association, filed a revision petition against the Karnataka Appellate Tribunal's order, which held them liable to pay luxury tax on halls used for events like birthdays and anniversaries. The Tribunal upheld the tax levy, which was challenged by the assessee, arguing that the requirements under Section 3B were not met as the halls were rented only to members for specific events. The High Court examined the provisions of the Act and found that Section 3B applies to hotels only, not clubs. The court set aside the orders imposing luxury tax on the club, emphasizing that the levy was without legal authority.

2. Section 3B of the Act imposes a tax on luxuries provided in a hotel, including facilities like conference halls, health clubs, etc. The definition of "hotel" under the Act encompasses lodging establishments provided for a consideration, which also includes clubs. However, the court referred to a previous judgment where the inclusion of clubs in the definition of "hotel" was challenged. The Division Bench had ruled that clubs cannot be equated to hotels for the purpose of levying luxury tax. The High Court reiterated this position, stating that as per the current legal stance, clubs are not considered hotels under the Act, thereby not subject to the provisions of Section 3B.

3. The challenge against the definition of "hotel" to include clubs was significant in this case. The court highlighted the Division Bench's decision that clubs do not fall under the purview of luxury tax as applied to hotels. The State had appealed this decision to the apex court, and the matter was pending consideration. The High Court's judgment, setting aside the tax levy on the club, was subject to the final decision of the apex court. The court emphasized that until the apex court's ruling, the orders passed against the club for luxury tax were not legally sustainable. The High Court allowed the revision petition, quashed the impugned orders, and directed compliance with the apex court's decision once pronounced.