2011 (1) TMI 1292 - HC - VAT and Sales Tax

Whether the Sales Tax Appellate Tribunal was justified in holding that the respondent-hotel, which got classification as a three star hotel with effect from September 11, 2002, is not liable to pay tax on cooked food and beverages sold in the hotel at eight per cent under entry 46 of the First Schedule to the Kerala General Sales Tax Act, 1963 for any period prior to the date of granting star classification? Held that - Star hotels referred to in entry 46 only mean hotels classified to be a star hotel by the approval and classification committee con stituted by the Government of India. Admittedly, the respondent could not have collected tax at eight per cent for any sale of cooked food or beverages prior to September 11, 2002. In fact, if tax was collected under entry 46 for any period prior to September 11, 2002 then the respondent would have been liable for penal action. So much so, we feel that the star classification referred to in entry 46 is the star classification provided by the Tourism Department for recognition and approval of star hotels. Liability for tax on cooked food which is generally served in hotels is fixed under the statute with reference to the classification of hotels. In fact, only bar attached hotels and star hotels are specifically covered by entry 46. However other hotels engaged in sale of cooked food or beverages are covered by section 5B, which provides for collection of licence fee. In view of the provisions as above, we feel the respondent is liable for payment of tax at eight per cent under entry 46 from September 11, 2002 onwards, when the approval by the classification committee is made effective. For the periods until then, the responden

Summary

Issues:
- Interpretation of sales tax liability on cooked food and beverages sold in a hotel based on star classification.
- Applicability of entry 46 of the First Schedule to the Kerala General Sales Tax Act, 1963.
- Classification of a hotel as a star hotel and its impact on tax liability.
- Dispute regarding the effective date of star classification for tax purposes.

Analysis:
The primary issue in this case revolves around the interpretation of sales tax liability on cooked food and beverages sold in a hotel based on the hotel's star classification. The State filed a revision petition questioning the Sales Tax Appellate Tribunal's decision that a hotel, classified as a three-star hotel from a specific date, is not liable to pay tax on cooked food and beverages sold before that classification date. The respondent argued that tax liability for cooked food at eight per cent only starts from the date of star classification, not for any period prior to that. The State, however, contended that the hotel should be considered a star hotel from the beginning, irrespective of the official classification date, due to the maintained quality.

The court examined the provisions of section 5B and entry 46 of the First Schedule to the Act to determine the tax liability. Section 5B deals with the levy of license fee on cooked food, while entry 46 specifically covers cooked food and beverages not falling under other categories, sold in bar attached hotels and star hotels. The Government Pleader argued that the hotel maintained star quality from the beginning, thus should be taxed accordingly. Conversely, the respondent's counsel emphasized that star classification is granted based on specific norms by the Tourism Department, and tax liability should only commence post-official classification.

The court rejected the Government Pleader's argument, emphasizing that the Act does not empower sales tax authorities to confer star status to hotels; the Tourism Department is responsible for such classification. It clarified that the term "star hotels" in entry 46 refers to hotels classified as such by the Government of India's approval and classification committee. The court ruled that the respondent is liable for tax at eight per cent only from the date of official star classification, while before that, the hotel should pay license fees under section 5B.

In conclusion, the court upheld the Tribunal's decision, dismissing the State's sales tax revision case. The judgment clarifies that tax liability on cooked food in hotels is tied to the official star classification date, as determined by the Tourism Department, and not based on presumptions or maintained quality before classification.