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Issues Involved
1. Constitutionality of the amendments to sections 2 to 5, 7, and 15 of the Expenditure Tax Act, 1987, by the Finance (No. 2) Act, 1991. 2. Legislative competence of the Parliament to enact the law. 3. Violation of Article 14 of the Constitution due to arbitrary classification. 4. Violation of Article 21 concerning the right to life and dignity. 5. Impact on business and customers due to the imposition of expenditure tax. Issue-Wise Detailed Analysis Constitutionality of the Amendments The amendments made by the Finance (No. 2) Act, 1991, extended the scope of the Expenditure Tax Act, 1987, to include restaurants with air-conditioning facilities. The petitioners challenged the amendments, arguing that the classification of air-conditioned restaurants for tax imposition lacked rationality and violated Article 14. However, the court found no merit in this argument, stating that the amendments were consistent with the Act's objective to curb unproductive expenditure. Legislative Competence of the Parliament The petitioners contended that the tax imposed was essentially a tax on the sale or purchase of goods, falling under Entry 54 of List II, and thus outside the legislative competence of the Union Parliament. The court rejected this contention, referencing the Supreme Court's decision in Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97, which upheld the Parliament's competence to enact the Expenditure Tax Act, 1987. The court reiterated that the expenditure aspect of the transaction fell within the Union's power and did not infringe upon the State Legislature's domain. Violation of Article 14 The petitioners argued that the classification of air-conditioned restaurants unconnected with hotels for tax purposes was arbitrary and violated Article 14. The court dismissed this argument, clarifying that even before the 1991 amendment, expenditure in air-conditioned restaurants within hotels was taxable under the 1987 Act. The court emphasized that the amendments merely extended the tax to standalone air-conditioned restaurants, maintaining consistency with the Act's objective. Violation of Article 21 The petitioners claimed that taxing essential food items in air-conditioned restaurants violated the right to life and dignity under Article 21. The court found this argument to be based on "imaginary and fanciful notions" of Article 21. It stated that air-conditioned restaurants are not essential for ordinary people and that the tax aimed to curb wasteful expenditure by targeting those with the economic capacity to afford such luxuries. Impact on Business and Customers The petitioners argued that the expenditure tax would lead to a loss of business and deter customers due to increased costs. The court dismissed this argument, referencing the Supreme Court's observation in Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97, that the mere excessiveness of a tax does not constitute a violation of Article 19(1)(g). The court noted that none of the petitioners provided evidence of actual financial loss due to the tax. Conclusion The court upheld the constitutionality of the amendments to the Expenditure Tax Act, 1987, rejecting all contentions raised by the petitioners. The amendments were found to be within the legislative competence of the Parliament, did not violate Articles 14 or 21, and did not unjustly impact the petitioners' businesses. All writ petitions were dismissed.
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