2016 (10) TMI 1185 - HC - VAT and Sales Tax

Levy of Luxury Tax - Validity of assessment order - penalty - proceedings were taken by the assessing officer alleging escapement of turnover of service tax on the ground that during the period 2004-05 and 2005-06, certain service charges were collected, but tax was not paid - Kerala Tax on Luxuries Act, 1976 - Held that - the issue is well covered on a bare reading of the provision itself, which gives a clearly indication that luxury tax can be levied on the services as stated by the assessing officer in Ext.P1 order. It is clear that other than the charges for food and liquor, all other services are liable to be taxed. That apart, the assessee in the bills had clearly indicated that they have collected service charges in addition to the charges for liquor. There is no deliberate attempt on the part of the respondent in not paying the tax and it had occurred only on account of mistake of the factual circumstances involved in the matter - penalty not leviable. Petition disposed off.

Summary

Issues:
Challenge to order setting aside assessment and penalty orders under Kerala Tax on Luxuries Act, 1976.

Analysis:
The petitioner, the State, challenged the order passed by the Tribunal setting aside the assessment and penalty orders issued against the respondent, who operates a bar attached hotel. The assessing officer alleged an escapement of turnover of service tax due to non-payment of tax on service charges collected from customers consuming liquor in hotel rooms during 2004-05 and 2005-06. The assessment orders were passed, and penalty proceedings were initiated under Section 17A of the Act, imposing double the tax amount as penalty. The appellate authority reduced the penalty to half the tax amount, leading to the Tribunal setting aside both the assessment and penalty orders.

The main contention raised by the State was that the Tribunal's decision was based on the absence of a provision in the Act to demand service charges for serving liquor in hotel rooms. The State argued that the levy of luxury tax itself clarified this point, citing Section 4(1) and 4(2)(a) of the Act, which specify that luxury tax is applicable to services provided in hotels excluding food and liquor. Referring to the definitions of 'hotel' and 'luxury' under Section 2(e) of the Act, the State emphasized that all services in a hotel, except food and liquor, are subject to luxury tax. This interpretation was supported by precedents like Casino Hotel v. State of Kerala and M/s. Windsor Castle v. Commercial Tax Officer.

On the other hand, the respondent contended that there was no basis for charging luxury tax on services provided in hotel rooms where liquor was served. The respondent argued that since charges for food and liquor were exempted, all related charges should also be exempt, and there was no deliberate attempt to evade tax. The respondent claimed that the service charges collected were in connection with food and liquor consumption, not for standalone services.

After considering the arguments and examining the records, the Court held that luxury tax could be levied on services apart from food and liquor in hotels. The bills presented by the respondent clearly indicated the collection of service charges in addition to liquor charges, affirming the liability for luxury tax. While setting aside the Tribunal's order, the Court acknowledged that there was no deliberate tax evasion by the respondent, attributing the non-payment to factual misunderstandings. Consequently, the penalty was waived, and the assessment and appellate orders were upheld, except for the orders related to penalty.

In conclusion, the writ petition was partly allowed, setting aside the Tribunal's decision on assessment and appellate orders while confirming the penalty orders due to the factual circumstances surrounding the case.