2015 (9) TMI 1213 - HC - VAT and Sales Tax

Constitutional validity of Levy of Cess on every wedding and connected celebrations conducted in hotels, having classification of Three Star and above and in auditoriums which have a seating capacity, including that of dining halls, above 500 - legislative power to levy cess - object of raising the required revenue to form a matrimony fund for girls, from economically weaker sections. - The petitioners also bring to focus the fact of the specific activity being covered under the Finance Act, 1994 and the Kerala Tax on Luxuries Act, 1976 for brevity Act of 1976 , which levies tax in the nature of tax on luxuries . Held that - The levy is only on the event of renting out a Three Star hotel or an auditorium; that too, only when it is rented out specifically for weddings or connected ceremonies. Unless the (taxing) event of renting for wedding occurs, there is no levy and that cannot be sustained as a levy on the building as such. The correlation to Entry 62 List II also cannot be sustained, since there is already a levy by virtue of the Act of 1976, on the activities for which the Three Star hotels or auditoriums, covered under the impugned enactment are taxed. Any amenity or service provided in a hotel, auditorium or kalyanamantapam where the rate of charges for such amenity or service is above a specified limit; are deemed to be luxury and is taxed under Entry 62. The tax levied is on the aspect of luxury enjoyed. The fees now sought to be levied, tracing the power to Entry 66 List II and correlating it with Entry 62, cannot be sustained in view of the specific intention professed for providing marriage assistance to the under-privileged. This is not to say that good intentions of the Government alone could sustain the levy. Taxing the haves to enrich the have-nots though an extolled virtue; it has certain restrictions when applied to a system built on rule of law. While exercising powers of taxation under a constitutional framework, State can ill afford to put on the mantle of a Robin Hood. The primary object and the essential purpose of the levy as also the ultimate result is the constitution of a fund; Mangalya Nidhi , to assist the under-privileged women, in getting married. There is absolutely no service offered and no regulatory measure employed. The levy definitely is not a fee and can only be treated as a tax; for which the source is unavailable under any of the fields of legislation enumerated in the Seventh Schedule to the Constitution of India. The State Legislature has to be found to be incompetent to enact the impugned legislation under Article 246 of the Constitution of India. The impugned legislation in so far as it relates to Section 11 of the Kerala Finance Act, 2013 and Rules framed thereunder, is ultra vires the powers of the State Legislature as conferred by the Constitution of India and the State is restrained from levying and collecting the cess in accordance with such enactment. - Decided in favor of petitioners.

Summary

Issues Involved:
1. Constitutionality of the levy of cess on weddings and connected celebrations in certain hotels and auditoriums.
2. Competence of the State Legislature under Article 246 of the Constitution of India to impose such cess.
3. Allegations of discrimination and arbitrariness in the levy.
4. Nature of the levy - whether it is a tax or a fee.
5. Validity of the levy in the absence of specific rules during the interregnum period.
6. Refund of the collected cess.

Issue-wise Detailed Analysis:

1. Constitutionality of the Levy of Cess:
The writ petitions challenge the imposition and levy of a "cess" on weddings and related celebrations conducted in hotels classified as "Three Star" and above and in auditoriums with a seating capacity above 500. The levy was intended to raise revenue for a "matrimony fund" for economically weaker sections. The petitioners, owners of such hotels and auditoriums, argue that the levy is impermissible under Article 246 of the Constitution of India, and further impugn it on grounds of discrimination and arbitrariness.

2. Competence of the State Legislature:
The petitioners argue that the State Legislature lacks the specific power under the constitutional scheme to impose such a tax on wedding ceremonies. They contend that none of the entries in List II and List III of the Seventh Schedule authorizes the State Legislature to enact such legislation. The levy cannot be considered a fee as there is neither quid pro quo nor a regulatory measure. The State, on the other hand, asserts that the levy is a fee under Entry 66 of List II and correlates it with Entry 49 and Entry 62 of List II, or alternatively under Entry 47 correlated with Entry 5 of List III.

3. Allegations of Discrimination and Arbitrariness:
The petitioners highlight the clear discrimination in excluding weddings conducted in other venues, such as religious institutions and open areas with temporary structures. They argue that the renting of auditoriums and hotels for various purposes should not single out weddings alone for the levy. The court notes that the levy is arbitrary and discriminatory, as it targets only weddings and not other events held in similar venues.

4. Nature of the Levy - Tax or Fee:
The court examines whether the levy is a tax or a fee. The State claims it is a fee under Entry 66 of List II. The court, however, finds no service offered or regulatory measure employed by the State to justify the levy as a fee. The court concludes that the levy is, in effect, a tax, which is outside the scope and powers of the State Legislature under the constitutional framework.

5. Validity of the Levy in the Absence of Specific Rules:
The petitioners argue that the collection and levy of the cess were not operative during the interregnum period when there were no rules, due to the lack of machinery provisions. The court does not delve deeply into this issue as it finds the entire levy unconstitutional.

6. Refund of the Collected Cess:
The court notes that more than Rupees Four Crores were collected under the enactment before the stay. Refunds are to be made to those petitioners who are owners of hotels or auditoriums and have paid the levy but not collected it from individuals who rented the premises. The amounts collected from non-petitioners shall be retained by the State and used only for welfare purposes.

Conclusion:
The impugned legislation, specifically Section 11 of the Kerala Finance Act, 2013, and the rules framed thereunder, are declared ultra vires the powers of the State Legislature under Article 246 of the Constitution of India. The State is restrained from levying and collecting the cess in accordance with the said enactment. The writ petitions are allowed, and parties are directed to bear their respective costs.