2016 (7) TMI 1157 - HC - VAT and Sales Tax

Validity of levy of VAT on services provided at restaurant / hotels - Claim of exemption - In his submission, if exemption is available to liquor shop or wine dealer, there is no reason why the restaurant or hotel where liquor is being provided/sold would be deprived of the benefit of exemption. Another contention raised by the learned Counsel for the appellant was that under Karnataka Value Added Tax Act, 2003 (herein after referred to as the Act), there is no power to levy tax on the services provided, or the extra charges levied by the bar and restaurant for the liquor being served together with the refreshments or without refreshments. Held that - It is well settled that when the exemption is to be claimed, strict interpretation would be called for. Further, if the exemption is assailed or the exemption is denied to a particular class of the persons or the dealer, the test would be, whether there was reasonable classification made out and whether such classification is based on intelligible differentia or not. The liquor or wine is subjected to tax at a different price and different consideration to the consumer in contra distinction to a sale by a dealer to a consumer of liquor or wine in a packed form of bottle or container. Under these circumstances, the classification made by the Legislature while granting exemption cannot be said to be on irrational basis, but it can be said that the dealer of liquor or wine is not similarly situated as that of the owner of bar and restaurant with C.L.9 licence, because as we recorded earlier, the manner of sale in a packed product, that too in an intact condition as made by the manufacturer, cannot be equated, nor can be said to be similarly situated with the person who is vending liquor or wine by holding C.L.9 licence in a bar and restaurant. When we find that there is a rational classification with the intelligible differentia, this Court cannot substitute its own reason, unless the Court finds that such classification is highly irrational or there is no any intelligible differentia at all. In the present case, we do not find that such condition is satisfied. Therefore, the contention raised for discrimination in the grant of exemption cannot be accepted. As recorded by us herein above, what is being marketed by applying the test of common parlance, is the peg/s of the liquor or wine and not a bottle of wine or liquor in packed form. Hence, we find that applying the test of common parlance, it cannot be said that the State has indirectly tried to levy tax for the services provided or the ambience provided by the person holding C.L.9 licence for vending liquor or wine or fenny or beer. Hence, we find that the said contention also cannot be accepted. Decided against the assessee.

Summary

Issues Involved:
1. Discrimination in the grant of exemption by the State.
2. Power to levy tax on services under the Karnataka Value Added Tax Act, 2003.

Issue-wise Detailed Analysis:

1. Discrimination in the Grant of Exemption by the State:

The appellant argued that there was discrimination in the grant of exemption by the State, as the appellant held a C.L.9 license for vending in the City Municipal Corporation area. They contended that if exemptions were available to liquor shops or wine dealers, there was no reason why restaurants or hotels where liquor is sold should be deprived of the exemption benefit.

The court examined the earlier decision dated 30-9-2015, which dismissed similar petitions. It was noted that the impugned notification exempted tax payable on the "sale of liquor" and not the dealer per se. The court highlighted that Section 5(1) of the KVAT Act allows for exemptions subject to conditions specified in the notification. The court reasoned that the classification based on the type of license (e.g., C.L.9 for bars/restaurants versus other licenses for liquor shops) was rational. The court held that the nature of sales (e.g., pegs of liquor in bars versus whole bottles in shops) justified different tax treatments, and the classification was not arbitrary but based on intelligible differentia. The court concluded that the appellant's contention of discrimination lacked merit.

2. Power to Levy Tax on Services Under the Karnataka Value Added Tax Act, 2003:

The appellant contended that under the Karnataka Value Added Tax Act, 2003, there was no power to levy tax on services provided or extra charges levied by bars and restaurants for liquor served with or without refreshments. They argued that tax should only be levied on goods, not on services or ambience provided.

The court clarified that the State, while granting exemptions, did not refer to services or ambience provided by bars/restaurants. The court emphasized that tax under the Act is levied on goods, not services. The court applied the common parlance test, noting that goods change form when marketed differently (e.g., pegs of liquor in bars versus bottles in shops). The court found that the State did not indirectly levy tax on services or ambience but rather on the goods as marketed. Consequently, the appellant's contention was found to be misconceived and was rejected.

Conclusion:

The court upheld the classification made by the Legislature as rational and based on intelligible differentia. It found no merit in the appellant's contentions regarding discrimination and the power to levy tax on services. The appeal was dismissed, affirming the earlier decision.