2012 (5) TMI 873 - HC - Indian Laws

Summary

Issues Involved:
1. Constitutional validity of the Kerala Tax on Luxuries Act, 1976 (KTL Act), particularly Sections 4, 10, 15, and 16.
2. Challenge to revised assessment orders under Section 6(5) of the KTL Act.
3. Inclusion of charges for Ayurveda treatment, Laundry services, Beauty parlor, Boating, Travel arrangements, and Swimming pool in taxable turnover.
4. Retrospective application of Section 6(5) of the KTL Act.
5. Alleged discrimination in taxing services provided by outside agencies through hotels.
6. Interpretation and application of the proviso to Section 4(2) of the KTL Act.
7. Validity of the assessment orders based on change of opinion.
8. Alleged violation of principles of natural justice.
9. Limitation period for revised assessment orders.
10. Liability for interest on revised tax assessments.

Detailed Analysis:

1. Constitutional Validity of the KTL Act:
The primary challenge was against the constitutional validity of Sections 4, 10, 15, and 16 of the KTL Act. The court upheld the validity of the statute, stating that the power of the State to tax luxury under Entry 62 of List II of the 7th Schedule is distinct from the Central Government's power to tax services under Entry 92C of List I. The court referenced the Supreme Court's decision in Federation of Hotel & Restaurant Association of India and Others v. Union of India and Others, which upheld similar state enactments.

2. Challenge to Revised Assessment Orders under Section 6(5):
The revised assessment orders were challenged on the grounds that Section 6(5) was introduced only on 28/08/2005 and could not be applied retrospectively. The court found that the original assessment orders were passed after this date, making the revised assessments valid. The court emphasized that the provision for assessing escaped turnover was meant to protect revenue and was applicable to turnovers that escaped earlier assessments.

3. Inclusion of Charges in Taxable Turnover:
The court held that charges collected for Ayurveda treatment, Laundry services, Beauty parlor, Boating, Travel arrangements, and Swimming pool were exigible to luxury tax. The court referenced previous judgments, including Casino Hotels v. State of Kerala and Kovalam Ashok Beach Resort Hotel v. Sales Tax Officer, which confirmed that such charges were part of the taxable turnover under the KTL Act.

4. Retrospective Application of Section 6(5):
The court rejected the argument that Section 6(5) could not be applied retrospectively. It noted that the original assessment orders were passed after the provision was enacted, and thus, the revised assessments were valid. The court referenced the General Clauses Act and relevant case law to support its conclusion.

5. Alleged Discrimination in Taxing Services:
The petitioners argued that services provided by outside agencies through hotels should not be taxed. The court dismissed this argument, stating that the services provided by the hotel, whether directly or through outside agencies, were part of the taxable turnover. The court emphasized that the statute's broad definition of "luxury" included all amenities and services provided in a hotel.

6. Proviso to Section 4(2) of the KTL Act:
The court examined the proviso added to Section 4(2) by the Finance Act, 2007, which excluded charges for services rendered outside the hotel premises from luxury tax. The court held that this proviso was declaratory and applicable only from 01/04/2007, not retrospectively.

7. Validity of Assessment Orders Based on Change of Opinion:
The court found that the revised assessment orders were not based on a mere change of opinion but were necessitated by the realization that a significant portion of the turnover had escaped assessment. The court noted that the same officer who passed the original orders issued the revised assessments, further validating the process.

8. Alleged Violation of Principles of Natural Justice:
The court addressed the petitioners' claim that they were not given a proper opportunity for a personal hearing. It found that the petitioners did not request a personal hearing in their objections and that the revised orders were passed based on the available records. The court concluded that there was no violation of natural justice.

9. Limitation Period for Revised Assessment Orders:
The court rejected the plea of limitation, stating that the revised assessment orders were issued within the prescribed time limits. It referenced the second proviso to Section 6(4) and sub-section (5) of Section 6, which allowed assessments to be completed within five years.

10. Liability for Interest on Revised Tax Assessments:
The court held that interest could only be demanded for the actual period of default, as clarified in Casino Hotels v. State of Kerala. It ordered the assessing officer to revise the demand for interest accordingly.

Conclusion:
The court dismissed all writ petitions challenging the validity of the KTL Act and the revised assessment orders. It upheld the statute's constitutionality and the revised assessments, with a directive to adjust the interest demand as per the established legal principles.