2016 (11) TMI 83 - HC - VAT and Sales Tax

Vires of Rule 3 (2) (b) (ii) of the Delhi Tax on Luxury Rules, 1996 - bifurcation of consolidated bill amount - principle contained in Section (3) (5) of the Act - luxury tax in respect of turnover of receipts for supply of food, drinks and goods such as cosmetics, medicines, nutritional supplements etc. on the sale of which the proprietor is liable to pay tax under the Delhi Value Added Tax Act, 2004 - Held that - the revenue had suggested that there is a radical difference between the threshold required for luxury tax levy on the one hand and the DVAT levy on the other. This argument too has to fail. There is no doubt that in the present case, the thresholds are fulfilled. Furthermore, what is important is not the collection but the subjecting of the incidents of taxation. As long as the activity answers description provided by the legislature in the present instance of luxury, it would be subjected to tax. Equally, as long as there is a sale or transfer of goods or right to use the goods or other services which are purportedly a subject of VAT, that the dealer is subjected to actual levy and collection at a higher threshold is a matter of detail. The levy exists per se by legal definition. It is this aspect which is crucial rather than the existence of higher or lower threshold as is urged by the revenue - Rule 3 (2) (b) (ii) is ultra vires - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to the vires of Rule 3 (2) (b) (ii) of the Delhi Tax on Luxury Rules, 1996 by an association of Banquet Hall Owners under Article 226 of the Constitution.

Analysis:
The petitioner association contested the vires of Rule 3 (2) (b) (ii) of the Delhi Tax on Luxury Rules, 1996, arguing that it undermines the Luxury Act by requiring Banquet Hall Owners to include the entire turnover for luxury tax regardless of VAT levy. They relied on the Supreme Court judgment in Godfrey Phillips India Ltd. v. State of U.P. to support their claim that the impugned rule exceeds the rule-making power. The revenue, however, defended the rule, stating that it clarifies the treatment of consolidated bills and relies on the Kerala High Court decision in M Far Hotels Ltd. v. State of Kerala. They argued that the rule does not violate the Luxury Act and is a valid mechanism for luxury tax recovery.

The revenue further explained that the impugned rule aims to address situations where a consolidated bill is charged by banquet halls, treating 60% of the turnover as luxury component. They referred to the Supreme Court judgment in Kunj Behari Lal Butail v. State of H.P. to support the legality of the rule. The Luxury Act defines luxury and turnover of receipts, outlining the charging provisions and registration requirements for proprietors providing luxury services. Section 3 (5) excludes turnover of receipts for certain items subject to Delhi Value Added Tax Act, 2005. The court noted the overlap in taxation heads and the exclusionary principle under Section 3 (5) to avoid double taxation.

The court rejected the revenue's argument that the impugned rule supplements Section 3 (5), finding it ultravires. It distinguished the Kerala High Court judgment cited by the revenue and emphasized the importance of not supplanting the main Act with subordinate legislation. The court dismissed the revenue's argument on the aspect theory, stating it does not apply to conflicts within the same legislative domain. It emphasized that the key issue is the legal definition of taxable activities, not the differing thresholds for taxation. Ultimately, the court held Rule 3 (2) (b) (ii) as ultravires and set it aside, allowing the writ petition in favor of the petitioner association.