2002 (9) TMI 817 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Inclusion of outgoing telephone calls and laundry charges under luxury tax.
2. Validity of the circular issued by the Commissioner of Commercial Taxes.
3. Interpretation of sections 2(1), 2(5), and 3 of the Karnataka Tax on Luxuries Act, 1979.
4. Retrospective application of the amendment excluding telephone and laundry charges.

Issue-wise Detailed Analysis:

1. Inclusion of Outgoing Telephone Calls and Laundry Charges under Luxury Tax:
The court examined whether outgoing telephone calls and laundry charges should be included under luxury tax as per section 3(1) of the Karnataka Tax on Luxuries Act, 1979. It was determined that these charges are not compulsorily payable and thus should not be included under the luxury tax. The court noted that the statute specifically excludes charges for food and drinks, and by extension, it was inferred that separate charges for telephone and laundry should not be subjected to luxury tax unless explicitly stated by the Legislature.

2. Validity of the Circular Issued by the Commissioner of Commercial Taxes:
The court addressed the circular dated February 15, 1983, which excluded telephone charges from luxury tax. The learned single Judge had quashed this circular, but the High Court found that the circular was binding on the Revenue and that the learned single Judge erred in quashing it without a specific prayer from the Revenue. The court cited several Supreme Court judgments emphasizing that circulars issued by tax authorities are binding on the Revenue and should be followed for consistency and uniform application of the law.

3. Interpretation of Sections 2(1), 2(5), and 3 of the Karnataka Tax on Luxuries Act, 1979:
The court analyzed the definitions and provisions under sections 2(1), 2(5), and 3. Section 2(1) defines "charges for lodging" to include various amenities but excludes food and drinks. Section 2(5) defines "luxury provided in a hotel" to include compulsory charges for amenities like air-conditioning, telephone, and television, but excludes food and drinks. Section 3 is the charging section that levies luxury tax based on the rate card. The court concluded that these sections should be read harmoniously, and it was not the Legislature's intention to levy separate luxury tax on each amenity unless explicitly stated.

4. Retrospective Application of the Amendment Excluding Telephone and Laundry Charges:
The court considered the amendment brought by Karnataka Act No. 5 of 2000, effective from April 1, 2000, which excluded telephone calls, laundry, and other amenities from the definition of "charges for lodging." The court determined that this amendment was declaratory in nature, clarifying the Legislature's intention and could be applied retrospectively. The court held that the amendment was consistent with the earlier circular and aimed to remove any ambiguity regarding the inclusion of telephone and laundry charges under luxury tax.

Conclusion:
The High Court set aside the order of the learned single Judge, holding that telephone charges and laundry charges are not exigible to luxury tax separately in the absence of a specific charging section. The court emphasized the binding nature of the circular issued by the Commissioner of Commercial Taxes and the retrospective application of the amendment excluding these charges from luxury tax. The appeals by the State were dismissed, and no costs were awarded.