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SERVICE TAX ON HOTELS AND RESTAURANTS RECENT DELHI HIGH COURT JUDGMENT

Service Tax - By: - Dr. Sanjiv Agarwal - Dated:- 19-10-2016 Last Replied Date:- 21-10-2016 - Prior to 1st July 2012, short term accommodation (upto three months) provided by hotels, inn, guest house, club or campsite, by whatever name called, for providing of accommodation for continuous period of less than three months were exigible to Service Tax under Section 65(105) (zzzzw) of the Finance Act, 1994. Also, Service Tax was payable on provision to any person by restaurant having facility of air .....

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ty wherein goods, being food or any other article of human consumption or any drink supplied in any manner as a part of the activity, are taxable for the purpose of Service Tax. Under the negative list regime, the taxability of hotel and restaurant services are subject to following exemptions - Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the es .....

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les, 2006 w.e.f. 1.7.2012 by the amendment rules of 2012. The value of service in this case shall be determined as per Rule 2C of the Service Tax (Determination of Value) Rules, 2006. In terms of the said rule, value of the service portion shall be determined in the following manner:- Value of service portion….. Shall be ….. percentage of the total amount charged: In a restaurant 40 By an outdoor caterer 60 Total amount (referred to in the second column of the table above) means th .....

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al amount, as the case may be. In Ballal Auto Agency v. Union of India 2014 (11) TMI 1021 - KARNATAKA HIGH COURT , it was held that services of restaurants, hotels, inns, guest houses of clubs with air conditioning facility are liable to service tax and Parliament is competent to levy it. The High court confirmed the legislative competence of Union by placing relevance on aspects theory whereby the same transaction can have two taxable events of different nature. Under this theory, the taxes are .....

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Tax on hotels etc for accommodation deserve to be struck down. In case of hotels etc which are also subject to levy of state luxury tax, it has been held that accommodation in hotels is a taxable event that is fully covered by the term 'luxuries' in Entry No. 62 of List-II of the Constitution of India and therefore, outside the legislative competence of Parliament. The provision of short term accommodation of less than three months is not exempt from luxury tax. For both, taxable event .....

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he term 'luxuries' in Entry 62 of List II of the Seventh Schedule to the Constitu­tion and therefore, outside the legislative competence of Parliament. Section 65(105)(zzzzw) of the Finance Act, 1994 fails the foremost test of constitutionality of a Union tax as highlighted in International Tourist Cor­poration v. State of Haryana 1980 (12) TMI 191 - SUPREME COURT , that before exclusive legislative competence can be claimed for Parliament by resort to the residuary power, the le .....

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out of service portion of composite contract of supply of food and drinks has sound constitutional basis. Even if this is viewed as Par­liament deploying legal fiction, it is legally permissible. Key expression in Article 366(29A)(f) of the Constitution of India is not just 'supply' but 'sup­ply of goods', which connotes that dominant nature of transaction is transfer, delivery or supply of goods and provision of service is only incidental to such transfer, delivery or s .....

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