Kerala HC holds Service Tax on AC Bar Restaurants & Hotels as Unconstitutional

The constitutional validity of the aforesaid amendment as made by the Finance Act, 2011 was challenged before the Hon’ble Kerala High Court by “the Kerala Classified Hotels and Resorts Association” vide WP(C) 14045 of 2011 and other Hotels and Restaurants contending that the aforesaid levy by the Central Government deviates form the subject matter falling under Entry 54 (Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I) and Entry 62 (Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling) respectively of the List II (State List) of the Seventh Schedule of the Constitution and therefore beyond the legislative competence of the Parliament.

The Hon’ble High Court at the time of admission had granted stay against any coercive steps for recovery of service tax or against any proceedings for imposing penalty for a period of 2 months, which was later extended until further orders.

The matter was finally heard by the Honourable Kerala High Court and has pronounced the judgment on July 3, 2013 allowing the writ petitions and held:
• It is declared that Sub Clause (zzzzv) (for Restaurants) and (zzzzw) (for Hotels) to Clause 105 of section 65 of the Finance Act 1994 as amended by the Finance Act 2011 is beyond the legislative competence of the Parliament as the clauses are covered by Entry 54 and Entry 62 respectively of List II of Seventh Schedule.
• That, if any payments have been made by the petitioners on the basis of the impugned clauses, they are entitled to seek refund of the same.

To view complete judgement kerala HC holds Service tax on Hotels & Bars as unconstitutional