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Service Tax on AC Restaurant

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2014-VIL-340-KER-ST

UNION OF INDIA Vs KERALA BAR HOTELS ASSOCIATION

Finance Act, 1994 - Sub-clauses (zzzzv) and (zzzzw) of Clause 105 of Section 65 - Service Tax on restaurants having the facility of air-conditioning – Splitting of service and sale in the transaction of supply of food in a restaurant - Legislative competence – HELD – Sub-clause (zzzzv) of Clause 105 of Section 65 of the Finance Act, 1994, relates to the supply of food and other consumables in restaurants, after the Constitution (Forty Sixth Amendment) Act, the said activity is deemed as a sale of goods. After the Constitution (Forty Sixth Amendment) Act, it cannot be said that it is an activity of service. When the said activity is deemed to be a sale of the food and other articles of human consumption, by a constitutional definition, tax on the said activity can be imposed only by the States in view of Entry 54 in List II of the Seventh Schedule - The matter covered by sub-clause (zzzzv) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011 is a matter enumerated in Entry 54 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter - Service Tax on Hotel accommodation under sub-clause (zzzzw) - Kerala Tax on Luxuries Act - The matter covered by sub-clause (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011, is a matter enumerated in Entry 62 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter - Difference in view - Bombay High Court order - Since the whole of the consideration received by a restaurant owner for supply of food and other articles of the human consumption, including the service part of the transaction, is exigible to tax by the State by virtue of the constitutional definition, it is not open to the Union to characterise the same transaction as a service for imposition and levy of service tax. We are, therefore, unable to agree with the view taken by the Bombay High Court - No error in the order of Single Judge holding levy of Service Tax as beyond the legislative competence – Writ Appeal by revenue is dismissed - Appeal dismissed

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