Customer Care No.

91-1145562222

Service Tax on
Accommodation-Short Life
but Enormous Litigation
www.taxmann.com

2
Introduction
The constitutional validity of levy of service tax on
restaurants and short-term accommodation has been
challenged many times before different High Courts. The
issue has also travelled upto the Supreme Court. Moreover,
there are contrary opinions of different High Courts on the
issue which further adds fuel to the fire of litigation. The
service tax, being Central Law, is applicable uniformly
throughout India. If there are contrary decisions on the
constitutional validity of statutory provision, it puts the
hapless assessees in awkward position. This is for the reason
that it is believed that the assessees are bound to follow the
decisions rendered by their jurisdictional High Courts with
the consequence that the assessees are under delimma
whether to continue the practice of charging and collecting
service tax from their customers or to discontinue the
practice of collecting service tax by adopting the favourable
ruling of the High Court. This article is an attempt to analyze
Customer
Care rendered
No. 91-11-recently by the Hon'ble Delhi High
the decision

www.taxmann.com

3
Backdrop of erstwhile judicial pronouncements on issue
3.It is pertinent to mention that prior to the recent Delhi High Court's decision, the
constitutional validity of levy of service tax on restaurants and short-term accommodation
service was raised before the Kerala High Court twice. The judgments are briefly summarized as
follows:
Union of Indiav.Kerala Bar Hotels Association
[2014] 48 GST 705/51 taxmann.com 365 (Ker.)
3.1It was concluded that service tax on restaurant levied under section 65(105)(zzzzv) is
beyond the legislative competence of the Union because supply of food and consumables is
considered as 'deemed sales' and only the State Government has exclusive right to impose tax
on supply of food under Entry 54 in List II of the Seventh Schedule.
It was also held that similarly service tax on short-term accommodation service levied under
section 65(105)(zzzzw) was not within the domain of the Union, because Entry 62 of List II of
the Seventh Schedule empowered States alone to impose tax on the activity as luxury tax.
The above conclusion was arrived at on the analogy that service tax on restaurants and shortterm accommodation is brought by the Union by invoking the residuary field of legislation
contained in Entry 97 of List I of the Seventh Schedule. However, it is settled that before
exclusive legislative competence is claimed for the Parliament, by resorting to the residuary
Customer Care No. 91-11www.taxmann.com

4
Kerala Classified Hotels and Resorts Associationv.Union of India[2013] 40 STT 253
(Ker.)
3.2It was concluded in this case also that Government of India could not impose any service
tax on accommodation and restaurant services by exercising residuary power under Entry 97
of List I of the Constitution of India when States expressly have power to impose tax on said
activities under Entry nos. 62 and 54 of List II of the Seventh Schedule.
However, the Hon'ble Bombay High Court took a contrary stand in the case ofIndian Hotels
and Restaurant Associationv.Union of India[Writ Petition No. 2159 of 2011, dated
8-4-2014]wherein it was held as follows:
It was concluded that service tax on restaurants under section 65(105)(zzzzv) is a distinct tax
which cannot be equated with tax on sale or purchase of goods and the Parliament is fully
competent to impose a tax on a service under Article 248 of the Constitution of India, read with
Entry 97 of List I of Seventh Schedule. The High Court denied the contention that by imposing
service tax on supply of goods in restaurants, the Parliament has encroached on power of the
State Legislature to impose tax on sale or purchase of goods under Entry 54 List II. It is worth
noting here that the Special Leave Petition in this case has been admitted by the Supreme
Court and the matter is pending in the Apex Court.
Customer Care No. 91-11-

www.taxmann.com

To read more, please click here

Customer Care No. 91-11-

www.taxmann.com