M/S Pearlview Hotels Pvt. Ltd. v. Commercial Tax Officer (Luxury Tax), Kannur; Deputy Commissioner Appeals-II Kozhikode; Inspecting Assistant Commissioner Commercial Taxes, Kannur

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MRS. JUSTICE SHOBA ANNAMMA EAPEN FRIDAY, THE 11[TH] DAY OF AUGUST 2023 / 20TH SRAVANA, 1945 WP(C) NO. 6173 OF 2016** ## **PETITIONER:** M/S.PEARLVIEW HOTELS PVT. LTD.AGED 59 YEARSKODUVALLY, THALASERY, KANNUR -REPRESENTED BY ITS MANAGING DIRECTOR, A.M.RAVEENDRAN. BY ADVS.SRI.V.NAMITHA SRINATH GIRISH(K/340/1994) ## **RESPONDENTS:** 1 COMMERCIAL TAX OFFICER (LUXURY TAX)KANNUR 670 001. 2 DEPUTY COMMISSIONER APPEALS -IIKOZHIKODE 673 001. 3 INSPECTING ASSISTANT COMMISSIONERCOMMERCIAL TAXES, KANNUR 670 001'. BY ADV GOVERNMENT PLEADER ## **OTHER PRESENT:** SRI. V.K. SHAMSUDHEEN -SR.GP THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 11.08.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO.6173 OF 2016 :-2-: ## **SHOBA ANNAMMA EAPEN, J.** -------------------------------------------W.P(C) No. 6173 of 2016 **'C.R.'** -------------------------------------------Dated this the 11th day of August, 2023 ## **J U D G M E N T** The brief facts of the case of the petitioner are as follows:The petitioner has filed annual return for the year 2007-08 under Section 5 of the Kerala Tax on Luxuries Act,1976 (for short 'the Act'). The first respondent, the assessing authority, the Commercial Tax Officer (Luxury Tax), Kannur, found that the accounts were not acceptable and notice was issued under Section 6(2) of the Act, proposing to complete assessment by adding income under the various heads, totalling to an amount of Rs.22,07,574/-. On receipt of the notice, the petitioner filed a detailed reply contending that the swimming pool charges cannot be taxed as it is from non-residents of the hotel and the addition of hall rent is improper as the amount is below taxable and the other collections such as the hire charges, sight seeing charges, lawn charges, charges on services, miscellaneous receipts, insurance claim received, new year programme collection etc. WP(C) NO.6173 OF 2016 :-3-: were not from the residents of the hotel, but from non-residents and hence they were not taxable. The first respondent, however, found that the said arguments raised by the petitioner were not acceptable and Ext.P1 assessment order was passed by the first respondent. Thereafter, Ext.P2 notice of assessment and demand was issued to the petitioner, calling upon to pay an amount of Rs.3,10,519/- under the luxury tax and the petitioner was to pay an amount of Rs.1,47,939/- after deducting the amount of Rs.1,62,580/- already paid towards the said tax. A notice of demand for payment of interest under Section 10(2) was also issued to the petitioner as per Ext.P3 directing the petitioner to pay an amount of Rs.69,531/-. The petitioner filed appeal along with an interlocutory application for stay of collection of tax before the second respondent-Deputy Commissioner (Appeals)-II, Kozhikode evidenced by Exts.P4 and P5 respectively. The second respondent, as per Ext.P6, dismissed the appeal, confirming the demand raised by the first respondent. Further, the petitioner filed a second appeal against Ext.P6 order before the WP(C) NO.6173 OF 2016 :-4-: Tribunal and the said appeal was also dismissed by the Tribunal as per Ext.P7 order. Thereafter, the respondents initiated steps for recovery of the amount by issuing notice to the bank for payment of the amount from the account of the petitioner and Ext.P8 is the letter sent by the Bank to the petitioner enclosing the statutory notice in Form 6 sent by the third respondent. Subsequently, Ext.P9 letter was sent by the petitioner to the bank requesting not to honour the request of the third respondent. The petitioner was informed by the bank that they had already paid the dues from the STDR account and the balance amount is parked on the petitioner's current account, evidenced by Ext.P10. Aggrieved by Exts.P1, P6, P7 and P8, the petitioner has approached this Court with the above writ petition. 2. The first respondent has filed counter affidavit contending as follows:- Proceedings were initiated against the petitioner for assessment under Section 6(2) of the Act, since there is suppression of turnover for the assessment year 2007-08. The petitioner preferred an WP(C) NO.6173 OF 2016 :-5-: appeal before the first appellate authority, but the authority dismissed the appeal. Challenging the same, the petitioner filed second appeal before the Tribunal and that was also dismissed by the Tribunal. Assessment under Section 6(2) of the Act was completed on the ground that suppression of taxable turnover was unearthed on the verification of profit and loss account and other documents. It was also clearly found that the collection of amount from swimming pool, hall rent and other collections exigible to tax were suppressed by the petitioner. As per the Kerala Tax on Luxuries Act, 1976, every amenities provided in a hotel except food and liquor is taxable. Luxury tax is to be levied and collected for the accommodation of residence in a hotel and also for the amenities and services provided in a hotel. At the same time, the sight seeing charges were not assessed because it was a service given outside the premises of the hotel. The inclusion of the items like hiring charges, swimming pool charges, lawn charges etc. for the purpose of assessment is perfectly in order and sustainable. The Manager of State Bank of India had transferred the WP(C) NO.6173 OF 2016 :-6-: amount as per the notice legally issued to the bank by the recovery authority. The assessing authority, after issuing notice and strictly complying with the procedures, has issued order of assessment for the year 2007-08, according to the respondents. It was further contended that the petitioner did not produce any proof to show that the hiring charges were meant to an outsider and not to the customer. It is also contended that the collection of hiring charges for the items hired, were owned by the petitioner. The percentage of tax @ 10% and 15% is on slab basis as provided in the Act. The first respondent contended that the assessment order was passed in accordance with law. 3. Heard the learned counsel for the petitioner and the learned Government Pleader. 4. Learned counsel for the petitioner submits that the petitioner limits his challenge against the impugned order only on two aspects. First is regarding the power of the assessing authority to impose penalty. The second is that the charges collected towards the hiring charges is not a luxury and hence tax cannot be demanded from WP(C) NO.6173 OF 2016 ## :-7-: the petitioner on that head. 5. Regarding the first aspect, learned counsel for the petitioner submits that the first respondent is not vested with any power to impose penalty, since he has not been authorised under Section 3 of the Act by Notification so as to act as an authority under the Act. Learned counsel for the petitioner submits that the first respondent lacks jurisdiction to pass the impugned order for want of notification under Section 3 of the Act, stating that the earlier notification SRO 1077/1995 is no longer in existence, as the KGST Act under which the said notification was issued stands repealed by Section 98 of the KVAT Act, which came into force from 01.04.2005 onwards and that Section 98 of the KVAT Act provides only limited application to the KGST Act, in respect of goods and proceedings. The said contention was not raised by the petitioner before any of the statutory authorities and the same is rebutted by the learned Government Pleader stating that SRO No.1077/95 dated 7.8.1995 was issued under the authority of Section 3(1) of the Act authorising the WP(C) NO.6173 OF 2016 :-8-: different categories of officers appointed under Section 3(2) of the KGST Act, to function as the assessing authorities under different provisions of the Act. It is stated that the contention of the petitioner that SRO No.1077/95 stands repealed by virtue of Section 98 of the KVAT Act, is not correct. Section 98 of the KVAT Act just restricts the application of provisions of the KGST Act to certain goods like Indian Made Foreign Liquor, petrol, diesel etc. That apart, the authorities, who have been administering the different functions under the KGST Act, have been appointed as the respective authorities under Section 3 of the KVAT Act, vide SRO No.318/2005 dated 31.03.2005 issued by the Government. It is further pointed out that, pursuant to the Notification No.1/05 dated 1.4.2005, the officers including the assessing authority in the present case are granted functional jurisdiction to carry out all the functions of an assessing authority under the KVAT Act, in addition to the existing functions under various other Acts, which include the Kerala Tax on Luxuries Act,1976 as well. As such, the challenge raised in this regard has necessarily to fail. WP(C) NO.6173 OF 2016 :-9-: 6. The second aspect, which is challenged by the counsel for the petitioner, is the demand of luxury tax in the assessment order, towards the amount collected on hiring charges. Ext.P1 assessment order reveals demand of hiring charges amounting to Rs.1,66,500/- together with interest. 7. In order to appreciate the contentions , the relevant provisions have to be gone into. Section 4(2) of the Kerala Tax on Luxuries Act, 1976 reads as follows: ## “ _**4.Levy and collection of luxury tax.-**_ (1) **xxxx** ## _**(2) Luxury tax shall be levied and collected** ,—_ _(a) in respect of a hotel, for charges of accommodation for residence and other amenities and services provided in the hotel, excluding food and liquor,—_ _(i) at the rate of ten percent for hotels, in respect of rooms where the gross charges of accommodation for residence and other amenities and services provided is less than rupees five hundred per day ;_ _(ii) at the rate of fifteen per cent for hotels in respect of rooms where the gross charges of accommodation for residence and other amenities and services provided is rupees five hundred or more per day ;_ _(b) in respect of a house boat, for charges of accommodation for residence and other amenities and services provided, excluding food and liquor, at the rate of fifteen per cent ;_ WP(C) NO.6173 OF 2016 :-10-: _(c) in respect of a convention centre, hall, Kalyanamandapam, auditorium including those attached to hotels, clubs or places of the like nature, for the charges for accommodation, amenities and services provided excluding food and beverage at the rate fifteen per cent:_ _(d)in respect of a cable TV operator at the rate of rupees five per connection per month_ _and shall be collectable from the person enjoying the luxury:_ _Provided that no luxury tax shall be payable in respect of a connection provided by a cable operator engaged in the distribution of programmes of Doordharshan channels only:_ _Provided further that luxury tax, if any, collected shall be paid over to the Government:_ _Provided also that no luxury tax shall be payable, if such charges per day is below three thousand rupees in respect of halls, Kalyanamandapam, auditorium other than those attached to star hotels:_ _Provided also that a proprietor of a hotel who had claimed exemption under sub-clause(1) of clause 4 of the Kerala Finance Bill, 2006 (Bill No.355 of the XI Kerala Legislative Assembly) from the 1[st] day of April 2006 being the charges of accommodation below rupees two hundred per room per day, shall be permitted to avail such exemption till 30[th] June,2006.”_ Definition of a Hotel is provided in Section 2(e) of the Act. It reads as follows: “ _(e) "hotel" means a building or part of a building where residential accommodation is by way of business provided for a monetary consideration and includes a_ WP(C) NO.6173 OF 2016 :-11-: ## _lodging house._ _Explanation.- A guest house run by the Government or a company or a corporation established by or under any law or any other agency shall be deemed to be a hotel within the meaning of this clause.”_ ## Section 2(ee) reads as follows: _“2(ee) "luxury" means a commodity or service that ministers comfort or pleasure: “_ 8. The learned counsel for the petitioner submitted that luxury tax is payable only for the residential accommodation provided in a hotel and the levy of tax is limited on the rent received on accommodation. The learned counsel further submitted that hiring charges are not taxable under the Kerala Tax on Luxuries Act, but only under Kerala Value Added Tax Act and most of the items of goods provided for hiring charges belonged to the petitioner and certain other items were taken on hire from outside and as per the Trading Account itself, an amount of Rs.39,600/- has been paid to dealers in respect of the goods hired from them and the petitioner has not offered any services as such, and hence, no luxury tax is payable by WP(C) NO.6173 OF 2016 :-12-: the petitioner on that head and the demand of Rs.1,66,500/- together with interest by the respondent is illegal. 9. In this context, it is also relevant to see Section 2(f) of the Act which reads as follows: - _“2(f)_ _**"Luxury provided in a hotel, house boat, hall, auditorium, kalyanamandapam or place of like nature** " means accommodation for residence or use and other amenities and services provided in a hotel or a house boat or hall or auditorium or kalyanamandapam or place of like nature the rate of charges of accommodation for residence and other amenities and services provided excluding charges of food and liquor is one hundred and fifty rupees per day or more:,_ On a reading of Sections 2(f) and 4(2) of the Act, it is clear that luxury tax can be levied for charges of accommodation for residence and other amenities and services provided in the hotel. The petitioner's hotel being a star hotel, the luxury provided in the hotel forms part of services and amenities and all the services are arranged by the hotel to its customers, though the services are rendered outside the hotel. 10. The Division Bench of this Court in **Brunton** **Boatyard** v. **State of Kerala** [2013(4) KLT 37] had held that all the WP(C) NO.6173 OF 2016 **==> picture [28 x 9] intentionally omitted <==** amenities and services provided in a hotel as well as accommodation for residence, amount to luxury for the purpose of S.2(ee) and would fall within the term 'luxury provided in a hotel'. The process of hiring of vehicles was a service rendered in a hotel. In the decision reported in **Casino Hotel** v. **State of Kerala** [(2007)15 KTR 485 (Ker)], it was held that the services rendered in a hotel need not necessarily mean services provided in the hotel building, but include services arranged by the hotel to its customers, though the service is rendered outside the hotel premises. That was a case wherein boat service was arranged by the hotel for guests who were staying in the hotel, for sight-seeing. Thus, it was held that the service which was rendered by the hotel for staying guests also attracts luxury tax. In this case also, they have arranged the vehicles for hire and the services were rendered outside the hotel. 11. Further, the Division Bench of this Court in **Tissan.J.** v. **State of Kerala and others** [2014 KHC 3123], held that the incidence of luxury tax is for the luxury that is provided by the hotel WP(C) NO.6173 OF 2016 :-14-: and limiting the levy of tax to services provided inside the hotel will be giving a very narrow meaning to the language used in the statute. The scheme of the Act has to be looked into as a whole and when the levy of luxury tax is on the 'luxury' provided in the form of services, necessarily all services rendered by the hotel come within the definition of 'luxury' which is chargeable under the Act, unless it is specifically excluded, as indicated by the proviso incorporated by way of amendment. 12. In the light of the above decisions, this Court is of the view that the charges received for hiring of vehicles by a hotel for its customers is also a service rendered by the hotel and the service of hiring of vehicles comes within the definition of 'luxury' which is chargeable under the Act. The writ petitioner has not made out any good ground for interference by this court and hence I do not find any reason to interfere with the orders passed by the assessing authority as well as the appellate authority and the tribunal. WP(C) NO.6173 OF 2016 :-15-: Accordingly, the writ petition is dismissed. Sd/- **SHOBA ANNAMMA EAPEN, JUDGE** MBS/ WP(C) NO.6173 OF 2016 :-16-: ## **APPENDIX OF WP(C) 6173/2016** ## **PETITIONER'S EXHIBITS:** |P1-<br>TRUE<br>COPY<br>OF|THE<br>ORDER| |---|---| |NO.12122096/0708 PASSED|BY THE 1ST| |RESPONDENT DATED 29.2.2012|| |P2- TRUE COPY OF THE NOITCE OF ASSESSMENT|| |AND DEMAND DATED 28.3.2012|AS ASSESSMENT| |NO.12122096/2007-08|| |P3- TRUE COPY OF THE NOTICE OF DEMAND OF|| |INTEREST UNDER SECTION|10(2) DATED| |28.4.2012|| |P4- TRUE COPY OF THE APPEAL|FILED BY THIS| |PETITIONER IN FORM NO.III|OF THE KERALA| |TAX ON LUXURIES RULES, 1076|| |P5- TRUE COPY OF THE|INTERLOCUTORY| |APPLICATION IN FORM IV-A FILED BY THIS|| |PETITIONER|| |P6- TRUE COPY OF THE ORDER OF THE 2ND|| |RESPONDENT DATED 18.3.2013|| |P7- TRUE COPY OF THE ORDER OF THE THE|| |TRIBUNAL DATED 12.6.2015|| |P8- TRUE OCPY OF TH ELETTER DATED|| |31.12.2015 SENT BY THE|BANK TO THE| |PETITIONER ALONG WITH THE STATUTORY|| |NOTICE IN FORM 6 SENTY|BY THE 3RD| |RESPONDENT TO THE BANK|| |P9- TRUE OCPY OF THE|LETTER DATED| |6.1.2016 SENT BY THE PETITIONER TO THE|| |BANK|| |P10- TRUE COPY OF THE|LETTER DATED| |14.1.2016 SENT BY THE BANK||