High Court of KeralaSingle Judge2015-02-13Writ petition disposed of with directions as st...

M/S. ROTANA INNS PVT.(HOTEL RAJ RESIDENCY), KALLUVATHUKKAL, Kollam v. UNION OF INDIA and others

Case / Petition Number:WP(C).No.4646 of 2015 (E)

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: A.K.JAYASANKARAN NAMBIAR
Judgment Date: 2015-02-13
Court Decision / Holding: Writ petition disposed of with directions: (i) The 3rd respondent shall consider Ext.P13 refund application on merits and pass orders thereon on or before 20.03.2015 after hearing the petitioner; (ii) The petitioner may comply with Ext.P14 by depositing 40% of the balance tax and interest in two equal monthly installments commencing 30.03.2015, with security; upon such compliance, Ext.P14’s directions would be treated as complied with and the appeals would be heard on merits.
Final Disposition: Writ petition disposed of with directions as stated above.

Parties to the Case

Appellants / Petitioners

M/S. ROTANA INNS PVT.(HOTEL RAJ RESIDENCY), KALLUVATHUKKAL, Kollam

Respondents

Union of India
The Commissioner of Central Excise & Service Tax, Thiruvananthapuram
The Assistant Commissioner of Central Excise & Service Tax, Kollam
The Commissioner of Commercial Taxes, Thiruvananthapuram
The Assistant Commissioner, Commercial Taxes, Kollam
The Deputy Tahsildar (Revenue Recovery), Kollam
The Deputy Commissioner (Appeals), Commercial Taxes, Kollam
State of Kerala, represented by Secretary, Taxes Department

Legal Representation & Advocates

Counsels for Petitioners

• P.G. Jayashankar
• V. Vijitha

Counsels for Respondents

• John Varghese, Senior Counsel
• Thomas Mathew Nellimoottil, Senior Counsel
• Sobha Annamma Eapen (Government Pleader)

Case Synopsis & Summary

The petitioner runs a bar hotel and is registered with both the Sales Tax Department and the Central Government’s Service Tax Department. Following the Finance Act, 2011, which introduced service tax on bar hotels, the petitioner began paying service tax on 30% of the turnover while remitting state turnover tax on the remaining 70% representing sales turnover. After the Kerala High Court’s 2014 decision in Union of India v. Kerala Bar Hotel Association (2014) 36 STR 1206, holding that the Union Government lacks power to levy service tax on restaurant sales, the petitioner sought refunds of service tax paid. In parallel, an appeal against a Sales Tax assessment led the 7th respondent to issue Ext.P14, directing deposit of 40% of the balance tax and interest as a condition for stay. The petitioner challenged Ext.P14 as premised on an unconstitutional levy and sought consideration of his refund application, Ext.P13, which is pending before the 3rd respondent. The court, while recognizing the belated nature of Ext.P13 and the petitioner's contentions, disposed of the petition with directions: the 3rd respondent must decide Ext.P13 by 20.03.2015 after hearing the petitioner; the petitioner may deposit 40% in two monthly installments starting 30.03.2015, with security, so Ext.P14 will be treated as complied and appeals heard on merits.

Provisions of Law Cited

Finance Act, 2011 (service tax on bar hotels)Section 7 (Form 1)Section 30 (Form 10)KGST Act (Kathaka General Sales Tax)Notification No. 34/2011-ST dated 25.04.2011Article 226 of the Constitution of India

Legal Doctrines & Maxims

Constitutional invalidity of levying service tax on restaurant sales as held by this Court in 2014
Principle of refund where unconstitutional levy exists

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioner assails Ext.P14, a conditional stay order requiring 40% payment of the balance tax and interest for 2011-12 as a condition for stay. Relying on this Court's 2014 decision in Union of India v. Kerala Bar Hotel Association, the petitioner contends the service tax levy on restaurant sales is unconstitutional and seeks refund of service tax already paid under 30% turnover, invoking Ext.P13 pending before the 3rd respondent. The petition asserts that the belated refund claim and the constitutional invalidity together render Ext.P14's deposit requirement unjust and seeks stay on its operation pending merits.

Contentions of Respondents

The respondents argue Ext.P13 is belated and ought to be rejected on that ground. Ext.P14's 40% deposit condition is a valid stay-precondition to secure recovery of dues, and the delay in refund cannot nullify the State/Department's revenue interests. They point to the ongoing assessment appeals and argue that the refunds must be determined on merits, with stay conditioned on compliant deposits and security. The 7th respondent maintains the stay mechanism remains legitimate under the relevant statutory provisions, and the final outcome should await merits-based adjudication of Ext.P13.

Cited Precedents (2)

Case Name	Citation	Treatment	Explanation
Union of India and others v. Kerala Bar Hotel Association and Others	2014 (36) STR 1206	Positive	The judgment held that the Union Government lacks power to levy service tax on restaurant sales; the present case cites this to support refund and challenge the service tax on restaurant services.
W.P.(C).NO.23584 OF 2014	W.P.(C).No.23584 of 2014	Mentioned Only	Judgment is cited as background; no explicit treatment or binding effect described within this document.

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Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR** **FRIDAY, THE 13TH DAY OF FEBRUARY 2015/24TH MAGHA, 1936** ## **WP(C).No. 4646 of 2015 (E) ----------------------------------------** ## **PETITIONER(S) :** **-------------------------** **M/S. ROTANA INNS PVT.(HOTEL RAJ RESIDENCY), KALLUVATHUKKAL, KOLLAM, PIN- 691 578, REPRESENTED BY ITS MANAGING DIRECTOR, D. THYAGARAJAN.** **BY ADVS.SRI.P.G.JAYASHANKAR SMT.V.VIJITHA** ## **RESPONDENT(S) :** ## **---------------------------** **1. UNION OF INDIA,** - **REPRESENTED BY ITS SECRETARY, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, CENTRAL SECRETARIAT, GOVERNMENT OF INDIA, NEW DELHI- 110 001.** **2. THE COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, PRESS CLUB ROAD, THIRUVANANTHAPURAM, PIN- 695 001.** **3. THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, VARINJAM TOWERS, RESIDENCY ROAD, CHINNAKKADA, KOLLAM, PIN- 691 001.** **4. THE COMMISSIONER OF COMMERCIAL TAXES, TAX TOWERS, THIRUVANANTHAPURAM, PIN- 695 002.** **5. THE ASSISTANT COMMISSIONER, COMMERCIAL TAXES, SPECIAL CIRCLE, ASRAMAM, KOLLAM, PIN- 691 002.** **6. THE DEPUTY TAHSILDAR(REVENUE RECOVERY), TALUK OFFICE, KOLLAM, PIN- 691 001.** **7. THE DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, ASRAMOM, KOLLAM, PIN- 691 002.** **8. STATE OF KERALA,** - **REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, TRIVANDRUM- 695 001.** **R1 TO R3 BY ADVS. SRI.JOHN VARGHESE, S.C SRI.THOMAS MATHEW NELLIMOOTTIL,SC,CB EX R4 TO R8 BY GOVERNMENT PLEADER SMT.SOBHA ANNAMMA EAPEN** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 13-02-2015, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** Msd. **WP(C).No. 4646 of 2015 (E) ---------------------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS** ## **-------------------------------------** - **P1: TRUE COPY OF NOTIFICATION NO.34/2011-ST DATED 25.04.2011.** - **P2: TRUE COPY OF THE REGISTRATION CERTIFICATE DATED 24.05.2011.** - **P3: TRUE COPY OF THE ANNUAL RETURN UNDER THE KGST ACT FOR THE YEAR ENDING 31.03.2012.** - **P4: TRUE COPY OF THE ST-3 RETURNS OF THE PERIOD APRIL 2011 TO SEPTEMBER 2011.** - **P5: TRUE COPY OF THE ST-3 RETURNS OF THE PERIOD OCTOBER 2011 TO MARCH 2012.** - **P6: TRUE COPY OF THE LETTER BEARING O.C.NO.86/2013 DATED 13.03.2013.** - **P7: TRUE COPY OF THE LETTER BEARING O.C.NO.109/2014 DATED 24.03.2014.** - **P8: TRUE COPY OF THE E-CHALAN NO. CK28463220 DATED 30.04.2013.** - **P8(A): TRUE COPY OF THE E-CHALAN NO. CK28462360 DATED 30.04.2013.** - **P9: TRUE COPY OF THE ASSESSMENT ORDER BEARING NO.32021306482 (12202062)/2011-12 DATED 31.01.2014.** - **P10: TRUE COPY OF THE APPEAL FILED BY THE PETITIONER AS STA 450/2014.** - **P10(A):TRUE COPY OF THE PETITIONER FILED BY THE PETITIONER IN STA.450/2014.** - **P11: TRUE COPY OF THE NOTICE IN FORM 1 ISSUED U/S 7 DATED 27.06.2014 SERVED ON THE PETITIONER ON 27.06.2014.** - **P11(A):TRUE COPY OF THE NOTICE IN FORM 10 ISSUED U/S 30 DATED 27.06.2014 SERVED ON THE PETITIONER ON 27.06.2014.** - **P12: TRUE COPY OF THE JUDGMENT IN W.P.(C).NO.23584 OF 2014 DATED 03.09.2014.** - **P13: TRUE COPY OF THE REFUND APPLICATION DATED 14.01.2015 ALONG WITH THE STATEMENT OF REMITTANCE OF SERVICE TAX.** - **P14: TRUE COPY OF THE ORDER IN STA. (KLM) 450/14 DATED 02.02.2015.** ## **RESPONDENT(S)' EXHIBITS** **-----------------------------------------** **//TRUE COPY//** Msd. **NIL** **P.A.TO JUDGE.** ## **A.K.JAYASANKARAN NAMBIAR, J.** **........................................................** W.P.(C).No.4646 of 2015 **.........................................................** Dated this the 13[th] day of February, 2015 ## **J U D G M E N T** The petitioner is running a bar hotel and is registered with the Sales Tax Department of the State Government, as well as Service Tax Department of the Central Government, as an assessee. Consequent to the introduction of service tax on bar hotels, by the Finance Act, 2011, the petitioner adopted the practice of paying service tax on 30% of the turnover with effect from 01.05.2011. As a result of this, the petitioner was paying turnover tax to the State Government only on 70% of the turnover which, according to the petitioner, represented the sales turnover. Consequent to the judgment of this Court in **Union of India and others v. Kerala Bar Hotel Association and Others [2014** **(36) STR 1206]** , where this Court held that the Union Government does not have any power to levy a service tax on restaurant sales, the petitioner approached the 3[rd] respondent with an application for refund of the service tax amount paid by the petitioner. Ext.P13 is the refund application that was filed by the petitioner before the 3[rd] respondent. On the other hand, in an appeal that was preferred by the petitioner against the sales tax 2 W.P.(C).No.4646 of 2015 assessment for the year 2011-2012, the 7[th] respondent, while considering the said petition that was filed along with the appeal, by Ext.P14 order, directed the petitioner to pay 40% of the balance tax and interest demanded for the year as a condition for the grant of stay of recovery of the amounts confirmed against the petitioner by the assessment order in question. Ext.P14 order, to the extent it directs the petitioner to remit 40% of the turnover tax attributable to 30% of the total turnover, on which the petitioner had already paid service tax to the Central Government, is impugned in the writ petition. 2. I have heard Sri.P.G.Jayashankar, for the petitioner and Sri.John Varghese, thelearned Standing counsel for respondents 1 to 3 and also the learned Government Pleader on behalf of respondents 4 to 8. Sri.John Varghese, the learned Standing counsel, would point out that Ext.P13 refund application preferred by the petitioner is belated. 3. On a consideration of the facts and circumstances of the case and the submissions made across the bar, I note that the challenge against Ext.P14 conditional order of stay is only to the limited extent that the said order directs a payment of 40% of the 3 W.P.(C).No.4646 of 2015 tax due on 30% of the sales turnover of the petitioner, which represents the service element, and on which the petitioner had already paid service tax. It is not in dispute that Ext.P14 order contains reasons for the direction contained therein. In that view of the matter, I do not find any illegality or impropriety in the 7[th] respondent demanding 40% of the balance tax as a condition for a grant of stay of recovery of the amounts confirmed against the petitioner in the assessment order. The said order therefore need not be interfered with in these proceedings under Article 226 of the Constitution of India. I take note, however, of the submission on behalf of the petitioner that it was obliged to pay the service tax, on the said 30% turnover, based on the provisions of law as they then stood and it was only pursuant to the judgment of this Court in the decision referred to above, that the levy of service tax was held to be unconstitutional. I also take note of the fact that the petitioner has since approached the 3[rd] respondent with Ext.P13 refund application and the same is pending consideration by the said respondent. It is the case of the petitioner that if the amounts that are available to him by way of refund are obtained from the 3[rd] respondent, then the said amounts can be used for the purposes of discharging the liability under Ext.P14 conditional order. Taking note of the said submission, therefore, I dispose the writ petition 4 W.P.(C).No.4646 of 2015 with the following directions: i. The 3[rd] respondent, before whom Ext.P13 refund application of the petitioner is pending consideration, shall consider the same and pass orders thereon on or before 20.03.2015, after hearing the petitioner. While doing so, the 3[rd] respondent shall also consider the petitioner's contentions, as reagrds the refund application being filed on time, on merits. ii. The petitioner is permitted to comply with the condition of deposit of 40% of the balance tax and interest demanded for the assessment year 2011-2012, as directed in Ext.P14 order, by paying the said amount in two equal and successive monthly instalments commencing from 30.03.2015. It is made clear that, if the petitioner remits the amounts as directed above, and complies with the condition with regard to furnishing of security for the balance amount in Ext.P14, then the directions in Ext.P14 shall be 5 W.P.(C).No.4646 of 2015 treated as complied with, and the 7[th] respondent shall proceed to hear the appeals on merits. **A.K.JAYASANKARAN NAMBIAR JUDGE** mns/ W.P.(C).No.4646 of 2015 6