court :
Kerala High Court
simple :
The case is being heard by the Ernakulam High Court of Kerala in the case of State of Kerala Vs M/s M. Far Hotels Ltd . [O.P (Tax) No. 24 and 28 of 2016 dated June 04, 2024] The Court held that the fees received by the taxpayer for services at an Ayurvedic centre, a beauty parlour and a convention centre in the hotel were subject to luxury tax under the Kerala Luxury Tax Act, 1976 (“KLT Act”), as these services were not directly provided by the taxpayer but a third party provided services to customers on the taxpayer’s premises.
Quote:
OP (Tax) No. 24 and No. 28 dated June 4, 2024
Kerala High Court, Ernakulam State of Kerala v. M/s M. Far Hotels Ltd. [O.P (Tax) No. 24 and 28 of 2016 dated June 04, 2024] It held that the fees received by the taxpayer for services at the Ayurvedic centre, beauty parlour and convention centre in the hotel were subject to luxury tax under the Kerala Luxury Goods Tax Act, 1976. (“KLT Method”) The services were not provided directly by the taxpayer, but rather a third party provided services to the customer on the taxpayer’s premises.
fact
Common Order dated August 4, 2015 (“Opposition Order”)was passed by the Kerala VAT Appellate Tribunal. (“KVATAT”) This relates to the assessment year 2003-04. Further, four appeals filed by the tax authorities relating to the assessment years 2004-05, 2005-06, 2006-07 and 2007-08 were disposed of in favour of the State of Kerala. (“Petitioner”).
Thus, aggrieved by the situation, the petitioner filed this writ petition regarding the applicability of luxury tax on services provided by third parties to customers within the hotel premises.
problem
Are fees received by a taxpayer for services at Ayurvedic centres, beauty parlours and convention centres in hotels subject to luxury tax under the Kerala Luxury Goods Tax Act?
held
Kerala High Court, Ernakulam 2016 OP (Tax) No. 24 and No. 28 It will be held as follows:
- The judgment relied upon was Madhavaraja Club v. Commercial Tax Officer (Luxury Tax) [2023 (3) KLT 475] The taxation system under the KTL Act was discussed as follows:
- The test frequently applied by the courts to determine whether the tax in question is backed by legal authority is that for a tax to have legal existence, four elements must be present: the nature of the tax which defines the event which is taxable, the person on whom the tax is levied, the rate of tax, and the base or value to which the rate is applied. Govind Saran Ganga Sarana v. CST (AIR 1985 SC 1041). Application of this test gives answers to four basic questions: (i) What is the taxable event or event on which tax is levied? (ii) Who has to pay tax? (iii) How much tax is to be paid? (iv) How is tax to be paid? The answers to the above questions must be found in the taxing statute concerned, because without a definite rate or mechanism for levying and assessing tax in the primary statute, levy of tax cannot be effected as follows: Commissioner of Central Excise and Customs, State of Kerala v. Larsen & Toubro Limited and Others ((2016) 1 SCC 170)
- The KTL Act provides that luxury tax is a tax on the enjoyment of luxury goods and is levied at the time when such luxury goods are provided by the “owner” to another person for the latter’s enjoyment. Though the tax is accrued and levied on the “owner”, the ultimate effect of the tax may be on the person enjoying the luxury goods provided.
- It is submitted that the documents of the Ayurvedic centre and beauty parlour operating in the respondent’s premises clearly show that the provision of luxury items is provided by an independent third party and not directly by the respondent. The invoices issued to the customers for services provided by the independent third party also state that the services are provided by an independent third party and not by the respondent. Undoubtedly, it is the contention of the petitioner that there was an agreement between the respondent hotel and the independent third party who was providing services to the customers for sharing the revenue earned by the latter. This does not affect taxation under the KLT Act. As rightly found by the Appellate Court, the revenue sharing agreement between the respondent and the independent third party must be deemed to be an agreement providing for the respondent to receive rent as consideration for renting out space in the hotel premises for the business activities of the independent third party.
- As regards the levy of luxury tax on the amounts received by the defendant for use of the convention centre, it was held that prior to the amendment in Section 4(2)(c) of the KLT Act, no tax was envisaged on the fees collected in connection with the use of the convention centre.The said tax was introduced by amendment in the Kerala Finance Act, 2006 and came into force on 1st July, 2006. Being an amendment in the substantive provisions introducing a new tax, the said tax is applicable only prospectively and not retrospectively.
A copy of the official ruling is attached below