The classification of hotels into those approved by the Department of Tourism, Government of India, and those not so approved, for the purpose of levying sales tax, was not a valid classification having a nexus with the object of the Sales Tax Act. Item 150 in the First Schedule to the Tamil Nadu General Sales Tax Act, 1959, was violative of the constitutional protection under article 14 of the Constitution of India.

Headnote:
CONSTITUTIONAL LAW - ARTICLE 14 - EQUALITY BEFORE LAW - CLASSIFICATION OF HOTELS FOR SALES TAX PURPOSES - VALIDITY - ARTICLE 366(29A) - DEFINITION OF "TAX ON THE SALE OR PURCHASE OF GOODS" - SCOPE - RETROSPECTIVE EFFECT - SECTION 6 OF THE CONSTITUTION (FORTY-SIXTH AMENDMENT) ACT, 1982 - VALIDITY OF ITEM 150 IN THE FIRST SCHEDULE TO THE TAMIL NADU GENERAL SALES TAX ACT, 1959 - CHALLENGED.
Fact of the Case:

The petitioners, who are hotel owners, challenged the constitutional validity of item 150 in the First Schedule to the Tamil Nadu General Sales Tax Act, 1959, and the demand for sales tax on the ground that they are liable to pay sales tax on articles of food and drink supplied by them to the customers in their hotels under section 3(2) read with item 150 in the First Schedule to the Act.
Finding of the Court:

The Court held that the classification of hotels into those approved by the Department of Tourism, Government of India, and those not so approved, for the purpose of levying sales tax, was not a valid classification having a nexus with the object of the Sales Tax Act. The Court also held that item 150 in the First Schedule to the Act was violative of the constitutional protection under article 14 of the Constitution of India and was therefore wholly illegal.
Issues: 1. Whether the classification of hotels into those approved by the Department of Tourism, Government of India, and those not so approved, for the purpose of levying sales tax, was a valid classification having a nexus with the object of the Sales Tax Act? 2. Whether item 150 in the First Schedule to the Tamil Nadu General Sales Tax Act, 1959, was violative of the constitutional protection under article 14 of the Constitution of India?
Ratio Decidendi: 1. The classification of hotels into those approved by the Department of Tourism, Government of India, and those not so approved, for the purpose of levying sales tax, was not a valid classification having a nexus with the object of the Sales Tax Act. The object of the Act was to levy sales tax on the sale or purchase of goods in the State of Tamil Nadu. There was nothing in the counter-affidavit which disclosed as to how the sale of articles of food and drink in a hotel classified and approved by the Department of Tourism was in any way different for the purposes and object of the Act from the sale of similar articles of food and drink in other hotels which were not so classified or approved. There was also nothing to show as to how the basis of classification had any nexus with the purposes of the Act, namely, levy of sales tax. 2. Item 150 in the First Schedule to the Tamil Nadu General Sales Tax Act, 1959, was violative of the constitutional protection under article 14 of the Constitution of India. The classification of hotels into those approved by the Department of Tourism, Government of India, and those not so approved, for the purpose of levying sales tax, was not a valid classification having a nexus with the object of the Sales Tax Act. The State Government had singled out only hotels which have been specified in item 150 for payment of sales tax, while similar hoteliers selling similar articles of food and drink have been exempted from the provisions of the Sales Tax Act. This amounted to a hostile treatment of the petitioners and violated the guarantee provided in article 14 of the Constitution.
Final Decision: All the writ petitions were allowed. The Court held that the State Government and the tax authorities would not be entitled to take any steps for the recovery of sales tax on the footing that the hotels who have been approved by the Tourism Department of the Government of India are liable to pay sales tax under item 150 of the First Schedule to the Act.

Judgment :-

CHANDURKAR, C.J.

All the above-mentioned petitions have been filed by hotel owners challenging the constitutional validity of item 150 in First Schedule to the Tamil Nadu General Sales Tax Act, 1959, (hereinafter referred to as the Act) and the demand for sales tax on the basis that they are liable to pay sales tax on articles of food and drink supplied by them to the customers in their hotels under section 3(2) read with item 150 in the First Schedule to the Act.

2. Writ Petition No. 256 of 1985 is filed by the Tamil Nadu Hotels Association represented by its President. The State Government has filed its counter in all the other petitions but was not able to file the counter in W.P. No. 256 of 1985, but having regard to the fact that the questions involved in all these petitions were purely questions of law, we have heard Mr. Ramachandran who appeared on behalf of the petitioner, along with the counsel who appeared in the several petitions mentioned above. It is not now in dispute that the several petitioners in these writ petitions run either hotels and restaurants where rooms are let out to the guests and articles of food are served in the restaurants. By way of illustration, we may refer to the facts in Writ Petition No. 7038 of 1981. It is filed by M/s. Hotel Aristo, No. 2, Dindigul Road, Tiruchirapalli. The petitioner has alleged that the rooms in the hotel are let out to the guests and besides arrangement for tea, lunch and dinner parties which are organised by outsiders, there is also a restauarant which is fully furnished with sophisticated furniture to cater to the comforts of the customers who are served by uniformed servers. The restaurant is run to cater to the needs of the resident lodgers who are served with food-stuffs, edibles and beverages of their choice. It is stated that the articles of food and drink which are served to the resident lodgers are meant for consumption only inside the premises and the unconsumed portions are not carried away by them.

3. The petitioner received a notice dated 22nd July, 1981 from the Commercial Tax Officer, Tiruchirapalli informing the petitioner that it is liable to pay tax on sales of food-stuffs from 13th June, 1981. The petitioner replied stating that the petitioner's hotel was not a three, four or five star hotel and as such did not fall under item 150 of the First Schedule to the Act. Item 150 was amended with effect from 4th of October, 1980 to read as follows :

"Articles of food and drink, sold to customers in three star, four star and five star hotels, as recognised by Tourism Department, Government of India, whether such articles are meant to be consumed in the premises or outside." *

A further amendment was made in item 150 with effect from 12th June, 1981 by which, in the place of the item above-mentioned, the following item was substituted :

"Articles of food and drink other than those specified elsewhere in this schedule, sold to customers in hotels classified or approved by the Government of India, Department of Tourism." *

The validity of this entry and the power of the tax authorities to recover sales tax from the owners of hotels who, according to the tax authorities satisfy the description in item 150, that is challenged in these petitions.

4. Before going into the challenge made in all these petitions, it is necessary to refer briefly to the history relating to the levy of sales tax on sales of articles of food in the hotels and restaurants. It may be pointed out that the power to tax the sale or purchase of goods is vested in the State Government by virtue of entry 54 in List II of the Seventh Schedule to the Constitution of India. Entry 54, after the Constitution (Sixth Amendment) Act in 1956 reads as follows :

"54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I." *

The validity of sales tax on supply of meals by hoteliers to the resident guests levied under the Punjab General Sales Ta

Click Here to Read the rest of this document