Delhi HC upholds service tax on food, drinks in AC hotels, restaurants

The Delhi High Court on Friday, upheld the Centre’s decision to impose service tax on food and beverages served in air-conditioned restaurants and hotels across the country.

A bench of Justices S Muralidhar and Najmi Waziri, however, held as “unconstitutional and invalid” the provision in the Finance Act of 1994 which allowed levy of service tax on short-term accommodation of less than three months in a hotel, inn, guest house, club or camp-site.

The court’s decision came on the plea of Federation of Hotels and Restaurants Association of India against the levy of these two taxes saying Parliament was not competent to legislate on these two aspects.

The federation, whose members are a number of hotels spread all over the country, as well as city-based five star hotel Leela Palace, had contended no part of the transaction of supply of food in a restaurant or hotel is now left out for being made amenable to service tax levied by a statute enacted by Parliament.

Disagreeing with the hotels, the bench said, “It is not possible to accept the contention of the petitioners that Parliament lacks the legislative competence to enact section 65 (105) (zzzzv) of the Finance Act with a view to bringing the service component of the composite contract of supply of food and drinks by an air-conditioned restaurant within the service tax net.”

However, regarding levy of service tax on short-term accommodation provided in a hotel, the bench said, “It is not merely an overlap of luxury tax and service tax as far as accommodation provided in hotels is concerned. #casansaar (Indian Express)