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Federation of Hotel & Restaurant Association of India, etc., vs. Union of India (UOI) and Ors.
AIR 1990 SC 1637, 1989 (1) SCALE 1214, (1989) 3 SCC 634, [1989] 2 SCR 918
Hon’ble Judges/ Coram: M.N. Venkatachaliah, R.S. Pathak, C.J., S. Natarajan, S. Ranganathan and Sabyasachi Mukherjee, JJ.
Date of Decision: 02.05.1989
FACTS: –
Petitioners who are engaged in, or associated with, the Hotel Industry in India challenge the constitutional validity of the Expenditure-Tax Act, 1987 (Central Act 35 of 1987). The Act envisages a tax at 10 per cent ad valorem on ‘chargeable-expenditure’ incurred in the class of Hotels wherein “room-charges” for any unit of residential accommodation are Rupees Four Hundred per day per individual. The ‘Chargeable-expenditure’ as defined in Section 5 of the Act include expenditure incurred in or payments made in such class of hotels in connection with the provision of any accommodation, residential or otherwise, food or drink whether at or outside the hotel; or for any accommodation in such hotel on hire or lease; or any other services envisaged in that Section. However, any expenditure incurred in or paid for in “foreign exchange” or by persons who enjoy certain diplomatic privileges and immunities is exempt.
ISSUES: –
- Whether the Expenditure Tax Act, 1987 is invalid on ground of lack of legislative-competence?
- Whether the Expenditure Tax Act, 1987 is in violation of the provisions of rights under Article 14 and 19(l) (g)?
JUDGMENT: –
Section 3 is the crucial provision which lays down the differentia for the classification of the Hotel to which the ‘Act’ applies. That section provides that the ‘Act’ shall apply in relation to any ‘chargeable-expenditure’, incurred in a hotel wherein the “room-charges” for any unit of residential accommodation at the time of incurring of such expenditure are Rs. 400 or more per day per individual. The levy of tax is confined to such class of Hotels which satisfy that statutory-standard. Where, however, composite charges are payable in respect of both residential accommodation and food, then the “room charges” for purposes of determination of the criteria attracting the Act shall have to be apportioned in the manner to be prescribed.
The principal question is whether the tax envisaged by the impugned law is within the legislative competence of the Union Parliament. If a legislature with limited or qualified jurisdiction transgresses its powers, such transgression may be open, direct and overt, or disguised, indirect and covert. The latter kind of trespass is figuratively referred to as “colorable legislation”, connoting that although apparently the legislature purports to act within the limits of its own powers yet, in substance and in reality, it encroaches upon a field prohibited to it, requiring an examination, with some strictness, the substance of the legislation for the purpose of determining what is that the legislature was really doing. Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the Courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters falling within these classes of subjects exists in each legislature and to define, in the particular case before them, the limits of the respective powers.
It is not disputed that a law imposing ‘expenditure-tax’ is well within the legislative competence of Union Parliament under Article 248 read with Entry 97 of List I. But the specific contention is that the particular impost under the impugned law, having regard to its nature and incidents, is really not an ‘expenditure tax’ at all as it does not accord with the economists’ notion of such a tax. In pith and substance, really one imposing a tax on luxuries or on the price paid for the sale of goods. It is trite that the true nature and character of the legislation must be determined with reference to a question of the power of the legislature. The consequences and effect of the legislation are not the same thing as the legislative subject matter. It is the true nature and character of the legislation and not its ultimate economic results that matters.
The tax is essentially a tax on expenditure and not on Luxuries or sale of goods falling within the State power. The distinct aspect namely, ‘the expenditure’ aspect of the transaction falling with the Union power must be distinguished and the legislative competence to impose a tax thereon must be sustained.
It is now well settled though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal-policy legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. A legislature does not, as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. But, with all this latitude certain irreducible desiderata of equality shall govern classifications for differential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. Differentia must have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its Governmental power, has, of necessity, to make laws operating differently in relation to different groups or class of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulas or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience.
Classifications based on differences in the value of articles or the economic superiority of the persons of incidence are well recognized. A reasonable classification is one which includes all who are similarly situated and none who are not. In order to ascertain whether persons are similarly placed, one must look beyond the classification and to the purposes of the law.
In the present ease, the bases of classification cannot be said to be arbitrary or unintelligible nor as being without a rational nexus with the object of the law. A hotel where a unit of residential accommodation is priced at over Rs. 400 per day per individual is, in the legislative wisdom, considered a class apart by virtue of the economic superiority of those who might enjoy its custom, comforts and services. This legislative assumption cannot be condemned as irrational. It is equally well recognised that judicial veto is to be exercised only in cases that leave no room for reasonable doubt. Constitutionally is presumed.
A taxing statute is not, per-se, a restriction of the freedom under Article 19(l)(g). The policy of a tax, in its effectuation, might, of course, bring in some hardship in some individual cases. But that is inevitable, so long as law represents a process of abstraction from the generality of cases and reflects the highest common-factor. The mere excessiveness of a tax or even the circumstances that its imposition might tend towards the diminution of the earnings or profits of the persons of incidence does not, per-se, and without more, constitute violation of the rights under Article19(l)(g).
HELD: –
Parliament has the legislative Competence in enacting the impugned statute and it did not use any colorable devise. Moreover, Statute is not in contravention of the Article 14 and 19 of the Indian Constitution.
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