FEDERATION OF HOTEL & RESTAURANT ASSOCIATION OF INDIA, ETC. versus UNION OF INDIA & ORS.

Citation: [1989] 2 S.C.R. 918 · Decided: 02-05-1989 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

Cited by 13 judgment(s) · cites 15 · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
FEDERATION OF HOTEL & RESTAURANT ASSOCIATION 
OF INDIA, ETC. 
v. 
UNION OF INDIA & ORS. 
MAY 2, 1989 
[R.S. PATHAK, CJ., SABYASACHI MUKHARJI, 
S. NATARAJAN, M.N. VENKATACHALIAH AND 
S. RANGANATHAN, JJ.] 
Hotel Expenditure Act, 1987: Sections 2-5, 6 and 24--Tax at 
C 
10% ad valorem on chargeable expenditure where room charges in 
D 
E 
F 
hotels were Rs.400 per day per individual-Validity of-Competence 
r 
of Parliament to impose-Classification of hotel for tax purposes-
Whether arbitrary, violative of Article 14--Whether violative of Article 
19( l)(g). 
Constitution of India, 1950: Articles 14 and 19( l)(g), Articles 246 
and 248, Entry 97 List 1 and Entries 54 and 62, List Il, Seventh 
Schedule-Hotel Expenditure Act, 1987-Legislative competence of 
Parliament to impose tax-Classification of hotels based on room 
charges-Whether arbitrary-Whether permissible--Whether Act 
imposed unreasonable restriction on freedom of trade. 
Uttar Pradesh Taxation And Land Revenue Laws Act, 1975/ 
Maharashtra Tax On Luxuries (Hotels And Lodging Houses) Act 1987/ 
Kera/a Tax On Luxuries In Hotels And Lodging Houses Act, 1976--
Validity of. 
The Expenditure Tax Act, 1987, envisaged a tax at 10% ad valorem 
on chargeable expenditure incurred in the class of hotels Wherein room 
charges for any unit of residential accommodation were Rs.400 per day 
per individual. Section S of the Act defined chargeable expenditure to 
include expenditure incurred in or payments made in such class of 
G 
hotels in connection with the provision of any accommodation, residen-
tial, 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. 
The petitioners, who were engaged in, or associated with the hotel 
H 
industry challenged the constitutional validity of the Act on grounds of 
918 
-
HOTEL FEDERATION v. U.0.1. 
919 
-+ 
lack of legislativ~ competence and violation of Articles 14 and 19(l)(g) of 
A 
the Constitution. It was contended that the Act, in its true nature and 
'-J
character, was uot one imposing an expenditure-tax, as known to law, 
accepted notions of Public Finance, and to legislative practice but was, 
in pith and substance, either a tax on luxuries falling within Entry 62 of 
List II of the Seventh Schedule, or a tax on the consideration paid for 
the purchase of goods constituting an impost of the nature envisaged in 
B 
_"?'-' 
. entry 54 of List II, and was clearly outside the legislative competence of 
. i the Union Parliament; that the Act was violative of Article 14 as the 
basis on which the hotelS were classified was arbitrary an unintelligible, 
having no rational-nexus with the taxing-policy nnder the Act, inas-
-
much as persons similarly situated, and who incurred the same extent 
and degree of expenditure on the same luxuries, were differentiated on c 
the sole basis that in one case the expenditure was incurred in a hotel 
-J--
where one of the rooms had a charge of Rs.400 per day per individual 
' 
marked for it, while in the other though equally wasteful expenditure 
was incurred in a more luxurious restaurant, the latter expenditure was 
exempt, that even if more sophisticated and expensive food aud drinks 
and other services, envisaged in clauses (a) to (d) of Section S were D 
provided in a hotel or catering establishment which fell outside the 
class, the expenditure incurred thereon is unaffected by the law, that 
}_ 
the standards and measures for the computation of the chargeable-
expenditure under the Act was vague and arbitrary, that the expression 
~ 
'other similar services' in clauses (d) of Section S was· non-specific and 
vague; and that the Act was violative of petitioners' fundamental right 
E 
under Article 19(l)(g) as it imposed unreasonable onerous restrictions 
on their freedom of business. 
The respondent-Union of India sought to sustain the legislative-
r.>.. 
competence of Parliament to enact the law under Article 248 read with 
Entry 97 of List I of the Seventh Schedule, contending that the law, in 
F 
pith and substance, was not one 'with respect to luxuries under Entry 
\ 
62, List I, and the tax on expenditure, as the legislative had chosen to 
conceive it, was referrable to residuary power, that the econo1nists' 
concept of such an expenditure tax was at best an idea of the manner of 
effectuation of fiscal programme and was no limitation on the legislative 
power, that the leg

Excerpt shown. Read the full judgment & AI analysis in Lexace.