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Justify the rationale behind rise in service tax: Delhi high court
April, 06th 2012

Wondering why customers going to city hotels and restaurants should pay such a high service tax on their bills, the Delhi high court has asked the government to respond.

During a recent hearing of a PIL filed by an association of hotels, a bench comprising acting Chief Justice A K Sikri and Justice Rajiv Sahai Endlaw asked standing counsel for Centre, Neeraj Chaudhari, to justify the rationale for increase in service tax.

"There has to be some rationale. We have observed that service tax component is quite large in hotel bills. service tax plus VAT becomes a very big amount," the bench remarked, giving last opportunity to the central government to file a response, failing which, the bench warned that it will proceed with the PIL without the government's reply. HC was hearing a PIL filed by federation of hotels and restaurants challenging the amendments made by the government to the Finance Act last year.

According to the amendments, the service tax net was widened to make hotels liable to pay enhanced tax. The PIL informs HC this has resulted in double liability for the hotels, restaurants, inns and guest house owners, because the Finance Act now includes "AC restaurants having license to sell liquor and food" under the VAT liability.

The petitioners argued that it is only the state government and its legislature that can decide on taxing sale of food and beverages and the Centre has no role to play. "Parliament has no role because as per the Constitution, this issue falls in the state list" the PIL claims, faulting the centre for broadening the service tax net that has resulted in customers paying much more than before.

Despite the PIL having been filed in November last year, the government has failed to come up with a response, the hotel federation pointed out. They have urged the court to stay the enhanced service tax or go ahead and decide the case without waiting for a reply as delay meant hotels were being burdened with liability of service tax.

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