The Supreme Court, in Kerala Hotel & Restaurant Association v. State of Kerala & Ors., examined the constitutional validity of provisions under the Kerala General Sales Tax Act, 1963 and the Tamil Nadu General Sales Tax Act, 1959, which imposed sales tax on cooked food sold in luxury hotels while exempting cooked food sold in modest eating houses. The challenge was founded on the ground that such classification amounted to hostile discrimination and violated Article 14 of the Constitution of India.

The petitioners contended that cooked food, irrespective of the place of sale, constituted the same commodity and that differentiation based on the status of the hotel or the affluence of the consumer was impermissible. It was argued that the object of sale of cooked food was identical across all eating establishments, namely, to satisfy hunger, and therefore the levy of tax only on certain categories of eating houses lacked a rational basis.

The Supreme Court rejected the challenge and upheld the impugned provisions. The Court held that in matters of taxation, the legislature enjoys a wide latitude in classification and that absolute equality is neither practicable nor constitutionally mandated. The Court observed that the classification between luxury hotels and modest eating houses was founded on intelligible differentia, as the cost of food, the nature of clientele, and the economic capacity of consumers varied substantially between the two categories.

The Court further held that the classification had a clear and rational nexus with the object sought to be achieved, namely, raising limited revenue by taxing the sale of costlier food consumed by the more affluent sections of society, while relieving the economically weaker sections from the tax burden on an essential item of sustenance. Such an approach, the Court observed, was consistent with the principles of economic equality and the fiscal policy of a socialist welfare State.

Emphasising that fiscal legislation need only satisfy the test of absence of palpable arbitrariness, the Supreme Court held that the impugned provisions neither discriminated arbitrarily nor violated Article 14. The classification was found to be pragmatic, administratively convenient, and aligned with the legislative objective of taxing capacity to pay rather than mere consumption.

Accordingly, the Supreme Court dismissed the appeals and writ petitions filed by the hoteliers and upheld the validity of the sales tax levied on cooked food sold in luxury hotels in the States of Kerala and Tamil Nadu, while allowing the appeals filed by the State of Tamil Nadu. No order as to costs was made.

 

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