Hotel industry trauma

One can definitely admit that Government has the prerogative to grant or not to grant any concessions under the taxing statutes to any class of tax-payers at its own discretion. However, it is expected that the discretion would be used most judiciously and truly in public interest. If one looks at the sequence of events and developments in the matter of granting concessional rate of luxury tax at 6% for the period from 1-5-2004 to 31-3-2005, to the residential hoteliers, one can sense the lack of judicious mind on the part of the Government for whatever reasons.

Section 3 of the Maharashtra Tax on Luxuries Act, 1987 levies luxury tax at the rate of 10% where room rental is more than Rs. 1,200/- per residential accommodation per day. The said rate was reduced to 6% vide notifications dated 3-5-2002 dated 16th October, 2003 for the periods from 1-5-2002 to 30-4-2003 and further from 1-5-2003 to 30-4-2004. It was rightly anticipated by the hotel industry that the said concession would get extended till 31-3-2005 covering F.Y. 2004-05.

Accordingly, representations were made to the Government of Maharashtra by their Association and a decision in the State Cabinet meeting on 18th August, 2004 was taken to extend the benefit upto 31-3-2005. The minutes of the said meeting were also confirmed in the next meeting held on 24th August 2004. Drawing a fair conclusion, the industry collected luxury tax at 6% for the period from 1-5-2004 to 31-3-2005 from their customer and paid into the Govt. treasury.

For reasons best known to the Govt., the Cabinet decision was reversed on 15th November 2007 which was communicated only through media and since then, the Govt. has cracked the whip on the hoteliers and rigorous recovery actions have started. Coercive recoveries through bank attachments etc. have been made overlooking the history of the matter.

Surprisingly, the Government has not even considered the prayer for remission of interest and penalty levied in the assessments hurriedly made for 2004-05 and where appeals have been filed. In fact, the appellate authorities demand full payment of assessment dues and reject the prayer for remission of interest and penalty.

The peculiar situation reminds us about the recent Supreme Court judgment in the case of State of Punjab vs. Nestle India Ltd. [136 STC 35][SC]. In this case, the respondents had not paid purchase tax on milk based upon the promise given by the Chief Minister in a public speech as also the commitment made by the Finance Minister in his budget speech and a consequent circular issued by the Excise & Taxation Commr. Later on, Council of Ministers did not accept the decision regarding abolition of purchase tax on milk and notices for recovery were issued to milk dealers. Meanwhile the benefit of exemption was passed by such dealers to the final consumers. Considering the totality of facts and circumstances, it was held by the Supreme Court that promissory estoppel, long recognised as a legitimate defence in equity, can be the basis of a cause of action against the Government even when the representation sought to be enforced is legally invalid in the sense it was made in a manner not in conformity with the procedure prescribed by statute.

It was also held that the State Government was bound by its representation and absence of a formal notification was no more than a ministerial act which remained to be performed.

In the present case too, hotel industry had a bonafide belief that concession would be extended to them for F.Y. 2004-05. The belief is supported by State Cabinet decisions too. Only a formal notification remained to be issued. In such circumstances, it is absolutely unfair to recover the tax at full rate and more so as to inflict penalty and interest on the dealers. On the other hand, the appellate authorities seem to have been instructed to reject the appeals outright in spite of making full payment of tax dues. In such a scenario, equity demands that State Government and Commr. of Sales Tax should have a sympathetic view on the issue and reconsider the decision on the notification with retrospective effect. Alternatively, full remission of interest and penalty should be granted.

It is worthwhile to note that hoteliers have collected and paid luxury tax at the rate of 10% from 1-4-2005 onwards in accordance with law. It is a matter of only one single year; i.e., 2004-05 which is causing hardships to the dealers. Secondly, it is not a case of unjust enrichment where dealers are trying to pocket the benefit due to reduction in the rate of tax. The tax was collected at 6% only as per the directives given by their collective body; i.e., Hotel & Restaurant Association [Western India] based on the assurances given by the Govt. This entire issue needs to be revisited and resolved in the best possible manner.

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