Hotels, restaurants and the law: India

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Central taxes on hotels, restaurants

HC distinguisihes valid, invalid taxes

The Times of India, Aug 14 2016

HC RULES - `Centre has no stake in hotel tax' 

The Delhi high court has struck down a central tax on shortterm accommodation of less than three months in a hotel, inn, guest house, club or campsite as “unconstitutional and invalid“. A bench of Justice S Muralidhar and Justice Najmi Waziri said a seperate “luxury tax“ is already being levied by states on such accomodations and central government can't encroach on the preseve of states in this regard.

The ruling will reduce the tax burden on customers who avail such accomodation in the city since they won't have to pay both luxury and service tax. However, the bench upheld another levy imposed by the Centre as service tax on food and beverages served in airconditioned restaurants and hotels across the country.

The court's decision came on the petition of a National Federation of Hotels and Restaurants Association of India, city based luxury hotel Leela Palace and restaurant Rodeo challenging the levy of both central taxes on the ground that Parliament can't legislate on these two aspects.

The petitioners also pointed out that due to Centre's encroachment, every part of the transaction of supply of food in a restaurant or hotel is now amenable to service tax levied by it. But the bench partially disagreed with the association and other hotels.

It held that Parliament has full competence “to enact section 65 (105) (zzzzv) of the Finance Act with a view to bringing the service component of the composite contract of supply of food and drinks by an air-conditioned restau rant within the service tax net.“ It also pointed out that in case of catering there is no overlap between a state imposed tax and one levied by the Centre.

As regards levy of service tax on accommodation, the court said, “It is not merely an overlap of luxury tax and service tax as far as accommodation provided in hotels is concerned, it is in fact the same levy but by different statutes, one enacted by the state and the other by the Union. This is indeed an instance of encroachment by the Union into a field that is completely covered by a state legislation.“

Charging more than the MRP

Star hotels can charge more than MRP: Kerala HotelChatter,

Mahir Haneef, TNN | Jul 14, 2013

The Times of India 2013/07/14

KOCHI: Star hotels can charge a higher price for soft drinks and other beverages than the MRP (maximum retail price), the high court of Kerala has said.

Ruling that there was no illegality in charging in excess of the MRP, justice B P Ray said such overpricing could be justified since the customers also enjoy the ambience of such hotels.

The ruling was on a petition by Taj Kerala Hotels and Resorts Ltd. The petition sought a declaration by the court that the MRP was not applicable to beverages sold in star hotels.

The petition also challenged MRP restrictions under the Standards and Weights and Measures Act of 1976 (SWM Act), Standards and Weights and Measures (Enforcement) Act of 1985, and Standards of Weights and Measures (Packaged Commodities) Rules of 1977.

The hotel group submitted that laws regarding MRP were not applicable to the hotel industry. Counsel E K Nandakumar argued that the hotels were not selling just a product, but an experience, which also included the luxurious ambience.

Opposing the argument, senior counsel T Sanjay appearing for the Central government submitted that rules on MRP were applicable to all those selling commodities—from street vendor to star hotels.

Ruling in favour of the hotel group, justice Ray said: "I am of the considered view that charging prices for soft drinks in excess of MRP printed on the packaging, during the service of customers in hotels and restaurants, does not violate any of the provisions of the SWM Act."

The court held that customers normally won't visit a hotel or restaurant only to purchase beverages. The visits would also be to enjoy the ambience provided by the hotels.

Star rating/ classification

Hotels must display rating at reception, online

Swati Mathur, All hotels must display star ratings at reception, online, January 19, 2018: The Times of India

Hotels, regardless of their star status, will now have to display their ratings prominently at their receptions and on their websites, along with the ministry of tourism’s order on hotel classifications.

The changes are a part of the ministry of tourism’s new guidelines for classification of hotels, which it said has been done in a bid to streamline and speed up the processes of classification and compliance issues, when they arise.

While one part of the new guidelines mandate prominent display of star ratings, the government guidelines has also tightened the noose on hotels that house liquor shops on their premises. The new guidelines say the ministry will not consider for classification hotels that sell alcohol anywhere other than at their bars. In effect, hotels with liquor shops on their premises will no longer be given star ratings.


… of vehicle from parking: SC ruling

AmitAnand Choudhary, Nov 17, 2019: The Times of India

A hotel cannot take the cover of ‘owner’srisk’ clause on parking tokens to deny compensation to its guests for theft or damage to their vehicles once keys are handed over to the valet, the Supreme Court has ruled.

A bench of Justices M M Shantanagoudar and Ajay Rastogi upheld the order of the National Consumer Disputes Redressal Commission directing Taj Mahal Hotel in Delhi to pay compensation of Rs 2.8 lakh to a person whose Maruti Zen was stolen in 1998 from its parking area, and held that there was negligence on the part of the hotel management.

It said when the hotel actively undertakes to park the vehicle for the owner, keep it in safe custody and return it upon presentation of a parking slip, it would be liable to return the vehicle in the condition in which it was given.

Hotel will be liable when negligence is proved: Court The court said it is immaterial that parking is provided free of cost as these services are covered by the exorbitant rates charged for renting of rooms, food, entry fee to lounges and so on.

The court brushed aside the contention of Taj Hotel . “Where the hotel or its servants have actively connived against or acted negligently in safeguarding the vehicles delivered for valet parking, ‘owner’s risk’ clauses in the parking token will not come to their rescue,” the bench said.

“However, this does not mean that the hotel would be liable in all scenarios or that it cannot impose any exemption clause through a contract. There may be situations where the damage may be caused due to the negligence of third parties, the guest’s own negligence or unforeseen circumstances beyond the bailee’s control, which could not have been foreseen with ordinary diligence,” it said.

The issue pertaining to liability of hotel management in such cases had been dealt with by various consumer courts but it is for the first time that the SC has settled the law. It has modified the rulings of consumer forums for imposing strict liability on hotels and said if the hotel is made strictly liable for safety of vehicles without proof of negligence on its part, it may lead to grave injustice. It said that prima facie liability rule should be followed where the hotel will be liable only when the negligence is proved.

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