Kerala HC Holds Levy Of ‘Luxury Tax’ From Hospitals As Constitutionally Valid [Read Judgment]

“The Act defines the word 'luxury' to mean a commodity or service that ministers comfort or pleasure. The facilities that are provided in a hospital which are beyond the essential requirements like food, medicine, and professional services and a basic room have been accepted as luxury by the legislature in classifying them as such under the Act through the impugned amendments,” the court said.

In a judgment delivered through Justice Devan Ramachandran, a division bench of the High Court of Kerala has upheld the levy of ‘luxury tax’ from hospitals as legally sustainable and intra vires the provisions of the Constitution.

The court was considering the plea made by various hospitals against the levy of luxury tax, which had been imposed.

The Kerala Finance Act 2008, brought certain amendments to the Kerala Tax on Luxuries Act,1976.

The amendment brought into its purview of 'luxury' provided in a hospital and making it mandatory that every hospital having not less than five rooms for accommodation of patients and which charges Rs.1,000 or more per room, excluding the charges for medicine, food and professional services, to be registered under the provisions of the Act.

These amendments were impugned on two counts: (i) It was beyond the scope of the legislative power to make an amendment to Entry 62 List II Of VII schedule of Constitution of India. (ii) Levy of luxury tax under the above entry was not permissible as hospitals are not a place of ‘luxury’, but only a place of healing.

The single bench, however, dismissed the challenges put forth by the petitioners. Aggrieved by the same, the appellants approached the division bench.

The division bench consisting of Justice Thottathil B Radhakrishnan and Justice Devan Ramachandran after an elaborate hearing , and on deep consideration, repelled the challenges of the appellants. The bench held that services provided in the hospitals would satisfy the definition of term ‘luxury’ and, hence, the amendments made by the state legislature were intra vires the constitutional provisions.

Writing the judgment on behalf of the bench, Justice Devan Ramachandran observed: “We see that what is attempted by the Legislature is not to tax the fundamental and inherent services of a hospital like food, medicine and professional charges, but only the luxury of accommodation with adscitious amenities, and that too, the gross value of which per day is more than rupees one thousand. These amenities and facilities are not intended for recovery, healing or treatment of the patients but are obviously intended for better comfort and pleasure of both the patient and bystander in a room. The Act defines the word 'luxury' to mean a commodity or service that ministers comfort or pleasure. The facilities that are provided in a hospital which are beyond the essential requirements like food, medicine, and professional services and a basic room have been accepted as luxury by the legislature in classifying them as such under the Act through the impugned amendments.”

The court answered the challenges made by the appellants on the aspect of ‘luxury tax’ in hospitals as follows: “The impugned amendments, even on an ex facie examination, would show that what is sought to be taxed as 'luxury' in a hospital is only the accommodation for residence and for use of amenities and services provided, excluding the charges of food, medicine and professional services. However, the provisions do not treat all such accommodations and amenities as 'luxury', but only those, the charges for which is one thousand rupees per day or more. Similarly, for the purpose of levy of tax on such luxury, registration of the hospital is mandated only if such hospital has five or more rooms to be rented for accommodation of which the gross charges excluding food, medicine and professional charges is rupees one thousand or more per room.” 

Repelling the challenges on legislative competence and constitutionality of the amendments the court held:“Such activity which is intended to provide comfort and pleasure beyond the requirements of the constitutive facilities of a hospital ,which are essentially in the nature of food, medicine and professional services and a basic accommodation, would then satisfy the definition and tests of luxury laid down by the Supreme Court. The tax levied is not on the article providing luxury but on the experience of such luxury. This is completely and wholly within the competence of the Legislature to enact upon under Entry 62 of the VII Schedule of the Constitution, the matter being intrinsically and irreparably related to 'luxuries' as obtaining in the said Entry.”

Read the Judgment here.