1990 PLP 947 (CLC)

Pakistan Services Ltd. v. Superintendent Central Excise and Land Customs and two others NLR 1980 Tax. Kar. 168. 1n (his case the petitioners were the owners of hotel Inter‑continental and had challenged the imposition of excise duty on services rendered in respect of the space in the lobby of the hotel which was let out to the licensees. The Bench observed as follows: "The contentions of the petitioners arc based on the assertion that service charges are payable only in respect of their business as 'Hotel'. The perusal of the explanation under item 1 Part 11 of the First Schedule of the Act would show that `hotel' not only means an establishment, organization or place where rooms or suites of rooms are let on rent but includes any such establishment, organisation or place whether or not it has any arrangement for catering or restaurant or provides any other services, facilities or utilities by whatever name called. The providing of shopping arcade inside the premises of the hotel is covered by the terms services, facilities and utilities to the customers and therefore, there is liability to payment of Central Excise Duty. The very fact that the petitioners are receiving rent in the shape of licence fee at the rate charged would indicate that they were doing so with a view to attract romore customers as is usual for high class Hotels to provide facilities including a shopping centre for convenience of the customers. No fault can, therefore, be found with the Excise Authorities levying and collecting duty on the services provided which are excisable." In M/s. Hotel Metropole Ltd., v. Pakistan and another 1982 C L C 1682 the aforesatated judgment was followed. 1n this case while applying for licence, the petitioner had specified portion of the building which was used as a hotel and the rest of the premises was rented out to several tenants. The case was remanded with the following observation: "It is not clear as to whether this aspect was canvassed before the authorities, who have passed the impugned orders". Again similar question came up for consideration in Constitution Petition No.D‑714/79 Midway House Ltd. v. The Additional Secretary Ministry of Finance and others where the judgment in Pakistan Services Ltd. case was followed and it was observed as follows: "However, it will suffice to observe that excise duty is chargeable on the rent of premises which were part of a hotel building, if the same were used in connection with the services facilities which a hotel provides for comforts and convenience of its customers." From the aforestated authorities it is clear that in Matropole case there was no definite finding that the shops should be a part of a hotel. But the principle on which the case was remanded implied that investigation should have been made to ascertain whether shops are a part of the hotel. In Pakistan Services' case the shopping arcade inside the premises was held to be covered by the term `services'. A clear cut observation has been made in Midways case where it has been clearly held that excise duty is chargeable on the rent of premises which were part of the hotel building provided they were used in connection with the services, facilities and utilities which a hotel provides for comfort and convenience of its customers. Therefore, rent recovered from any part of a hotel building or any building within the premises of the hotel used for providing services, utilities and facilities which are necessary for proper and adequate maintenance of the hotel business or its A classification under the Pakistan Hotels and Restaurants Act and Rules will be chargeable to excise duty. 1n this regard it is pertinent to note that under the Pakistan Hotels and Restaurants Act, 1977 the hotels obtain licence for running the business and they are ‑classified in catc9ory A, B, C, D & E. The last one B being the Five‑Star Hotel is relevant for this case. Before granting this permission and classifying it as a hotel of either of these grades there are certain requirements which are to be fulfilled by the hotel management. So far as Five Star Hotels are concerned the requirements are set out in Form `E' prescribed under Rule 11 (1) of the Pakistan Hotels and Restaurants Rules, 1977. It is a proform to be filled in by the applicant furnishing particulars required by it for purposes of grant of licence and classification. The relevant part of item No.21 is. reproduced as follows:‑ "

21. Facilities: There shall be‑‑‑ (a) sufficient parking space for at least 100 cars; (b) A Book and Newspaper stall, a chemist shop, a stall for cosmetics and items of daily use including postal stamps and tourist picture post cards, a bank facilities for travel booking and information, a souvenirs stall, barber shop for men and women, a beauty parlour and tobacconist: (c) A shopping arcade within the premises of hotel. (d) ..................................................... (e) ..................................................... It is this clause `C' which is being considered and interpreted for the purposes of levy of duty. The learned counsel for the petitioner has contended that there are several shops inside the hotel building, and thus the requirements are met and the shopping arcade is outside the hotel building, unconnected with it. Full details of the shops inside the hotel building has not been provided. In our view if those shops are inside the hotel building they would be catering the requirement as mentioned in item ‑ 21 (b). The facilities provided under item 21 (b) are completely different and independent of item 21(c) which provides for shopping arcade within the premises of the hotel. Therefore, even if the hotel is maintaining certain shops as mentioned in item 21 (b) it is required to have a shopping arcade which should be within the premises of the hotel. The word `premises' cannot be restricted only to the building of the hotel or shops under the roof of the hotel but it may be within the precincts and or adjacent to the hotel though it may be separate from the hotel building. In a Five‑star hotel and shopping arcade within the premises of the hotel has to be made and therefore, if any facility is provided by establishing a shopping arcade within the convenient reach of the customers and the guests and also within the same premises though separately built the provisions of section 3 will apply to it. Mr. Kamal Azfar the learned counsel for the petitioner has contended that the shopping arcade is not a part and parcel of the hotel building. In that regard he has relied on the facts that it was financed and is being managed separately. Its electricity connection is separate and it is not within the hotel building. The respondents have, however, considered all these aspects of the case. They have relied upon the application for grant of licence in which a blue print of the building was filed by the petitioner showing arcade as a part of the hotel building. They have also taken into consideration the fact that the location of the shopping arcade is adjacent to the hotel building within the same compound and the basement of the shopping arcade is used as car parking for the guests and customers. Fire brigade service and chilled water are provided to the shopping arcade by the hotel. The question whether the shopping arcade is within the premises of the hotel or a part of the hotel is purely a question of fact. On this question the respondents have applied their mind, considered the evidence and given a concurrent finding that it is a part of the hotel building. Such finding of fact can only be disturbed in writ petition if it is based on no evidence or that material evidence has been completely ignored or that the finding is perverse and such conclusion cannot be drawn from the facts brought on record. None of these p deficiencies and infirmities can be found in the order passed by the respondents. The order passed by respondent No.1 is a well‑considered and well‑written order in which mind has properly been applied not only to the facts of the case, but also to the legal aspects with reference to the judgments of the High Court. In these circumstances in our view such finding of fact cannot be disturbed and once the shopping arcade is held to be a part of the hotel, duty is payable as damanded. Mr. Kamal Azfar has referred to Associated Hotels of India Ltd. v. R.N. Kapoor A I R 1959 S.C. 1262. In this case the question arose what was the meaning of room in a hotel as used in Delhi Ajmer Marwar Rent Control Act, 1947 which defined `premises' as any building or part of a building which is, or is intended to be, let separately for use as a residence or for commercial use or for any other purpose but does not include a room in a dharamshala, hotel or lodging house. It was observed as follows: "A hotel in common parlance means a place where a proprietor makes it his business to furnish food or lodging or both to travellers or other persons. A building cannot be run as a hotel unless‑ services necessary for the comfortable stay of lodgers and boarders are maintained. Services so maintained vary with the standard of the hotel and the class of persons to which it caters; but the amenities must have relation to the hotel business. Provisions for heating or lighting, supply of hot water, sanitary arrangements, sleeping facilities, and such others are some of the amenities a hotel offers to its constituents. But every amenity however, remote arid unconnected with the business of a hotel cannot be described as service in a hotel". It was held that as the room was not let out as part of the hotel or for hotel purposes it was not `room in a hotel' under section 2 of the Act. This judgment cannot be pressed in service because providing a shopping arcade within the premises of the hotel is not a facility which can be termed as remote or unconnected with the business of the hotel. A Five‑star hotel has to provide a g shopping arcade within the premises of the hotel which is a mandatory requirement under law. Such facility is a condition precedent for obtaining and maintaining its classification as a Five‑star hotel and keeping it alive. We may clarify that shopping arcade must be provided by a rive‑star hotel within the premises of the hotel. This does not necessarily mean that the hotel and the shopping arcade must be under one or the same roof. A shopping arcade may be located in the hotel building or in any other building which is adjacent or adjunct to the hotel building. In cases where a large shopping arcade exists consisting of shops and offices some of which are not even remotely connected with the business of the hotel or facilities, amenities and services require to be provided by a hotel, the question may arise whether section 3 will apply to such shops and offices. We leave this question open as it has neither been raised nor it is possible to decide in these proceedings. The determination of this question depends on facts of each case. A hotel required to maintain a shopping arcade cannot let out all the shops for purposes which are not connected with the services, facilities and amenities F required by its guests and customers. It has to provide shops in sufficient number related to the services, facilities and amenities necessary for maintaining its classification and category. We have noted that by the impugned orders additional duty has been imposed for committing breach of the Rules. Such imposition has been made under Rule 96 W (6) of Central Excise Rules, 1944. In an unreported judgment C.P. No. D‑46 of 1982 (The Plaza Hotel and Bar v. Federation of Pakistan and others) we have held such imposition as illegal and without jurisdiction with the following observations:‑‑ "Rule 96‑W provides a special procedure for hotel and restaurant which prescribes liability of the owner or manager for payment of the duty, mode of conducting business and maintaining the accounts. Sub‑rule (6) provides that where the duty is not paid on or before the 10th day of each month additional duty can be imposed. Rule 96W (6) imposes additional duty, it does not impose any penalty as required by section 37 (3). Rule 210 imposes penalty in general where no penalty is provided for breach of rules. Therefore if the rules do not provide for any penalty for breach of any rule, rule 210 will apply. The respondents have admitted in their counter‑affidavit the Rule 96W sub‑rule 6 provides for penalty and not the additional duty. In a statute where a penalty is imposed it should be specified in unambiguous terms and unless it can be spelt out clearly that the penalty has been imposed, merely because the rule‑making authority intended to impose penalty and has wrongly used the word `additional duty' will not convert it into a penalty. It is an elementary principle of justice that where a person `is to be penalized for breach of any rule or law the penalty should be known in clear terms. A duty can be imposed only in exercise of legislative power as provided in the Constitution and not by exercising rule‑making power by any authority of Central Board of Revenue. We are therefore, of the view that Rule 96W (6) is ultra vires the Act. Section 37 (3) being an enabling provision does not impose any penalty but empowers the Central Board of Revenue to make rules for imposition of additional penalty and not additional duty. We therefore, declare that the impugned orders to the extent of imposition of additional duty only are without lawful authority and of no legal effect. Petition is partly allowed. AA/A‑754/K Petition partly allowed,