Federation of Hotels and Restaurants Association of India v. Union of India, (1989) 3 SCC 634
The Supreme Court upheld the Expenditure Tax Act, 1987. Parliament could levy a tax on “expenditure” using residuary powers. The hotel price-based slabs were not discriminatory. The levy was a reasonable policy measure and did not unreasonably restrict the hotel business.
- Does Parliament have legislative competence to enact the Expenditure Tax Act, 1987?
- Is the room-price classification (e.g., above ₹400 per day) arbitrary under Article 14?
- Are the restrictions on hotel business unreasonable under Article 19(1)(g) read with Article 19(6)?
Residuary Power
Article 248 + Entry 97 (List I) allow Parliament to tax subjects not listed elsewhere—like expenditure tax.
Aspect Theory
One transaction can be taxed on different aspects. Overlap is resolved by identifying the targeted aspect.
Reasonable Restriction
Article 19(6) permits fair limits on trade for public interest, health, morality, and welfare.
1987 — Expenditure Tax Act: 10% tax on chargeable expenditure in hotels where room charge > ₹400 per day per person.
Scope: Payments for accommodation, food, drinks, and hotel services covered.
Challenge: Federation of Hotels and others questioned competence and alleged Articles 14 & 19(1)(g) violations.
Union’s stand: It is a tax on expenditure (not on luxuries or goods). The “expenditure aspect” is distinct.
Petitioners (Hotels)
- Parliament lacks competence; States control related subjects.
- Price-based slabs are arbitrary and hit equality (Art. 14).
- Levy is onerous; violates the freedom to trade (Art. 19(1)(g)).
Union of India
- Tax is on the expenditure event—a distinct aspect.
- Residuary power covers it; not a luxury/goods tax.
- Classification by price targets higher-end spending; it is reasonable.
The Supreme Court upheld the Act. Parliament had competence under residuary powers. The price-based classification was reasonable and non-arbitrary. The levy was a policy choice and a justified restriction under Article 19(6). It was not a disguised luxury or goods tax.
Expenditure tax is a sui generis levy on the spending event. Using aspect theory, Parliament can tax that aspect under Entry 97. A price threshold to reach high-end hotel spending is a valid, objective basis that aligns with Article 14.
- Clarifies how residuary powers support new or unique taxes.
- Shows how aspect theory manages overlaps between Union and States.
- Sets a student-friendly test for Article 14: objective basis + clear link to the goal.
Expenditure tax stands alone; not a luxury or goods tax.
Different aspects of one act can be taxed by different legislatures.
Price slabs relate to the goal: catching higher-end spending.
Mnemonic: “HOTEL = HIGH-OUTLAY TAX, Entry List.”
- Spot the Aspect: It taxes spending, not luxury items.
- Check the Power: Entry 97 + Article 248 = valid levy.
- Test the Slab: Price link to purpose → Article 14 satisfied.
Issue: Competence, equality, and reasonableness of the Expenditure Tax Act, 1987.
Rule: Article 248 & Entry 97 (residuary), Article 14 classification test, Article 19(6) reasonable restriction.
Application: Levy attaches to expenditure aspect; price slabs aim at high-end spend; business limits are reasonable policy.
Conclusion: Act upheld; not colorable; within Union power; classifications valid.
- Residuary Powers
- Parliament’s power to legislate and tax on subjects not in Lists I–III.
- Aspect Theory
- One act seen in different legal aspects; each can be regulated/taxed separately.
- Sui Generis Tax
- A unique tax type that does not fit standard categories like goods or luxury.
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