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--------------- Print Magazine --------------
  May 2016
  April 2016
Determination of Colourable Legislation and Legislative competency to enact law

Federation of Hotel & Restaurant v. Union of India, AIR 1990 SC 1637: (1989) 77 CTR 141: (1989) 3 SCC 634

Facts: In the writ petitions under Article 32 of the Constitution of India, the petitioners who were engaged in, or, associated with, the Hotel Industry in India challenged the constitutional validity of the Expenditure Tax Act of 1987. The Act envisages a tax at 10% ad valorem on “chargeable expenditure” incurred in the class of Hotels wherein, “room charges” for any unit of residential accommodation are rupees four hundred per day per individual. Further, any expenditure incurred in or paid for in “foreign exchange” or by persons who enjoy certain diplomatic privileges and immunities are exempted.

The challenge to the vires of the “Act” was on grounds of lack of legislative competence and of violation of the rights under articles 14 and 19(1)(g). The Union of India sought to sustain the legislative competence to enact the impugned law under Article 248 read with entry 97 of List 1 of the seventh Schedule of the Constitution of India.

Issue: Regarding Validity of Expenditure Tax Act of 1987.

Decision: It was held that the true nature and character of the legislation must be determined with reference to a question of the power of the legislature. The consequences and effects of the legislation were not the same as the legislative subject-matter. It was true nature and character, as was held of the legislation and not its ultimate economic results that matters and it was finally held that the Expenditure Tax Act of 1987 was neither ultra vires nor violative of Articles 14 and 19(1)(g) of the Constitution of India.

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