1978 (9) TMI 154 - SC - VAT and Sales Tax

Hotel meals under all-inclusive charges not taxable; service, not sale.

The Supreme Court ruled that the supply of meals to hotel residents under an all-inclusive charge and to casual visitors in a restaurant, regardless of ... Whether the supply of meals by the petitioner to the residents, who pay a single all-inclusive charge for all services in the hotel, including board, if they desire to partake of it, without entitling them to a rebate, if they miss it, is taxable under the Bengal Finance (Sales Tax) Act, 1941, as extended to the Union Territory of Delhi? Whether the service of meals to casual visitors in the restaurant is taxable as sale when the charges are lump sum per meal or when they are calculated per dish? Held that:- Appeal allowed. As the service of meals to visitors in the restaurant of the appellant is not taxable under the Bengal Finance (Sales Tax) Act, 1941, as extended to the Union Territory of Delhi, and this is so whether a charge is imposed for the meal as a whole or according to the dishes separately ordered. Issues Involved:1. Taxability of supply of meals to hotel residents under an all-inclusive charge.2. Taxability of service of meals to casual visitors in a restaurant, whether charged lump sum per meal or per dish.Detailed Analysis:1. Taxability of Supply of Meals to Hotel Residents under an All-Inclusive Charge:The petitioner, who runs a hotel providing lodging and meals on 'inclusive terms,' contended that the supply of meals to residents who pay a single all-inclusive charge should not be taxable under the Bengal Finance (Sales Tax) Act, 1941. The petitioner's argument was based on the assertion that there was no element of 'sale' in serving food along with other amenities provided to customers on an all-inclusive basis. This contention was initially rejected by the sales tax authorities and the application under section 21(1) of the Act for making a reference to the High Court was also dismissed. However, the High Court, upon review, decided in favor of the petitioner, referencing the Full Bench decision in Municipal Corporation of Delhi v. Laxmi Narain Tandon, and similar decisions from the High Courts of Orissa and Jammu and Kashmir. The judgment concluded that the supply of meals to residents under an all-inclusive charge is not taxable, as it is essentially a service rather than a sale.2. Taxability of Service of Meals to Casual Visitors in a Restaurant:The second issue concerned the taxability of meals served to casual visitors in the restaurant, whether the charges are lump sum per meal or calculated per dish. The High Court answered this question in favor of the revenue, stating that if a hotel permits non-residents to have meals against payment, it would be difficult to distinguish which portion of the food is meant for residents and which for outsiders. Therefore, the food kept in the hotel could be regarded as being for sale, making no difference whether the charges are lump sum or per dish. This view was upheld by the Supreme Court, which referenced the historical and legal context of the hotelier's role, noting that the supply of meals in a restaurant involves providing a service rather than a sale. The Court cited precedents from English and American law, emphasizing that the essence of the transaction is service, not the transfer of property in goods. Consequently, the Supreme Court concluded that the service of meals to visitors in the restaurant is not taxable under the Bengal Finance (Sales Tax) Act, 1941, regardless of how the charges are structured.Conclusion:The Supreme Court allowed the appeals, holding that the service of meals to hotel residents under an all-inclusive charge and to casual visitors in the restaurant, whether charged lump sum per meal or per dish, is not taxable under the Bengal Finance (Sales Tax) Act, 1941. The Court made no order as to costs.