1978 (12) TMI 157 - SC - VAT and Sales Tax

Supreme Court rules on taxability of meals served in restaurants

Northern India Caterers (India) Ltd. Versus LT. Governor of Delhi

The Supreme Court dismissed the review petitions challenging the taxability of meals served to casual visitors in a restaurant. The Court held that ... Whether the service of meals is or is not a sale? Whether on the facts of the present case a review is justified? Whether the judgment suffers from an error apparent on the face of the record? Held that:- Appeal dismissed. Review petition dismissed. No hesitation in saying that where food is supplied in an eating-house or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food and the rendering of services is merely incidental, the transaction would undoubtedly be exigible to sales tax. In every case it will be for the taxing authority to ascertain the facts when making an assessment under the relevant sales tax law and to determine upon those facts whether a sale of the food supplied is intended. Issues Involved:1. Taxability of meals served to casual visitors in a restaurant.2. Grounds for review of the Supreme Court's judgment.3. Distinction between sale of food and provision of service.4. Applicability of foreign legal principles and precedents.5. Scope and limitations of the power of review.Detailed Analysis:1. Taxability of Meals Served to Casual Visitors in a Restaurant:The primary issue was whether the service of meals to casual visitors in a restaurant constitutes a taxable sale. The Supreme Court initially held that when meals are served to casual visitors, it is for the satisfaction of a human need and does not constitute a sale of food, as visitors are not entitled to remove or carry away uneaten food. This view was supported by the provision of additional amenities such as furniture, furnishings, linen, crockery, cutlery, music, dancing, and possibly a floor show.2. Grounds for Review of the Supreme Court's Judgment:The review petitions were filed against the judgment dated September 7, 1978. The learned Additional Solicitor-General argued that the judgment should be reviewed as it was based on the erroneous assumption that a restaurant could be likened to an inn. He cited various legal materials and precedents that were not presented during the original hearing. However, the Court noted that a review is justified only when circumstances of a substantial and compelling character make it necessary, such as a material statutory provision not being considered or a manifest wrong needing correction.3. Distinction Between Sale of Food and Provision of Service:The Court emphasized that the essential nature of the transaction must be determined by the nature of the transaction itself, not by the need to import an implied warranty of fitness. The judgment was based on the fact that no title in the food passes to the consumer, evidenced by the inability to carry away unconsumed food. The Court reiterated that the transaction is a service for the satisfaction of a bodily need, provided by supplying food for eating.4. Applicability of Foreign Legal Principles and Precedents:The Additional Solicitor-General referred to various English and American legal principles, including Halsbury's Laws of England, the Hotel Proprietors Act, 1956, and Benjamin's 'Sale of Goods.' He also cited cases like Rex v. Wood Green profiteering Committee and Merrill v. Hodson. However, the Court found that these foreign precedents did not directly apply to the issue at hand. The Court maintained that the transaction's nature in India should be determined by the specific facts and circumstances of each case.5. Scope and Limitations of the Power of Review:The Court reiterated that a review is not intended for rehearing and fresh decision-making. The power to review is limited and can only be invoked in cases of glaring omissions, patent mistakes, or grave errors. The Court found that the original judgment was based on undisputed facts and that the view adopted was a possible one, thus not constituting an error apparent on the face of the record.Separate Judgment by Krishna Iyer, J.:Krishna Iyer, J., concurred with the dismissal of the review petitions but emphasized that the decision was based on the specific factual context of the case. He clarified that in situations where the facts differ, the decision could also differ. He highlighted that in cases where food is supplied in a restaurant and it is established that the dominant object is a sale of food with incidental services, the transaction would be taxable. He stressed that the substance of the transaction, the dominant object, and other factors must determine whether the transaction is a sale or a service.Conclusion:The review petitions were dismissed, with the Court affirming that the transaction in question was not a sale but a service. The judgment clarified that each case must be assessed based on its specific facts to determine the nature of the transaction and its taxability.