Taxation of food and drink in hotels depends on composite supply rules, segregation formulas, and valid charging authority.

Article 366(29A)(f) brought the supply of food and drink by restaurants and hotels within the concept of a sale for tax purposes, so the composite bill could not be split to exclude an alleged service element from the taxable supply. In residential hotels charging a combined lodging-and-boarding price, only the food-and-drink component was taxable, and uniform assessment required rules prescribing a segregation formula to avoid arbitrary treatment. Section 6 of the Constitution (Forty-sixth Amendment) Act, 1982 retrospectively validated only State laws that already contained the necessary charging provision, so it did not sustain the pre-2 February 1983 levies in Maharashtra and Uttar Pradesh where such authority was absent.

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Issues: (i) whether, after the Forty-sixth Amendment, the States could levy sales tax on the supply of food and drink by restaurants and hotels as part of a service transaction, and whether the customer's bill could be split between food and service; (ii) whether, in the case of residential hotels charging a composite sum for lodging and boarding, the tax on food and drink could be assessed without rules prescribing a formula for segregation; (iii) whether the pre-2 February 1983 levy of sales tax on the supply of food and drink in Maharashtra and Uttar Pradesh was valid in the light of section 6 of the Constitution (Forty-sixth Amendment) Act, 1982.

Issue (i): whether, after the Forty-sixth Amendment, the States could levy sales tax on the supply of food and drink by restaurants and hotels as part of a service transaction, and whether the customer's bill could be split between food and service

Analysis: Article 366(29A)(f) expanded the meaning of tax on the sale or purchase of goods to include supply of food or drink, whether by way of or as part of a service or in any other manner whatsoever, for consideration. Once the definition of "sale" in the relevant State law brought such supply within the charging provision, the taxable event was the supply of food or drink itself. The fact that restaurants and hotels also rendered ancillary services, such as furnishing, linen, crockery, music or other amenities, did not justify splitting the customer's bill into components of service and food for the purpose of avoiding taxation.

Conclusion: The supply of food and drink by restaurants and hotels was taxable, and the composite price charged to the customer could not be split so as to exclude the levy on the food component.

Issue (ii): whether, in the case of residential hotels charging a composite sum for lodging and boarding, the tax on food and drink could be assessed without rules prescribing a formula for segregation

Analysis: In the case of residential hotels, lodging and boarding were commonly supplied for a composite charge, and only the element referable to food and drink could be brought to tax. The Court held that individual assessments without any guiding formula would lead to inconsistency and arbitrariness across numerous hotels and assessments. To ensure uniformity and prevent arbitrary assessment, the State was required to frame rules setting out the method of determining the taxable component in composite lodging-and-boarding charges.

Conclusion: The State of Maharashtra could not make such assessments until it framed rules providing a formula for segregation of the taxable food-and-drink component.

Issue (iii): whether the pre-2 February 1983 levy of sales tax on the supply of food and drink in Maharashtra and Uttar Pradesh was valid in the light of section 6 of the Constitution (Forty-sixth Amendment) Act, 1982

Analysis: Section 6 validated, retrospectively, State laws which had already contained a provision authorising tax on supply of food and drink; it did not itself amend State sales tax statutes or create a fresh charging provision where none existed. Since the Maharashtra and Uttar Pradesh Acts did not contain the necessary charging provisions before the relevant date, the validation clause could not sustain the levy for the prior period.

Conclusion: The levy of sales tax on the supply of food and drink before 2 February 1983 in Maharashtra and Uttar Pradesh was invalid.

Final Conclusion: The States were competent to tax the supply of food and drink after the constitutional amendment, but the levy could not be split away from the taxable supply into a separate service element, and the earlier pre-amendment levies in Maharashtra and Uttar Pradesh failed. In the case of composite lodging-and-boarding charges in Maharashtra, taxation was permitted only after proper rules were framed to identify the taxable component.

Ratio Decidendi: Where a constitutional amendment deems the supply of food or drink to be a sale, the taxable subject is the supply itself and not a notional split between food and ancillary services, and a retrospective validation clause cannot cure a State levy that lacked charging authority in the State law.

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