1999 (10) TMI 598 - SC - VAT and Sales Tax

States can tax food and drink post-1982 Amendment. Retrospective levies invalidated. Maharashtra and Uttar Pradesh affected.

K. Damodarasamy Naidu & Bros. Versus State of Tamil Nadu and Another (and other appeals and writ petitions)

K. Damodarasamy Naidu & Bros. Versus State of Tamil Nadu and Another (and other appeals and writ petitions) - [2000] 117 STC 1 (SC), (2000) 1 SCC 521 Issues Involved:1. Entitlement of States to levy tax on the sale of food and drink.2. Applicability of tax on meals served in hotels and restaurants.3. Impact of the Constitution (Forty-sixth Amendment) Act, 1982.4. Validity of retrospective tax levies by States.5. Requirement for rules to assess tax on composite charges in residential hotels.Issue-wise Detailed Analysis:1. Entitlement of States to levy tax on the sale of food and drink:The judgment addresses the States' entitlement to levy tax on the sale of food and drink under Entry 54 of List II of the Seventh Schedule to the Constitution, which empowers States to levy 'taxes on the sale or purchase of goods other than newspapers.'2. Applicability of tax on meals served in hotels and restaurants:The Supreme Court reviewed precedents such as the State of Himachal Pradesh v. Associated Hotels of India Ltd. and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi. It was held that the transaction of serving meals in hotels and restaurants is essentially one of service, where meals are provided as part of the service, and thus, splitting the transaction into service and sale of foodstuffs was not permissible. However, the Constitution (Forty-sixth Amendment) Act, 1982, amended Article 366 to include the supply of food and drink as taxable.3. Impact of the Constitution (Forty-sixth Amendment) Act, 1982:The amendment inserted clause (29A) to Article 366, enabling States to levy a tax on the supply of food and drink. Tamil Nadu amended its General Sales Tax Act to include the supply of food and drink in the definition of 'sale,' making it exigible to tax. The court rejected the contention that the tax could not be levied prior to the introduction of specific sections in the Tamil Nadu Act.4. Validity of retrospective tax levies by States:The court examined the retrospective application of tax laws in Maharashtra and Uttar Pradesh. Section 6 of the Constitution (Forty-sixth Amendment) Act was discussed, which validated State laws retrospectively if they contained provisions for taxing the supply of food and drink. However, the court held that neither Maharashtra nor Uttar Pradesh had such provisions prior to February 2, 1983, making the retrospective levy of sales tax on food and drink in these States invalid.5. Requirement for rules to assess tax on composite charges in residential hotels:The court addressed the issue of composite charges for lodging and boarding in residential hotels. It directed the State of Maharashtra to frame rules by June 1, 2000, to set out formulae for assessing tax on the supply of food and drink, taking into account the different types of boarding provided. Until such rules are framed, no assessments should be made, and any assessments not completed due to this order will lapse if the rules are not framed by the specified date.Separate Judgments:The judgment was delivered collectively without separate judgments from individual judges.Conclusion:The Supreme Court upheld the States' entitlement to levy tax on the supply of food and drink post the Constitution (Forty-sixth Amendment) Act, 1982. However, it invalidated retrospective tax levies by Maharashtra and Uttar Pradesh prior to February 2, 1983. The court also mandated the framing of rules for assessing tax on composite charges in residential hotels in Maharashtra. The relevant writ petitions and appeals were disposed of accordingly.