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of <h1>Tax on food and drink within boarding-and-lodging packages: only separable meal share taxable; composite tariff assessments stayed pending Rules.</h1> States' power under Entry 54, List II to tax supply of food and drink in composite boarding-and-lodging tariffs was held confined to the identifiable ... Entitlement of the States to levy tax on the sale of food and drink - Entry 54 of List II of the Seventh Schedule to the Constitution empowers the States to levy 'taxes on the sale or purchase of goods other than newspapers subject to the provisions of entry 92-A of List I - levied on the composite charge for boarding and lodging unless the State made Rules which set down formulae for determining that component of the composite charge which was exigible to the tax on food and drink - Held that:- It was not disputed by learned counsel for the State of Maharashtra that the tax on food and drink could be imposed only upon that component of the composite charge for lodging and boarding at a residential hotel as related to the supply of food and drink. But, in his submission, no rules in this behalf were necessary. The Sales Tax Officers would make assessments depending upon the facts of each individual case. It is in practical terms impossible for the sales tax authorities to make assessments upon the basis of the facts relevant to each individual customer in each individual hotel. Generalisations are, therefore, inevitable and there is every likelihood that the basis of the generalisation made by one Sales Tax Officer would differ from the basis of the generalisation made by another, leading to unacceptable arbitrariness. Rules that indicate to Sales Tax Officers how to treat composite charges for lodging and boarding would eliminate substantial differences in their approach and, thus, arbitrariness. We, therefore, direct that the State of Maharashtra shall henceforth not make assessments of the tax on the supply of food and drink on hotel owners who provide lodging and boarding for a composite sum until it frames rules that set out formulae for such assessment which take account of the fact that residential hotels may provide lodging and full or part board as set out above. There was no amendment of the U.P. Sales Tax Act, 1948, to make the supply of food and drink taxable after clause (29A) was introduced into article 366 until 1985 when the definition of “sale” was amended appropriately with effect from February 2, 1983. The Schedule to the U.P. Sales Tax Act contained an entry whereby “sweetmeats, namkin, cooked food, confectionery, rewari, gajak, biscuits, bread, cakes, pastries, buns, jams jallies, murabbas, gulkand, churan, chatani and achar when sold loose or unpacked” were taxable. The power to make laws for the States in respect of matters listed in List II in the Seventh Schedule is exclusively that of the State Legislatures. The State Legislatures alone could have amended or modified a State law levying tax under entry 54 of List II. The said section 6 would, therefore, be bad in law if it were construed to be an essay by Parliament, exercising constituent powers, to amend the sales tax laws of the States. The said section 6 must be read as only giving retrospective operation to the expansion of the expression “tax on the sale or purchase of goods” in entry 54 of List II to include a tax on the supply of food or drink and thus validating retrospectively State Sales Tax Acts that had theretofore made provision for the levy of sales tax on the supply of food and drink. There is, accordingly, no warrant even for the submission that the said section 6 equates a provision for sales tax on food and drink in States Sales Tax Acts with a provision for sales tax on the supply of food and drink. Neither the State of Maharashtra nor the State of Uttar Pradesh had provisions in their Sales Tax Acts prior to the introduction of clause (29A) in article 366 which enabled them to tax the supply of food and drink. The said section 6, therefore, can be of no assistance to them. The levy of sales tax on the supply of food and drink prior to February 2, 1983, in the State of Maharashtra and in the State of Uttar Pradesh is bad in law. The levy of sales tax on the supply of food and drink prior to February 2, 1983, in the State of Maharashtra is bad in law The State of Maharashtra is directed henceforth not to make assessments of the tax on the supply of food and drink on hotel owners who provide lodging and boarding for a composite sum until it frames Rules that set out formulae for such assessment which take account of the fact that residential hotels may provide lodging and full or part board. If the rules are framed by June 1, 2000, the assessments that are not completed only by reason of this order may be proceeded with. If the rules are not framed by the said date, these assessments shall lapse. No proceedings for assessments shall be commenced hereafter until the rules have been framed. At the same time, completed assessments as of today shall not be affected by this order, and the assessees would be entitled to adopt proceedings there against, subject to the law. 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.
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