Restaurant sales are taxable as sale of goods when the essential object is transfer of food for a price, despite incidental service.

Restaurant transactions were held to be sales of goods where the essential object is transfer of property in food for a price; incidental amenities such as service, linen, and comfort do not change that character. Applying the distinction between a contract of sale and a contract of work or service, the Court held that restaurant turnover could be subjected to sales tax under the State Act and that the provision was constitutionally valid. The article 14 challenge was rejected, as the legislature could validly grant exemptions to particular classes of goods.

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Issues: Whether section 5(1) read with the first proviso of the Andhra Pradesh General Sales Tax Act, 1957, in so far as it subjected restaurant turnover to sales tax, was ultra vires and unconstitutional on the footing that the restaurant transaction was a contract of service and not a sale of goods.

Analysis: Applying the tests governing the distinction between a contract of sale and a contract of work or service, the Court held that the true nature of a restaurant transaction is the sale of eatables for a price and not merely the rendering of service. The presence of attendant amenities such as service, linen, and comfort does not alter the essential character of the transaction, because the primary object is transfer of property in the food to the customer as a chattel. The Court distinguished hotel residents' meals from restaurant sales and relied on the settled principle that sales tax competence under entry 54 of List II extends to genuine sales of goods. The plea under article 14 was not pressed and, in any event, was rejected as the legislature could validly grant exemptions to particular classes of goods.

Conclusion: The provision was held to be constitutionally valid, and the restaurant turnover was held taxable under the Act.

Ratio Decidendi: Where the essential object of a restaurant transaction is transfer of property in food for a price, the transaction is a sale of goods and may be subjected to sales tax notwithstanding incidental service elements.

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