Penalty enhancement and restaurant food taxability hinge on surviving liability and the true sale-versus-supply test.

A Tribunal cannot restore a penalty under enhancement powers where the appellate authority has already cancelled the penalty in full, because there is then no surviving penalty to enhance. The penalty levy was therefore unsustainable. On disputed restaurant turnover supported by seized slips, taxability could not be confirmed without applying the correct legal test to the facts: supply of food in a restaurant is not automatically a sale, and the authority must determine whether the transaction is a sale of food or a supply and service arrangement. The turnover addition was therefore reopened for fresh consideration on that issue.

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Issues: (i) whether the Tribunal had jurisdiction under section 36(3) of the Tamil Nadu General Sales Tax Act, 1959 to restore a penalty which had been cancelled in full by the appellate authority; and (ii) whether the addition of turnover based on the seized slips could stand without examining, in the light of the applicable law, whether the supply of food in the restaurant amounted to a sale.

Issue (i): whether the Tribunal had jurisdiction under section 36(3) of the Tamil Nadu General Sales Tax Act, 1959 to restore a penalty which had been cancelled in full by the appellate authority.

Analysis: The power to enhance penalty under section 36(3) is attracted only where there is an existing penalty capable of enhancement. Once the appellate authority had cancelled the penalty in toto, there was no surviving penalty in the appeal before the Tribunal to be enhanced. The Tribunal was dealing with the appellate order and not with the original assessment order. Restoring a penalty cancelled by the appellate authority is different from enhancing an existing penalty.

Conclusion: The Tribunal had no jurisdiction to restore the penalty, and the levy of penalty was set aside.

Issue (ii): whether the addition of turnover based on the seized slips could stand without examining, in the light of the applicable law, whether the supply of food in the restaurant amounted to a sale.

Analysis: The additional turnover was disputed from the beginning, and the assessee was entitled to raise a new legal contention on its taxability because the question related to the very turnover in dispute. The governing principle was that supply of food in a restaurant is not automatically a sale; the real test is whether, on the facts, the transaction is a sale of food or merely a supply and service arrangement. The taxing authority must determine the facts and apply that test to the turnover in question.

Conclusion: The assessment on the disputed turnover could not be finally sustained without reconsideration, and the matter was remanded for fresh disposal on that issue.

Final Conclusion: The assessee succeeded on the penalty issue, and the turnover addition was reopened for reconsideration by the Tribunal in accordance with the governing legal test on taxability of food supplied in restaurants.

Ratio Decidendi: A penalty cancelled in full by the appellate authority cannot be restored by invoking enhancement jurisdiction under section 36(3); and taxability of food supplied in a restaurant depends on whether, on the facts, the transaction is a sale or merely a supply of food with services.

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