Constitutional expansion of sales tax power covers food and drink supplied by hotels and restaurants

Article 366(29A)(f) enlarged the constitutional concept of sale to include supply of food and drink for consideration, even when bundled with service, thereby widening State competence under Entry 54 of List II to tax hotel and restaurant supplies. The validating provision in section 6 of the Constitution (Forty-sixth Amendment) Act was construed as applying only to laws made in pursuance of the Constitution; it was not extended to the U.P. Sales Tax Act, 1948, a pre-Constitution enactment continued under article 372, or to the notifications issued under that regime.

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Issues: (i) Whether the Constitution (Forty-sixth Amendment) Act, 1982 widened the State's legislative competence under Entry 54 of List II so as to cover sales tax on supply of food and drink by hotel and restaurant owners; (ii) whether section 6 of the Amendment Act applied to the U.P. Sales Tax Act, 1948 and the notifications issued thereunder, so as to validate the levy on the assessees' transactions.

Issue (i): Whether the Constitution (Forty-sixth Amendment) Act, 1982 widened the State's legislative competence under Entry 54 of List II so as to cover sales tax on supply of food and drink by hotel and restaurant owners.

Analysis: The insertion of article 366(29A)(f) expanded the constitutional concept of tax on the sale or purchase of goods to include supply of food or drink for consideration, even where such supply formed part of a service. The amendment did not abolish the earlier judicial understanding of sale, but enlarged the field of legislative competence so that State Legislatures could levy tax on such transactions. The Court rejected the contention that Parliament had usurped judicial power, holding that the amendment was made in exercise of constituent power under article 368.

Conclusion: The State's legislative competence was widened, and after the amendment the States were competent to tax supplies of food and drink by hotel and restaurant owners.

Issue (ii): Whether section 6 of the Constitution (Forty-sixth Amendment) Act, 1982 applied to the U.P. Sales Tax Act, 1948 and the notifications issued thereunder, so as to validate the levy on the assessees' transactions.

Analysis: Section 6 was read as referring to laws passed or made in pursuance of the constitutional expression 'tax on the sale or purchase of goods'. The U.P. Sales Tax Act, 1948 was held to be a pre-Constitution law enacted under entry 48 of List II of the Government of India Act, 1935, and not a law made in pursuance of article 246 read with entry 54 of List II. The notifications relied upon were also issued under that pre-Constitution regime continued by article 372. On that construction, section 6 did not apply to the U.P. Act or the notifications, and the pre-existing definition of sale remained unaltered for the purpose of these revisions.

Conclusion: Section 6 of the Amendment Act did not apply to the U.P. Sales Tax Act, 1948 or the notifications issued thereunder.

Final Conclusion: The constitutional amendment enlarged the taxing field for food and drink supplied by hotels and restaurants, but the validating provision was held inapplicable to the U.P. Sales Tax Act, 1948. On the facts of the individual revisions, no interference was warranted and all the revisions were dismissed.

Ratio Decidendi: Article 366(29A)(f) constitutionally enlarges the State's power to tax supply of food and drink for consideration, but a validating provision framed with reference to laws made in pursuance of the Constitution does not extend to a pre-Constitution sales tax enactment continued in force under article 372 unless its language clearly so provides.

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