1983 (10) TMI 230 - HC - VAT and Sales Tax

Restaurant owners liable for sales tax on food sales, not services. Impact of Constitution Amendment Act.

Northern India Hotels Ltd. Versus Commissioner of Sales Tax, UP., Lucknow

The court held that the assessees, restaurant owners, were liable to pay sales tax on their transactions of supplying foodstuffs to customers, as the ... - Issues Involved:1. Whether the assessees are liable to pay sales tax on their transactions of supply of foodstuffs, etc., to their customers.2. The applicability of the decision of the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi.3. The impact of the Constitution (Forty-sixth Amendment) Act, 1982, on the interpretation of 'sale of goods.'4. The validity and applicability of Section 6 of the Amendment Act to pre-Constitution laws like the U.P. Sales Tax Act, 1948.5. The competence of Parliament under Article 368 of the Constitution to enact the Amendment Act.Issue-wise Detailed Analysis:1. Liability to Pay Sales Tax:The common question across all revisions was whether the assessees, who are restaurant owners, are liable to pay sales tax on their transactions of supplying foodstuffs to their customers. The assessees contended that they were rendering services to their customers, and sales were only incidental to services. They relied on the Supreme Court's decision in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, which exempted such transactions from sales tax.2. Applicability of Supreme Court Decision:The assessees argued that the decision in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi should apply, exempting them from sales tax. The Tribunal found that the assessees did not maintain any accounts and that the dominant object was sales, not services. This finding was crucial in determining the tax liability. For instance, in Sales Tax Revision No. 398 of 1982, the Tribunal found no evidence that customers could not take away food, thus denying the benefit of the Supreme Court decision.3. Impact of Constitution (Forty-sixth Amendment) Act, 1982:The Amendment Act introduced a new clause (29A) in Article 366, broadening the definition of 'tax on the sale or purchase of goods' to include the supply of food or drink as part of any service. This amendment aimed to counteract the narrow interpretation by the Supreme Court and validate state laws imposing sales tax on such supplies. The court emphasized that the Amendment Act widened the legislative competence of the States under entry 54 of List II of the Seventh Schedule.4. Validity and Applicability of Section 6 of the Amendment Act:The court examined whether Section 6 of the Amendment Act, which validates laws levying tax on the supply of food and drinks, applies to pre-Constitution laws like the U.P. Sales Tax Act, 1948. The court held that Section 6 does not apply to the U.P. Sales Tax Act, 1948, as it was enacted under entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935. Consequently, the original definitions in the U.P. Sales Tax Act, 1948, stand, and the Amendment Act does not alter them.5. Competence of Parliament under Article 368:The court addressed the argument that Parliament usurped judicial functions by altering the definition of 'taxes on the sale or purchase of goods.' It held that Parliament acted within its constituent powers under Article 368 to amend the Constitution. The Amendment Act did not declare any judgment of the Supreme Court or High Court erroneous but altered the definition to widen the scope of entry 54 of List II of the Seventh Schedule.Individual Case Analysis:Sales Tax Revision No. 350 of 1982:The Tribunal upheld the Assistant Commissioner's order of remand for further investigation by the assessing authority. The court found no reason to interfere with the remand order, dismissing the revision without costs.Sales Tax Revision No. 398 of 1982:The Tribunal found no evidence that customers could not take away food, denying the benefit of the Supreme Court decision. The assessee's failure to maintain accounts necessitated an estimated turnover and tax liability, which the court found reasonable. The revision was dismissed without costs.Sales Tax Revisions Nos. 423 and 424 of 1982:The Tribunal found the assessee entitled to the benefit of the Supreme Court decision for part of the turnover. The Commissioner could not benefit from Section 6 of the Amendment Act. The revisions were dismissed without costs.Conclusion:The court concluded that the assessees could not claim exemption based on the Supreme Court decision due to the Amendment Act's broader definition of 'sale of goods.' However, the Amendment Act did not apply to pre-Constitution laws like the U.P. Sales Tax Act, 1948. The revisions were dismissed, upholding the Tribunal's findings and remand orders where applicable.