1985 (12) TMI 351 - HC - VAT and Sales Tax

Restaurant services not subject to sales tax under Punjab GST Act, preliminary objection dismissed.

Hot Millions Versus Union Territory, Chandigarh and Another

The court dismissed the preliminary objection and held that the services provided by the petitioner's restaurant did not constitute a sale under the ... - Issues Involved:1. Legality of the sales tax notices issued to the petitioner.2. Whether the services rendered by the petitioner amount to 'sale' under section 2(h) of the Punjab General Sales Tax Act, 1948.3. Applicability of the Supreme Court's judgment in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 (SC).Detailed Analysis:1. Legality of the Sales Tax Notices:The petitioner, a firm running a restaurant named Hot Millions in Chandigarh, challenged the legality of the final notice dated 26th November 1982, and two subsequent notices dated 27th December 1982, issued by the Excise and Taxation Officer-cum-Assessing Authority, Union Territory, Chandigarh. These notices were in relation to sales tax assessment for the years 1980-81, 1981-82, and 1982-83. The petitioner contended that the services provided at their restaurant did not constitute a sale of eatables and beverages, thus not subject to sales tax. The respondent, however, rejected this contention, leading to the issuance of the impugned notices.2. Whether the Services Rendered Amount to 'Sale':The respondent argued that the services rendered by the petitioner amounted to a sale based on several grounds, including the self-service model, lack of waiter service, and the nature of the premises being a 'snack-bar.' The petitioner countered that the services provided were comprehensive, including sophisticated kitchen equipment, elegant furnishings, and entertainment, which catered to the bodily needs of visitors and did not constitute a sale. The court examined the nature of the services provided, noting that the essential fact was that the eatables were consumed and destroyed on the premises, aligning with the definition of service rather than sale.3. Applicability of the Supreme Court's Judgment:The petitioner relied on the Supreme Court's judgment in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 (SC), which held that the service of food and beverages in a restaurant constitutes service and not a sale. The court noted that the services provided by the petitioner, including the consumption of food on the premises, did not transfer the property in goods to the customers. This was consistent with the Supreme Court's view that the essence of the transaction in a restaurant is service, not the sale of food. The court also referenced similar judgments from other High Courts, including Andhra Pradesh, Karnataka, and Delhi, which supported this interpretation.Conclusion:The court dismissed the preliminary objection raised by the respondents regarding the availability of an alternative remedy under the Punjab General Sales Tax Act, 1948, stating that the writ petition was admitted nearly three years ago and that the services rendered did not constitute a sale under section 2(h) of the Act. The court concluded that the services provided by the petitioner, including the service of eatables and beverages, were not exigible to sales tax. Consequently, the petition was allowed, and the impugned notices dated 26th November 1982 and 27th December 1982 were quashed. There was no order as to costs.Separate Judgment by Karnataka High Court:In a related case, K. Seetharama Rao v. Assistant Commercial Tax Officer, the Karnataka High Court held that the service of food and drinks in a restaurant constitutes service and not a sale, aligning with the Supreme Court's judgment in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi. The petitioner in this case was also entitled to a mandamus restraining the respondent from levying sales tax on his restaurant business turnover.