1987 (4) TMI 463 - HC - VAT and Sales Tax

Court quashes sales tax liability for restaurant food sales

The Court allowed the writ application, quashing the assessment orders challenging sales tax liability for food sold in a restaurant. The petitioner's ... Sales tax on food sold and consumed in a restaurant - tax on the supply of goods as part of a service - validation of past taxation by constitutional amendment - transitional exemption for supplies by restaurants under the Constitution (Forty-sixth Amendment)Sales tax on food sold and consumed in a restaurant - application of precedent on taxability of food supplied in restaurants - No sales tax was payable on articles of food sold in and consumed at the restaurant for the periods under challenge. - HELD THAT: - The court applied the principle in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi (as cited) and the Division Bench decision of this Court in Rajasthan Jalpan (C.W.J.C. Nos. 1430/1981 and 1433/1981 (R)), which held that where the dominant purpose is sale of food and rendering of services is merely secondary, food served to customers in the restaurant is not liable to sales tax. On that basis the assessments for the years in question, which treated such supplies as taxable, were found to be unsustainable. [Paras 2, 3]Assessments insofar as they taxed food served and consumed in the petitioner's restaurant were quashed.Validation of past taxation by constitutional amendment - transitional exemption for supplies by restaurants under the Constitution (Forty-sixth Amendment) - effect of state amendment reproducing central transitional provision - The Court noted that the Constitution (Forty-sixth Amendment) and the corresponding amendment in the Bihar Finance Act reproduced a validation of past taxation but also incorporated a specific exemption for supplies by restaurants made in the relevant earlier period where tax had not been collected on the ground that it could not then be levied. - HELD THAT: - The judgment recognises that the Forty-sixth Amendment (art. 366(29A)(f) and section 6(2)) validated certain past impositions of tax, and that section 60A of the Bihar Finance Act, 1981 reproduces that provision. However, sub-section (2)(a)/(b) contains an exemption for supplies by restaurants (and other supplies in the specified earlier periods) where tax was not collected on the ground that it could not have been levied at that time, with the burden on the claimant to prove non-collection. The Court construed these provisions in the context of the petitioner's assessments and, applying the earlier judicial authorities, concluded that the transitional provisions did not sustain the impugned assessments which were quashed. [Paras 3]Although the constitutional and statutory amendments validated certain past taxation, the transitional exemption for restaurant supplies applied and did not sustain the assessments; consequently the impugned assessments were set aside.Final Conclusion: Writ petition allowed; the impugned assessment orders for the specified periods are quashed. No order as to costs. Issues:Challenge to assessment orders for various years based on sales tax liability for food sold in a restaurant.Analysis:The petitioner challenged assessment orders for different years, arguing that no sales tax was payable for food sold and consumed in the restaurant. The petitioner relied on a Supreme Court decision and a Division Bench judgment of the Court, emphasizing that unless the dominant purpose of the restaurant was the sale of food, no sales tax was applicable. The petitioner also highlighted the Constitution (Forty-sixth Amendment) Act, 1982, specifically Article 366(29A)(f), which addressed taxes on the supply of goods like food for consideration. The Act validated the imposition of taxes on goods but provided exemptions under certain conditions.The Court noted that the Bihar Finance Act, 1981 was amended in 1984 to align with the Constitution (Forty-sixth Amendment) Act. The relevant amendment in section 60A mirrored the provisions of the Constitution Act, providing statutory backing to taxes previously deemed illegal due to court decisions. Consequently, the Court allowed the writ application, quashing the assessment orders. No costs were awarded in the judgment.