1988 (10) TMI 264 - HC - VAT and Sales Tax

Court rules transactions in hotels/restaurants not subject to sales tax, invalidates govt order, applies promissory estoppel.

The Tamil Nadu Hotels Association Versus State of Tamil Nadu and Others

The Tamil Nadu Hotels Association Versus State of Tamil Nadu and Others - [1989] 74 STC 250 (Mad) Issues Involved:1. Legality of G.O. Ms. No. 1187 dated 22nd October, 1982.2. Liability of hotel owners to pay sales tax on the supply of food and drink.3. Requirement for hotel owners to register as dealers under the Tamil Nadu General Sales Tax Act.4. Application of the principle of promissory estoppel against the State.5. Maintainability of the writ petition by the petitioner-Association.Issue-wise Detailed Analysis:1. Legality of G.O. Ms. No. 1187 dated 22nd October, 1982:The petitioner-Association challenged G.O. Ms. No. 1187, which imposed conditions on the waiver of sales tax previously granted by G.O. Ms. Nos. 436 and 437 dated 27th April, 1981. The petitioner argued that the subsequent G.O. was without jurisdiction and could not revoke the unconditional waiver granted earlier. The court held that the members of the petitioner-Association were entitled to the benefit of waiver under the earlier G.Os., and the transactions relating to the supply of food and drink in hotels and restaurants were not sales and thus not liable to sales tax.2. Liability of hotel owners to pay sales tax on the supply of food and drink:The petitioner contended that following the Supreme Court decision in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, the supply of food and drink in hotels did not constitute a sale and thus was not subject to sales tax. The court concurred, referencing the decision in Sree Annapoorna v. State of Tamil Nadu, and held that the transactions were not liable to sales tax under the Tamil Nadu General Sales Tax Act.3. Requirement for hotel owners to register as dealers under the Tamil Nadu General Sales Tax Act:The petitioner argued that since the transactions were not sales, hotel owners were not required to register as dealers. The respondents contended that hotels and restaurants were exempt under section 17 of the Act but still considered dealers. The court found that the sales tax authorities' actions to compel registration were without jurisdiction and against the provisions of the Act.4. Application of the principle of promissory estoppel against the State:The petitioner argued that the State was estopped from changing its position based on the earlier G.Os., which had led the petitioner to not claim sales tax as a liability for income-tax purposes. The court upheld this contention, noting that the State could not unilaterally change the waiver conditions, thereby imposing a liability on the petitioner retrospectively.5. Maintainability of the writ petition by the petitioner-Association:An objection was raised regarding the maintainability of the writ petition, arguing that only dealers could file such petitions. The court found the writ petition maintainable, noting that the petitioner-Association, registered under the Societies Registration Act, could institute legal proceedings, including filing a writ petition, on behalf of its members.Conclusion:The court allowed the writ petition, holding that the transactions of the supply of food and drink in hotels and restaurants were not liable to sales tax and that the subsequent G.O. imposing conditions on the waiver was without jurisdiction. The court also upheld the principle of promissory estoppel against the State and affirmed the maintainability of the writ petition by the petitioner-Association. No costs were awarded.