Restaurant food supplies: taxability turns on dominant object, and transitional exemption applies only to service transactions without tax collection.

Restaurant and eating-house supplies of food are taxable where the dominant object of the transaction is sale, because the transitional exemption under section 6(2)(a) of the Constitution (Forty-sixth Amendment) Act, 1982 applies only to service-based transactions and only where no tax was collected. The assessing authority must examine the true nature of the transaction when exemption is claimed, since the dominant-object inquiry determines whether the transaction falls within the tax net. The assessee seeking the exemption bears the burden of proving both that the supply was a service transaction and that tax was not in fact collected.

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Issues: (i) Whether supplies of food in restaurants and eating houses were taxable where the dominant object was sale, and whether exemption under section 6(2)(a) of the Constitution (Forty-sixth Amendment) Act, 1982 applied only on non-collection of tax. (ii) Whether the assessing authority had to determine whether the transaction was a sale or a package of services, and who bore the burden of proving non-collection of tax.

Issue (i): Whether supplies of food in restaurants and eating houses were taxable where the dominant object was sale, and whether exemption under section 6(2)(a) of the Constitution (Forty-sixth Amendment) Act, 1982 applied only on non-collection of tax.

Analysis: The amendment inserted Article 366(29A)(f) of the Constitution of India to bring supplies of food within the concept of tax on sale or purchase of goods, and section 6 of the Amendment Act created a limited transitional exemption for the period from 7 September 1978 to 2 February 1983. The exemption was not intended to protect transactions which, on facts, were sales with only incidental services. Where the dominant object of the transaction was sale of food, the liability to sales tax existed throughout, and the statutory exemption could not be used to convert a taxable sale into a non-taxable service transaction. Only where the dominant object was service would the transitional exemption operate, provided no tax had been collected.

Conclusion: Transactions in which the dominant object was sale remained taxable, and the assessee could not claim exemption merely because tax was not collected.

Issue (ii): Whether the assessing authority had to determine whether the transaction was a sale or a package of services, and who bore the burden of proving non-collection of tax.

Analysis: The assessee seeking the benefit of section 6(2)(a) had to establish both that the transaction was one of service and that no tax had in fact been collected. The authority was therefore required to examine the nature of the transaction when the exemption was claimed, because the factual inquiry into dominant object was necessary to decide whether the assessee was outside the tax net. Once the assessee showed that the transaction was one of service, the burden remained on it to prove non-collection of tax, the fact being especially within its knowledge. The assessment machinery under section 12 of the Orissa Sales Tax Act, 1947 could then be applied to quantify liability.

Conclusion: The assessing authority had to enquire into the true nature of the transaction, and the burden of proving non-collection of tax lay on the assessee.

Final Conclusion: The reference was answered by holding that only service-based supplies falling within the transitional exemption were protected, while sales-based transactions in restaurants and eating houses remained taxable; the assessee seeking exemption had to establish both the service character of the transaction and the absence of tax collection.

Ratio Decidendi: For restaurant and eating-house supplies during the transitional period, taxability depends on the dominant object of the transaction, and the statutory exemption applies only to service transactions where the assessee proves that no tax was collected.

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