1993 (3) TMI 333 - HC - VAT and Sales Tax

Court Upholds Sales Tax on Service Charges & Purchase Tax on Fuel: Intention Determines Applicability

The court upheld the levy of sales tax on service charges in the hotel, emphasizing that the dominant intention of the transaction determines tax ... - Issues:1. Whether service charges in a hotel should be excluded from the levy of sales tax.2. Whether purchase tax on fuel purchased by a hotelier can be challenged based on earlier taxes paid.Analysis:1. The primary issue in this case was whether service charges in a hotel should be excluded from the levy of sales tax. The petitioner, a hotelier, argued that service charges should be excluded as the dominant object of the transaction was to render services, not the sale of food articles. The petitioner contended that prices charged for self-service were lower than those for table service, indicating a separate charge for services. The Supreme Court's decision in Builders Association of India v. Union of India was cited to support the argument that the sale of food and drinks in a hotel involves both the sale of goods and the rendering of services, which could be treated separately for sales tax purposes. However, the court emphasized that the dominant intention and substance of the transaction determine whether sales tax is applicable. The court referred to previous decisions, including Northern India Caterers (India) Ltd.'s case, to establish that the sale of food and drinks in a hotel could be subject to sales tax if the dominant object was the sale of goods, even if services were provided incidentally. The court concluded that the material on record did not prove that the dominant object was to render services, leading to the dismissal of the petitioner's contention.2. The second issue involved the challenge to the levy of purchase tax on fuel purchased by the petitioner, specifically kerosene and diesel. The petitioner argued that since these commodities were controlled and purchased from hawkers and petrol bunks, they must have already suffered taxes at earlier sale points. Citing the case of G. Subramanya Reddy and Co. v. Karnataka Appellate Tribunal, the petitioner sought to establish that the goods had already been taxed before their purchase. However, the court relied on section 6A of the Act, placing the burden on the petitioner to prove that the purchase of kerosene and diesel had already been taxed. The court noted that the statutory presumption under section 6A(2) had not been rebutted by the petitioner, leading to the dismissal of the challenge to the purchase tax on fuel.In conclusion, the court dismissed the revision petition, upholding the levy of sales tax on service charges in the hotel and purchase tax on fuel purchased by the petitioner.