Restaurant food supply taxability turns on dominant object: sale or service must be determined on the facts.

The Forty-sixth Amendment to Article 366(29A) expanded the concept of sale to include supply of food and drinks in service transactions, making restaurant supplies taxable where the substance of the transaction is sale and service is merely incidental. The applicable test is whether the dominant object of the transaction was sale or service, to be determined on the facts of each case. Because no specific finding had been recorded on that issue for the relevant period, the assessment orders were set aside and the matters remanded for fresh consideration of the character of the transactions.

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Issues: Whether the levy of sales tax on supply of food and drinks in hotel and restaurant transactions for the relevant period was sustainable in the absence of corresponding amendment to the State sales tax law, and whether the assessments should be reconsidered on the factual question whether the dominant object of the transaction was sale or service.

Analysis: The Forty-sixth Amendment inserted clause (29A) in Article 366 of the Constitution of India and enlarged the constitutional concept of tax on sale or purchase of goods to include supply of food or drinks in the course of service. The governing legal position, as applied by the Court, was that where the substance of the transaction in an eating-house or restaurant is sale of food and the rendering of service is merely incidental, the transaction is exigible to sales tax. At the same time, the Court noted that for the periods involved, no specific finding had been recorded by the assessing authority on whether the dominant object of the transactions was sale or service, and that the matter had to be examined in the light of the Supreme Court's review decision and the subsequent Supreme Court ruling.

Conclusion: The assessment orders were set aside and the matters were remanded to the assessing authority for fresh consideration of whether the supply of food, drinks or other articles was dominantly part of service or sale; the appeals were accordingly allowed, placing the result in favour of Revenue.

Ratio Decidendi: For restaurant transactions, sales tax liability depends on whether the dominant object is sale of food and drinks, and such liability must be determined on the facts of each case in light of Article 366(29A)(f) of the Constitution of India.

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