Large-scale restaurant production may be treated as an industrial unit for entry tax, while in-premises consumption remains exempt.

A large-scale restaurant-cum-production business can fall within an expanded industrial-unit definition for entry tax purposes where the statutory scheme focuses on activity scale and turnover, so its commercially marketed output is not wholly outside the charging provision. At the same time, food prepared and consumed within the restaurant premises retains its hospitality character and may be excluded from tax, because that component is distinct from goods marketed externally. The assessment was therefore capable of being confined to taxable commercial turnover while exempting turnover limited to in-premises consumption.

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Issues: (i) Whether a restaurant engaged in large-scale preparation and sale of edible items could be treated as a manufacturing unit or industrial unit for the purpose of Entry 16-B of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act. (ii) Whether the turnover and mode of business justified taxing only the commercially marketed portion while exempting the portion consumed within the restaurant premises.

Issue (i): Whether a restaurant engaged in large-scale preparation and sale of edible items could be treated as a manufacturing unit or industrial unit for the purpose of Entry 16-B of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act.

Analysis: Entry 16-B, especially as amended, treated the concept of industrial unit in an expansive manner by focusing on the nature and scale of the activity and the turnover criterion. The business was not a small eating house but a substantial commercial enterprise with large-scale production and sale throughout the year. The Court held that the preparation of edible items on such a scale could not be equated with ordinary domestic cooking or a mere restaurant activity, and that the statutory scheme permitted the enterprise to be brought within the definition for tax purposes.

Conclusion: The appellants were liable to be treated as falling within the scope of the entry for the large-scale commercial activity and were not wholly outside the charging provision.

Issue (ii): Whether the turnover and mode of business justified taxing only the commercially marketed portion while exempting the portion consumed within the restaurant premises.

Analysis: The Court drew a distinction between food sold and consumed within the restaurant and goods that were commercially marketed outside. It accepted that the restaurant element retained the well-settled character of hospitality business to the extent the items were consumed on the premises, and that this part should not be subjected to entry tax. At the same time, the commercially marketed turnover was distinct and could be assessed separately.

Conclusion: The in-premises consumption component was exempt, while the commercially marketed component remained taxable.

Final Conclusion: The appeals succeeded only in part, with the assessment modified so that tax could be levied on the taxable commercial turnover while the turnover confined to consumption within the restaurant premises was excluded.

Ratio Decidendi: Where a statute taxes inputs used in a manufacturing or industrial unit and defines that unit by reference to scale and turnover, a large-scale restaurant-cum-production business may be treated as covered for its commercially marketed output, while sales consumed within the premises may still retain their exempt character.

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