1982 (1) TMI 209 - HC - Indian Laws

Supreme Court clarifies sales tax for restaurants, emphasizing dominant intention & case-by-case analysis

Govind Ram and Ors. Versus The State of Rajasthan and Ors.

The Supreme Court dismissed the writ petitions filed by hotel and restaurant owners challenging sales tax assessment notices. Citing precedents, the Court ... - Issues:Assessment of sales tax on hotels and restaurants for supply of food and drinks.Analysis:The judgment involves six writ petitions filed by hotel and restaurant owners challenging notices for sales tax assessment. The petitioners argue that serving food and drinks to customers does not constitute a sale, thus they are not liable for sales tax. On the contrary, the Department contends that the transactions may amount to sale under Section 2(o) of the Rajasthan Sales Tax Act, emphasizing that the petitioners make sales across the counter and supply items outside the establishments at the same rate, warranting an inquiry by the assessing authority.The Supreme Court's decisions in State of H.P. v. Associated Hotels of India and Northern India Caterers v. Lt. Governor of Delhi are cited. In the former, the Court held that supplying meals to hotel guests is a contract of service, not sale, as food is an amenity incidental to the service provided. The latter case extended this principle to restaurants serving customers, stating that if the essence of the transaction is service with food supply being incidental, it does not constitute a sale.A review petition in Northern India Caterers clarified that a transaction is eligible for sales tax if the dominant object is the sale of food, with services being incidental. The judgment emphasizes that the assessing authority must determine the intention of the transaction in each case, considering factors like separate service charges, the right to take away food, and the dominant object of the transaction.Ultimately, the Court holds that the assessing authority must establish facts in each case to determine if the transaction constitutes a sale of food or drinks. Since only show cause notices have been issued and a detailed inquiry is pending to ascertain the nature of transactions, the Court dismisses the writ petitions without prejudice, allowing the assessing authority to make a determination based on the Supreme Court's decisions.In conclusion, the judgment underscores the need for a case-by-case analysis to ascertain whether the dominant intention of a transaction is the sale of food or drinks. It highlights the importance of considering various factors to determine if the transaction qualifies as a sale for the purpose of sales tax assessment.