TaxTMI 
TaxTMI 
1985 (1) TMI 278
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.... we have heard Mr. Ramachandran who appeared on behalf of the petitioner, along with the counsel who appeared in the several petitions mentioned above. It is not now in dispute that the several petitioners in these writ petitions run either hotels and restaurants where rooms are let out to the guests and articles of food are served in the restaurants. By way of illustration, we may refer to the facts in Writ Petition No. 7038 of 1981. It is filed by M/s. Hotel Aristo, No. 2, Dindigul Road, Tiruchirapalli. The petitioner has alleged that the rooms in the hotel are let out to the guests and besides arrangement for tea, lunch and dinner parties which are organised by outsiders, there is also a restauarant which is fully furnished with sophisticated furniture to cater to the comforts of the customers who are served by uniformed servers. The restaurant is run to cater to the needs of the resident lodgers who are served with food-stuffs, edibles and beverages of their choice. It is stated that the articles of food and drink which are served to the resident lodgers are meant for consumption only inside the premises and the unconsumed portions are not carried away by them. 3.. The petit....
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....visible, namely, one of receiving a customer in the hotel to stay, and that even if the transaction is to be disintegrated, there is no question of the supply of meals during such stay constituting a separate contract of sale, since no intention on the part of the parties to sell and purchase food-stuffs supplied during meal-times can be realistically spelt out. The Supreme Court observed as follows: "The transaction essentially is one of service by the hotelier in the performance of which meals are served as part of and incidental to that service, such amenities being regarded as essential in all well conducted modern hotels; The bill prepared by the hotelier is one and indivisible, not being capable by approximation of being split up into one for residence and the other for meals. No doubt, such a bill would be prepared after consideration of the costs of meals, but that would be so for all the other amenities given to the customer. For example, when the customer uses a fan in the room allotted to him, there is surely no sale of electricity, nor a hire of the fan. Such amenities, including that of meals, are part and parcel of service which is in reality the transaction betwee....
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....rved: "The Court said, and this was emphasised in no small degree, that the supply and service of food to a customer to be eaten in the restaurant was not a sale for the reason that he was merely entitled to eat the food served to him and not to remove and carry away the unconsumed portion of the food. Had that amounted to a sale, the unconsumed portion would have belonged to the customer to take away and dispose of as he pleased. Besides, the Court noted, there were other amenities and services of considerable materiality which were also provided." The two learned Judges noted the apprehensions of other States who had also appeared in the review petitions: "That the benefit of the judgment of this Court will be invoked by restaurant-owners in those cases also where there is a sale of food and title passes to the customers." Finding such an apprehension baseless, the learned Judges observed as follows: "It seems to us that having regard to the facts upon which our judgment rests-undisputed as they have remained throughout the different stages of the litigation-and the considerations which they attract, no such apprehension can be reasonably entertained. Indeed, we have no ....
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....ash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made." This amendment came into effect on 3rd February, 1983. In the objects and reasons for the amendment, the necessity for the amendment was stated in the following terms: "........ a new problem has arisen as a result of the decision of the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 (SC); AIR 1978 SC 1591. States have been proceeding on the basis that the Associated Hotels of India case [1972] 29 STC 474 (SC) was applicable only to supply of food or drink by a hotelier to a person lodged in the hotel and that tax was leviable on the sale of food-stuffs by a restaurant. But overruling the decision of the Delhi High Court, the Supreme Court has held in the above case that service of meals whether in a hotel or restaurant does not constitute a sale of food for the purpose of levy of sales tax but must be regarded as the rendering of a....
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....-section (2) of section 6. This subsection reads as follows: "Notwithstanding anything contained in sub-section (1), any supply of the nature referred to therein shall be exempt from the aforesaid tax- (a) where such supply has been made, by any restaurant or eating house (by whatever name called), at any time on or after the 7th day of September, 1978, and before the commencement of this Act and the aforesaid tax has not been collected on such supply on the ground that no such tax could have been levied or collected at that time; or (b) where such supply, not being any such supply by any restaurant or eating house (by whatever name called), has been made at any time on or after the 4th day of January, 1972, and before the commencement of this Act and the aforesaid tax has not been collected on such supply on the ground that no such tax could have been levied or collected at that time: Provided that the burden of proving that the aforesaid tax was not collected on any supply of the nature referred to in clause (a) or, as the case may be, clause (b), shall be on the person claiming the exemption under this subsection." By enacting section 6, the Parliament took....
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....taurant with the avowed object of ordering out articles of food for the purpose of consumption in the restaurant itself. The question as to whether any service is involved or not, if at all it arises, it will arise only in the second class of cases. In the first category of cases where articles of food are sold across the counter it is a sale, pure and simple, like any other commodity in any other shop with no element of service involved. If at all any service is involved, it is in no way different from the service involved in an ordinary transaction of sale of any other goods which are sold across the counter. It is difficult to see how such a transaction which is purely of sale and purchase of articles of food can be outside the taxing power of the State Legislature having regard to entry 54 of List II of the Seventh Schedule to the Constitution. The real difficulty arises only when we deal with the question of legislative competence of the State Legislature to levy sales tax on the supply of goods, which according to the Supreme Court, is a part of service. The question of legislative competence will now have to be determined with reference to the amendment in the Constitution. ....
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....dia, the tax under this Act shall be payable by a dealer at the rate and only at the point specified therein on the turnover in each year relating to such goods, whatever be the quantum of turnover in that year. The real effect of reading section 3(2) with item 150 is that the liability to pay sales tax arises only in respect of hotels classified or approved by the Department of Tourism, Government of India. The argument of the learned counsel for the petitioners is that, when hotels classified or approved by the Department of Tourism of the Government of India have been singled out for the levy of sales tax, this amounts to a hostile treatment and therefore, the petitioners can justifiably complain of the violation of the guarantee provided in article 14 of the Constitution. The argument is that so far as the object of the Sales Tax Act is concerned, there is no rational basis for classifying only hotels classified or approved by the Department of Tourism, Government of India, into a class by itself, and that the basis has no relation with the object of the Act. It is pointed out that there were other hotels which are not classified or approved by the Department of Tourism, Govern....
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....reliefs are given under sections 80J and 80HH of the Indian Income-tax Act. They are also entitled to a special depreciation under section 32(1)(v) of the Income-tax Act. Therefore, according to the learned Advocate-General, such hotels are a class by themselves and they stand on a different footing and it was not necessary to treat them alike as other hotels. The classification, it is said, was a reasonable one. The learned Advocate-General further contended that the State has a wide discretion in the selection of persons or goods which may be taxed and therefore if the State has chosen only such of the hotels as have been recognised and approved by the Department of Tourism, Government of India, in so far as sales tax is concerned, such classification cannot be said to be violative under article 14 of the Constitution of India. We have also been shown some guidelines laid down by the Department of Tourism with regard to the classification of hotels in terms of Stars, i.e., 5-Star, 4-Star, 3-Star, etc. At this stage, we may point out that while introducing item 150 in the First Schedule to the said Act, the State Government also issued a Notification being G.O.Ms. No. 1001 dated 6....
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....stablished by the decisions of this Court that article 14 condemns discrimination not only by a substantive law but also by a law of procedure." The approach to be adopted while dealing with the problem of discrimination is stated in the following words by Hidayatullah, J. (as he then was), in S.C. Prashar v. Vasantsen AIR 1963 SC 1356 at 1392, para 125: "Before dealing with the contentions raised we find it necessary to say a few words about the manner in which the problem of discrimination should be approached. One must first find out the object of the impugned provision and compare it with the topic of legislation and then try to discover if there is a connection between the two and a reasonable basis for making a difference between different classes of persons affected by the law, in keeping with the topic of legislation and the object of the enactment. A difference which is aimless, arbitrary or unreasonable and which is unconnected with the object in view must remain a discrimination and incapable of being upheld. In all cases in which laws were struck down under article 14 this was the approach. It is hardly necessary to refer to the previous cases because each ....
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....re. An argument was advanced that these are hotels to which customers who can afford to pay higher price for articles of food, go. That, in our opinion, is hardly relevant for the purposes of the Sales Tax Act. Similarly the circumstance that food is prepared under special conditions by expensive cooks and the service of food is efficient has not even the remotest connection with liability to pay sales tax. As a matter of fact, we were at pains to find out whether there is any trace of any nexus between the basis of the classification and the object of the Act. In fact there could be none, because the classification is based on something done by the Government of India in its Tourism Department and we are not able to find as to how merely because some hotels have been approved by the Department of Tourism they could be made liable to sales tax. We are, therefore, unable to find any valid basis for classification having a nexus with the object of the sales tax enabling the State to levy sales tax as contemplated by the entry in item 150. 15.. The learned Advocate-General while justifying the different treatment meted out to hotels which are approved by the Tourism Department has ....
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....e learned Advocate-General is that cotton fabrics produced by the mills and cotton fabrics produced by powerloom owners were both cotton fabrics and yet cotton fabrics produced by powerloom owners were exempted from excise duty which is found to be permissible. By an analogy it was contended that there are two categories of hotels, one approved by the Department of Tourism and the other which did not either get or take the approval of the Department of Tourism and hence it will be open to the State Legislature to choose any one of those two categories for the purpose of sales tax. In our view the analogy is hardly applicable in the instant case. The tax in question in the Orient Weaving Mills case AIR 1963 SC 98 was excise duty which is a tax on the manufacture of goods and if different manufacturers are grouped together by virtue of certain differences which are inherent both in the kind of the produce as well as in their character, in such a case, the exemption in respect of one kind of production of cotton fabrics was justified and especially in respect of whom the State had a duty to promote their industry which is a cottage industry, having regard to the directive....
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....t the clubbing together of the original B and C groups was found to be justified because the basis on which differentiation was made was found to have a nexus to the purpose of the Taxation Act. 16.. Two other decisions which were relied on by the learned AdvocateGeneral were in the context of upholding the validity of the additional sales tax imposed by the State Legislature. These decisions do not seem to be of much assistance because the nature of the challenge in those cases was that the additional tax was not a tax on the sale of goods but was a tax on the income of the dealer. The first decision is in S. Kodar v. State of Kerala [1974] 34 STC 73 (SC) in which it was held that the additional tax levied under the Tamil Nadu Additional Sales Tax Act (14 of 1970) was really a tax on the sale of goods and not on the income of a dealer. The other decision is in K.M. Mohamed Abdul Khader Firm v. State of Tamil Nadu [1985] 58 STC 12 (SC) where a similar Act which amended the Additional Sales Tax Act, 1970 by providing for a different method of computation of the additional sales tax leviable under that Act by linking the rate of levy to the taxable turnover instead of to th....
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....es. The Division Bench took the view that the distinction between the two classes of dealers in articles of food and drink with an annual turnover Rs. 25,000 and more: i.e., (i) dealers in such articles of food and drink sold in hotels, boarding house and restaurants; (ii) dealers in such articles of food and drink sold eleswhere, has no reasonable or just relation to the object of the Act which was to tax the turnover of the sales of a dealer. Accordingly the Division Bench found that the proviso to section 3(1)(b) of the Act offended article 14 of the Constitution and was therefore void and unenforceable against the petitioner. 18.. Just as the classification made under the proviso in question in Krishna Iyer's case [1956] 7 STC 346; (1956) 2 MLJ 179 was not found to have had any reasonable basis, having a just and reasonable relation to the object of the Act; in the cases before us also we have not been able to find any reasonable basis for the classification based on the place where the articles of food and drink are sold, having any reasonable nexus with the object of the Sales Tax Act. Substantively the tax under item 150 of the First Schedule to the Act turns out ultim....
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....however, does not fall within the scope of the petition before us. If and when the authorities take steps for the recovery of the amount which the petitioner has recovered from his customers, that controversy will have to be decided at that time. 20.. In Writ Petition No. 2356 of 1981, it is stated that the hotel has not been approved by the Department of Tourism during the relevant period 6th October, 1980 to 31st March, 1981. The notice of demand dated 15th April, 1981 required the petitioner to file a return for the period 6th October, 1980 to 31st March, 1981. The fact that the hotel has not secured the Star qualification by the Department of Tourism, Government of India, has not been controverted before us. Apart from the ground that item 150 does not enable the tax authorities to recover sales tax from the hotels mentioned therein, even otherwise, since the petitioner's hotel has not been even classified as a Star hotel by the Department of Tourism, the notice was wholly uncalled for and illegal. That notice is liable to be quashed. 21.. W.P. Nos. 5834, 6035, 6036 and 7038 of 1981: These are petitions filed for the issue of mandamus against the enforcement of item 150. ....