1997 (11) TMI 452 - SC - VAT and Sales Tax

Whether food served by a hotelier to its boarder or by a restaurant to its customer could not be subjected to sales tax? Held that - Appeal dismissed. The Legislature has made a valid classification for the purpose of granting exemption to hotels and to restaurants

Issues Involved:
1. Leviability of sales tax on food and drinks provided by the appellant.
2. Application of the principles laid down in previous judgments.
3. Validity of retrospective amendments to the Bengal Finance (Sales Tax) Act, 1941.
4. Constitutional validity of Section 26A of the Bengal Finance (Sales Tax) Act, 1941.
5. Classification and distinction between hotels and restaurants for tax exemption purposes.

Issue-wise Detailed Analysis:

1. Leviability of Sales Tax on Food and Drinks Provided by the Appellant:
The appellant, Moulin Rouge, a restaurant, argued that it was not liable to pay sales tax on food and drinks provided to its customers. The restaurant did not separately charge for food and drinks but included them in the overall bill for services and amenities. The Commercial Tax Officer, however, imposed sales tax and a penalty on the appellant for the periods ending March 31, 1974, March 31, 1975, March 31, 1976, and March 31, 1977. The appellant contended that based on the Supreme Court judgment in State of Punjab v. Associated Hotels of India Ltd. [1972] 29 STC 474, it was not liable for sales tax as the transaction was essentially of service.

2. Application of the Principles Laid Down in Previous Judgments:
The appellant relied on the judgment in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386, where it was held that the service of meals in a restaurant could not be split into service and sale of foodstuffs for tax purposes. The Supreme Court had ruled that the supply of meals was part of the hospitality service and not a sale of food. This principle was applied to argue that the appellant's transactions were not subject to sales tax.

3. Validity of Retrospective Amendments to the Bengal Finance (Sales Tax) Act, 1941:
Following the insertion of clause (29A) in Article 366 of the Constitution through the Constitution (Forty-sixth Amendment) Act, 1982, the Bengal Finance (Sales Tax) Act, 1941 was amended to include the supply of food and drinks as a taxable sale. Section 26A was introduced to validate past transactions and levy taxes retrospectively. The appellant challenged this retrospective application, arguing that it unfairly imposed tax liabilities for past periods when such taxes were not collected based on prevailing legal interpretations.

4. Constitutional Validity of Section 26A of the Bengal Finance (Sales Tax) Act, 1941:
The appellant contended that Section 26A made an irrational distinction between restaurants and other entities, granting different periods of tax exemption. Restaurants were exempted from September 7, 1978, while other entities were exempted from January 4, 1972. The appellant argued that this distinction lacked a rational basis and violated principles of equality.

5. Classification and Distinction Between Hotels and Restaurants for Tax Exemption Purposes:
The Court held that the classification made by Section 26A was valid. The distinction was based on two separate Supreme Court judgments delivered on different dates: Associated Hotels of India Ltd. on January 4, 1972, and Northern India Caterers (India) Ltd. on September 7, 1978. The Legislature provided exemptions based on these dates, ensuring that those who did not collect taxes based on these judgments were not retrospectively burdened. The Court found this classification intelligible and rational.

Conclusion:
The Supreme Court dismissed the appeal, holding that the appellant's case lacked merit. The Court upheld the validity of the retrospective amendments and the classification made by Section 26A. The appellant was ordered to pay the costs of the appeal assessed at Rs. 1,700.

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