2008 (9) TMI 540 - SC - VAT and Sales Tax

Whether the supply of various preparations by each club to its members involves a transaction of sale? Held that - In this there was no determination by the fact-finding authorities regarding the relationship between the club and its members in the matter of supply of food and drinks; that is to say was the club acting as an agent of the members or did the property in food and drinks pass from the club to the members. At this stage it may be mentioned that after the judgment of the High Court dismissing the writ petition the assessment order was passed against which the club has preferred an appeal before the first appellate authority which has also dismissed this appeal and as of today the matter being T.A. No. 17 of 2000 is pending before the Tribunal. In the circumstances we think it appropriate that the matter should go back to the Tribunal who will decide on the facts as to the exact relationship between the parties in the matter of supply by the club of food and drinks to its members.

Summary

Issues:
- Liability of a members' club to pay sales tax on supplies of food and drinks to its members.
- Whether the supply of goods by a club to its members constitutes a sale for tax purposes.
- Interpretation of the provisions of the Tamil Nadu General Sales Tax Act, 1959.
- Determination of the relationship between a club and its members in the supply of food and drinks.

Analysis:
The judgment of the Supreme Court pertains to an appeal by a members' club against a Madras High Court decision holding the club liable to pay sales tax on supplies of food and drinks to its members under the Tamil Nadu General Sales Tax Act, 1959. The appellant club argued that such transactions do not constitute a sale as the club acts as an agent of its members. The club relied on previous court judgments emphasizing the principle of mutuality and agency in such arrangements.

The show-cause notice issued to the club alleged that the supply of goods to members should be deemed a sale following an amendment to the 1959 Act. However, the authorities did not determine the exact nature of the relationship between the club and its members in these transactions, specifically whether the club acted as an agent or transferred property to the members. The matter went through various stages of litigation, including a writ petition, tribunal dismissal, and appellate authority confirmation.

The Supreme Court remitted the matter back to the Tribunal for a factual determination of the relationship between the club and its members in the supply of food and drinks. The Tribunal was directed to consider principles of mutuality and agency among other circumstances. Both parties were granted liberty to introduce additional legal grounds in the pending appeal. The Court set aside the High Court judgment and instructed the Tribunal to decide the appeal independently.

The judgment did not express any opinion on the merits of the case and disposed of the civil appeal without costs. The decision emphasized the need for a thorough examination of the relationship dynamics between the club and its members in the context of supplying goods, highlighting the significance of legal principles and amendments to the tax laws.