1951 (11) TMI 16 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the levy of sales tax on the supply of refreshments to Club members.
2. Maintainability of writ petitions under Article 226 of the Constitution.
3. Whether the supply of refreshments by the Club to its members constitutes a sale under the Madras General Sales Tax Act.

Detailed Analysis:

1. Legality of the Levy of Sales Tax on the Supply of Refreshments to Club Members:
The Cosmopolitan Club, Madras, challenged the legality of the sales tax levied on the supply of refreshments to its members. The Club argued that the refreshments were supplied as an amenity and not on a commercial basis. The Government of Madras declined to grant an exemption from the sales tax, stating there was insufficient justification for exempting the Club from this liability. The Club had been paying sales tax since 1939, which had grown significantly over the years. The Government Pleader objected to the Club's failure to contest the tax's legality before the Deputy Commercial Tax Officer and not utilizing the available appeal and revision mechanisms provided by the Act.

2. Maintainability of Writ Petitions under Article 226 of the Constitution:
The Court examined the maintainability of the writ petitions under Article 226 of the Constitution. It was noted that the existence of alternative remedies generally excludes the remedy by way of writ. However, exceptions exist, such as when there is a clear violation of statutory law or principles of natural justice. The Court emphasized that the powers conferred by Article 226 are extremely wide and should be exercised with a heavy burden of responsibility. The Court found that the appellate and revisional machinery provided by the Sales Tax Act was primarily intended for individual assessees dissatisfied with assessments, not for challenging the very legality of a sales tax levy on social clubs. The Court concluded that the remedy by way of a writ was appropriate and correct in this case.

3. Whether the Supply of Refreshments by the Club to Its Members Constitutes a Sale:
The Court analyzed whether the supply of refreshments by the Club to its members constituted a sale under the Madras General Sales Tax Act. The Act defines a "dealer" as any person who carries on the business of buying or selling goods, including a club that sells goods to its members. However, the Court held that the supply of refreshments by a members' club, registered under Section 26 of the Companies Act and not conducted for profit, does not constitute a transfer of property in goods. The Court emphasized that a sale must involve a transfer of property in the course of trade or business, which was not the case for the petitioning Club. The Club's activities were not conducted for gain or profit, and the supply of refreshments was merely a distribution of goods purchased out of Club funds to which members had contributed. The Court concluded that the levy of sales tax on such supplies was illegal.

Conclusion:
The Court dismissed C.M.P. No. 3414 of 1951, which sought to quash the Government Order declining exemption from sales tax, as not pressed. However, C.M.P. No. 3415 of 1951, which sought a writ of mandamus to direct the respondents to forbear from levying and collecting sales tax on the value of refreshments supplied to members, was allowed. The Court issued a writ in these terms, and the parties were ordered to bear their own costs. The Court noted that while the tax collection over the past ten years had been bona fide, any claims for a refund of past taxes would not be equitable. The petitioning Club was advised to regard the past tax payments as an ex gratia contribution to the State Treasury and rest content with the relief granted regarding future tax levies.

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