1957 (8) TMI 17 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the legality of the levy of sales tax on the supply of refreshments to club members under the Hyderabad General Sales Tax Act.

Analysis:
The Secunderabad Club challenged the levy of sales tax on the supply of refreshments to its members under the Hyderabad General Sales Tax Act. The Club contended that the supply of refreshments did not constitute a sale, thus challenging the jurisdiction of the Government to levy such tax. The Club sought writs of certiorari and mandamus to quash the orders of the Commissioner of Sales Tax and to direct the Government to refrain from levying and collecting sales tax on the refreshments supplied to its members.

The key issue for consideration was whether the supplies made by the Club to its members could be classified as a sale by a dealer under the Act. The definition of "dealer" under Section 2(e) includes associations supplying goods to their members. The definition of "sale" under Section 2(k) encompasses the transfer of property in goods for valuable consideration in the course of trade or business. The Act requires the sale to be commercial in nature, conducted for pecuniary gain, and the transaction must be of a commercial nature.

The constitution of the Secunderabad Club revealed that it was a social and recreational association not operated for profit. The Club's membership was open to both genders and had specific categories of members. The Club supplied goods to its members at fixed rates covering overheads and expenses. The Club did not distribute dividends or bonuses to its members except in case of liquidation. The crucial factor was whether the Club conducted business with a profit motive, which was deemed incidental rather than the primary objective.

Referring to a decision by a Division Bench of the Madras High Court, it was established that in cases where there was no intention to make a profit and no commerciality in the transactions, clubs could not be assessed for sales tax. The Court found that the Secunderabad Club had no commercial intent or profit motive in its transactions with members, aligning with the legal principles established in the aforementioned decision. Consequently, the Court ruled in favor of the Club, holding that it was not liable to pay sales tax on the supplies made to its members.

In conclusion, the Court allowed the petition filed by the Secunderabad Club, directing the issuance of writs against the concerned authority to refrain from levying sales tax on the Club's supplies to its members. No costs were awarded in the case.