1962 (11) TMI 40 - HC - VAT and Sales Tax

Issues Involved:

1. Propriety of levy of sales tax on the sales by a club to its members.
2. Whether the transactions between an incorporated club and its members can be regarded as sales.
3. Constitutional validity of the amendments to sections 2(g) and 2(n) of the Madras General Sales Tax Act.
4. Whether the club can be deemed as a dealer under the amended Act.
5. Whether the supply of refreshments by a club to its members constitutes a transfer of property.
6. The applicability of certiorari despite the existence of a statutory appeal process.
7. Discrimination under Article 14 of the Constitution.

Issue-wise Detailed Analysis:

1. Propriety of Levy of Sales Tax on Sales by a Club to its Members:
The case examines whether the levy of sales tax on the Cosmopolitan Club's sales of tiffin and refreshments to its members is proper. The Court refers to previous judgments, including Deputy Commercial Tax Officer, Triplicane Division v. Cosmopolitan Club, which held that such sales were not taxable as they were not in the course of business. The Court emphasizes that the transactions were not commercial ventures and the club did not make a profit from these sales.

2. Transactions Between an Incorporated Club and its Members:
The Court considers whether the transactions between an incorporated club and its members can be regarded as sales. It notes that the Cosmopolitan Club, being a non-profit institution, acts as an agent or mandatory for its members, purchasing materials and preparing food for them without making a profit. The Court concludes that there is no transfer of property in such transactions, likening it to a family sharing jointly purchased goods.

3. Constitutional Validity of Amendments to Sections 2(g) and 2(n) of the Madras General Sales Tax Act:
The amendments to sections 2(g) and 2(n) of the Act deem certain persons who sell not in the course of business to be dealers and certain transactions as sales. The Court examines whether these amendments are ultra vires the Constitution, as they enable a tax on transactions that are not sales within Entry 54 in List II of Schedule VII of the Constitution. The Court concludes that the amendments are invalid as they extend the scope of the Act beyond constitutional limits.

4. Whether the Club Can be Deemed as a Dealer Under the Amended Act:
The Court examines whether the Cosmopolitan Club can be deemed a dealer under the amended Act. It concludes that the club, being a non-profit entity acting as an agent for its members, cannot be regarded as a dealer. The Court emphasizes that the club's activities are not commercial in nature and there is no transfer of property involved in the supply of refreshments to its members.

5. Supply of Refreshments by a Club to its Members:
The Court analyzes whether the supply of refreshments by a club to its members constitutes a transfer of property. It concludes that the club acts as an agent for its members, purchasing materials and preparing food for them. The members share the total expenses, and there is no transfer of property from the club to the members. The Court likens this to a family sharing jointly purchased goods, where no sale is involved.

6. Applicability of Certiorari Despite Statutory Appeal Process:
The Court considers whether it should exercise its discretionary jurisdiction under Article 226 to issue a writ of certiorari, despite the existence of a statutory appeal process. It notes that the main issue is the constitutional validity of the amendments to sections 2(g) and 2(n) of the Act, which cannot be satisfactorily determined by the department or the Tribunal. The Court concludes that there are sufficient grounds to exercise its jurisdiction and issue a writ of certiorari.

7. Discrimination Under Article 14 of the Constitution:
The Court examines whether the amendments to sections 2(g) and 2(n) of the Act discriminate against clubs, firms, and associations, making them void under Article 14 of the Constitution. It concludes that the classification is reasonable and intelligible, as clubs and associations are distinct from other entities. The Court finds no violation of Article 14.

Conclusion:
The Court concludes that the supply of refreshments by the Cosmopolitan Club to its members does not constitute a sale, and the club cannot be regarded as a dealer under the Madras General Sales Tax Act. The amendments to sections 2(g) and 2(n) are held to be invalid as they extend the scope of the Act beyond constitutional limits. The Court issues a writ of mandamus directing the authorities not to levy sales tax on the club's transactions with its members.

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