1964 (11) TMI 84 - HC - VAT and Sales Tax

Issues Involved:

1. Constitutionality of Explanation to section 2(1)(k) and Explanation 1 to section 2(1)(t) of the Mysore Sales Tax Act, 1957.
2. Legislative competence of the State Legislature to deem supplies by members' clubs to their members as sales.
3. Whether such provisions violate Article 14 of the Constitution.
4. The nature of transactions between clubs and their members, and whether they constitute "sales."
5. The legal status of registered and unregistered clubs in relation to their members.

Issue-Wise Detailed Analysis:

1. Constitutionality of Explanation to section 2(1)(k) and Explanation 1 to section 2(1)(t) of the Mysore Sales Tax Act, 1957:

The petitioners argued that these provisions, as amended by the Mysore Sales Tax (Amendment) Act, 1963, are ultra vires of the powers of the State Legislature. The court examined whether the State Legislature had the legislative competence to levy sales tax on supplies made by clubs to their members. The court concluded that the impugned provisions are ultra vires the powers of the State Legislature and consequently void and inoperative.

2. Legislative competence of the State Legislature to deem supplies by members' clubs to their members as sales:

The main contention was that members' clubs, such as the Century Club, Bangalore Club, Golf Club, and Bowring Institute, could not be deemed as making sales to their members for the purpose of levying sales tax. The court noted that the definition of "dealer" and "sale" under the amended Act included clubs supplying goods to their members. However, it was argued that the State Legislature did not have the competence to levy sales tax on these transactions, as they did not constitute sales in the legal sense. The court agreed with this argument, stating that the supplies made by the clubs to their members do not amount to "sales" as defined.

3. Whether such provisions violate Article 14 of the Constitution:

The petitioners also contended that the provisions were void and inoperative as they violated Article 14 of the Constitution. They argued that societies, clubs, firms, or associations were subjected to hostile discrimination as their supplies to members were taxed, while only sales made in the course of business were generally taxed. The court, however, rejected this contention, stating that the State has the power to classify entities for taxation purposes and that the classification made in the Act had a nexus with the object of the Act. Therefore, the provisions did not violate Article 14.

4. The nature of transactions between clubs and their members, and whether they constitute "sales":

The court examined the relationship between clubs and their members, noting that members' clubs are not conducted for gain or profit but for providing amenities to their members. The court referred to various legal precedents and concluded that when a club supplies goods to its members, there is no "sale" in the legal sense. The court stated that the supplies made by the clubs to their members do not involve a transfer of property in goods by one person to another, which is a necessary element of a sale.

5. The legal status of registered and unregistered clubs in relation to their members:

The court distinguished between registered and unregistered clubs. Unregistered clubs are mere associations of persons and do not have a separate legal entity. The court noted that the members of an unregistered club are joint-owners of the club's properties, and therefore, there is no sale when goods are supplied to members. For registered clubs, the court examined the provisions of the Mysore Societies Registration Act, 1960, and concluded that registered clubs are not juridical persons or complete legal entities. Consequently, the supplies made by registered clubs to their members also do not constitute sales.

Conclusion:

The court declared that sections 2(1)(k) and 2(1)(t) of the Mysore Sales Tax Act, 1957, to the extent they attract supplies made by clubs, registered as well as unregistered, to their members to tax under the Act, are ultra vires of the powers of the State Legislature and consequently void and inoperative. The petitions were allowed, and the petitioners were entitled to their costs.

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