1966 (1) TMI 65 - HC - VAT and Sales Tax

Issues Involved:

1. Whether the supply of meals to residents in the petitioners' hotel amounts to the sale of foodstuffs within the meaning of section 2(h) of the Punjab General Sales Tax Act.
2. Whether allowing different rebate percentages to the petitioners and other hoteliers constitutes objectionable discrimination.
3. Whether the supply of meals or other eatables to casual and non-resident visitors in the restaurant is a sale or mere service.

Detailed Analysis:

Issue 1: Whether the supply of meals to residents in the petitioners' hotel amounts to the sale of foodstuffs within the meaning of section 2(h) of the Punjab General Sales Tax Act.

The court examined whether the consolidated charge made by hoteliers, which includes food, constitutes a sale of food under section 2(h) of the Punjab General Sales Tax Act. The court observed that the guests paid a fixed rate per day without any breakup for board and lodging. The guests could not claim any rebate if they did not consume the food, nor could they take the food away or serve it to others. The court referred to the definition of "sale" under section 2(h) of the Punjab Act, which includes the transfer of property in goods for consideration. The essential elements of a sale were identified as the existence of goods, passing of property for a price, payment or promise of payment, and passing of title.

The court cited the Supreme Court's decision in State of Madras v. Gannon Dunkerley & Co., which held that the term "sale of goods" should be interpreted in its legal sense, requiring an agreement to sell specific goods for a price and the passing of property in the goods. The court also referred to the judgment in Nisky v. Childs Co., where it was held that serving food in a restaurant is not a sale but a service, as the customer does not acquire ownership of the food.

Applying these principles, the court concluded that the transaction between the hotelier and the resident client is an indivisible contract of multiple services and does not involve the sale of food. The court emphasized that the property in the food does not pass to the guest, and the guest cannot take the food away or serve it to others. The court held that the supply of meals to residents in the petitioners' hotel does not constitute a sale within the meaning of section 2(h) of the Punjab Act.

Issue 2: Whether allowing different rebate percentages to the petitioners and other hoteliers constitutes objectionable discrimination.

The court did not specifically answer this issue in detail, as it became irrelevant in light of the conclusion reached on the first issue. Since the supply of meals to residents was not considered a sale, the question of discrimination in rebate percentages did not arise.

Issue 3: Whether the supply of meals or other eatables to casual and non-resident visitors in the restaurant is a sale or mere service.

The court distinguished the restaurant business from the hotel business. It observed that in the restaurant business, a customer can order a specific dish, pay for it, and take it away. The property in the food passes to the customer, and the customer can reject the food if it does not meet their order. The court held that the supply of meals to casual and non-resident visitors in the restaurant constitutes a sale, as the elements of a sale, including the transfer of property and payment of price, are present.

Conclusion:

The writ petition was allowed, and the impugned orders of the assessing authority and the revisional authority were quashed. The court restrained the taxing authorities from taxing the petitioners on the basis of the food served to resident customers in the hotel but allowed the assessment of sales in the restaurant business.

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