1968 (12) TMI 83 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Inclusion of service charges in the "sale price" under section 2(29) of the Bombay Sales Tax Act, 1959.
2. Tribunal's interpretation of "sale price" and service charges.
3. Constitutional validity of the definition of "sale price" under section 2(29) of the Bombay Sales Tax Act, 1959.

Detailed Analysis:

1. Inclusion of Service Charges in the "Sale Price":
The primary issue was whether the service charges collected by the hotel from its customers could be included in the "sale price" as defined under section 2(29) of the Bombay Sales Tax Act, 1959. The court observed that the customers were informed that they would have to pay service charges of 10% of the tariff and sales tax at five paise per rupee. The Sales Tax Officer included these service charges in the gross turnover for the relevant periods. The assessee contended that these service charges were for services rendered by the staff and did not represent part of the sale price. However, the Tribunal rejected this contention, noting that service charges had no independent existence and were inseparably linked with the sale of food, thus constituting part of the sale price. The court upheld this view, emphasizing that the customer had no option but to pay the service charges, making it an integral part of the sale price.

2. Tribunal's Interpretation of "Sale Price" and Service Charges:
The Tribunal differentiated between service charges and tips, stating that service charges were mandatory and not voluntary like tips. The service charges were directly related to the food ordered by the customer and were inseparable from the price of the food. The Tribunal concluded that the total amount paid by the customer, including service charges, constituted the sale price. The court agreed with this interpretation, stating that the service charges were an addition to the price paid by the customer for the food supplied and, therefore, should be included in the sale price.

3. Constitutional Validity of the Definition of "Sale Price":
The assessee challenged the constitutional validity of section 2(29) of the Bombay Sales Tax Act, 1959, arguing that the State Legislature was not competent to define "sale price" to include "all sums charged for anything done by the dealer in respect of the goods at the time of or before delivery thereof." The court found that since the service charges were properly included in the sale price as the price of the goods offered or sold in the hotel, the constitutional challenge did not survive. The court concluded that the charges were part of the total consideration paid by the customer and, therefore, fell within the definition of "sale price" under the Act. Consequently, the Special Civil Application challenging the constitutional validity was dismissed.

Conclusion:
The court answered the references in favor of the department, holding that the service charges were properly included in the sale price under section 2(29) of the Bombay Sales Tax Act, 1959. The Special Civil Application challenging the constitutional validity of the definition of "sale price" was also dismissed. The assessee was ordered to pay costs in each case, and the deposit was not to be refunded.