1975 (8) TMI 119 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the State Government Notifications imposing special sales tax.
2. Applicability of the special sales tax to hoteliers and restaurant businesses.
3. Distinction between hotel and restaurant businesses concerning sales tax.

Detailed Analysis:

1. Validity of the State Government Notifications Imposing Special Sales Tax:
The petitioners sought the issuance of a writ to strike down the entry relating to the imposition of sales tax on certain items as per State Government Notification No. S.O. 351 dated March 28, 1972, and Notification No. 349 of the same date. They argued that these notifications were illegal and invalid. However, during the arguments, the validity of the notifications was not contested. Instead, the focus was on whether the special sales tax should be applied to the petitioners.

2. Applicability of the Special Sales Tax to Hoteliers and Restaurant Businesses:
The petitioners, who are hoteliers and restaurant owners, contended that the special sales tax should not apply to them. They argued that the supply of cooked food and other items was inclusive of service charges, making it indivisible. They relied on the Supreme Court's decision in State of Himachal Pradesh v. Associated Hotels of India Ltd., which held that in cases where service and food supply are indivisible, such transactions do not attract sales tax.

3. Distinction Between Hotel and Restaurant Businesses Concerning Sales Tax:
The court examined the distinction between hotel and restaurant businesses. The petitioners claimed that their business operations were similar to those in the Associated Hotels' case, where the Supreme Court held that the supply of meals to hotel guests was not subject to sales tax. However, the court found that the petitioners' assertions were vague and lacked clear evidence to support their claims. The court noted that the primary function of restaurants is to serve meals and snacks, and the bills could be split into separate charges for service and meals. The court emphasized that the principle laid down in the Associated Hotels' case applied specifically to hoteliers and not to restaurant businesses.

In the Associated Hotels' case, the Supreme Court held that the transaction between a hotelier and a guest was one of service, with meals being incidental to the lodging. The bill was indivisible, and guests could not claim rebates for missed meals or take away leftover food. In contrast, restaurant transactions primarily involved the sale of food, with service being incidental. The customer could take away the food, and the ownership of the food passed to the customer upon payment.

The court concluded that the petitioners failed to establish that their business operations were similar to those of hoteliers as described in the Associated Hotels' case. Therefore, the special sales tax notifications were applicable to their restaurant businesses.

Conclusion:
The court dismissed the petitions, stating that the petitioners did not provide sufficient evidence to prove that their businesses were primarily hotel operations entitled to exemption from sales tax. The court noted that the petitioners could claim exemptions when submitting their returns under the Bihar Sales Tax Act, 1959, if they could establish that part of their business was solely hotel operations. The commercial taxes authorities would grant such exemptions in line with the Supreme Court's decision in the Associated Hotels' case. The petitions were dismissed with no order as to costs.