1982 (1) TMI 174 - HC - VAT and Sales Tax

Summary

Issues:
Assessment of sales tax on hotel and restaurant owners for serving eatables and drinks - Whether transactions constitute sales under the Rajasthan Sales Tax Act.

Analysis:
The judgment of the High Court addressed six writ petitions filed by hotel and restaurant owners challenging notices for sales tax assessment. The petitioners argued that serving eatables and drinks to customers did not amount to sales, hence they should not be liable for sales tax. On the contrary, the department contended that whether the transactions constituted sales depended on the facts of each case as per section 2(o) of the Rajasthan Sales Tax Act.

The Court referred to the Supreme Court decisions in State of H.P. v. Associated Hotels of India Ltd. and Northern India Caterers v. Lt. Governor of Delhi. In the former case, the Supreme Court held that supplying meals to resident guests in hotels did not amount to sale as it was part of the service provided. The latter case extended this principle to service of food to customers in restaurants, emphasizing that if the transaction's essence was service rather than sale of food, it would not be taxable.

A review petition in the Northern India Caterers' case clarified that if the dominant intention in a transaction was the sale of food, it would be subject to sales tax. The Court reiterated that in cases of sales made across the counter or outside the establishment, the transactions could be considered sales. However, if the service charge was separate from the cost of food, indicating distinct charges for service and food, it could be treated as a sale.

The Court concluded that the assessing authority must determine whether the dominant intention in each transaction was the sale of food or drinks. As the facts were yet to be ascertained through an inquiry, the Court dismissed the writ petitions, emphasizing that the assessing authority should decide based on the facts and the Supreme Court's decisions.

In summary, the judgment highlighted the need for a factual inquiry to ascertain the dominant intention in transactions involving the supply of food and drinks by hotel and restaurant owners to determine whether they constituted sales subject to taxation.