1983 (1) TMI 219 - HC - VAT and Sales Tax

Summary

Issues:
Assessment of sales tax on food and drinks served in restaurants, classification of transactions as sale or service, liability of restaurant owners to charge sales tax, burden of proof on the revenue department, applicability of Section 14 of the Act, interpretation of judgments in Northern India Caterers' case, consideration of amenities provided by restaurants, and determination of dominant object of the transaction.

Analysis:
The judgment by SUKHDEV SINGH KANG, J. of the PUNJAB AND HARYANA HIGH COURT addressed the assessment of sales tax on food and drinks served in restaurants. The case involved two Civil Writ Petitions where the petitioners, restaurant owners, had ceased charging sales tax following a Supreme Court decision. The Assessing Authority issued show cause notices to the petitioners, asserting that the restaurants were run for the sale of foodstuffs. The petitioners contended that they provided services rather than selling food. The court examined the amenities provided by the restaurants, such as furniture, crockery, and ambiance, to determine the nature of the transactions. The Assessing Authorities argued that the dominant object of the transaction was the sale of food, supported by comparisons of prices with other establishments. The court considered the Supreme Court's judgments in the Northern India Caterers' case, emphasizing that the essence of the transaction was service to satisfy human needs and desires.

The court analyzed the customers' behavior, noting that they did not take away leftovers or food, and highlighted that the property in the food did not pass to the customers until consumption. The judgment underscored that the customers paid for the service rendered, which included the satisfaction of immediate wants through consumption. The court also discussed the burden of proof, stating that the revenue department had to establish that the supply of food amounted to a sale. The judgment referenced Section 14 of the Act, clarifying that it would apply only if the activities of the petitioners were deemed sales. Ultimately, the court ruled in favor of the petitioners, quashing the notices and assessment orders, citing the lack of evidence to conclude that the dominant object of the transactions was the sale of food. The judgment highlighted the distinction between service and sale, emphasizing the importance of factual determinations in assessing sales tax liability for restaurant transactions.