1985 (1) TMI 289 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the sale of toddy in the petitioners' taverns constitutes a "sale" under the Karnataka Sales Tax Act, 1957.
2. Whether toddy is an "agricultural produce" and the petitioners are "agriculturists" exempt from tax under the Act.
3. Whether the State Legislature is competent to impose tax on the turnover of the sale of toddy under entry 54 of List II of the Seventh Schedule to the Constitution.

Issue-wise Detailed Analysis:

1. Whether the sale of toddy in the petitioners' taverns constitutes a "sale" under the Karnataka Sales Tax Act, 1957:

The petitioners contended that the sale of toddy in their taverns is not a "sale" as defined under section 2(t) of the Act and that they are not "dealers" under section 2(k) of the Act. They argued that the toddy is tapped from their own trees and sold in their taverns, which should not be considered a sale of goods. The court, however, found that the petitioners' argument lacked sufficient particulars and evidence. The court held that the mere assertion that the sale of toddy is a service rendered to consumers does not suffice to exempt it from being considered a sale. The court also referred to the Supreme Court's decision in Northern India Caterers' case, which emphasized that the substance of the transaction should be considered. The court concluded that the petitioners are indeed dealers under the Act and their turnover in the sale of toddy is subject to tax.

2. Whether toddy is an "agricultural produce" and the petitioners are "agriculturists" exempt from tax under the Act:

The petitioners argued that toddy is an agricultural produce and they are agriculturists, thus exempt from tax under section 2(k) of the Act. The court analyzed the definitions of "agriculturist" and "agriculture" under the Act and the Income-tax Act, 1961. It referred to the Privy Council's decision in Raja Mustafa Ali Khan v. Commissioner of Income-tax and the Supreme Court's decisions in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy and Karimtharuvi Tea Estates Ltd. v. State of Kerala. The court concluded that mere tapping of toddy from palm trees does not constitute agriculture and the income derived from it is not agricultural income. The court disagreed with the Madras High Court's decision in Commissioner of Income-tax v. Yagappa Nadar, which held that income from toddy is agricultural income. The court held that the petitioners are not entitled to claim exemption from tax on the sale of toddy.

3. Whether the State Legislature is competent to impose tax on the turnover of the sale of toddy under entry 54 of List II of the Seventh Schedule to the Constitution:

The petitioners contended that the State Legislature is not competent to impose tax on the sale of toddy under entry 54 of List II of the Seventh Schedule to the Constitution. The court referred to the definition of "goods" under section 2(m) of the Act and the Sale of Goods Act, which includes all kinds of movable property. The court concluded that toddy falls within the definition of goods and is subject to tax under the Act. The court also referred to the Supreme Court's decision in State of Karnataka v. Udipi Krishna Bhavan, which held that the sale of food in an eating-house or restaurant is subject to sales tax. The court held that the State Legislature is competent to impose tax on the sale of toddy.

Conclusion:

The court dismissed the writ petitions, holding that the petitioners are not exempt from tax under the Act and that the State Legislature is competent to impose tax on the sale of toddy. The court rejected the petitioners' request for a certificate of fitness to appeal to the Supreme Court, stating that the case does not involve any substantial question of law of general importance. The court also denied the petitioners' request for a stay of the order. There was no order as to costs.

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