1986 (1) TMI 362 - HC - VAT and Sales Tax

Summary

Issues Involved
1. Taxability of supply of food and drinks in restaurants.
2. Validity and applicability of G.O. Ms. No. 1187 concerning waiver of sales tax.
3. Conditions for waiver and their discriminatory nature.

Detailed Analysis

1. Taxability of Supply of Food and Drinks in Restaurants
The primary issue was whether the supply of food and drinks in restaurants constitutes a sale liable to sales tax under the Tamil Nadu General Sales Tax Act, 1959. The Joint Commercial Tax Officer, Coimbatore, assessed these transactions as sales for the assessment years 1973-74, 1974-75, and the period from 1st April 1975 to 31st May 1975. The Appellate Assistant Commissioner, applying the Supreme Court decision in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 (SC), held that the supply of food and drinks consumed inside the premises is not taxable, while parcel sales are taxable. The Tribunal upheld this view but increased the taxable turnover for parcel sales from 5% to 13%.

The Court traced the development of the law and legislative changes, noting that the Constitution (Forty-sixth Amendment) Act, 1982, and the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984, did not retrospectively alter the definition of "sale" to include the supply of food and drinks in restaurants. The Court emphasized that during the relevant assessment years, the definition of "sale" in the Tamil Nadu General Sales Tax Act did not include such transactions, making them non-taxable.

2. Validity and Applicability of G.O. Ms. No. 1187 Concerning Waiver of Sales Tax
The assessees challenged the conditions imposed by G.O. Ms. No. 1187, which provided waiver of sales tax only for cases where final assessments were pending. The Court found that the distinction between pending and finalized assessments was discriminatory, as the basis for the waiver was that the transactions in question were not sales and could not have been taxed. The Court held that the waiver should apply to all cases, including those where assessments had become final, as the transactions were not liable to tax under the law.

3. Conditions for Waiver and Their Discriminatory Nature
The Court examined the conditions for waiver in G.O. Ms. No. 1187, particularly the condition that waiver would not apply to cases where the dealer had collected tax equal to or in excess of the amount due. The Court found this condition unsustainable, as it was based on the mistaken assumption that the turnover relating to the supply of food and drinks was taxable. The Court held that if the transactions were not taxable, the collection of tax should not affect the waiver, and the conditions imposed were discriminatory and unenforceable.

Conclusion
The Court concluded that the supply of food and drinks in restaurants during the relevant assessment years was not taxable under the Tamil Nadu General Sales Tax Act. The conditions imposed by G.O. Ms. No. 1187 were found to be discriminatory and unenforceable. The Court dismissed the tax cases and allowed the writ appeals, granting the assessees the benefits of the waiver under G.O. Ms. No. 1187.