1988 (2) TMI 435 - HC - VAT and Sales Tax

Summary

Issues:
Assessment of sales tax on turnover of hotels based on composite bills including lodging and boarding charges. Interpretation of the 46th Amendment of the Constitution regarding the levy of sales tax on food, eatables, beverages, and drinks. Determination of dominant object of service or sale in hotel transactions for sales tax liability.

Analysis:

The writ petitions involved a challenge to the assessment of sales tax on the turnover of hotels in Puri, which included charges for lodging and boarding along with food, eatables, and beverages sold to guests. The petitioners contended that their dominant object was service, not sale, relying on various legal precedents. They argued that they were not liable to pay sales tax based on the definition of "sale" before the 46th Amendment of the Constitution (1982). The amendment gave States the power to levy sales tax on food and drinks for human consumption.

The assessing officers maintained that they could levy sales tax retrospectively for the years 1982-83 and 1983-84 post the 46th Amendment. The legal counsels presented conflicting views on when States gained the authority to impose sales tax under the amended definition of "sale." The judgment referred to the Northern India Caterers case, emphasizing that the dominant object of the transaction, whether service or sale, determines sales tax liability. The court highlighted the need for a fresh examination of accounts to ascertain the dominant object in each case.

The court, in line with legal principles, directed a remand for reassessment by the Sales Tax Officers. They were instructed to determine if the petitioners primarily provided a service or engaged in the sale of food items separately. If sales to outsiders in packets or parcels were established, such turnover would be subject to sales tax. The assessment orders were quashed, and the cases were remanded for a fresh examination based on the observations made.

In conclusion, the writ petitions were allowed, and the assessment orders were set aside. The cases were remanded for reassessment in accordance with the law to determine the sales tax liability based on the dominant object of the transactions. The judgment was a comprehensive analysis of the legal principles governing the imposition of sales tax on hotel turnovers and the impact of the 46th Amendment on State's authority to levy such taxes.