1988 (2) TMI 441 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the supply of foodstuffs by the petitioner-restaurant to its customers constituted a "sale" under the Orissa Sales Tax Act.
2. The applicability of the Supreme Court decisions in Northern India Caterers' case and Associated Hotels' case.
3. The impact of the Constitution (Forty-sixth Amendment) Act, 1982 on the definition of "sale" and its retrospective effect.
4. The petitioner's liability to pay sales tax for sales intended for consumption outside the restaurant.

Issue-wise Detailed Analysis:

1. Whether the supply of foodstuffs by the petitioner-restaurant to its customers constituted a "sale" under the Orissa Sales Tax Act:
The petitioner runs a restaurant serving meals and tiffin to guests with proper seating and other necessary arrangements. The core issue was whether the supply of foodstuffs and eatables by the petitioner to its customers was a "sale" within the meaning of the Orissa Sales Tax Act and thus subject to tax, or if it was merely a part of the "service" outside the definition of "sale" before its amendment by Act No. 13 of 1984. The Sales Tax Officer assessed the petitioner to sales tax for the periods 1971-72 to 1974-75, which were annulled by the Sales Tax Tribunal following the Supreme Court's decision in Northern India Caterers' case [1978] 42 STC 386.

2. The applicability of the Supreme Court decisions in Northern India Caterers' case and Associated Hotels' case:
The Supreme Court in Northern India Caterers' case and Associated Hotels' case held that the service of meals in a hotel or restaurant did not constitute a sale of food for the purpose of levy of sales tax but must be regarded as rendering of service. The Supreme Court observed that the dominant object of the transaction must be considered to determine whether it was a sale. The Revenue was not entitled to split the transaction into service and sale components to levy sales tax. The petitioner argued that there was no element of sale in their transactions, only service, supported by photographs showing customers consuming food within the restaurant premises.

3. The impact of the Constitution (Forty-sixth Amendment) Act, 1982 on the definition of "sale" and its retrospective effect:
The Constitution (Forty-sixth Amendment) Act, 1982, amended Article 366 by inserting clause (29-A), which included a tax on the supply of food as part of any service. This amendment aimed to nullify the effects of the Supreme Court decisions that had created difficulties for State Governments to levy sales tax. The Orissa Sales Tax Act was subsequently amended to align with the constitutional amendment, redefining "sale" to include the supply of food as part of any service. The Andhra Pradesh High Court in Hotel Dwaraka v. Union of India [1985] 58 STC 241 observed that the amendment conferred legislative competence to impose tax on foodstuffs supplied to customers, but without amending the State law, there could be no levy and collection of tax.

4. The petitioner's liability to pay sales tax for sales intended for consumption outside the restaurant:
The Supreme Court in Northern India Caterers' case [1980] 45 STC 212 stated that if the dominant object of the transaction in an eating-house or restaurant was the sale of food, the transaction would be subject to sales tax. The Revenue officers' spot inquiries revealed that the petitioner also sold eatables for consumption outside the restaurant. For such transactions, the petitioner could not claim any protection from the Supreme Court decisions or the constitutional amendment. The petitioner was liable to pay sales tax for sales intended for consumption outside the restaurant but not for sales and supplies consumed within the restaurant premises.

Conclusion:
The writ applications were partly allowed. The petitioner was held liable to pay sales tax for sales intended for consumption outside the restaurant but not for sales and supplies consumed within the restaurant premises. The assessment orders were quashed, and the matter was remitted back to the assessing authority for reassessment in light of the observations made. No order as to costs was made.

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