1987 (9) TMI 396 - HC - VAT and Sales Tax

Summary

Issues:
Whether canteen sales are subject to sales tax when the dominant object of running the canteen is welfare of the employees and not carrying on a business in the sale of food articles.

Analysis:
The judgment delivered by the High Court of Madhya Pradesh involved a reference made by the Tribunal under section 44 of the M.P. General Sales Tax Act, 1958 regarding the taxability of canteen sales. The question of law referred to the Court was whether canteen sales are exigible to tax when the primary purpose of running the canteen is the welfare of the employees and not the sale of food articles for profit. The case stemmed from an assessment of canteen sales in a factory premises, where the Board of Revenue held that canteen sales were not subject to tax as they were established under section 46 of the Factories Act, 1948 for the welfare of the workers. The Commissioner of Sales Tax challenged this decision, leading to the reference to the High Court.

The Court considered the provisions of section 46 of the Factories Act, 1948 and rules 77 and 82 of the M.P. Factories Rules, 1962 to determine the nature of canteen operations. It was argued that running the canteen is a welfare activity mandated by law, with the primary objective being the welfare of the employees rather than engaging in the business of selling food articles. Reference was made to a Supreme Court decision highlighting that transactions intended for welfare measures are not subject to sales tax, emphasizing the dominant purpose of the activity. The Court noted that the canteen in question was established under statutory provisions for the welfare of workers, with detailed rules governing its operation and pricing.

The Court examined the specific provisions of the Factories Act and the State Rules related to canteen management, emphasizing that the canteen's primary function is to provide services as a welfare measure. The rules outlined requirements for canteen construction, staff fitness, dining hall accommodation, utensils, pricing, and the constitution of a managing committee. Notably, the pricing of food items in the canteen was mandated to be on a non-profit basis, subject to committee approval, aligning with the welfare-oriented nature of the canteen operations. The Court concluded that the canteen's activities were in line with the welfare objectives mandated by the law, and therefore, canteen sales were not liable to sales tax.

In light of the detailed analysis and the statutory framework governing canteen operations, the Court affirmed the Tribunal's decision that canteen sales were not exigible to tax due to the predominant welfare focus of the canteen. The judgment favored the assessee, emphasizing the welfare nature of the canteen's activities over commercial profit-making intentions. Consequently, the Court answered the reference question in the affirmative, ruling in favor of the assessee and against the Revenue, with no order as to costs.