1990 (2) TMI 286 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of G.O.P. No. 198.
2. Levy of sales tax on the supply of food and drinks in hotels/restaurants.
3. Classification of hotels based on turnover for tax purposes.
4. Separation of service and supply elements in the supply of food and drinks.
5. Legislative competence post the Constitution (Forty-sixth Amendment) Act, 1982.

Issue-wise Detailed Analysis:

1. Constitutionality of G.O.P. No. 198:
The petitioners sought a declaration that G.O.P. No. 198, dated 25th March 1989, was unconstitutional, invalid, and illegal as it affected them. The court examined G.O.P. No. 198, which exempted hotels/restaurants with a turnover below Rs. 10 lakhs from sales tax on food and drinks. The court found that this classification was reasonable and did not violate Article 14 of the Constitution. The classification based on turnover was deemed rational, aiming to proportion the tax burden according to the capacity to pay.

2. Levy of Sales Tax on the Supply of Food and Drinks in Hotels/Restaurants:
The petitioners argued that there was no charging section in the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) authorizing the levy of sales tax on the supply of food and drinks. The court rejected this contention, stating that the definitions of "dealer," "sale," and "turnover" in the TNGST Act, as amended, clearly included the supply of food and drinks in hotels/restaurants. Section 3 of the TNGST Act, read with these definitions, authorized the levy of sales tax on such supplies.

3. Classification of Hotels Based on Turnover for Tax Purposes:
The petitioners contended that the classification of hotels based on a turnover of Rs. 10 lakhs and above for tax purposes was arbitrary and violated Article 14. The court disagreed, citing Supreme Court precedents that upheld the classification of dealers based on turnover for tax purposes. The court found that the classification was reasonable and aimed at achieving genuine equality by proportioning the tax burden according to the capacity to pay.

4. Separation of Service and Supply Elements in the Supply of Food and Drinks:
The petitioners argued that the supply of food and drinks in hotels/restaurants consisted of two elements: supply of material and service. They contended that without guidelines to separate these elements, taxing the entire turnover was illegal. The court rejected this argument, noting that the Constitution (Forty-sixth Amendment) Act, 1982, specifically enabled the States to levy sales tax on the supply of food and drinks without excluding the service part. The court emphasized the deeming clause in sub-clause (f) of clause (29A) of Article 366, which treated the entire supply as a sale.

5. Legislative Competence Post the Constitution (Forty-sixth Amendment) Act, 1982:
The petitioners questioned whether the State Legislature, after the Forty-sixth Amendment, was empowered to widen the definition of "sale" beyond that in the Sale of Goods Act. The court clarified that the Amendment Act explicitly allowed the State Legislature to levy sales tax on the supply of food and drinks in hotels/restaurants. The court found that the definitions in the TNGST Act were in consonance with the constitutional provisions, and the State Legislature was competent to enact such laws.

Conclusion:
The court dismissed all the writ petitions, upholding the constitutionality and validity of G.O.P. No. 198 and the levy of sales tax on the supply of food and drinks in hotels/restaurants. The court found the classification based on turnover rational and rejected the arguments regarding the separation of service and supply elements and the legislative competence post the Forty-sixth Amendment. The petitions were dismissed without any order as to costs.

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