1990 (8) TMI 358 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of sales tax liability on food served in a restaurant before and after a constitutional amendment.

Analysis:
The judgment concerns a reference under section 61 of the Bombay Sales Tax Act, 1959 regarding the liability of an applicant, running a restaurant, to pay tax on the amount recovered from customers for serving food. The applicant contended that charges for a cabaret show should be treated as entertainment charges and deducted from the turnover. However, the deduction was not allowed, resulting in a tax assessment of Rs. 5,353.53. The applicant's appeal to the Sales Tax Tribunal was unsuccessful, prompting a reference based on a Supreme Court decision regarding the legislative competence of the State Legislature in levying sales tax on meals served in restaurants.

The judgment delves into the constitutional amendment brought about by the Constitution (Forty-sixth Amendment) Act, 1982, which expanded the scope of entry 54 in List II, granting legislative competence to State Legislatures to levy and collect tax on the supply of food. This retrospective amendment aimed to rectify the lack of legislative competence previously identified by the Supreme Court. The Maharashtra Act No. 24 of 1985 amended the Bombay Sales Tax Act, redefining the term "sale" to include the supply of goods as part of any service, such as food or drinks, for valuable consideration.

The applicant argued that the deeming definition of "sale" post-1983 could not validate the levy for the earlier period. However, the court rejected this argument, emphasizing that the constitutional amendment empowered State Legislatures to enact laws imposing such levies. The Act itself had provisions for taxing cooked food and drinks served in restaurants even before the constitutional amendment, as evidenced by Schedule "A" of the Act.

The judgment also references past decisions, such as the case of Commissioner of Sales Tax v. Lala Lajpatrai Hotel, which recognized the concept of levying sales tax on food served in hotels or restaurants under the Bombay Sales Tax Act, 1946. Distinctions were drawn between the applicability of certain judgments to the instant case based on the existence of provisions for levying such taxes before the constitutional amendment in different State Acts.

Ultimately, the court upheld the liability of the applicant to pay tax on the amount recovered from customers for serving food in the restaurant, affirming the question in the affirmative without awarding costs. The reference was answered accordingly.