1988 (9) TMI 337 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of Section 2(t) of the Karnataka Sales Tax Act, as amended by Act 23 of 1983.
2. Validity of explanation (3A) inserted by Karnataka Act 23 of 1983 to the definition of "sale."
3. Legality of assessments for the periods prior to 7th September 1978.

Detailed Analysis:

1. Validity of Section 2(t) of the Karnataka Sales Tax Act, as amended by Act 23 of 1983:

The petitioners, hoteliers running restaurants with attached lodges, challenged the assessments for the years 1976-77 and 1978-79 under Section 12(3) of the Karnataka Sales Tax Act, 1957. They contested the validity of Section 2(t) of the Act, as amended by Act 23 of 1983, arguing it was ultra vires of Section 4 of the Constitution (Forty-sixth Amendment) Act, 1982. The amendment aimed to address the Supreme Court's decision in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386, which held that service of meals in hotels or restaurants did not constitute a sale of food for sales tax purposes but was a service.

2. Validity of explanation (3A) inserted by Karnataka Act 23 of 1983 to the definition of "sale":

Explanation (3A) was inserted with retrospective effect from 1st October 1957, defining transactions involving the supply of food or drink as sales. The petitioners argued there was no machinery provision in the Karnataka Sales Tax Act to enforce this amendment for restaurants. The court noted that the amendment was intended to validate the levy and collection of tax on food sales in hotels and restaurants between the judgment in the Associated Hotels of India case [1972] 29 STC 474 and the date of the constitutional amendment. The court found that the amendment to the Constitution and the corresponding state law amendments were sufficient to validate the tax.

3. Legality of assessments for the periods prior to 7th September 1978:

The primary question was whether the assessments taxing turnovers related to the sale of food and drink by restaurant owners for periods before 7th September 1978 were valid. The court referred to the Supreme Court's decisions in the Associated Hotels of India case [1972] 29 STC 474 and Northern India Caterers case [1978] 42 STC 386, which held that the supply of food in hotels and restaurants was a service, not a sale. However, the court also noted the Supreme Court's clarification in the review of the Northern India Caterers case [1980] 45 STC 212, stating that if the dominant object of the transaction was the sale of food, it was subject to sales tax.

The court rejected the petitioners' argument that there was no law to tax the sale of food and drink before 7th September 1978, noting that the turnover was taxed under the general provisions of the Karnataka Sales Tax Act. The petitioners had filed returns and paid taxes on the sale of food and drink, and there was no evidence they did not collect the tax. The court found that the assessments were valid and dismissed the writ petitions.

Conclusion:

The court upheld the validity of Section 2(t) of the Karnataka Sales Tax Act, as amended by Act 23 of 1983, and explanation (3A) to the definition of "sale." The court also found that the assessments for the periods prior to 7th September 1978 were valid, rejecting the petitioners' arguments that there was no law to tax the sale of food and drink during that period. The writ petitions were dismissed.