1992 (11) TMI 262 - HC - VAT and Sales Tax

Issues Involved: Constitutionality of clause (29-A)(f) of Article 366, validity of explanation (3-A) to section 2(1)(t) of the Karnataka Sales Tax Act, 1957, and whether the dominant object of transactions in a hotel is the sale of food or rendering of services.

Issue-wise Detailed Analysis:

1. Constitutionality of Clause (29-A)(f) of Article 366:
The petitioner sought to strike down clause (29-A)(f) of Article 366 of the Constitution. The court noted that it was too late to contest the validity of the constitutional amendment. The amendment, which includes the supply of goods as part of any service under the concept of "tax on the sale or purchase of goods," was upheld. The petitioner's challenge to explanation (3-A) to section 2(1)(t) of the Karnataka Sales Tax Act, 1957, was also dismissed as it was intrinsically linked to the constitutional amendment.

2. Validity of Explanation (3-A) to Section 2(1)(t) of the Karnataka Sales Tax Act, 1957:
Explanation (3-A) deems every transaction of supply of goods, including food and drinks, as a sale if it involves cash, deferred payment, or other valuable consideration. The court held that the explanation broadens the concept of sale to include such transactions, aligning with the constitutional amendment. The explanation was thus upheld, and the petitioner's request to quash it was denied.

3. Dominant Object of Transactions in a Hotel:
The petitioner contended that the assessing authority should have considered the service element inherent in the sale of articles in a hotel and excluded it from the turnover. The court referred to the Supreme Court's decision in Northern India Caterers (India) Ltd. case, which held that the supply of food and drinks in a hotel is incidental to the rendering of services and not a sale. However, the court noted that the petitioner failed to establish that the dominant object of the transactions was rendering services rather than the sale of food.

4. Application of Supreme Court Decisions:
The court discussed the Supreme Court's decisions in Builders Association of India v. Union of India and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi. It emphasized that the amendment to Article 366(29-A) was intended to enable states to levy taxes on the supply of goods as part of services. The court clarified that the dominant object test still applies, and the petitioner must prove that the primary purpose of the transactions was rendering services to benefit from the Supreme Court's rulings.

5. Petitioner's Plea and Court's Conclusion:
The petitioner did not plead that the dominant object of the transactions was rendering services. The court stated that merely employing several suppliers, cleaners, and helpers does not prove that the dominant object was rendering services. Therefore, the court did not find it necessary to apply the ratio of the Builders Association of India case to interpret sub-clause (f) of Article 366(29-A).

Final Judgment:
The writ petition was dismissed. The court concluded that the petitioner failed to establish the dominant object of the transactions as rendering services. The petitioner was advised to seek any other legal provisions for tax adjustment if applicable.

Writ Petition Dismissed.

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