1991 (7) TMI 351 - AT - VAT and Sales Tax

Summary

Issues Involved:

1. Liability of an incorporated club to pay tax post-constitutional amendment and amendments to the Bengal Finance (Sales Tax) Act, 1941.
2. Determination of whether the applicant-club acts as an agent for its members.
3. Validity of higher tax rates on supplies from air-conditioned clubs under section 5(1)(d1) of the 1941 Act.

Summary:

Issue 1: Liability of an Incorporated Club to Pay Tax:

The main issues for decision were whether an incorporated club is liable to pay tax after the constitutional amendment and the amendments made to the 1941 Act, and whether the applicant-club is merely acting as an agent of its members. The Tribunal concluded that the supply of refreshments, etc., to its members by an incorporated club amounts to sale, where the club is not acting as an agent of its members. The constitutional amendment and the consequent amendments to the 1941 Act empowered the State to tax such transactions.

Issue 2: Agency Relationship:

The applicant contended that it is a members' club acting as an agent for its members, and thus, its transactions do not constitute sales. The Tribunal examined the club's constitution and found that rowing members, who are not shareholders, enjoy certain club facilities and pay for refreshments directly to the club, indicating a direct relationship with the club. This lack of identity between the members and the club led to the conclusion that the applicant-club is not a members' club and does not act as an agent of its members. Consequently, the applicant-club is a dealer u/s 2(c) of the 1941 Act and liable to sales tax.

Issue 3: Validity of Higher Tax Rates:

The applicant challenged the higher tax rate on supplies from air-conditioned clubs as arbitrary and discriminatory. The Tribunal upheld the validity of section 5(1)(d1) of the 1941 Act, stating that the classification based on air-conditioning is rational. It targets a class of food consumed by a comparatively affluent section of people who have the ability to pay a higher rate. The Tribunal found that the classification has a rational basis and is in line with the social and economic policies of the State. The measure was held valid, and the challenge failed.

Conclusion:

The Tribunal dismissed the application, holding that the applicant-club is liable to pay sales tax and that the higher tax rate on supplies from air-conditioned clubs is valid. The notice issued u/s 14(1) of the 1941 Act was also deemed valid.