1993 (4) TMI 290 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the supply of food and drinks in hotels/restaurants/eating houses is exigible to sales tax for the assessment years 1980-81 to 1989-90.
2. Whether there is a need for a separate charging section in the Tamil Nadu General Sales Tax Act, 1959, to levy tax on the supply of food and drinks after the Forty-sixth Amendment to the Constitution.
3. Whether the entire turnover from the supply of food and drinks, including the service portion, can be taxed without guidelines to separate the service portion.
4. Whether the cancellation of a notification granting total exemption revives the earlier notification granting total exemption.

Detailed Analysis:

1. Exigibility of Sales Tax on Supply of Food and Drinks:
The primary issue is whether the supply of food and drinks in hotels/restaurants/eating houses is subject to sales tax for the assessment years 1980-81 to 1989-90. The judgment references previous Supreme Court rulings, such as State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 STC 474, Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386, and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1980] 45 STC 212, which held that such transactions were essentially service-oriented and not sales. However, the Forty-sixth Amendment to the Constitution introduced clause (29A) to Article 366, redefining "tax on the sale or purchase of goods" to include the supply of food and drinks as part of any service. The Tamil Nadu General Sales Tax Act, 1959, was subsequently amended to align with this constitutional change, making the supply of food and drinks in hotels/restaurants subject to sales tax.

2. Necessity of a Separate Charging Section:
The petitioners argued that without a separate charging section, similar to sections 3-A and 3-B introduced for other transactions like works contracts, the supply of food and drinks cannot be taxed. However, the court referenced the decision in K. Damodarasamy Naidu & Bros. v. State of Tamil Nadu [1990] 76 STC 427, which held that the existing charging section (Section 3) of the Tamil Nadu General Sales Tax Act, 1959, was sufficient to levy sales tax on the supply of food and drinks. The court emphasized that the constitutional amendment and subsequent statutory amendment to the definition of "sale" were adequate to authorize the levy without needing a separate charging section.

3. Taxation of Entire Turnover Including Service Portion:
The petitioners contended that taxing the entire turnover from the supply of food and drinks without guidelines to separate the service portion is illegal. The court, however, referred to the decision in [1990] 76 STC 427 (K. Damodarasamy Naidu & Bros. v. State of Tamil Nadu), which rejected this argument. The court further clarified that the constitutional amendment (Article 366(29-A)(f)) and the corresponding statutory amendment (Section 2(n)(vi) of the Tamil Nadu General Sales Tax Act) deemed the entire supply of food and drinks, including any service element, as a sale. Therefore, the total consideration for the supply could be taxed without excluding the value of services rendered.

4. Revival of Earlier Notification Granting Total Exemption:
The petitioners argued that the cancellation of G.O. P. No. 198 dated March 25, 1989, which restricted exemption to hotels with a turnover not exceeding Rs. 10 lakhs, should revive the earlier notification G.O. P. No. 570 dated June 10, 1987, which granted total exemption. The court referred to the decision in Indian Express Newspapers (Bombay) Private Ltd. v. Union of India AIR 1986 SC 515, which held that the quashing or cancellation of a notification does not revive the earlier notification it superseded. Consequently, the court concluded that the cancellation of G.O. P. No. 198 did not revive G.O. P. No. 570, and there was no entitlement to exemption on the sale of food and drinks from March 31, 1987, to March 31, 1990.

Conclusion:
The court dismissed the writ petitions, holding that the supply of food and drinks in hotels/restaurants/eating houses is subject to sales tax under the existing provisions of the Tamil Nadu General Sales Tax Act, 1959, as amended by the Forty-sixth Amendment to the Constitution. There is no need for a separate charging section, and the entire turnover from such supply, including the service portion, can be taxed. The cancellation of a notification does not revive an earlier notification granting total exemption.

← Previous Next →