1996 (11) TMI 431 - AT - VAT and Sales Tax

Issues Involved:
1. Assessability of sales tax on food items sold in a restaurant.
2. Impact of the 46th Constitutional Amendment on the taxability of food sales.
3. Validation of sales tax collected prior to the amendment.
4. Determination of whether sales were by way of service or counter-sales.

Detailed Analysis:

1. Assessability of Sales Tax on Food Items Sold in a Restaurant:
The petitioner-assessing authority assessed the non-petitioner-dealer, who runs a restaurant, with a taxable turnover of Rs. 39,703.20 for the period April 1, 1976, to March 31, 1978, including Rs. 3,000 for samosas, and imposed a tax of Rs. 1,985.15 along with penalties and interest. The dealer appealed, and the Deputy Commissioner (Appeals) partially accepted the appeal, remanding the matter for a determination of counter-sales versus restaurant sales and the turnover in samosas. Upon remand, the assessing authority found the sales were predominantly counter-sales with minimal service elements, reaffirming the tax amount.

2. Impact of the 46th Constitutional Amendment:
The 46th Constitutional Amendment, effective from February 2, 1983, expanded the definition of "tax on the sale or purchase of goods" to include the supply of food and drink by way of service. This amendment validated taxes collected on such supplies prior to its enactment, provided certain conditions were met. The Board, however, did not discuss the details of the cases before it and did not examine the finding that the supply was predominantly not by way of service.

3. Validation of Sales Tax Collected Prior to the Amendment:
Section 6 of the Constitution (Forty-sixth Amendment) Act, 1982, validated taxes collected on the supply of food and drink by way of service before February 2, 1983, unless the tax had not been collected on the ground that it could not be levied. The Rajasthan High Court in previous cases upheld that transactions prior to February 2, 1983, were exempt if the tax was not collected, but this exemption did not apply if the tax had been collected and deposited.

4. Determination of Whether Sales Were by Way of Service or Counter-Sales:
The assessing authority, after remand, found that the sales were counter-sales with negligible service elements. This finding was upheld by the Deputy Commissioner (Appeals). The Board's order, which did not discuss the facts of the case, was not applicable as the Supreme Court in Northern India Caterer's case [1980] 45 STC 212 had clearly stated that where the dominant object is the sale of food and the rendering of services is incidental, the transaction is taxable. The Tribunal found that the facts of the current case aligned with this ruling, and thus, the sales were taxable.

Conclusion:
The Tribunal accepted the revision, holding that the Board's order could not decide the instant case. The order of the assessing authority dated December 27, 1983, was restored, confirming the tax assessment. The petition was allowed with no order as to costs.

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