1998 (12) TMI 579 - AT - VAT and Sales Tax

Issues Involved:
1. Constitutionality of Section 2(n)(v) of the TNGST Act.
2. Applicability of TNGST (Fourth Amendment Act 28 of 1984) and related G.O.P. for the levy of sales tax on clubs.
3. Requirement for clubs to register as dealers under the TNGST Act.
4. Distinction between incorporated and unincorporated clubs regarding sales tax liability.

Detailed Analysis:

1. Constitutionality of Section 2(n)(v) of the TNGST Act:
The petitioners argued that Section 2(n)(v) of the TNGST Act, which authorizes the levy of tax on the supply of goods by clubs to their members, is illegal and ultra vires the Constitution of India. They contended that even after the Forty-sixth Amendment to the Constitution, the levy of sales tax on incorporated clubs is not possible, as the law laid down by the Supreme Court in [1970] 26 STC 241 (Joint Commercial Tax Officer v. Young Men's Indian Association) still holds good. The Tribunal, however, held that the Forty-sixth Amendment to the Constitution and the subsequent amendments to the TNGST Act, including Section 2(n)(v), are valid. The Tribunal concluded that the supply of goods by clubs to their members is deemed to be a sale and is subject to sales tax.

2. Applicability of TNGST (Fourth Amendment Act 28 of 1984) and related G.O.P. for the levy of sales tax on clubs:
The petitioners sought to declare the TNGST (Fourth Amendment Act 28 of 1984) and the related G.O.P. No. 198/CT & RE dated March 25, 1989, which prescribed rates of taxes on the supply of food and drinks by hotels and restaurants, as unconstitutional. The Tribunal held that the amendment and the G.O.P. are valid and applicable to the supply of goods by clubs to their members. The Tribunal noted that the amendments to the TNGST Act were made in pursuance of the Forty-sixth Amendment to the Constitution, which expanded the definition of "sale" to include the supply of goods by clubs to their members.

3. Requirement for clubs to register as dealers under the TNGST Act:
The petitioners argued that they are not required to register as dealers under the TNGST Act, citing decisions of the Madras High Court in [1998] 108 STC 66 (Board of Trustees of the Port of Madras v. State of Tamil Nadu) and [1998] 108 STC 114 (Arulmigu Dhandayuthapani Swami Thirukkoil v. Commercial Tax Officer). The Tribunal held that these decisions are not applicable to clubs. The Tribunal emphasized that members' clubs, whether incorporated or unincorporated, are covered by the definition of dealers under Explanation (1) to Section 2(g) of the Act and are therefore required to register as dealers.

4. Distinction between incorporated and unincorporated clubs regarding sales tax liability:
The petitioners contended that incorporated clubs should not be liable for sales tax on the supply of goods to their members, distinguishing them from unincorporated clubs. The Tribunal rejected this argument, stating that the distinction between incorporated and unincorporated clubs is no longer relevant after the Forty-sixth Amendment to the Constitution and the amendments to the TNGST Act. The Tribunal noted that the supply of goods by any club, whether incorporated or unincorporated, to its members is deemed to be a sale and is subject to sales tax under Section 2(n)(v) and Section 2(n)(vi) of the Act.

Conclusion:
The Tribunal dismissed the petitions, holding that:
- Section 2(n)(v) of the TNGST Act and the related G.O.P. are valid and applicable.
- Members' clubs, whether incorporated or unincorporated, are required to register as dealers under the TNGST Act.
- The supply of goods by clubs to their members is deemed to be a sale and is subject to sales tax.
- The distinction between incorporated and unincorporated clubs regarding sales tax liability is no longer relevant after the Forty-sixth Amendment to the Constitution and the amendments to the TNGST Act.

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