1998 (11) TMI 629 - HC - VAT and Sales Tax

Issues Involved:
1. Entitlement to refund under Rule 42 of the Gujarat Sales Tax Rules, 1970.
2. Definition and implications of "sale of goods" in the context of serving food and drinks in hotels and restaurants.
3. Retrospective application of the Constitution (Forty-sixth Amendment) Act, 1982.
4. Conditions under Rule 42 and Rule 47 of the Gujarat Sales Tax Rules, 1970.
5. Interpretation of "taxable goods" and "taxable transaction."
6. Impact of Section 6 of the Act of 1982 on tax liability and exemptions.

Detailed Analysis:

1. Entitlement to Refund under Rule 42:
The core issue was whether the assessee was entitled to a refund under Rule 42 of the Gujarat Sales Tax Rules, 1970, for the tax paid on purchases used in the preparation of food served during the financial years ending March 31, 1979, March 31, 1980, March 31, 1981, and March 31, 1982. The Tribunal had held that the applicant was not entitled to any refund, and this judgment was under scrutiny.

2. Definition and Implications of "Sale of Goods":
Before the Constitution (Forty-sixth Amendment) Act, 1982, the supply of food and drinks by a hotel or restaurant was not considered a "sale of goods" but rather a service. This was established by the Supreme Court in cases such as State of Himachal Pradesh v. Associated Hotels of India Ltd. and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi. Consequently, no sales tax was levied on such transactions.

3. Retrospective Application of the Constitution (Forty-sixth Amendment) Act, 1982:
The Amendment Act, effective from February 2, 1983, redefined "tax on the sale or purchase of goods" to include the supply of food and drinks as part of any service, making such transactions taxable retrospectively. However, Section 6 of the Act provided exemptions for transactions where tax was not collected during specified periods, thus affecting the retrospective application.

4. Conditions under Rule 42 and Rule 47:
- Rule 42: It allows for a drawback, set-off, or refund of tax for goods purchased by a manufacturer if certain conditions are met, including the use of goods in the manufacture of taxable goods and their sale within the State of Gujarat or other specified manners.
- Rule 47: It imposes general conditions, including that the assessee must be a registered dealer liable to pay tax on the sale or resale of goods or on the sale of goods manufactured using the purchased goods.

5. Interpretation of "Taxable Goods" and "Taxable Transaction":
The Tribunal and the court examined whether the cooked food served by the assessee qualified as "taxable goods." The court concluded that the exemption under item 3 of Schedule I was for specific transactions, not the goods themselves. Therefore, the cooked food was considered taxable goods, fulfilling one of the conditions under Rule 42.

6. Impact of Section 6 of the Act of 1982 on Tax Liability and Exemptions:
Section 6 provided that transactions where tax was not collected during specified periods were exempt from retrospective tax liability. This meant that the assessee, who did not collect tax on the supply of food and drinks during the relevant periods, was not liable to pay tax retrospectively. Consequently, the assessee did not meet the condition of being "liable to pay tax" under Rule 47, disqualifying them from claiming a refund.

Conclusion:
The Tribunal was justified in holding that the assessee was not entitled to any refund under Rule 42 for the tax paid on purchases used in the preparation of food served during the specified financial years. The court affirmed this decision, concluding that the assessee did not fulfill the necessary conditions under Rule 47, as they were not liable to pay tax on the sale of cooked food during the relevant periods. The reference was answered in the affirmative, in favor of the Revenue and against the assessee.

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