1998 (12) TMI 592 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the supply of food and beverages by hotels and canteens constitutes a sale or a service.
2. The retrospective applicability of the Constitution (Forty-sixth Amendment) Act, 1982, and the U.P. Sales Tax (Amendment and Validation) Act, 1985.
3. The validation and exemption provisions under the Constitution (Forty-sixth Amendment) Act, 1982, and the U.P. Sales Tax (Amendment and Validation) Act, 1985.

Issue-wise Detailed Analysis:

1. Whether the supply of food and beverages by hotels and canteens constitutes a sale or a service:
The core issue in these revision petitions was whether the supply of food and beverages by hotels and canteens to their customers and employees respectively constituted a sale of goods or a service. The Tribunal had accepted the dealers' contention that the transactions were for rendering services and not for the sale of goods. This was based on the Supreme Court's rulings in State of Himachal Pradesh v. Associated Hotels of India Ltd. and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, which held that such transactions were contracts of service rather than sales.

2. The retrospective applicability of the Constitution (Forty-sixth Amendment) Act, 1982, and the U.P. Sales Tax (Amendment and Validation) Act, 1985:
The Constitution (Forty-sixth Amendment) Act, 1982, included clause (29A) in Article 366, which expanded the definition of "tax on the sale or purchase of goods" to include the supply of food and beverages as part of any service. This amendment was intended to enable states to levy sales tax on such transactions retrospectively. The U.P. Sales Tax (Amendment and Validation) Act, 1985, amended the definition of "sale" in the U.P. Sales Tax Act to align with the constitutional amendment, but it was effective only from February 3, 1983. The Court held that the constitutional amendment was enabling in nature and did not automatically levy tax; it allowed states to amend their laws to tax such transactions retrospectively.

3. The validation and exemption provisions under the Constitution (Forty-sixth Amendment) Act, 1982, and the U.P. Sales Tax (Amendment and Validation) Act, 1985:
Section 6 of the Constitution (Forty-sixth Amendment) Act, 1982, provided for the validation of taxes on the supply of food and beverages as part of services, even retrospectively. However, the U.P. Sales Tax (Amendment and Validation) Act, 1985, specifically validated such taxes only from February 3, 1983. The Court held that the validation clause in the U.P. Act applied only to actions taken after the amendment's effective date and did not apply to transactions before February 3, 1983.

Conclusion:
The Court concluded that the supply of food and beverages by hotels and canteens constituted a service and not a sale for the periods prior to February 3, 1983. Consequently, the receipts from such transactions were not taxable under the U.P. Sales Tax Act during those periods. The Tribunal's orders were upheld, and the revision petitions were dismissed.