2001 (12) TMI 845 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Definition of "dealer" and "sale" under the Madras General Sales Tax Act, 1939.
2. Taxability of supply of refreshments by clubs to their members.
3. Impact of the Tamil Nadu General Sales Tax Act, 1959.
4. Constitutionality of the levy of sales tax on clubs post the 46th Amendment to the Constitution.
5. Applicability of the doctrine of mutuality in the context of sales tax.

Summary:

1. Definition of "dealer" and "sale" under the Madras General Sales Tax Act, 1939:
The Madras General Sales Tax Act, 1939 defined "dealer" u/s 2 as "any person who carries on the business of buying or selling goods," including co-operative societies, clubs, firms, or any association selling goods to its members. Historically, clubs paid sales tax on refreshments supplied to members.

2. Taxability of supply of refreshments by clubs to their members:
In Cosmopolitan Club v. Deputy Commercial Tax Officer [1952] 3 STC 77 (Mad.), it was held that the supply of refreshments by a club to its members did not constitute a "sale." This was affirmed by a division bench in Deputy Commercial Tax Officer v. Cosmopolitan Club [1955] 6 STC 1, which ruled that without a profit motive, such transactions were not "sales."

3. Impact of the Tamil Nadu General Sales Tax Act, 1959:
The 1959 Act expanded the definition of "sale" to include the transfer of property involved in the supply or distribution of goods. This led to renewed legal challenges by clubs, culminating in Young Men's Indian Association v. Joint Commercial Tax Officer [1963] 14 STC 1030 (Mad.), which held that clubs supplying articles to members did not involve a "sale."

4. Constitutionality of the levy of sales tax on clubs post the 46th Amendment to the Constitution:
The 46th Amendment introduced clause (29A) in Article 366, which included sub-clauses (e) and (f) that deemed the supply of goods by clubs to their members as "sales." This amendment was incorporated into the Tamil Nadu General Sales Tax Act, 1959, making the supply of refreshments by clubs taxable.

5. Applicability of the doctrine of mutuality in the context of sales tax:
The doctrine of mutuality, which previously exempted clubs from sales tax, was rendered inapplicable by Article 366(29A). The court held that the supply of refreshments by clubs, whether incorporated or unincorporated, is subject to sales tax, as per sub-clause (vi) of section 2(n) of the Tamil Nadu General Sales Tax Act.

Conclusion:
The court dismissed the writ petitions, affirming that post the 46th Amendment and corresponding state legislation, the supply of refreshments by clubs to their members constitutes a "sale" and is subject to sales tax. The doctrine of mutuality no longer applies in this context.