2010 (9) TMI 985 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the case, the receipts from the catering contract were taxable as sale of goods within the meaning of definition of sale given in sub-clause (v) of clause (l) of section 2 of the Haryana General Sales Tax Act, 1973, as held by the Haryana Tax Tribunal as against the contention of the assessee that the same were taxable as works contract within the meaning of definition given in clause (pa) of section 2 of the Act ibid.? Held that - Entire turnover from catering contract cannot be held to be taxable as sale of goods under section 2(l)(v) of the Act. The sales tax can be levied on the turnover of sale, after excluding the turnover attributable to service

Issues Involved:
1. Taxability of receipts from the catering contract as 'sale of goods' versus 'works contract'.
2. Applicability of sales tax to the entire turnover from the catering contract.

Issue-wise Detailed Analysis:

1. Taxability of Receipts from the Catering Contract:
The primary issue was whether the receipts from the catering contract were taxable as 'sale of goods' under section 2(l)(v) of the Haryana General Sales Tax Act, 1973, or as 'works contract' under section 2(pa) of the same Act. The dealer-assessee, engaged in the business of catering, argued that the contract was a works contract and did not involve any sale. This plea was rejected by the Assessing Authority, which was upheld by the appellate authority and the Tribunal. The Assessing Authority found that the contract was essentially for the supply of food and drinks, and thus the whole consideration received was held to be 'sale'. The appellate authority concurred, stating that the main purpose of the contract was the supply of food articles and drinks, with services being incidental and ancillary. The Tribunal, upon a difference of opinion, referred the matter to a third Member, who also concluded that the contract was primarily for the supply of food, drinks, and tea, and thus fell under the definition of 'sale' in section 2(l)(v), not 'works contract' in section 2(pa).

2. Applicability of Sales Tax to the Entire Turnover:
The dealer's counsel contended that only the component of turnover related to the sale of goods should be taxable, not the entire turnover from the catering contract, which included elements of both sales and services. The court referred to the legal history and the impact of the 46th Amendment to the Constitution, which allowed for the taxation of composite contracts involving both sale and service. The court cited the Bharat Sanchar Nigam Ltd. v. Union of India case, which held that only the element of sale of goods in composite transactions was exigible to sales tax. This interpretation was supported by the Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes case, which emphasized that sales tax and service tax are mutually exclusive, and only the sale component in a composite contract could be taxed. The court concluded that the entire turnover from the catering contract could not be taxed as a sale of goods; only the portion attributable to the sale of goods was taxable, excluding the turnover attributable to service.

Conclusion:
The court held that the entire turnover from the catering contract could not be treated as taxable under section 2(l)(v) of the Haryana General Sales Tax Act. Sales tax could only be levied on the turnover attributable to the sale of goods, excluding the service component. The question was answered accordingly, aligning with the legal interpretations provided by the Supreme Court in related cases.

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