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2016 (6) TMI 476 - SC - VAT and Sales TaxDoctrine of mutuality - Dealer - Liability to pay VAT / Sales Tax - Tribunal decided that Calcutta Club Limited, was not liable for payment of sales tax under the West Bengal Sales Tax Act, 1994 - sale of food and drinks to the permanent members - deeming fiction - Held that - the controversy that has arisen in this case has to be authoritatively decided by a larger Bench in view of the law laid down in Cosmopolitan Club (2008 (9) TMI 540 - SUPREME COURT OF INDIA) and Fateh Maidan Club (1998 (9) TMI 581 - SUPREME COURT OF INDIA). We are disposed to think so as none of the judgments really lay down that doctrine of mutuality would apply or not but proceed on the said principle relying on the earlier judgments. It is desirable that the position should be clear. For the aforesaid purpose, the matter should be referred to a larger Bench and for the said purpose. - Matter referred to larger bench.
Issues Involved
1. Liability of Calcutta Club Limited for sales tax under the West Bengal Sales Tax Act, 1994. 2. Applicability of the doctrine of mutuality post the 46th amendment to Article 366(29A) of the Constitution of India. 3. Interpretation of Article 366(29A) and its clauses, especially regarding deemed sales. 4. Relationship between clubs and their members in the context of sales tax. 5. Relevance of previous judgments on mutuality and agency in light of constitutional amendments. Detailed Analysis 1. Liability of Calcutta Club Limited for Sales Tax: The core issue was whether the Calcutta Club Limited was liable to pay sales tax on the supply of food and drinks to its permanent members under the West Bengal Sales Tax Act, 1994. The Assistant Commissioner of Commercial Taxes issued a notice to the club for failing to make such payments. The club argued before the tribunal that it was not a dealer and that there was no sale of goods to its members, invoking the doctrine of mutuality. The tribunal and subsequently the High Court ruled in favor of the club, stating that supplies to permanent members did not constitute "deemed sales" under Section 2(30) of the Act, as there was no exchange of consideration. 2. Applicability of the Doctrine of Mutuality Post 46th Amendment: The doctrine of mutuality was central to the club's argument. The tribunal and the High Court upheld this doctrine, implying that the club acted as an agent of its members, and thus, no sale occurred. The revenue's contention was that the constitutional amendment (Article 366(29A)) nullified the applicability of the doctrine of mutuality. The Supreme Court noted that previous judgments had not explicitly addressed whether the doctrine of mutuality survived the 46th amendment, necessitating a larger bench to authoritatively decide on this matter. 3. Interpretation of Article 366(29A) and Deemed Sales: Article 366(29A) was introduced to expand the definition of "tax on the sale or purchase of goods" to include various transactions as deemed sales. The revenue argued that this amendment meant that supplies by clubs to their members should be considered sales. The Supreme Court referred to several precedents, including Bharat Sanchar Nigam Ltd. v. Union of India and others, which suggested that the amendment aimed to neutralize earlier rulings based on mutuality and agency. The Court highlighted the need to interpret the scope of deemed sales under each sub-clause of Article 366(29A) independently. 4. Relationship Between Clubs and Their Members: The Court examined whether the club acted as an agent for its members or if the property in goods passed from the club to the members. Previous judgments, such as Young Men’s Indian Association and Fateh Maidan Club, had remanded cases for fact-finding on this relationship. The Supreme Court emphasized that the exact nature of the relationship between clubs and their members in the context of supply transactions needed clarification to determine tax liability. 5. Relevance of Previous Judgments: The Court discussed the relevance of previous judgments on mutuality and agency, such as Northern India Caterers and Young Men’s Indian Association, in the context of the 46th amendment. The Court noted that these judgments might no longer hold the same authority post-amendment, as the amendment intended to address and neutralize issues raised in these cases. The Supreme Court framed specific questions to be addressed by a larger bench to resolve these inconsistencies and provide a clear legal position. Conclusion The Supreme Court decided to refer the matter to a larger bench to authoritatively resolve the following questions: 1. Whether the doctrine of mutuality is still applicable to incorporated clubs after the 46th amendment. 2. Whether the judgment in Young Men’s Indian Association still holds the field post-amendment, and the correctness of the principles in Cosmopolitan Club and Fateh Maidan Club. 3. Whether the 46th amendment deems the provision of food and beverages by incorporated clubs to their permanent members as sales liable to sales tax. The case was thus referred to the Hon’ble Chief Justice of India for the constitution of an appropriate larger bench to address these critical issues.
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