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TMI Blog1976 (3) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... point involved in them are common they are therefore, being disposed of by this common order. 2. The assessee carries on business as hotels. Besides conducting hotels, it also carries on restaurant business. 3. It may be proper to take up first the assessment for 1967-68. (1) Discount to special customers: The assessee claimed deductions on account of discount allowed to regular customers and guests. The case of the assessee before the assessee authority was that such discount was allowed after the bill for the full amount had been made out and as such the discount or rebate allowed often did not figure in the returns. The explanation on scrutiny was found by the assessee authorities in order and he allowed the discount claimed. (2) Banquet Sales : The case of assessee was that a consolidated bill was charged in respect of banquets sales which pertained to receptions marriages ceremonies musical evenings indoor sports matches institutional meetings and seminars which were preceded or succeeded by refreshments. The bill, it was stated, was inclusive of charges for amenities like use of special has rooms hall rooms Nos. 81,82,83 and 999 especially booked for such functions spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic linen air-conditioning cutlery crockery and other services which were provided to the customers. In view of the fact that such claim had been consistently rejected in the past upon the level of the Financial Commissioner the same was disallowed by the Assessing Authority. (5) Cafeteria Sales : The assessee claimed total exemption of account of receipt in respect of sales made to the employees from the cafeteria which is housed in the hotel. The learned counsel for the assessee contended before the assessee authority that on the directions of the learned Financial Commissioner certain officer including the Assessing Authority officers including the visited the cafeteria and inspected its working and thereafter the learned Financial Commissioner held on 20th May, 1971 in Revision No. 158 of 1971 that the sales from the cafeteria were not liable to sale tax. It was a company and not a dealer is in so far as the activity authority following the decision of the Financial Commissioner accepted the plea and held that the sales from the cafeteria were not liable to sales tax. The assessee however, had been making purchases or raw material for the cafeteria on the strength of their reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original assessment order ceased to be operative vis-a -vis the banquet sales and inasmuch as the impugned notice spoke of the assessment order assessee authority and not of the appellate authority, then notice regarding the banquet sales was without jurisdiction and illegal. The High Court accordingly quashed the notice in respect of banquet sales. 9. As regards the question of cafeteria sales the High Court held that looking at the definition dealer under s. 2 (c), the hotel cannot be regarded as a dealer qua the cafeteria activity on the admitted fact that there was no profit motive in effecting sales in cafeteria to employees of then hotel on subsidised rates. Therefore, unless qua this activity the hotel is dealer there will be no jurisdiction in the Additional Commissioner to serve the impugned notice. 10. The case of the assessee in the High Court in respect on of the claim for discount allowed to special customers was that the bills were sent to special customers periodically in which 15 or 20 per cent discount was given on the sales of refreshments to those persons. According to the assessee the turnover from such sales would be less by the amount represented by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction from the sale price. Thus the amounts deducted on that account by the assessee authority was ordered to be added to the turnover of the dealer and taxed according to the character of goods. The learned Addl. Commissioner directed the assessee authority to examined each and every voucher and determine the tax amount. 15. The learned Addl. Commissioner increased the value of the raw material purchased on the strength of registration certificate used in cafeteria to Rs. 5,000 in place of Rs. 1,000 per quarter as held by the assessing authority. 16. The learned Addl. Commissioner expressed that the amount of Rs. 1.75 per guest per day in place of Rs. 1.20p. per guest per day as held by the assessee authority should be treated as just and proper for adding to the taxable turnover on account of purchases of raw materials used in the preparation of meals served to the guests at the hotel on boarding the lodging basis. 17. The assessment order for the year 1967-68 thus stood revised accordingly. 18. For the year 1970-71 the assessment was made by Sh. S.S. Bhatnagar, Sales Tax Officer-Cum-Assessing Authorities vide this order dated 18th March, 1975. He ordered addition in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its guests in pursuance of prior agreements between the parities were not admissible as deduction from sale price:- First quarter Rs. 84,480.47 Second quarter Rs. 1,20,967.21 Third quarter Rs. 1,39,760.22 Fourth quarter Rs. 1,80,982.51 According to the assessee, the modus operandi is that such allowances are allowed only no credit sales and where the guests hold credit cards; such guests know it earlier as to what they have to pay for the services. Sales Prices, as such, is prefixed between the parities. The bill is never presented for services when they are rendered; only a taken check is presented which is signed by the customer giving his credit card number. The list of guests who are given allowance is with the Account Branch which, before presenting the formal bill, allows the prefixed percentage of allowances. Actually the bill is presented in respect of the amount payable by a guest and allowances are not exactly discounts but stating the correct sale price payable by a guest. Only such allowances hove been incorporated in the accounts and termed as discounts. 23. It is urged that the interpretation of the word "sales price" attempting by the learned Addl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to any period means the aggregate of the sale price or parts or sale prices receivable, or if a dealer so elects, actually received by the dealer during such period after deducting the amounts if any refunded by the dealer in respect any of goods returned by they purchase within such period. s. 4 refers to incidence to taxation. It reads:- Incidence of Taxation : With effect from such date as the Chief Commissioner may, be notification in the Official Gazette appoint, being not earlier than there days after the date of the said notification every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded the taxable quantum shall be liable to pay tax under this Act on all sales effected after the date so notified. Under s. 5B the burden of proving that in respect of any sale effected by a dealer he is not liable to pay tax shall lie on him. 27. From a perusal of the definition of the 'sale price' it is clear that only "cash discount" and that which is "according to the practice normally prevailing in the trade shall be excluded from the amount payable to a dealer as a consideration for the sale of goods. While discussing the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded it is allowed on the sale price. The provision does not require the discount to be paid out immediately the price is paid. The provision does not limit its applicability to only such cases where the discount is paid at the time of the payment of the price. The only condition before a payment can be excluded from the turnover is that it shall be a payment in cash or kind and that it must be allowed on the price of any sale. The High Court after analysing the scheme, held that the scheme announced by the assessee for paying cash but calling it annuity on the basis of annual purchases made by a customer or agent was also permissible because it was a payment in cash made on the sale price given by a particular customer or agent in the course of a whole year; and it was hence clearly within the ambit of clause (ii) of the explanation. According to the High Court, it was a cash discount on the price allowed in respect of sales, and was liable to be excluded from the assessee's turnover. 32. While answering to second question, the learned Judges referred to clause (j) of s. 2 of the Central Act which defines the term 'turnover' to mean the aggregate of the sale prices received or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central and U.P. Sales Tax Act. Its effect will depend on the findings on the various factual aspects of the matter. 34. Under the U.P. Sales Tax Act not only cash discount but also other discount is deductable from the turnover. The definitions of 'sale price" and "turnover" in the Bengal Finance (Sales Tax) are identical with the definitions of these expressions in the Central Sales Tax Act and so the observation of the High Court made in connection with answering the second question would be applicable according to which the permissible discount must be in cash, and it must be paid according to the practice normally prevailing in the trade. The scheme of annuity in that case differs from the 'allowances' allowed to special customers in the present case. There were no special customers in that case as we find in the present case. The rate of annuity did not differ from customer to customer as in the case in hand. The annuity was allowed at a specified rate to all the customers without any distinction. For these reasons the decision of the Allahabad High Court on the first question would not, I may submit, be applicable to the facts of the present case. 35. The next case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... du General Sales Tax Act and Rules are not similar to those of the Bengal Finance (Sales Tax) Act and Rules. In the Tamil Nadu Act any cash or other discount was allowed to be deducted from the turnover but in the latter Act only cash discount can be deducted. It would be interesting to quote the following from the said judgment: " It is well known that a scheme of discount adopted by Commercial circles is normally of two types-cash discount and trade discount-and a discount normally denotes a deduction from the amount due as price of goods in consideration of its being paid promptly or in advance. Trade discount is the one allowed to a customer if he places an order for a certain amount or quantity or more. Such a discount is given to encourage a buyer to buy more at time or within a period of time. When the legislature has specifically used the words "cash or their discount", it must be taken that it was aware of the normal trade practice in commercial circles of giving cash or other discount". As the provisions in the U.P. Sales Tax Act were similar to those in the Tamil Nadu General Sales Act and Rules relating to deduction of "any cash or other discount" the Madras High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be called a cash discount so as to attract s.2 (h) of the Central Sales Tax Act, 1956, which merely excludes cash discount and not all trade discounts. The observation of the same High Court made earlier in fiwanlal's case(4) regarding the definition between the cash discount and trade discount were also taken note of. 38. The Madras High Court in that case placed reliance on the decision of the Ambika Mills Ltd. vs. State of Gujarat(8), where in the assessee had entered into a contract of sale of goods manufactured by them with several dealers and the goods were sold to them at the rates mentioned in those contracts. However, before the purchasers took delivery, there was a fall in prices and the purchasers declined to take delivery of those goods with a view to avoid losses the assessee induced the purchasers to take delivery of the goods assuring them that a part of the losses borne by them as a result of the fall in prices would be compensated by way of rebate. After delivering the goods and giving invoices to the purchasers as per the contracts, the assessee issued credit notes in favour of the purchasers. The question arose as to whether the assessees were entitled to a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice agreed to in the contracts and if the assessees gave remissions and, therefore received less than what was receivable by them under the contracts, the sale price relevant for the purpose of "turnover" would be the price receivable by the under the contracts, and clearly, therefore, the assessees were not entitled to have their 'turnover' calculated on the basis of the contract price less the remissions permitted by them to their purchaser". 39. This decision of the Madras High Court in Indian Piston Ltd. Which interprets section 2(h) of the Central Act, should, to my mind, be followed rather than the decisions of that High Court in the cases of Dunlop Rubber Company (India) Ltd(3). and Fiwanlal(4) which rurned on the interpretation of the definitions of 'sale price' and turnover' as given in the Tamil Nadu General Sales Tax Act and Rules and not on the interpretation of the Central Sales Tax Act and in the Bengal Finance (Sales Tax) Act. 40. The fourth case cited on behalf of the assessee is that of Orient Paper Mills decided by a Division Bench of Orissa High Court. In that case the assessee manufactured and sold paper. At all materials times a mill rate for the various t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale price of paper subject to the discount being allowed according to the practice normally prevailing in the trade. 41. On behalf of the assessee it was argued that the consideration of the sale transaction was determined only after the discounts are deducted from mill rate and secondly the discount was not independent of the consideration and was not included in the sale price. Referring to the definition of 'sales price' in s. 2 (h) of the Central Sales Tax Act, the High Court observed :— " Essentially 'sale price' means the amount payable to the dealer as consideration for the sale of any goods. In this case the mill rate mentioned in the catalogue. Under the agreement itself the mill rate is reduced by the discount. The consideration actually payable by the purchasers to the petitioner is the mill rate less the discount. The consideration is the amount which is actually paid or payable of after the discount is reduced or deducted. The mere fact that the definition makes provision for cash discount after deduction does not take out an agreed amount to be deducted from the price while fixing the consideration." 42. The High Court, however, proceeded to observe that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscount is an allowance in addition to the trade discount made by the seller to the purchaser provided the latter settle his account promptly within a specified time, known as the 'period of credit'. This allowances for the prompt payment of accounts may be either receivable or payable. It is receivable by the trader when he pays his account promptly or within the period of credit, and is allowed by him to his own customers in consideration of the prompt settlement of amounts due to him. Cash discount referred to in s. 2 (h) of the Act is different from the trade discount as has been indicated already. Whether from the point of view of buyers and sellers the only figure that matters is the amount paid and received. Consideration is fixed after the discount is deducted from the quoted price and such discount is trade discount." The High Court observed: "The resultant position, therefore, is that trade discount is to be deducted from the catalogue price in accordance with the terms of the agreement and it is only thereafter that the consideration is to be fixed which is the sale price within the meaning of s. 2(H). Such a concept has nothing to do with the deduction of cash disco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48. Ultimately the Kerala High Court held that if the trade discount has been bona fide granted by a dealer the actual consideration paid for the sale was only the amount paid after deducting the trade discounts from the quoted sale price. Unfortunately the full facts and circumstances under which the trade commission was allowed in that case has not been spelt out in the judgement and it, therefore, cannot be said that the allowances given to the special customers by the assessee in the present case is identical and similar to the trade commission given in the Kerala case. 49. From an analysis of the aforesaid cases, it would be manifest that there is fundamental distinction between the "Cash discount" and "Trade discount". Bearing in the mind the ingredients of "Cash discount", as noted above there cannot be any manner of doubt that the allowances in respect of which deduction is claimed in the present case, is not a "cash discount" because it is not discount granted in consideration of immediate payment nor it is an inducement offered by a creditor to pay promptly. The definition of 'sale price' as defined in s. 2 (h) of the Bengal Finance ST Act, 1941 refers to "cash disco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage to the assessee because "trade discount is not permissible deduction under the Bengal Finance ST Act. The trade discount as noted in the earlier parts of this judgement is an allowance made by the wholesale dealers to retailers off the catalogued invoice price. This allowance is made between the buyers and sellers engaged in the same class of trade. The object of the trade discount being allowed by the whole sale dealer to the retailer is to enable the latter to sell the goods at the price mentioned in the catalogue of the price list issued by the whole-sale dealer. These ingredients are lacking in the "allowances" given to the assessee to his special customers and it is therefore plain that the same cannot be held to be "trade discount". 52. Realising the difficulty in not claiming deductions in respect of the allowances. In view of the definition of "sale price" and "turnover" of the Bengal Finance ST Act, the assessee pleaded that these allowances were given in pursuance of prior agreement between the assessee and his special customers and that what the special customer paid was the sale price. An agreement is an Act of both the parties what was the consideration, who wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be included in turnover. To me this contention does not appeal. In fact, 'A' is the consideration for sale and from that the discount is allowed. What after all does, 'A' denote? It cannot be anything else except the sale price. It was for this reason that Shri Tandon stated that the discounts are allowed after the bills are prepared. It was also for this reason that the figures of sales shown in the return did not exclude the discount and it was only in the revised statement that the discounts were deducted from the turnover. 56. The position is made further clear if we look into the Standing Instructions issued by the assessee. In those instructions, the word used is 'discount' and not 'allowances' which is mentioned & deductions are made at different rates mentioned therein. Therefore, in any view of the matter, it cannot be said that the allowances in respect of which deduction is claimed, is anything else than discount. This discount being not " cash discount according to practice normally prevailing in the Trade", cannot be allowed as permissible deduction under law from the turnover. In view of what is stated above, the claim for deduction from the turnover of discount a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such items. Being of the opinion that ordinarily as much as 20 per cent is the amount which is normally spent on the purchase of these items on the basis that one individual takes daily two meals, two tea, coffee or any other drink. The learned Addl. Commissioner in the absence of separate account about these purchases increased the value of such purchases from Rs. 1,000 too Rs. 5,000 per quarter. 58. It is to be noted that the assessing authority did not apply his own mind but accepted what Shri Tandon had said in his statement. He did not independently examine the issue. The reasons given by the learned Addl. Commissioner for arriving at the conclusion appear convincing and sound. I do not, therefore purpose to disturb his finding on this issue. Boarding and lodging: The third and last point which arises for determination in this appeal is in connection with the amount which should be added to the turnover in respect of purchases made on the strength of the registration certificate for use of guests hosted by the hostel on boarding and lodging basis. Shri Tandon in this statement dt. 10th Feb 72 admitted that raw material used in the preparation of meals served to such gues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of linen, air-conditioning, cutlery, crockery and other services which were provided to the guests. Noticing that the plea had been consistently raised by the dealer in the previous years also but it had always been negatived, the assessing authority did not accept the same. The finding of the assessing authority was confirmed in appeal by Shri. R.K. Goswami, appellate authority. In the case of M/s. Associated Hotels of India Ltd., also the assessee had claimed 50 per cent exemption on the gross sales of the restaurant which according to him should be deemed to be charge for the amenities rather than the victuals supplied. It was, however, conceded that the charge made from the customer for taking of a meal in a restaurant was a consolidated charge which did not specifically reflect the cost of food and charge of amenities separately. The learned Financial Commissioner in Revision Nos. 614 and 615 of 1970, decided on 20th May, 71 noticed the definitions of 'sale' and 'sale price' and held that unless the charges on victuals amenities were split up and separately shown in the bill or voucher of sales made out and issued but the dealer, it should be presumed that all sale transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that they did not represent part of the sale price but were recovered from the customers for payment to the employees and for covering partly the breakages. It was held by the Bombay High Court that the service charges constituted part of 'sale price' and could be included in the assessee's gross turnover. The Tribunal which had rejected the claim of the hotel had observed and which observation was approved by the High Court that in the case of service charges, the customers had no option but to pay these charges when demanded by the assessee, irrespective the fact whether the employees were serviceable or had rendered useful service. The Tribunal had also pointed out that the service charges of 10 per cent for the service rendered were for the execution of the order that was placed by the customers. In other words the service charges were entirely dependent on the food consumed by the customer after placing an order. It was because there was a sale of the food ordered by the customer that the service charges were inseparably wedded together that it was not possible to view one without the other. In other words, service charges had no independent existence of their own. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment like the one which the assessee maintains. But all the same, it is the price of food that the customer has to pay for the luxury of or the benefit of having delivered the articles of food in a nice place in comfort and to the delightful accompaniment of music or such other entertainment. We fail to see, therefore what difference does it make so far as the customer is concerned, whether the addition to his bill is named as service charges or simply as 10 per cent addition to the tariff. As it is not possible or permissible to separate the two charges as charges merely for the services and when mere services are not available for payment, the Tribunal seems to be right in coming to the conclusion that service charges are inseparably mixed up with the total amount or price that is charged to the customer for the food that is supplied to him." In view of this decision also the case of 50 per cent exemption on the restaurant sales is not made our. 63. On behalf of the assessee reliance was placed on the decision of the Supreme Court in the State of Himachal Pradesh and others vs. associated Hotels of India Ltd.(10). In that case the assessee, as part of his business carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the special hall room Nos.81,82,83 and 999 especially booked for such functions special decoration and setting of a temporary stage providing of microphones and loudspeakers and making arrangements for special lighting and flowers, etc. According to the assessee no tax could be charged on any portion of such bills because the bill represented charge for facilities of special accommodation and other service whereas the refreshment provided was only incidental and there was no provision for refund if refreshment was not taken by any participant. Following the decision of the learned. Financial Commissioner dt. 29th May, 71 in revision No.158 of 1971. The assessee authority allowed 15 per cent exemption on the banquet sales. In appeal the AAC did not disturb that finding. 65. The learned Financial Commissioner, in the matter of special functions arranged by the petitioner firm, agreed with the learned counsel for the petitioner firm that the consolidated receipts besides the cost and service of food also included an element of charge for special arrangements, be these for a meeting, a marriage ceremony or the exclusive use of a specified space. But as the consolidated charge did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of raw material purchased on the strength or registration certificate and used in meals served to the guest on the boarding and lodging basis, the learned addl. Commissioner reduce the sum from Rs.3 to Rs.2.50 per guest per day. Following the decision of the Hon'ble High Court in Civil Writ Petition No.242 of 1974, the learned Addl. Commissioner, Sales Tax held that the cafeteria sales were not to be included in the turnover. 68. As regards the banquet sales, the learned Addl. Commissioner found that the points urged by the assessee were not fully elaborated before the assessing authority and no evidence was adduced before him to establish that the banquet sales were, infact, a contract for service and sale of goods was only incidental. According to the learned Addl. Commissioner the matter needed further examination. He accordingly remanded the case to the assessing authority on that point with the direction that he shall require the dealer to produce evidence to support his contention that banquet sales were not sales. The learned Addl. commissioner also held that the contention of the assessee that 15 per cent of banquet receipts should be exempt on account of the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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