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TMI Blog1968 (12) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 1964, in the third period, the Sales Tax Officer while computing the gross turnover for the periods in question included service charges recovered by the assessee from the customers. The Sales Tax Officer rejected the contention of the assessee for deduction of these amounts or their exclusion on the ground that they were service charges for services rendered by the staff, and the proceeds of which, according to the assessee, did not represent a part of the sale price but were recovered for payment to the staff and for covering partly the breakages. The Tribunal having rejected similar contentions in second appeal, the assessee made an application for referring the questions arising to the High Court and wanted three questions to be referred as follows: "(1) Whether on the facts and under the circumstances of the case, the service charges constitute or can be included in 'sale price' as defined in section 2(29) of the Bombay Sales Tax Act, 1959? (2) Whether the Tribunal misdirected itself in law in holding (a) the price is what a customer pays, or (b) that because service charges have no independent existence and because they are wedded together with the sale they cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognition the assessee is required to charge 10 per cent. over and above the tariff to their customers which, according to the assessee, is entirely utilised in providing certain amenities for its staff. The assessee has reproduced the terms of settlement arrived at between the assessee and the Secretary of the Bombay Labour Union representing the service personnel employed by the assessee. Under the terms of this settlement, the management agreed to distribute among its workers 85 per cent. of the 10 per cent. service charges collected by the management; the balance of 15 per cent. is to be utilised for recovering cost of breakages, etc. There are other terms of the settlement with which we are not concerned. It may be mentioned that this settlement followed a demand for distribution of these service charges made by the Union on behalf of the workers employed in this establishment. According to the petitioner, i.e., the assessee, what is charged is over and above the tariff for any article supplied in the hotel, nothing goes to the employer as a sale price; for all that, according to the assessee, is used for providing different amenities to the employees as per the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the food which is supplied. It is not as if one can take one's food from outside and order it to be served in the hotel for which any charge will be payable. There is no choice to a customer whether to pay the service charges or not to pay the service charges, distinguishing it thus from a demand by way of a tip made by an individual servant. We are unable to accept the contention of the petitioner that what is charged to the customer in the hotel by the assessee inclusive of 10 per cent. by way of service charges is really not the "sale price" for the goods which are offered and consumed by the customer in the establishment. Once it is found that there is no option to the customer whether to pay or not to pay the service charges at the rate of 10 per cent. over and above the tariff, we find it difficult to dissociate this part of the bill from the total contract which a customer enters into with the assessee when ordering any food. A specimen of the tariff card, which is presented to the customer as soon as he enters the hotel and which in effect is the agreement between the customer and the assessee, shows that in all cases service charges of 10 per cent. on the tariff plu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the tariff at which the catering establishment caters to the needs of its customers, and admittedly is not separately charged for. It may be that the same kind of food served outside, say on the footpath, may be charged much less than when it is ordered and served in a posh establishment 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 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 this connection reference was made to a decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges plus 5 paise as sales tax per rupee; and all this is part of the contract or agreement between the customer and the assessee in respect of the price the customer has to pay for the food that is supplied to him. In other words, all this constitutes and goes into the formulation or fixation of the price for the goods supplied, and, therefore, it must be treated as "sale price" within the meaning of section 2(29) of the Bombay Sales Tax Act, 1959. More apposite perhaps would be the decision of the Supreme Court in The Tata Iron Steel Co. Ltd. v. The State of Bihar[1958] 9 S.T.C. 267. At pages 284 and 285 their Lordships deal with this question, which was point No. 5, and observe as follows: "Re. Point No. 5: The argument on this point is that sales tax is an indirect tax on the consumer. The idea is that the seller will pass it on to his purchasers and collect it from them. If that is the nature of the sales tax then, urges the learned Attorney-General, it cannot be imposed retrospectively after the sale transaction has been concluded by the passing of title from the seller to the buyer, for it cannot, at that stage, be passed on to the purchaser. According to him, the selle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . v. The State of Madras and Others[1961] 12 S.T.C. 476. At page 485 the matter was put concisely in the following observation: "These observations show that when the seller passes on the tax and the buyer agrees to pay sales tax in addition to the price, the tax is really part of the entire consideration and the distinction between the two amounts-tax and price-loses all significance from the point of view of legislative competence...................." If we may say so, with respect, in the instant case when the customer agrees to pay what is known as 10 per cent. by way of service charges and 5 paise per rupee by way of sales tax, what the customer agrees to pay is the totality of these charges and which must enter in determining what the sale price paid by the customer is. So far as the customer is concerned, it makes no difference to him that he has in fact to make payment of sales tax payable by the dealer or that 10 per cent. by way of service charges or that the service charges will ultimately be destined for payment to servants or for the benefit of the employees of the caterer. The fact that part of the amount is utilised towards meeting the obligations of the employer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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