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TMI Blog1974 (9) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... tantially the same and may be set out. The petitioners are all owners of hotels or catering establishments in the twin cities of Hyderabad and Secunderabad. Some of the petitioners run boarding and lodging houses and some others run boarding-houses and restaurants exclusively. The customers who reside in the lodges are served with meals and refreshments and a comprehensive bill is issued for the total service rendered to them. In the case of restaurants and catering houses, the foodstuffs are served in the premises and consumed there. In a few cases the foodstuffs are taken by the customers outside the premises. For the purpose of making the foodstuffs, large quantities of raw materials of various types are used. The foodstuffs and the beverages are made by a large labour force like cooks, servers, etc. The premises provide decent and comfortable accommodation for the customers who enjoy the amenities provided for relaxation such as fans, etc., while consuming the foodstuffs. The bulk of the price paid by the customers goes towards the service charges. The charges for service constitute about 80 per cent of the price paid by the customer for the foodstuffs and the remaining 20 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods or commodities and its competence in that behalf cannot be questioned. Sri T. Anantha Babu on behalf of the writ petitioners contended that the price which a customer pays for the eatables in a restaurant or a catering establishment is more for service which the customer gets while on the premises than for the price of foodstuffs, that the bill presented to the customer represents one consolidated bill in respect of both the service, which is the main thing, and the cost of the foodstuffs and beverages which is secondary. The learned counsel, in substance, contended that the transaction in a restaurant is no different from that of service rendered to the resident guests in a hotel with regard to which the Supreme Court had held that the transaction is essentially one of service and as such was not liable to tax. The counsel contended that in the case of sale of foodstuffs in a restaurant also, the transaction does not amount to a sale. Even in a restaurant chairs, tables, linen and courteous service by servers is offered. The main purpose for which the customers go to the restaurant section was not merely for consuming foodstuffs, but substantially to relax and enjoy the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erials and there was therefore no question of title to the materials used by the builders passing to the other party to the contract. Even in case where the thing produced under a contract is movable property, the materials incorporated into it might pass as a movable only in cases where there was an agreement to sell the materials as such. Otherwise, it would not be taxable. It was further held that the expression "sale of goods" in entry 48 is a nomen juris. Further, the expression "sale of goods" could not be construed in its popular sense, but must be interpreted in its legal sense and should be given the same meaning which it has in the Sale of Goods Act, 1930. It was further observed that both in England and in India, in order to constitute a sale, it was necessary that there should be an agreement between the parties for the purpose of transferring title to the goods. It presupposes a capacity to contract. The transaction must be supported by money consideration. The result of the transaction must be that the property actually passes in the goods. There would be no sale if merely title to goods passes where it is not the result of any contract between the parties either expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... types of business. The first is what may be called a hoteliers' business proper and the second is the restaurant business. So far as the hotelier business was concerned, they were receiving guests and the guests were provided with comfortable lodging and various other amenities such as public and private rooms, bath with hot and cold running water, clean linen and various other services and comforts. The guests were supplied with food at the premises during stated hours. The guests could not claim any rebate if they did not want to take food. The charges were included in a single bill both for service, for lodging and for board. On the question whether the turnover of the hotel business was liable to sales tax, it was held by the learned judge that the transaction between a hotelier and its resident client is an indivisible contract and does not include any sale of goods as such. The food given by a hotel to its resident client who makes one consolidated payment per day or periodically for residence in that hotel is not sold by the hotel but merely "served" to the resident. That being so, it was not a sale of food within the meaning of the Sale of Goods Act and does not fall unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.T.C. 1. In further appeal to the Supreme Court in State of Himachal Pradesh v. Associated Hotels of India Ltd.[1972] 29 S.T.C. 474 (S.C.). , the Supreme Court had upheld the decision of the Punjab High Court. The Supreme Court considered both types of business carried on by the hotelier. After examining the nature of the transaction between a hotelier and a visitor to a hotel as one essentially of service in the performance of which and as part of the amenities incidental to that service, the hotelier served meals at stated hours, the Supreme Court made these observations regarding the restaurant business (at page 475 and 476): "That is, however, not the case in its restaurant business where a customer takes his meal consisting either of items of food of his choice or a fixed menu. The primary function of such a restaurant is to serve meals desired by a customer, although along with the food, the customer gets certain other amenities also, such as service, linen, etc. The bill which the customer pays is for the various food items which he consumes or at a definite rate for the fixed menu, as the case may be, which presumably takes into account service and other related ameniti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into it." (underlining ours). Dealing with the hoteliers' business, their Lordships had observed that a customer during his stay in a hotel may consume a number of foodstuffs and that it may be possible to say that the property in those foodstuffs passes from the hotelier to the customer, at least to the extent of the foodstuffs consumed by him. Even if that be so, mere transfer of property is not conclusive and does not render the event of such supply and consumption a sale, since there is no intention to sell and purchase. The transaction essentially is one of service by the hotelier in the performance of which meals are served as part of, and incidental to, that service, such amenities being regarded as essentials in and all well-conducted modern hotels. Now coming to the relevant provision in the Sale of Goods Act, 1930, section 4 reads thus: "(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the relationship between the owners of the establishment and the customer is essentially one of service and that it is not a sale liable to tax. Having regard to the nature of the transactions in a catering establishment or a restaurant, in the light of the tests laid down by the Supreme Court in State of Himachal Pradesh v. Associated Hotels of India Ltd.[1972] 29 S.T.C. 474 (S.C.)., there can be no doubt that the transactions constitute sales within the meaning of the word "sale" occurring in the Sale of Goods Act. As pointed out by the Supreme Court one has to examine the essential nature of the transaction. The sale of the eatables in a restaurant has for its main object the transfer of property in the eatables sold and the delivery of the possession to the customer as an eatable to the customer. That is the principal or primary object of the transaction and also undeniably the intention of the parties while entering into the transaction. When we examine the essentiality or the reality of the transaction, in the case of a restaurant owner and the customer, besides there being a transfer of property, there is an intention to sell and also purchase. It is difficult to hold re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warranty. The nature of the contract for the sale of food by a restaurant to customers implies a reliance, it is said, on the skill and judgment of the restaurant keeper to furnish food fit for human consumption. The proprietor of the eating place is liable for his breach of warranty without proof of negligence on his part, and does not avoid liability by establishing that he exercised due care or kept the food in air-tight casings; nor is he relieved of liability by the fact that the harmful article was purchased by him from a reliable dealer in a form not subject to effective inspection without destruction of marketability. Nevertheless, it has been held that in order to make him liable the food must have been prepared by him and that the rule of implied warranty does not apply in the case of goods known by a trade-name, and, therefore, obviously prepared elsewhere. On the other hand, there is authority which holds that an implied warranty of this nature does not arise in such transactions, at least in the case of canned goods bought from reliable dealers and duly inspected and that whatever liability for damages there may be in such a case it must rest solely on the packer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomer and the restaurant is one of sale and not of service. As a result of the above discussion, we have no hesitation in holding that, in the instant case, the impugned provision, section 5(1) of the Andhra Pradesh General Sales Tax Act, 1957, read with the first proviso is not unconstitutional and that the State Legislature is competent to levy sales tax on the turnover of the restaurants as provided in the said section. That being so, the petitioners are entitled neither to the declaration prayed for, nor the consequential writ of mandamus. The question that the impugned section was violative of article 14 of the Constitution has not been pressed before us. Even otherwise, we are Inclined to hold that the fact that fruits, vegetables and other perishables were exempted from sales tax cannot avail the petitioners. Once the appropriate legislature is empowered to levy the sales tax, it is a matter for that legislature to exempt any of the goods from the tax. Further, it cannot be said that the petitioners and the vendors of fruits and vegetables, etc., are similarly situated to attract the vice of discrimination. No other question has been argued before us. The writ petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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