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TMI Blog1990 (2) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.. The relief prayed for in W.P. Nos. 12718 and 12719 of 1989, is to quash a notice issued by the Deputy Commercial Tax Officer, Uthagamandalam, provisionally assessing the petitioners on the sales of eatables in the petitioner's hotels to sales tax. 4.. Before going into the merits of the contentions, it must be pointed out that though the relief in terms of the prayers differ, in essence and in spirit, they relate to one and the same issue, namely, whether the eatables supplied in the hotel/restaurant/eating-house, are exigible to sales tax, and if so, the impugned G.O. is constitutionally valid in levying such sales tax only on the hotels/restaurants/eating-houses having a total turnover of Rs. 10 lakhs and above. The further question raised was, whether the supply of eatables consists of two elements, namely, service and supply of materials. If so, the Revenue is justified in levying tax on the total turnover without giving due regard to the service portion. One supplementary issue raised in all these writ petitions is, whether even after the Constitution (Forty-sixth Amendment) Act, 1982 (hereinafter called "the Amendment Act"), the legislature, having regard to entry 54, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Amendment Act, in the absence of corresponding amendment to section 3 of the TNGST Act or inserting separate sections similar to section 3-A or section 3-B of the Act, the levy of sales tax on the supply of food and drinks in hotels/restaurants is unconstitutional. 7.. In support of the above arguments, learned counsel placed reliance on the cases in A.R. Krishna Iyer v. State of Madras [1956] 7 STC 346 (Mad.), Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi reported in [1978] 42 STC 386 (SC), Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi reported in [1980] 45 STC 212 (SC). He also placed reliance on the recent judgment of the Supreme Court in Builders Association of India v. Union of India reported in [1989] 73 STC 370. He also placed reliance on the decision in Sree Annapoorna v. State of Tamil Nadu reported in [1986] 63 STC 18 (Mad.). 8.. Mr. G. Subramaniam, arguing next, while adopting the arguments of Mr. V. Ramachandran, further submitted that the impugned G.O. is unsustainable as it is violative of article 14 of the Constitution. According to the learned counsel, the scheme of categorising the hotel owners as having a total turnover o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that premise in the Amendment Act. May be, the judgments of the Supreme Court earlier to the Amendment Act, took the view that the supply of food and drinks in hotels and restaurants consists of supply and service. According to him, particularly to get over the above view of the Supreme Court, the Amendment Act was introduced and a perusal of clause (29A)(f) to article 366 of the Constitution, in clear and unequivocal terms, shows that it enables the legislature to levy sales tax on the supply of food and drinks without excluding the alleged service part. Therefore, most of the arguments which proceeded on the wrong assumption, fall to the ground. Learned Advocate-General further submitted that a Division Bench of this Court in Sangu Chakra Hotels Private Ltd. v. State of Tamil Nadu reported in [1985] 60 STC 125, has considered the scope of the Amendment Act and has rejected the contentions similar to the one advanced now by the learned counsel for the petitioners. It is further contended by the learned Advocate-General that the challenge to the impugned G.O. on the basis of the violation of article 14 of the Constitution, is also without substance. According to the learned Advoca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable on the sale of food and drinks other than those falling under the First Schedule to the said Act, by any hotel, restaurant, sweet-stall or any other eating-house, whose total turnover does not exceed rupees ten lakhs, per annum. 2.. The notification hereby made shall come into force on the 25th March, 1989. EXEMPTION OF SALES INCIDENTAL OR ANCILLARY TO SALE OF FOOD AND DRINKS, ETC., UNDER TAMIL NADU GENERAL SALES TAX ACT. Amendment to notification (G.O.P. No. 198, Commercial Taxes and Religious Endowments, dated 25th March, 1989, Panguni 12, Vibhava, Thiruvalluvar Aandu-2020). No. II(1)/CTRE/37(f)/89.-In exercise of the powers conferred by subsection (3) of section 17 of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959), the Governor of Tamil Nadu hereby makes the following amendment to the Commercial Taxes and Religious Endowments Department Notification No. II(1)/CTRE/293/82, dated the 24th November, 1982, published in Part II, Section 1 of the Tamil Nadu Government Gazette, dated the 24th November, 1982. 2.. The amendment hereby made shall come into force on the 25th March, 1989. AMENDMENT.-In the said notification, the following proviso sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes- (i) to (v)................. (vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; Explanations.................. Section 2(p) 'taxable turnover' means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed; Section 2(q) 'total turnover' means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax; Section 2(r) 'turnover' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meals must be regarded as ministering to a bodily want or to the satisfaction of a human need ......... .................." Some time later, a review* of the said judgment was sought and the Supreme Court, while confirming the view once again, however, observed as follows: "It seems to us that having regard to the facts upon which our judgment rests-undisputed as they have remained throughout the different stages of the litigation-and the considerations which they attract, no such apprehension can be reasonably entertained. Indeed, we have no hesitation in saying that where food is supplied in an eatinghouse, or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food and the rendering of services is merely incidental, the transaction would undoubtedly be exigible to sales tax. In every case, it will be for the taxing authority to ascertain the facts when making an assessment under the relevant sales tax law and to determine upon those facts whether a sale of the food supplied is intended." *See Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1980] 45 STC 212 (SC). Aggrieved by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the commencement of the present Amendment Act if the conditions mentioned in sub-clause (2) of clause 6 of the Bill are satisfied. In the case of food or drink supplied by restaurants, this relief will be available only in respect of the period after the date of judgment in the Northern India Caterers (India) Ltd. case [1978] 42 STC 386 (SC); AIR 1978 SC 1591 and the commencement of the present Amendment Act." 15.. Armed by the Constitution (Forty-sixth Amendment) Act, the Tamil Nadu Legislature suitably amended the definition of the terms "dealer", "goods", "sale", "taxable turnover", ."total turnover" and "turnover" as extracted above by the Tamil Nadu Act 28 of 1984. In this backdrop, let us consider the rival submissions. 16.. The first contention advanced by Mr. V. Ramachandran is that there is no charging section authorising the levy of the sales tax on the supply of food and drinks in eating-houses/restaurants/hotels in the TNGST Act, 1959. This contention is to be stated just to be rejected as without substance. After the amendment of the definition, bodily incorporating the definition in clause (29A)(f) of article 366 of the Constitution in the definition of "deale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly and purchase of those goods by the person to whom such transfer, delivery or supply is made. (Emphasis* supplied). In view of this, we are unable to agree with the learned counsel for the petitioner that entry 54 in List II of the Seventh Schedule to the Constitution and the definition of "sale" in the Sale of Goods Act, still stand in the way of the States from levying sales tax on the supply of food and drinks by the hoteliers. 18.. The third contention is that the supply of food and drinks in hotel/restaurant consists of two elements, namely, supply of material and service as held by the Supreme Court in several cases and without a guideline to separate the service portion, the attempt to tax the entire turnover is illegal. In this connection, as rightly pointed out by the learned Advocate-General, the assumption on the part of the learned counsel for the petitioners that the judgments of the Supreme Court in State of Himachal Pradesh v. Associated Hotels of India reported in [1972] 29 STC 474, Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi reported in [1978] 42 STC 386 and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi reported in [1980] 45 ST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction can be raised that the supply of foods which were a part of service and which were originally found to be not taxable under the Sales Tax Act by the Supreme Court, cannot even now be taxed by proper legislative enactment." The learned counsel appearing for the petitioners, however, contended that the above observations were only by way of obiter dicta as the case before the Bench was not concerned with this point. We do not agree. We find from the judgment, the learned judges have said that one of the questions to be considered by them was, that the question of legislative competence with reference to the amendment in the Constitution. Even otherwise, we adopt, with respect, the above observations as part of our reasonings. Again, another Division Bench of this Court in Sree Annapoorna v. State of Tamil Nadu reported in [1986] 63 STC 18, while considering the scope and extent of the Amendment Act, in particular, clause (29A)(f) of article 366 of the Constitution, has observed as follows: "It may be seen from the definition newly inserted in clause (29A) of article 366 and the objects as set out in the Statement of Objects and Reasons appended to the Bill, the Act intended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such transfer, delivery or supply is made.' We have therefore no doubt that if the food and drinks supplied to a customer were not specifically included in the definition of 'sale', it could not have been taxed during the relevant assessment years." The above observations of the Division Bench clearly support the view taken by us. 19.. The fourth contention of Mr. V. Ramachandran that in the absence of a rule similar to 6-B in the Tamil Nadu General Sales Tax Rules to separate and ascertain the value of service wherever the element of service is present, the attempt to levy tax on the entirety of supply of food and drinks which includes service is illegal, cannot also be accepted for the reason stated above, which equally applies to this argument. 20.. The last contention of Mr. V. Ramachandran is that a section similar to section 3-A or 3-B should have been introduced in the Tamil Nadu General Sales Tax Act expressly enabling the levy of sales tax on the supply of food and drinks in the hotels/restaurants. This argument proceeds on the basis that the charging section, namely, section 3 by itself is not sufficient to levy sales tax on the supply of food and drinks in hotels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention, namely, that the provisions of the Act impose different rates of tax upon different dealers depending upon their turnover which in effect means that the rate of tax on the sale of goods would vary with the volume of the turnover of a dealer and are, therefore, violative of article 14 is also without any basis. Classification of dealers on the basis of their respective turnovers for the purpose of graded imposition so long as it is based on differential criteria relevant to the legislative object to be achieved is not unconstitutional. A classification, depending upon the quantum of the turnover for the purpose of exemption from tax has been upheld in several decided cases. By parity of reasoning, it can be said that a legislative classification making the burden of the tax heavier in proportion to the increase in turnover would be reasonable. The basis is that just as in taxes upon income or upon transfers at death, so also in imposts upon business, the little man, by reason of inferior capacity to pay, should bear a lighter load of taxes, relatively as well as absolutely, than is borne by the big one. The flat rate is thought to be less efficient than the graded one as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... periority by reason of their volume of business and form a class by themselves. They cannot be treated as on a par with comparatively small dealers. An attempt to proportion the payment to capacity to pay and thus bring about a real and factual equality cannot be ruled out as irrelevant in levy of tax on the sale or purchase of goods. The object of a tax is not only to raise revenue but also to regulate the economic life of the society.' The same principles have been recently reiterated by a three judge Bench of this Court in the case of Hoechst Pharmaceuticals Ltd. v. State of Bihar [1984] 55 STC 1 (SC); (1983) 4 SCC 45; AIR 1983 SC 1019. In the light of the aforesaid pronouncements, it is manifest that the contentions put forward by the petitioners that the impugned enactment is devoid of legislative competence inasmuch as it imposes not a tax on sales but a tax on income, that the adoption of a slab system for determining tax liability is alien to the concept of sales tax and that the levy of additional tax under the impugned enactment violates articles 14 and 19 of the Constitution are all totally devoid of merit. We do not also see any substance in the plea raised in the wri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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