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TMI Blog1998 (11) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... xable goods, and about which he is entitled to claim relief under rule 42 of the Gujarat Sales Tax Rules, 1970. 3.. We may look at the background in which this issue has arisen. The applicant is a limited company and is engaged in the business of providing lodging and boarding facilities to its customers. In the course of its business it serves cooked food and drinks to its customers who are visiting the hotel as well as to visitors to the restaurant. For the purpose of preparing the food and drink, the applicant has to purchase various raw materials, consumable stores, etc., from the dealers registered under the Act. Prior to change in law brought about by Constitution (Forty-sixth Amendment) Act, 1982 (hereinafter called the Act of 1982 ), the controversy had arisen under various laws about levying tax on sale or purchase of goods, whether the service of food articles and drinks in a hotel or restaurant constitutes sale of goods for the purpose of levy of sales tax. In other words whether such service amounts to sales on which tax could be levied by the State, under entry 54 of List II and entry 92A of the List I of the Schedule which authorised respective Legislatures to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. 6.. Section 6 of the Act of 1982 spoke about validating and granting exemption in respect of proceedings and transactions that took place prior to commencement of Act of 1982. Section 6 reads as under: 6. Validation and exemption.-(1) For the purposes of every provision of the Constitution in which the expression tax on the sale or purchase of goods occurs, and for the purposes of any law passed or made, or purporting to have been passed or made, before the commencement of this Act, in pursuance of any such provision,- (a) the said expression shall be deemed to include, and shall be deemed always to have included, a tax (hereafter in this section referred to as the aforesaid tax) on the 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) for cash, deferred payment or other valuable consideration; and (b) every transaction by way of supply of the nature referred to in clause (a) made before such commencement shall be deemed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to in clause (a) or, as the case may be, clause(b), shall be on the person claiming the exemption under this sub-section. (3) For the removal of doubts, it is hereby declared that,- (a) nothing in sub-section (1) shall be construed as preventing any person- (i) from questioning in accordance with the provisions of any law referred to in that sub-section, the assessment, reassessment, levy or collection of the aforesaid tax, or (ii) from claiming refund of the aforesaid tax paid by him in excess of the amount due from him under any such law; and (b) no act or omission on the part of any person, before the commencement of this Act, shall be punishable as an offence which would not have been so punishable if this Act had not come into force. The common premise is that during the period in question which fell before the date of commencement of Constitution (Amendment) Act, 1982, the assessee had not collected tax on such supplies on the ground that no such tax could have been levied or collected at the time when such service was rendered and his case is covered under sub-section (2) of section 6 of the Act of 1982. 7.. Rule 42 of the Gujarat Sales Tax Rules, 1970, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not apply in respect of the purchases of any of the goods as described in entries 26, 39 and 43 in Schedule II, Part A, where any such goods are used by the assessee in the manufacture of any goods as described in the said entries, i.e., 26, 39 and 43. Provided further that the condition shall not apply in respect of purchases of spare parts and accessories (hereinafter referred to as such goods ) described in entry 55 of Schedule II, Part A, where any such goods are used by assessee in the manufacture of machinery falling under entry 39 in Schedule II, Part A, or as the case may be, in the manufacture of any such goods: Provided also that this condition, shall not apply in respect of the purchases of ghee , when it is used by the assessee in the manufacture of sweets and sweetmeats. (3) the said goods have been used by the assessee within the State, as raw or processing materials or as consumable stores in the manufacture of taxable goods as defined in clause (33) of section 2 of the Act, and (4) the goods so manufactured have been sold by the assessee in the State of Gujarat or in the course of inter-State trade or commerce or of export out of the territory of India or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies made to customers by him amounted to sale within the State of Gujarat. However, it is urged by learned counsel for the respondent that the goods manufactured by the assessee, viz., cooked food was not taxable goods. This is urged on the basis that cooked food is exempted goods as per item 3 in Schedule I appended to notification under section 49(2) of the Gujarat Sales Tax Act. 10.. This contention of learned counsel for the respondent does not appear to be well-founded. For this purpose, entry 3 of Schedule I under section 49(2) of Gujarat Sales Tax Act, 1969, column 2 of the Schedule give the description of goods. It reads: Cooked food (excluding ice-cream and kulfi) and non-alcoholic drinks not containing ice-creams served at one time at a price of not more than five rupees per person, for consumption at or outside any eating house, restaurant, hotel, refreshment room or boarding establishment which is not a shop or establishment conducted primarily for the sale of sweetmeats, confectionery, cakes, biscuits or pastries. Column 3 which provides for conditions and exceptions subject to which exemption is granted reads: Except when served outside any eating house, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, whether the goods manufactured are liable to be taxed. The fact that the transaction of such goods is ultimately not subjected to tax, dependent upon various provisions of the Act and the Rules framed thereunder or notifications issued thereunder but by itself would not result in non-fulfilment of condition of rule 42. 12.. However, the matter does not rest with fulfilment of conditions of rule 42. Rule 42 itself envisages that it is subject to general conditions of rule 47. Rule 47 as can be noticed from the reading of rule restricts the claim of drawback, set-off or refund subject to two conditions, viz., (i) assessee is a dealer registered under the Act or under the Bombay Sales Tax Act, 1959 at the time of purchase of such goods; and (ii) he is liable to pay tax on the sale or resale of goods so purchased or on the sale of goods in the manufacture of which goods so purchased are used, except where the assessee is entitled to refund under rule 45 on sales of such goods. 13.. Learned counsel for the assessee urged that the expression assessee is liable to pay tax has no reference to the assessee s actual liability to pay tax. But it relates to a status whether ex hypot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee though he was a registered dealer was not liable to pay tax in respect of goods manufactured by him and supplied to its customers, as part of service. He did not collect any tax on such supplies on that ground. About this there is no issue. 17.. The question then arises did he become liable to pay tax as a result of coming into force of the Act of 1982. The Act by itself is not retrospective in its entirety nor it levies any tax as such. Section 4 provides for insertion of a new clause (29A) in article 366 defining expression a tax on sale or purchase of goods , to include various nature of transactions including the one in question, namely, supply by way of or as part of any service of goods being food or any other article for human consumption or any drink where such supply or service is for consideration. This was necessitated because such supplies were held to be service and not sale. For levy of tax on sales or purchases of goods under entry 54 of State List or entry 92A of Union List the subject of tax could only be a sale . Thus the transaction like one in question fell outside the purview of levy on sales or purchase of goods . To overcome this, the expression, tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to follow in respect of non-compliance or non-payment of tax in respect of the period and in respect of transaction for which the assessee became liable to pay tax, on commencement of Act of 1982. A reading of these provisions in entirety leave no room of doubt that it is one whole scheme and no part can be read in isolation. In the first instance, before validating the levy and collection, which had taken place under the existing law, the legislation has stepped in to provide foundation for validating such Acts, namely, by giving extended meaning to sale and making the operation of definition retrospective for the purpose of such validation. By providing foundation for validating the transaction which otherwise were not in accordance with law, it declared that the aforesaid taxes levied or collected or purported to have been levied or collected under such law before commencement of this Act shall be deemed always to have been done in accordance with law. At the same time, considering the background in which this law was being enacted, and considering the fact that people must have acted in accordance with the existing law as declared by the apex Court during the intervening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 18.. Therefore, to the extent the transactions were kept out of the purview of incidence of tax despite retrospectivity of amended and validation of levy of tax prior to commencement of the Act of 1982, assessee was never subjected to tax liability, and the assessee never became liable to pay tax in respect of sale of cooked food as were supplied by it to its customers by way of service and tax were not collected thereon, either under the existing law or under the Act of 1982. When liability to pay tax arose not under charging section, when the taxing event took place, but that liability is deemed to arise due to retrospective operation of law brought into effect subsequently, that liability cannot be deemed to be more than what has been envisaged under provisions relating to retrospectivity. 19.. We are not impressed by the contention that explanation appended to sub-rule (1)(A) of rule 47 controls in any manner the meaning of sub-rule (1)(A). Explanation merely makes it clear that where a dealer is not liable to pay tax because of any of the proviso to sub-sections (1), (2) and (3) of section 3, he shall not be entitled to drawback, set-off or refund. A look at section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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