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TMI Blog2006 (7) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... widen the tax net and to augment revenue. The controversies are old one having different facets and ramifications. Although some aspects of the legal problem have been resolved, several other aspects like the present disputes still await judicial pronouncement. In several decisions the Supreme Court followed its earlier decision in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353; AIR 1958 SC 560 and held that in order to levy sales tax under entry 92A of the Union List or entry 54 of the State List a transaction should have all the ingredients which constitute sale within the meaning of the Sale of Goods Act, 1930. According to the Central and the State Government such strict legal view led the dealers to adopt various devices to avoid payment of sales tax and to put certain transactions resembling sale of goods outside the pale of the sales tax laws. One of those transactions which different State Governments wanted to rope in for the purpose of realising sales tax was supply of food, beverages, drinks and other food articles by different clubs to their members upon payment. To overcome such legal obstacle the Constitution was amended by 46th Amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rary or seasonal members and other non-members as sales within the meaning of the prevailing sales tax laws and levy sales tax thereon. Such attempts were being resisted legally by some well-known members' clubs on the strength of well-settled principles governing the nature and characteristics of a members' club and the doctrine of mutuality and unity of identity, two essential features of the mutual relationship between the members' club and its permanent members'. Clubs are generally classified into two main classes, viz., members' clubs and proprietary clubs. In members' club, management of the affairs of the club is retained in the hands of the members themselves and the relationship between the club and the members is governed by the doctrine of mutuality. A proprietary club is controlled and administered by a proprietor or proprietors who utilises the surplus income as profit and appropriates such profit for his own benefit. There are wide variations in the nature and activities of the proprietary clubs and many of them are purely commercial undertakings and the members thereof do not enjoy any status than that of the customers of the proprietor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956 and run as a social club of its members for various objects. Bengal Rowing Club challenged the said notice before this Tribunal in RN-470(T) of 1989 [Bengal Rowing Club v. Commissioner of Commercial Taxes [1993] 88 STC 389 (WBTT)]. In or about the first week of August, 1988, the commercial tax officials visited Hindusthan Club, an incorporated members' club, made inquiries and directed the club to get registered as dealer under the 1941 Act and the 1954 Act. Hindusthan Club applied for registration without prejudice to its contention that supply of food and drinks to members and their guests did not amount to sale. Dismissing the objection of the club, the Commercial Tax Officer, Bhowanipur Charge, issued registration certificates under both the 1941 and 1954 Acts. Hindusthan Club moved higher authorities in revisions. As the revisions were rejected, the club moved this Tribunal in RN-39 of 1993 (Hindusthan Club Limited v. Additional Commissioner of Commercial Taxes [1995] 98 STC 347). By judgment and order dated June 22, 1990, this Tribunal dismissed the application of the AAEI. In its judgment [Automobile Association of Eastern India v. State of West Bengal report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal also noted therein that in the case of Bengal Rowing Club [1993] 88 STC 389 (WBTT) it was not decided whether existence of different classes of members by itself would deprive a club from claiming the status of a members' club and whether use of the supplies arising out of catering activities in a particular manner would be a deviation from the theory of recoupment. In Hindusthan Club [1995] 98 STC 347 (WBTT), upon consideration of various decisions on the subject, the impact of the 46th Amendment of the Constitution and the extended definition of sale as contained in the concerned Sales Tax Act, this Tribunal expressly held: (i) Enjoyment of club facilities by guests, spouse and children of members does not, by itself, unless there is some other adverse factor, convert a members' club to a different one. (ii) The principle of mutuality or reciprocity which is the essence of agency cannot be invoked to determine the relationship between the members' club and its temporary members. (iii) Temporary members and permanent members cannot be treated to constitute a single body of members. (iv) There is identity between the contributing perma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication. We permit the appellant to raise his objection as to his liability for payment of sales tax for the period from January, 1982 to September 30, 1983 within 30 days from today before the assessing authority. If so raised within the said period, that shall be adjudicated upon regardless of limitation. If the appellant is aggrieved, he could pursue such remedies as are available to him. The appeal is ordered in the above terms. Although said civil appeal filed by Automobile Association of Eastern India was disposed of on May 11, 1994, the order of the Supreme Court in Automobile Association of Eastern India v. State of West Bengal reported in [2002] 40 STA 154. Presumably, after publication of the said order of the Supreme Court, the commercial tax authorities changed their earlier stand and started demanding sales tax on the supplies of food and drinks by the members' clubs to their permanent members. Notices were issued against Calcutta Club demanding sales tax on its supplies of food and drinks to its permanent members during the assessment year 2001-2002 and treating such transaction as deemed sales within the extended meaning sale as provided in section 2(30) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermanent members and the members' club, payments made by the members for obtaining supplies of food and drinks is payment to themselves and do not amount to consideration. (iii) Payment received by the members' club from its permanent members against such supply of food articles and drinks are in the nature of recoupment of cost and do not amount to consideration. (iv) As the transactions are between the principal and the agent and there is no transfer of property in such food articles from the club to its members, those transactions do not constitute sale in law and are not exigible to sales tax. Written notes on submissions have been filed on behalf of the petitioners and the respondents. Mr. Bajoria, learned Senior Advocate appearing for the petitioner-clubs, has pointed out that there is no dispute that both these clubs are members' clubs incorporated as Companies limited by guarantee under the special provision of section 25 of the Indian Companies Act, 1956. He has further submitted that it is now an almost universally accepted principle that the relationship between a members' club and its permanent members is that of agent and principal governe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsumption 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 or unincorporated association or body of persons making the transfer, delivery, or supply and a purchase of those goods by the person to whom such transfer, delivery, or supply is made, but does not include a mortgage, hypothecation, charge or pledge. Explanation. . . . An analysis of the aforementioned definition indicates that the supply of articles as mentioned in section 2(30)(d) must be for valuable consideration in order to come within the deemed sale as contemplated therein. The words or other valuable consideration at the end of clause (d) make it clear that cash or deferred payment is to be in the nature of consideration for the supplies obtained. No transaction or supply without any exchange of consideration will constitute deemed sale even within the extended definition of sale . Last part of the definition also makes it clear that the supply is to be by one person to another pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manent members for obtaining supplies of food, drinks and beverages is not consideration , the members themselves as a class supply those articles through the instrument of the club to themselves and the supplier and the receiver are not different persons. When the supplier and the receiver is the same person, payment for obtaining such supply is a payment to himself and payment to oneself cannot be consideration. A Division Bench of the Calcutta High Court in Moni Prosad Singh v. State of West Bengal reported in [1977] 39 STC 131 held that to constitute sale, there must be two different persons and when one person transfers goods to himself, there cannot be sale. As already pointed out, under section 2(30) of the 1994 Act there must be two different persons one supplier and one recipient in order to bring supplies within the meaning of deemed sale . In Hindusthan Club Limited v. Additional Commissioner of Commercial Taxes reported in [1995] 98 STC 347, this Tribunal has expressly held: . . . According to us, there is identity between the contributing permanent members and the club. The principle of mutuality would fully satisfy in respect of the transactions of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any assessment order or revision thereof. No order for costs. In Hindusthan Club [1995] 98 STC 347, this Tribunal rendered its decision after considering earlier judgments of this Tribunal in Bengal Rowing Club [1993] 88 STC 389 and Automobile Association of Eastern India [2002] 40 STA 154 and the extended definition of sale inserted in the Acts of 1941 and 1954. It may be noted that there is no material difference between the definition of sale inserted in 1941 and 1954 Acts and the definition of sale in the 1994 Act. In all these acts certain specified transactions, though not sale in strict sense of laws and within the meaning of Sale of Goods Act, have been treated to be deemed sales and included within the inclusive part of the definition. As already pointed out, Mr. Goswami, learned State representative, has strongly relied upon the order of the Supreme Court in Automobile Association of Eastern India's appeal reported in [2002] 40 STA 154 and submitted that this Tribunal's judgment in Hindusthan Club Ltd. [1995] 98 STC 347 has lost its binding force as the Supreme Court has settled the law that after the 46th Amendment of the Constitution, supplies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in support of it, especially when they contain 'propositions wider than the case itself required' . . . In other words, the enunciation of the reason or principle upon which a question before a court has been decided is alone binding as a precedent. The ratio decidendi is the underlying principle, namely, the general reasons or the general grounds upon which the decision is based or the test or abstract from the specific peculiarities of the particular case which gives rise to the decision. The ratio decidendi has to be ascertained by an analysis of the facts of the case and the process of reasoning involving the major premise consisting of a preexisting rule of law, either statutory or judge-made and a minor premise consisting of the material facts of the case under immediate consideration. If it is not clear, it is not the duty of the court to spell it out with difficulty in order to be bound by it . . . Same view has been taken by the Supreme Court in several decisions. We may refer to a recent decision of the Supreme Court in State of Orissa v. Mohammad Illiyas reported in [2006] 1 Cal HN 119. It has been observed therein: . . . A decision is a precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by members' clubs to their members would always be deemed sales even if those do not satisfy all the ingredients of deemed sale as contemplated by clause (29A) of article 366 of the Constitution and as defined in section 2(30) of the 1994 Act. In Jubilee Hills International Centre [1992] 87 STC 227, the Andhra Pradesh High Court was, among others, considering whether after the 46th Amendment of the Constitution and insertion of clause (29A) in article 366 sales tax or turnover tax could be imposed on the supplies made by unincorporated clubs to its members although there was no transfer of title in the goods to the members and whether incorporated clubs should be asked to pay sales tax even if they were not doing any business and not earning any profit. The questions raised in the present application were not before the Andhra Pradesh High Court. Observations made in the judgment in Jubilee Hills International Centre v. Commercial Tax Officer [1992] 87 STC 227 (AP) were in different context and cannot be applied to determine the present issue in controversy before us. In the present case Mr. Bajoria has not argued that there cannot be sale without profit but has referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic types of consideration while other valuable considerations refer to considerations of types other than cash or deferred payment. We are unable to accept that cash and deferred payment are not contemplated as considerations. Considering the relevant facts presented before us and the different judgments of the Supreme Court and the High Court, we find that supplies of food, drinks and refreshments by the petitioner-clubs to their permanent members cannot be treated as deemed sales within the meaning of section 2(30) of the 1994 Act. We find that the payments made by the permanent members are not considerations and in the case of members' clubs the suppliers and the recipients (permanent members) are the same persons and there is no exchange of consideration. For the reasons aforesaid we accept the contention of the petitionerclubs that the supplies made to their permanent members are not sales even within the extended meaning of sale in section 2(30) of the Act of 1994 and are not exigible to taxes imposed by the Act of 1994. The applications are thus allowed. The impugned notices and orders so far as those seek to impose sales tax on the supplies made by the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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