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TMI Blog2014 (11) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, this transaction was also deemed to be a sale, conferring authority on the States to tax on the whole consideration received by the person making the supply of food and beverages. Thus, after the Constitution (Forty Sixth Amendment) Act, tax could be imposed and levied by the States on the value of the goods involved in the works contract and tax could be imposed and levied by the Union for the value of the services involved in the works contract. As far as the supply of food and beverages in a restaurant is concerned, after the Constitution (Forty Sixth Amendment) Act, tax could be imposed and levied for the whole amount of the consideration received by the person making the supply of the food and beverages. Sub clause (zzzzv) of Clause 105 of Section 65 of the Finance Act, 1994, relates to the supply of food and other consumables in restaurants. After the Constitution (Forty Sixth Amendment) Act, the said activity is deemed as a sale of goods. After the Constitution (Forty Sixth Amendment) Act, it cannot be said that it is an activity of service. When the said activity is deemed to be a sale of the food and other articles of human consumption, by a constitutional definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als are preferred against the common judgment, by which, the learned single Judge, allowed a batch of writ petitions, holding that sub clauses (zzzzv) and (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011 are illegal and unenforceable Sub-clauses (zzzzv) and (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011, read as follows : (zzzzv) services provided or to be provided, to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has license to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises; (zzzzw) Services provided or to be provided, to any person, by a hotel, inn, guest house, club or camp-site, by whatever name called, in relation to providing of accommodation for a continuous period of less than three months; The aforesaid amendment was brought by the Union, in exercise of the residuary power under Entry 97 of List I of the Seventh Schedule to the Constitution. Entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the impugned legislation, the Parliament has encroached upon the legislative powers of the State under Entries 54 and 62 of List II of the Seventh Schedule. 3. The learned single Judge found that the matters covered by sub clauses (zzzzv) and (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994, as amended by Finance Act, 2011, are matters enumerated in Entries 54 and 62 respectively, of List II of the Seventh Schedule to the Constitution and hence, beyond the legislative competence of the Union to impose tax on such matters, invoking Entry 97 of List I of the Seventh Schedule of the Constitution. Hence, these appeals by the Union of India. 4. Heard Adv.Sri.John Varghese, Adv.Sri.Thomas Mathew Nellimoottil, Adv.Sri.Saiby Jose Kidangoor and Adv. Sri.Tojan J.Vathikulam, for the appellants and Senior Counsel Sri.N.Venkataraman, for the respondents. 5. To appreciate the case of the petitioners in the writ petitions, the interpretations given by the Apex Court on the concept of sale of goods , in the context of works contract and supply of food in restaurant , prior to and after the Constitution (Forty Sixth Amendment) Act need to be understood. In State of Madr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e identified as a transaction of sale. The court declined to accept the proposition that the revenue was entitled to split up the transaction into two parts, one of service and the other of sale of food-stuffs. If that be true in respect of hotels, a similar approach seems to be called for on principle in the case of restaurants. No reason has been shown to us for preferring any other. The classical legal view being that a number of services are concomitantly provided by way of hospitality, the supply of meals must be regarded as ministering to a bodily want or to the satisfaction of a human need. What has been said in Electa B., Merrill appears to be as much applicable to restaurants in India as it does elsewhere. It has not been proved that any different view should be taken, either at common law, in usage or under statute. It is thus evident that in the case of building contract, the law was that the transaction is indivisible and therefore, the same would not come within the scope of sale of goods for imposition and levy of tax by the States and in the case of supply of food and beverages in a restaurant, the law was that the whole transaction is a service and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice involved in the works contract was not deemed to be a sale and therefore, was not exigible to tax. This position has been stated by the Apex Court in Builders Association of India v. Union of India (1989 (73) STC 370), the relevant portion of the judgment reads as follows : Even after the decision of this Court in the State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353; [1959] SCR 379 it was quite possible that where a contract entered into in connection with the construction of a building consisted of two parts, namely, one part relating to the sale of materials used in the construction of the building by the contractor to the person who had assigned the contract and another part dealing with the supply of labour and services, sales tax was leviable on the goods which were agreed to be sold under the first part. But sales tax could not be levied when the contract in question was a single and indivisible works contract. After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Service Tax (Determination of Value) Rules reads thus: (1) Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner:- (i) Value of works contract service determined shall be equivalent to the gross amount charges for the works contract less the value of transfer of property in goods involved in the execution of the said works contract: Explanation: For the purposes of this rule,-- (a) gross amount charges for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract; (b) value of works contract service shall include,-- (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect's fees; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... food. 9. The provisions of sub-clause (f) of clause (29-A) of Article 366 need to be analysed. Sub-clause (f) permits the States to impose a tax on the supply of food and drink. The supply can be by way of a service or as part of a service or it can be in any other manner whatsoever. The supply or service can be for cash or deferred payment or other valuable consideration. The words of sub-clause (f) have found place in the Sales Tax Acts of most States and, as we have seen, they have been used in the said Tamil Nadu Act. The tax, therefore, is on the supply of food or drink and it is not of relevance that the supply is by way of a service or as part of a service. In our view, therefore, the price that the customer pays for the supply of food in a restaurant cannot be split up as suggested by learned counsel. The supply of food by the restaurant-owner to the customer though it may be a part of the service that he renders by providing good furniture, furnishing and fixtures, linen, crockery and cutlery, music, a dance floor and a floor show, is what is the subject of the levy. The patron of a fancy restaurant who orders a plate of cheese sandwiches whose price is sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by now that the power to legislate is engrafted under Article 246 of the Constitution and the various entries in the three lists of the Seventh Schedule are the fields of legislation . The different entries being legislative heads are all of enabling character and are designed to define and delimit the respective areas of legislative competence of the Union and the State Legislatures. They neither impose any restrictions on the legislative powers nor prescribe any duty for exercise of the legislative power in any particular manner. It has been a cardinal principle of construction that the language of the entries should be given the widest scope of which their meaning is fairly capable and while interpreting an entry of any list it would not be reasonable to import any limitation therein. We are also conscious of the principle that when the vires of enactment is challenged, the court primarily presumes the constitutionality of the statute by putting the most liberal construction upon the relevant legislative entry so that it may have the widest amplitude and the substance of the legislation will have to be looked into. [See Union of India and others v. Shah Goverdhan L.Kabra Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . State of U.P. [(2005) 2 SCC 515, held that the word luxuries in Entry 62 of List II means the activity of enjoyment of or indulgence in that which is costly or which is generally recognized as being beyond the necessary requirements of an average member of society. It is not disputed that invoking Entry 62 of List II, the State legislature had enacted the Kerala Tax on Luxuries Act and as per the terms of the said statute, the State Government is levying tax on matters covered by sub-clause (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994. In this context, it is worth quoting Sections 2(f) and 4 of the said Act, which read as follows: 2(f) Luxury provided in a hotel, house boat, hall, auditorium, Kalyanamandapam or place of like nature means accommodation for residence or use and other amenities and services provided in a hotel or house boat or hall or auditorium or kalanamandapam or place of like nature the rate of charges of accommodation for residence and other amenities and services provided excluding charges of food and liquor is one hundred and fifty rupees per day or more . Section 4. Levy and collection of luxury tax - Subject to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igam Ltd. v. Union of India (2006) 3 SCC 1 then contended that the supply of food and other consumables in a restaurant is a composite transaction, where the splitting of the service and sale has been constitutionally permitted. The question that came up for consideration in the said case was as to whether there is sale involved in telephone service, and the question whether splitting of the service and sale in the transaction of supply of food in a restaurant was not the subject matter of that case at all. 14. The learned counsel for the appellants, relying on the decision in Faaborg-Gelting Linien A/S v. Finanzamt Flensburg of a European court, contended that restaurant transactions can only be characterised by a cluster of features and acts, of which the provision of food is only one component and in which services largely predominate and that therefore they must be regarded as supplies of services. No doubt, this has been the position in India as well, but the Constitution (Forty Sixth Amendment) Act, which introduced Article 366 (29A) in the Constitution, has changed the characteristics of this transaction, for the purposes of imposition and levy of tax. 15. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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