TMI Blog1972 (1) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 4-1-1972 - SIKRI S.K., SHELAT J.M., DUA I.D., KHANNA H.R. AND MITTER G.K. JJ. V.C. Mahajan and R.N. Sachthey, Advocates, for the appellants. M.C. Setalvad and M.C. Bhandare, Senior Advocates (Rameshwar Nath, Advocate of Rajinder Narain and Co., and T.R. Bhasin and Lalit Bhasin, Advocates, with them), for the respondent. -------------------------------------------------- The judgment of the court was delivered by SHELAT, J.- The respondent-company carries on business as hoteliers and conducts several hotels including the "Cecil Hotel" at Simla. Besides conducting hotels, it also carries on restaurant business. As part of its business as hoteliers, the company receives guests in its several hotels to whom, besides furnishing lodging, it also serves several other amenities, such as public and private rooms, bath with hot and cold running water, linen, meals during stated hours etc. The bill tendered to the guests is an all-inclusive one, that is to say, a fixed amount for the stay in the hotel for each day and does not contain different items of each of the aforesaid amenities. That is, however, not the case in its restaurant business w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the management and a resident guest takes in both lodging and boarding and the hotel charges include consideration for both. A revision under section 21 of the Act by the company to the Commissioner met the same fate. The company then filed a writ petition for an order quashing the said decision as also the notices issued by the sales tax authorities under the Act. The grounds put forward in the writ petition were almost the same which the company had previously urged in its application for declaration. There was no dispute regarding the facts stated in the writ petition and particularly with regard to the fact that the transaction which a visiting resident enters into with the management is one and indivisible, that the bill charged on him is likewise one and indivisible, that the charges are for each day of stay, and that that being so, the bill was incapable of being split up into separate charges for each of the amenities furnished and availed of by such a visiting resident. The dispute was as to the nature of the transaction and whether such transaction included sale of food-stuffs supplied at various meals supplied to such a customer. The High Court, on a consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot sold directly in their original form but in another form, forming the components of the finished product, namely, the copies of the photograph, and that the transaction was not merely the performance of skilled services but the supply of finished goods. This was, however, a border line case. The transaction might well be considered as one of service, during the performance of which, a transfer of certain materials, in respect of which there was no contract for sale, either express or implied, may be said to have taken place. An illustration of such a kind is furnished by the case of United Bleachers Ltd. v. Madras [1960] 11 S.T.C. 278. In that case the assessee bleached and dyed, calendered, pressed and folded unbleached yarn and cloth manufactured by his customer textile mills. The bills issued by the assessee contained, (a) bleaching charges, and (b) charges for stitching, folding, stamping, baling etc., but did not contain separately charges for the materials used for those purposes. The revenue contended that there was transfer of those materials and separately assessed the charges of those materials holding that though the assessee did not specifically deal in those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infer a separate implied contract of sale of packing materials and not as part of the service of drying raw tobacco and delivering it in packed condition. The difficulty which the courts have often to meet with in construing a contract of work and labour, on the one hand, and a contract for sale, on the other, arises because the distinction between the two is very often a fine one. This is particularly so when the contract is a composite one involving both a contract of work and labour and a contract of sale. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that a power to enact a law with respect to tax on sale of goods under entry 48 of List II in the 1935 Constitution Act must, to be intra vires, be one relating in fact to a sale of goods and that a Provincial Legislature could not, in the purported exercise of its power, tax transactions which were not sales, by enacting that they should be deemed to be sales, that to construe a transaction as sale there should be an agreement relating to goods to be supplied by passing title in those goods, and that it was of the essence of such a concept that both the agreement and the sale should relate to one and the same subject-matter. The conclusion arrived at was that in a building contract, even if it were to be disintegrated, there was no passing of title in the materials as movables in favour of the other party of the contract. The contract was one and indivisible, there was no sale of materials, and consequently, there was no question of title to the materials used by the builders passing to the other party to the contract. Even where the thing produced under a contract is movable property, the materials incorporated into it might pass as a movable. But there would be no taxable s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mance of the transaction in question does not render it a transaction of sale. For, even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case the court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into a contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale. What precisely then is the nature of the transaction and the intention of the parties when a hotelier receives a guest in his hotel. Is there in that transaction an intention to sell him food contained in the meals served to him du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll conducted modern hotels. The bill prepared by the hotelier is one and indivisible, not being capable by approximation of being split up into one for residence and the other for meals. No doubt, such a bill would be prepared after consideration of the costs of meals, but that would be so for all the other amenities given to the customer. For example, when the customer uses a fan in the room allotted to him, there is surely no sale of electricity, nor a hire of the fan. Such amenities, including that of meals, are part and parcel of service which is in reality the transaction between the parties. Even in the case of restaurants and other such places where customers go to be served with food and drink for immediate consumption at the premises, two conflicting views appear to prevail in the American courts. According to one view, an implied warranty of wholesomeness and fitness for human consumption arises in the case of food served by a public eating place. The transaction, in this view, constitutes a sale within the rules giving rise to such a warranty. The nature of the contract in the sale of food by a restaurant to customers implies a reliance, it is said, on the skill and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. This definition, which is also the definition of an inn, still excludes, as formerly, boarding houses, lodging houses and public houses which are merely ale-houses and in none of which there is the obligation to receive and entertain guests. An innkeeper, that is to say, in the present days a hotel proprietor, in his capacity as an innkeeper is, on the other hand, bound by the common law or the custom of the realm to receive and lodge in his inn all corners who are travellers and to entertain them at reasonable prices without any special or previous contract unless he has some reasonable ground of refusal Haisbury's Laws of England, 3rd Ed., Vol. 21, 445-446. The rights and obligations of hotel proprietors are governed by statute which has more or less incorporated the common law. The contract between such a hotel proprietor and a traveller presenting himself to him for lodging is one which is essentially a contract of service and facilities provided at reasonable price. The transaction between a hotelier and a visitor to his hotel is thus one essentially of service in the performance of which and as part of the amenities incidental to that service, the hotelier serves m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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