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TMI Blog1972 (1) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 where a customer takes his meal consisting either of items of food of his choice or a fixed menu. The primary function of such a restaurant is to serve meals desired by a customer, although along with the food, the customer gets certain other amenities also, such as service, linen etc. The bill which the customer pays is for the various food items which he consumes or at a definite rate for the fixed menu, as the case may be, which presumably takes into account service and other related amenities. The respondent-company, as such hoteliers, has been registered as a dealer under the Punjab General Sales Tax Act (46 of 1948) and has been filing quarterly returns and paying sales tax under that Act. On September 2, 1958, the company applied for a declaration that it was not liable to pay sales tax in respect of meals served in the said Cecil Hotel t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncapable 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 the arguments urged before it and relying mainly upon the decision of this court in Madras v. Gannon Dunkerley and Co. Ltd. [1958] 9 S.T.C. 353 (S.C.); [1959] S.C.R. 379., to the effect that where a transaction is one and indivisible it cannot be split up so as to attract the Sales Tax Act to a part of it, allowed the writ petition. It held that a transaction between a hotelier and his resident visitor did not involve a sale of food when the former supplied meals to the latter as one of the amenities during his residence, and that if there was one inclusive bill, it was incapable of being split up in the absence of any rates for the meals agreed to between the parties as part of the transaction between the two. The High Court also held that the transaction was primarily one for lodging, that the board supplied by the management amounted to an amenity cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 materials, a portion of the profit earned in the business of bleaching and calendering could legitimately be attributed to the packing materials and the transaction involved a sale of them for consideration. On a reference, the High Court held that the case was one of contract of service as distinguished from a sale of a principal commodity, such as rice in Assam case [1953] 4 S.T.C. 129., and salt in Varasuki and Co. v. Madras[1951] 2 S.T.C. 1. On the other hand, where a contract is to supply such commodity in a packed condition, it could be inferred, though the contract might not be express, that the intention of the parties was to give and accept delivery of the goods in a packed condition and not to take the principal commodity alone, so that in the contract of sale of such a commodity there was implicit the sale of packing material as well. Even in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel Halsbury's Laws of England, 3rd Ed., Vol. 34, 6-7. In Patnaik and Co. v. Orissa [1965] 16 S.T.C. 364 (S.C.)., a difference of opinion arose because of the fine distinction between the two types of contract. The contract there was for constructing and fixing bus bodies on the chassis supplied by the Orissa Government. The contract, inter alia, provided that the appellants were to construct the bus bodies in the most substantial and workmanlike manner both as regards materials and otherwise in every respect in strict compliance with the specifications and should deliver them to the Governor on or before the dates specified therein. The majority rejected the contention that that was a contract of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, 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 sale if there was no agreement to sell the materials as such. In arriving at this conclusion, the court relied upon Appleby v. Myres (1867) L.R. 2 C.P. 651., and the observations of Blackburn, J., at page 659-660 of the report to show that thread stitched into a coat which is under repair becomes part of the coat, but in a contract for repairing the coat the parties surely did not enter into an agreement of sale of that thread. In Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 S.T.C. 240 (S.C.); [1965] 2 S.C.R. 167., the transaction was for redrying tobacco entrusted to the respondent-company by its customers. The process involved the keeping of the moisture content of tobacco leaf at a particular level and for that purpose the leaf had to be packed in bales, in water-proof packing material, as it emerged from the reconditioning plant. The tobacco was then retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 during his stay in the hotel? It stands to reason that during such stay a well equipped hotel would have to furnish a number of amenities to render the customer's stay comfortable. In the supply of such amenities do the hotelier and his customer enter into several contracts every time an amenity is furnished? When a traveller, by plane or by steam-ship, purchases his passage-ticket, the transaction is one for his passage from one place to another. If, in the course of carrying out that transaction, the traveller is supplied with drinks or meals or cigarettes, no one would think that the transaction involves separate sales each time any of those things is supplied. The transaction is essentially one of carrying the passenger to his destination and if in performance of the contract of carriage something is supplied to him, such supply is only incidental to that service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 judgment of the restaurant-keeper to furnish food fit for human consumption. The other view is that such an implied warranty does not arise in such transactions. This view is based on the theory that the transaction does not constitute a sale inasmuch as the proprietor of an eating place does not sell but "utters" provisions, and that it is the service that is predominant, the passing of title being merely incidental Corpus Juris Secundum, Vol. 77, 1215-1216. The two conflicting views present a choice between liability arising from a contract of implied warranty and for negligence in tort, a choice indicative of a conflict, in the words of Dean Pound, between social interest in the safety of an individual and the individual interest of the supplier of food. The principle accepted in cases where warranty has been spelt out was that even though the transaction is not a s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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