TMI Blog1966 (1) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... hoteliers' business proper. The second is their restaurant business. As hoteliers the petitioners are receiving guests in their hotel where they provide them with comfortable lodging and various other amenities such as public and private rooms, bath with hot and cold running water, clean linen and various other services and comforts. The guests staying in the petitioners' hotel, if they so desire, are supplied with meals by the petitioners during the hours restricted for that purpose. A guest is entitled to take food so as to satisfy his personal needs and to the extent to which he can consume it for that purpose. A guest staying in the hotel cannot, however, say that the food which was to be served to him may be served to his friend instead. Nor can he claim any rebate if he does not want to take food even on a single day during his stay in the hotel. If he wants to take packed food outside the hotel instead of taking it in the hotel he has to pay for it separately. The guest cannot take away any food which is left over. Nor can he ask the same to be served to anyone else in his place. The petitioners provide for serving the food a furnished place, crockery, linen, waiters, music ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar other hoteliers who had been given 75 per cent. rebate in their overall charges made from the guests in respect of the year in question, i.e., 1960-61. This point was based on an alleged information received by the petitioners to the effect that in their case the Assessing Authority was going to allow only 50 per cent. rebate in that behalf for the year in question. By letter dated 30th November, 1963, respondent No. 1 informed the petitioners that the Assessing Authority could not wait any further for the result of the pending revision petition because any further delay would make the assessment for the year 1960-61 barred by time. Under protest the petitioners produced their books of account and they have since been assessed for the relevant year but the recovery of the amount has been stayed under orders of this Court. On 19th December, 1963, the petitioners filed this writ petition. The respondents have filed a written statement to which detailed reference has already been made by me in my interim order dated 27th September, 1965. When this writ petition came up for hearing before me on that day, Shri Jagan Nath Kaushal, the learned AdvocateGeneral took up a preliminary o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stricted hours fixed for the purpose. The guests were entitled to meals for themselves only and cannot take away the food or cannot serve to their friends or anyone else instead if they do not take meals themselves. For service of the food the petitioners provide a furnished place, crockery, linen, waiters, music, etc." The restaurant business of the petitioners has been described by the revisional authority in the abovesaid order as below: "Under the restaurant business the guests are charged at fixed rate without giving any breakup of the charges as for the meals consumed and the service enjoyed by the guests." After noticing the rival contentions of the counsel for the petitioners and of the departmental representatives the learned Additional Assistant Excise and Taxation Commissioner referred to para. 4(b) of the Chart of Oberoi Mount View, Chandigarh, which chart was before the revisional authority (and appears to have been produced before him by the departmental representatives as reference to the same was made by him before the revisional authority). A copy of the chart has now been placed on the record of this case also during the hearing of this writ petition on 16th Nov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable discrimination against them and is liable to be restrained on that account or not; and (iii) Whether supply of meals or other eatables to casual and nonresident visitors in the restaurant of the petitioner-company is sale or mere service. In order to answer the above questions, I may first refer to some of the relevant provisions of the Act. Section 4 is the charging section. The incidence of taxation under that provision is on all sales effected by a dealer after the coming into force of the Punjab Act. Section 2(d) defines a dealer. It is not disputed that the petitioners would fall within that definition. Sale is defined in clause (h) of section 2. The original definition of sale was to the following effect: "(h) 'Sale' means any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge. Explanation (1)-A transfer of goods on hire-purchase or other instalment system of payment shall, notwithstanding that the seller retains a title to any goods as security for payment of the price, be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales only within the scope of Entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935, which was the Constitution Act in force at that time. Entry 48 is "sale of goods". Question as to the scope of the said entry and the consequent legislative authority of the State Legislatures to make laws thereunder arose before the Supreme Court in the State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd.[1958] 9 S.T.C. 353; A.I.R. 1958 S.C. 560. In that case it was held that the expression "sale of goods" in Entry 48 is a nomen juris, its essential ingredient being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract, held the Supreme Court, which is entire and indivisible there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such contract treating it as a sale. The Supreme Court further held that the words "sale of goods" in Entry 48 cannot be construed in its popular sense but must be interpreted in its legal sense. It was held that a power to enact a law with respect to tax on sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a pre Constitution Act. But even otherwise Entry 54 in the State List in the 7th Schedule to the Constitution is in the same terms as Entry 48 in the said List in the 7th Schedule to the Government of India Act, 1935. Mr. Prem Nath Khanna, the learned counsel for the petitioner-company has emphasised that the dictum of the Supreme Court in the abovesaid case wherein it was held that the agreement for sale in order to be within the entry in question must be an agreement for the sale of the very goods in which property eventually passes. The judgment of the Supreme Court in the abovesaid case was also referred to by Mr. Khanna to emphasise the fact that splitting up of an overall contract not otherwise for sale of goods is not permissible for the purposes of the imposition of sales tax. After the abovesaid judgment of the Supreme Court the Punjab Legislature made amendments in the original Punjab Act by certain provisions contained in the Punjab General Sales Tax (Amendment) Act (18 of 1960). The first relevant amendment was made by deleting and omitting altogther clause (c) of section 2 of the principal Act wherein a restricted deeming definition of the word "contract" was containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nisky et al. v. Childs Co., No. 491. Mary Nisky brought an action for damages against the Childs Company at whose restaurant she had taken some oysters which caused her serious illness. She was non-suited by the county court. In her appeal before the court of Errors and Appeals, New Jersey, she relied amongst others on the sub-division (1) of section 15 of a local Act of 1907 concerning the sale of goods. Under that provision she claimed an implied warranty of good quality of food sold to her by the restaurant. The question that arose for decision in the above context was whether food served by a restaurant amounts to a sale. Affirming the judgment of the county court Justice Lloyd (speaking for himself, for the Chancellor, the Chief justice and justices Trenchard, Minturn, Kalisch, Black, Katzenbach, Campbell and Judges Van Buskirk, McGlennon, Kays, Hetfield and Dear), held as follows: "It may be fairly assumed that the appellant in the present case by implication appraised the respondent that the oysters were to be eaten, and if the transaction constituted a sale of the oysters within the purview of either the common or statute law, then there would seem to have been a warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... food at eating houses has never been and cannot be regarded as a sale at common law, but this view is fortified by the absence of litigation (until quite recent years), based upon a claim of warranty, which would necessarily follow if the transaction constituted a sale. In no case in this State has such a contention ever been made, and even in the States of Massachusetts and New York, from which cases so strongly relied upon by the appellant come, it remained for the modern Sale of Goods Act to invite litigation along such lines." "Answering appellant's second contention that the common law has been modified by the Sale of Goods Act, already referred to, we think it is clear, not only from the foregoing, but from the avowed scope and purpose of the Act, which, in respect to the question here involved, is but declaratory of the common law, that such contention cannot be sustained. The fifteenth section, sub-division (1), reads: 'Where the buyer, expressly or by implication makes known to the seller the particular purpose for which the goods are required, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1939. The High Court held that where the contract was one, entire and indivisible it was not within the competence of the State Legislature to impose a tax on the supply of materials used in such a contract treating it as a sale. It was held that as the contract between the assessees and their constituents in that case was one and indivisible, the assessing authorities were not entitled to include in the taxable turnover of the assessees the price of the packing materials. The test for determining the crucial question was laid down in the following words at page 676: "One of the tests which may be usefully applied in judging whether there are really two agreements, one for the transfer of materials for money consideration, and the other for payment of remuneration for services, is to find whether the assessees could make a higher charge if the price of the materials goes up and the constituent is entitled to insist upon a reduction of the total charge if the price of the materials goes down." In that case the Andhra Pradesh High Court emphasised the fact that there is no agreement between the parties either for a variation of the price depending on the variation in the pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable sale, and that burden is not discharged by merely showing that property in goods which belonged to the party performing service or executing the contract stands transferred to the other party." "In the absence of any evidence from which contract to sell 'packing material' for a price may be inferred, the use of 'packing material' by the respondent-company must be regarded as in execution of the works contract and the fact that the tobacco delivered by the constituent is taken away with the 'packing material' will not justify an inference that there was an intention to sell the 'packing material'." Applying the tests laid down in the above-mentioned two judgments in the case of Guntur Tobaccos Ltd.[1965] 16 S.T.C. 240. and keeping in view the admitted facts of the instant case, particularly the facts (i) that there is no splitting up of the charge made from a resident in a hotel and (ii) that a guest in a hotel is not only not entitled but is specifically debarred from claiming any reduction in his bill if he does not take food in the hotel, it appears to me that no sale of food takes place when a resident in a hotel is served with meals which he is entitled to consume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 and 23 of the Sale of Goods Act the law does envisage a contract providing for conditional apportionment and appropriation. Reference has also been made in this connection to section 33 of the Sale of Goods Act. It has been authoritatively held by the Supreme Court in New India Sugar Mills Ltd. v. Commissioner of Sales Tax[1963] 14 S.T.C. 316., that in the definition of the sale in the Sales Tax Acts it must be regarded as implicit that the transaction has all the elements which constitute a sale within the meaning of the Sale of Goods Act. Under section 4(1) of the Indian Sale of Goods Act (3 of 1930), a contract is that of sale whereby the seller transfers or agrees to transfer the property in certain goods to the buyer for a price. As held above, the property in the goods is not allowed to be transferred to the guest by the petitioners in this case. It is of the essence of a transaction of sale that both the agreement for sale and the sale itself should relate to the same subject-matter. Where the goods delivered are not the goods contracted for the purchaser has got a right under the agreement for sale to reject them or to accept them and claim damages for breach of warra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be selling the same. Reference was then made in the judgment of this Court to the following passage occurring in the judgment of Desai, C.J., in Commissioner of Sales Tax v. Haji Abdul Majid and Sons[1963] 14 S.T.C. 435.: "In the instant case what the customer wanted was the construction of bodies on the chassis of his buses. The assessee could have prepared the bodies first and then fixed them on to the chassis or could have started the construction of the bodies by putting one plank after another on the chassis themselves. All the materials were to be supplied by the assessee. The element of sale predominated over the element of contract of work." The Division Bench of this Court adopted the abovesaid observations of Desai, C.J., for answering the first question quoted above against the assessee. But the facts of the bus body case are entirely different. A bus body is the article specifically contracted to be supplied, property in which actually passes to the customer. He can take it home, use it, sell it or gift it away to anyone. The customer pays for the body, the property in it passes to him and on purchasing it the body belongs to the customer. No such thing happens regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sale under section 2(o) of the Madhya Bharat Sales Tax Act and the photographer is a dealer vis-a-vis such material within the meaning of section 2(f) of the said Act. I do not think the judgment of the Madhya Pradesh High Court in any way goes contrary to the arguments of the petitioner in the instant case. When a customer goes to a photographer for being photographed and pays for the copies of the photographs which he obtains, the substance of the contract between him and the photographer is not the performance of skilled services but of the supply of the finished and completed photographs. A photographer cannot claim the price of the photograph without supplying any. He must bring into existence the physical thing known as a photograph and has to use the substances and materials for bringing out that physical object. The materials with which the photograph is prepared are not merely ancillary to the contract but are the very goods of which the photograph is the resultant effect. No such consideration prevails in the case before me. The next case to which Mr. Sharma referred is the judgment of the West Bengal Board of Revenue in R.R. Das and Sons v. State of West Bengal[1955 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices of which a guest can avail in the hotel. After a careful consideration of the entire law referred to above and the facts and circumstances of this case I hold on the first question formulated by me as below: (i) Whenever the taxing authorities contend that the transfer of certain movables in the course of discharge of mutual obligations in a contract amounts to a sale the burden in such a case would lie heavily upon the taxing authorities to show that there has in fact been a taxable sale. Such burden is not discharged by merely showing that some movables have passed from the alleged seller to the alleged buyer in the course of the supposed sale in performing an overall service or in execution of a contract. (ii) A transaction between a hotelier and its resident client is an indivisible contract of multiple service and does not involve any sale of food inasmuch as it does not involve any lease of the room made available for the residence of the client. (iii) It is not open to the taxing authorities under the Punjab Act after its amendment by Act 18 of 1960 to split up the composite contract so as to make out an agreement of sale where in fact none exists. The transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignificant part of the services rendered by a hotelier for which a guest pays so heavily. (k) A hotelier does not extend or imply any warranties normally attached to sale of goods, while serving food. (v) Food served to a resident guest in a hotel without any separate or distinct charge being made for it is as much not a sale as edibles, drinks and beverages served by an airlines or a steamship company to persons holding tickets for availing of the service of travel. Passengers holding such tickets are no doubt entitled as of right during the journeys performed by them under that ticket to avail of such edibles, drinks, beverages, etc., as may be given to them. It may be possible that while working out a reasonable fare to be charged from a passenger the airlines or steamship company keeps in mind the cost of the food to be served to the passenger. Still no one has ever suggested that a passenger in a plane or a steamship buys the food for which he has paid price included in the fare given by him. Similarly no one goes and stays in a hotel to buy food. I, therefore, answer the first question formulated by me in favour of the petitioners. In view of the answer given by me to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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