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State of West Bengal And Others Versus Calcutta Club Limited

2016 (6) TMI 476 - SUPREME COURT

Doctrine of mutuality - Dealer - Liability to pay VAT / Sales Tax - Tribunal decided that Calcutta Club Limited, was not liable for payment of sales tax under the West Bengal Sales Tax Act, 1994 - sale of food and drinks to the permanent members - deeming fiction - Held that:- the controversy that has arisen in this case has to be authoritatively decided by a larger Bench in view of the law laid down in Cosmopolitan Club (2008 (9) TMI 540 - SUPREME COURT OF INDIA) and Fateh Maidan Club (1998 (9) .....

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JUDGMENT Dipak Misra, J. The present appeal, by special leave, is directed against the judgment and order passed by the Division Bench of the High Court of Calcutta in W.P.T.T. No.652 of 2006, wherein it has affirmed the view expressed by the West Bengal Taxation Tribunal (for short, 'the tribunal') and disposed of the appeal preferred by the respondent along with other connected appeals holding, inter alia, that the assessee, the Calcutta Club Limited, was not liable for payment of sale .....

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he respondent-Club to appear before it on 18.10.2002. The notice and the communication sent for personal hearing was assailed by the respondent before the tribunal praying for a declaration that it is not a dealer within the meaning of the Act as there is no sale of any goods in the form of food, refreshments, drinks, etc. by the Club to its permanent members and hence, it is not liable to pay sales tax under the Act. A prayer was also made before the tribunal for nullifying the action of the re .....

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members and therefore, no sales tax could be levied. 4. The tribunal referred to Article 366(29A) of the Constitution of India, Section 2(30) of the Act, its earlier decision in Hindustan Club Limited v. Additional Commissioner of Commercial Taxes and Others[(1995) 98 STC 347], distinguished the authority rendered in The Automobile Association of Eastern India v. State of West Bengal and Others[(2002) 40 STA 154] and, eventually, opined as follows:- Considering the relevant fact presented before .....

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eration. Being of this view, the tribunal accepted the contention of the respondent- Club and opined that it is not exigible to tax under the Act. 5. Being dissatisfied with the aforesaid order passed by the tribunal, the revenue preferred a writ petition and the High Court opined that the decision rendered in Automobile Association of Eastern India (supra), was not a precedent and came to hold that reading of the Constitutional amendment, as well as the provisions of the definition under the Ac .....

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f membership of the club, did not bring the club within the net of sales tax. The High Court further opined that in the obtaining factual matrix the element of mutuality was not obliterated. The expression of the aforesaid view persuaded the High Court to lend concurrence to the opinion projected by the tribunal. 6. We have heard Mr. Kailash Vasdev, learned senior counsel along with Mr. Soumik Ghosal, learned counsel for the appellants and Mr. Rana Mukherjee, learned senior counsel along with Mr .....

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r Nigam Ltd. and another v. Union of India and others[(2006) 3 SCC 1]. 8. Mr. Mukherjee, learned senior counsel for the respondent, in his turn, would contend that the view expressed by the High Court is absolutely flawless and irreproachable inasmuch as the constitutional amendment does not envision sale by one to himself or for that matter by the agent to those who have engaged it as an agent. It is further argued that the aspect of mutuality still holds the field. For the aforesaid purpose, i .....

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, 1956. The respondent-assessee charges and pays sales tax when it sells products to the non-members or guests who accompany the permanent members. But when the invoices are raised in respect of supply made in favour of the permanent members, no sales tax is collected. 10. Section 2(30) of the Act defines sale as follows:- (30) sale means any transfer of property in goods for cash, deferred payment or other valuable consideration, and includes- (a) any transfer, otherwise than in pursuance of a .....

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y drink(whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration; (e) any supply of goods by any unincorporated association or body of persons to a member thereof 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 purchas .....

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o such appropriation is prior or subsequent to the appropriation: PROVIDED that where there is a single contract of sale in respect of goods situated in West Bengal as well as in places outside West Bengal, provisions of this Explanation shall apply as if there were a separate contract of sale in respect of the goods situated in West Bengal;. 11. The said provision has been introduced after incorporation of clause (29A) to Article 366 of the Constitution vide 46th amendment, 1982, which reads as .....

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ods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such .....

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a postulate that when there is a supply by way of or as a part of supply of food or any other article for human consumption or any drink whether or not intoxicating for supply or service, for cash or deferred payment or valuable consideration would amount to deemed sale. According to Mr. Vasdev, the earlier decisions which related to the concept of mutuality have lost their force. 13. In this context, he has referred to the decision in Northern India Caterers (India) Ltd. v. Lt. Governor of Del .....

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ood and drink are supplied to guests residing in the hotel. The Court pointed out that the supply of meals was essentially in the nature of a service provided to them and could not be 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 foodstuffs. If that be true in respect of hotels, a similar approach seems to be called for on principle in the case of .....

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ment to its members, had Court concluded thus:- The essential question, in the present case, is whether the supply of the various preparations by each club to its members involved a transaction of sale within the meaning of the Sale of Goods Act, 1930. The State Legislature being competent to legislate only under Entry 54, List II, of the Seventh Schedule to the Constitution the expression sale of goods bears the same meaning which it has in the aforesaid Act. Thus in spite of the definition con .....

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upra), the Court was considering the defensibility of the judgment and order of a Division Bench of the High Court of Andhra Pradesh whereby it has held that the assessee club was liable to pay sales tax under the Andhra Pradesh General Sales Tax Act, 1957 on the supplies of food and drink to their members. It was contended before the Court that when the club supplies food or drink to its members, there is no sale because a members club only acts as the agent of the members. The Court placed hea .....

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was the club acting as the agent of the members or did the property in the food and drink pass from the club to the members? In the other matters the High Court was approached after orders of assessment had been made and appeals filed but there was no inquiry into the said relationship. We think it appropriate, therefore, that the matters should go back to the assessing authorities who will determine, on facts in regard to each appellant. What was the said relationship and, with that finding in .....

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se notice was challenged in 1993 by the Club by filing a Writ Petition in the High Court which came to be later transferred to the Tribunal. The Tribunal dismissed the matter on merits. That decision of the Tribunal has been confirmed by the impugned judgment. Suffice it to state that in this case there was no determination by the fact finding authorities regarding the relationship between the Club and its members in the matter of supply of food and drinks; that is to say, was the Club acting as .....

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atter should go back to the Tribunal, who will decide, on facts, as to the exact relationship between the parties in the matter of supply by the Club of food and drinks to its members. In other words, the principle of mutuality and agency among other circumstances shall be gone into by the Tribunal before which the said appeal is pending. 17. The aforesaid decisions, thus, refer to principle of mutuality and agency. Submission of the learned counsel for the appellant is that after the amendment .....

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n Dunkerley & Co. (Madras) Ltd., AIR 1958 SC 560]., the passages quoted hereinabove. There were five transactions in which, following the principles laid down in Gannon Dunkerley & Co. relating to works contract, this Court ruled that those transactions are not exigible to sales tax under various State enactments. Parliament, therefore, in exercise of its constituent power, by the Forty-sixth Amendment, introduced Article 366(29- A). The Statement of Objects and Reasons has fully set out .....

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n other respects, law declared by this Court is not neutralised. Each one of the sub-clauses of Article 366(29-A) introduced by the Forty-sixth Amendment was a result of ruling of this Court which was sought to be neutralised or modified. Sub-clause (a) is the outcome of New India Sugar Mills Ltd. v. CST[1963 Supp (2) SCR 459: (1963) 14 STC 316] and Vishnu Agencies (P) Ltd. v. CTO[(1978) 1 SCC 520]. Sub-clause (b) is the result of Gannon Dunkerley & Co. Sub-clause (c) is the result of K.L. J .....

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paragraphs 106 and 107 of the said judgment. They read as follows:- 106. In the background of the above, the history prevailing at the time of the Forty-sixth Amendment and pre-enacting history as seen in the Statement of Objects and Reasons, Article 366(29-A) has to be interpreted. Each fiction by which those six transactions which are not otherwise sales are deemed to be sales independently operates only in that sub-clause. 107. While the true scope of the amendment may be appreciated by overa .....

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rative provisions of the several parts of Article 286, namely, clause (1)(a), clause (1)(b), clause (2) and clause (3) are manifestly intended to deal with different topics and, therefore, one cannot be projected or read into another. (S.R. Das, Actg. C.J.) 19. Before we proceed further, it is necessary to appreciate the doctrine of mutuality in proper perspective. The said doctrine or the general law relating to mutual concern is predicated on the principle enunciated in Styles v. New York Life .....

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e regarded as profits. 20. This doctrine was subsequently explained in IR v. Cornish Mutual Assurance Co. Ltd.[ [1926] 12 TC 841 [HL]] and it has been laid down that the mutual concern should be held to be carrying on business or trade with its members, albeit the surplus arising from such trade is not taxable as income or profit. However, the principle is not free from diversity or contra opinion which can relate to issues like complete identity between the contributors and participators or whe .....

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e textbooks which we have adverted to hereinabove (Halsbury s Laws of England, Simon s Taxes, Wheatcroft etc.). Particular stress was laid on the decisions of the Supreme Court in CIT v. Royal Western India Turf Club Ltd. (supra), CIT v. Kumbakonam Mutual Benefit Fund Ltd.[ 1964 SCR 204 : AIR 1965 SC 96], Fletcher v. CIT[(1971) 3 ALL ER 1185 : (1972) 2 WLR 14 (PC)]. We do not think it necessary to deal at length with the above decisions except to state the principle discernible from them. We und .....

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other words, the activity carried on by the assessee in such cases, claiming to be a mutual concern or members club is a trade or an adventure in the nature of trade and the transactions entered into with the members or non-members alike is a trade/business/transaction and the resultant surplus is certainly profit - income liable to tax. We should also state, that at what point, does the relationship of mutuality end and that of trading begin is a difficult and vexed question. A host of factors .....

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mbers only and the surplus out of the common fund is distributable among the members, there is no mutuality and the surplus is assessable to tax as profit, for there is no complete identity between the contributors and the participators. The reason being that the members, who have not contributed to surplus as customers, are nevertheless entitled to participate and receive a part of the surplus. However, where the surplus is distributed among the customers as such, there would be complete identi .....

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persons. The question would be whether the expression body of persons would include any incorporated company, society, association, etc. The second issue is what would be included and can be classified as transactions relating to supply of goods by an unincorporated association or body of persons to its members by way of cash, deferred payment or valuable consideration. Such transactions are treated and regarded as sales. The decisions of the Court in Fateh Maidan Club (supra) and Cosmopolitan C .....

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s. The agency precept necessarily and possibly refers to a third party from whom the goods, i.e., the food and drinks had been sourced and provided to by the club acting as an agent of the members, to the said members. These are significant and relevant facets which must be elucidated and clarified so that there is no ambiguity in appreciating and understanding the aforesaid concepts acting as an agent of the members or when property is transferred in the goods sold to the members. 23. At this s .....

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se (29A)(f) would not apply and in any case when the Club is acting as an agent for its members in supply of various preparation, there cannot be any demand of any sales tax as the concept of mutuality is still alive after the amendment to the Constitution. Mr. Vasdev has taken us through the objects and reasons to the 46th amendment and stressed how various decisions of this Court were referred to in the objects and reasons to remove the base of certain judgments. Paragraph 8 of the objects and .....

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aurant. But, overruling the decision of the Delhi High Court, the Supreme Court has held in the above case that service of meals whether in a hotel or restaurant does not constitute a sale of food for the purpose of levy of sales tax but must be regarded as the rendering of a service in the satisfaction of a human need or ministering to the bodily want of human beings. It would not make any difference whether the visitor to the restaurant is charged for the meal as a whole or according to each d .....

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sociation (supra) and the concept of mutuality applies, because neither clause (e) or (f) to clause (29A) of Article 366 of the Constitution has removed the concept of mutuality or agency. It is urged by him that the club merely acts as an agent for supply of goods and agent does not sell the goods to the principal. It only acts as a conduit to pass on the goods and the money whether it is in cash deferred payment or by way of security. 25. Mr. Vasdev has submitted that whether mutuality exists .....

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fact-finding authorities as regards the relationship between the club and its members in the matter of supply by the former to the latter of food and drinks and such like. The Court has also observed the relationship would govern the fate of imposition of sales tax. In Cosmopolitan Club (supra), the Court has remarked that there was no determination that the club was acting as an agent of the members or for that matter its property in food and drink has passed from the club to the members. The m .....

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mendment to the Constitution. There is observation in the case of Bharat Sanchar Nigam Ltd. (supra) that the judgment of this Court has been neutralised. Clause (29A)(f), as Mr. Vasdev would submit has to be understood independently and not in conjunction with Clause 29A(e). It is put forth by him that the litmus test has to be that the transaction has to be determined only within the parameters of provisions in that sub-clause. Learned senior counsel would submit that clause (29A)(e) relates to .....

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llowing the decision in Cosmopolitan Club (supra) and Fateh Maidan Club (supra) can remand the matter. In the said cases, the Court had observed that the authorities below had not recorded any finding with regard to exact relationship or the mutuality facet. The argument before us is that even if the principle of mutuality or agency is in existence or established, still it would be a sale on the basis of clause (29A)(e) or (29A)(f). Thus, the initial suggestion by the learned senior counsel for .....

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