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TMI Blog2019 (10) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... SLP (C) NO.2490 OF 2016) WITH CIVIL APPEAL NO. 7778 OF 2019 (ARISING OUT OF SLP (C) NO.4158 OF 2016) WITH CIVIL APPEAL NO. 7779 OF 2019 (ARISING OUT OF SLP (C) NO.4156 OF 2016) WITH CIVIL APPEAL NO. 7777 OF 2019 (ARISING OUT OF SLP (C) NO.4157 OF 2016) WITH CIVIL APPEAL NO.5946 OF 2016 WITH CIVIL APPEAL NO.5949 OF 2016 WITH CIVIL APPEAL NO.6593 OF 2016 WITH CIVIL APPEAL NOs.7366-7367 OF 2016 WITH CIVIL APPEAL NO.626 OF 2017 WITH CIVIL APPEAL NO. 7776 OF 2019 (ARISING OUT OF SLP (C) NO.33377 OF 2016) WITH CIVIL APPEAL NO.3584 OF 2017 WITH CIVIL APPEAL NO.5087 OF 2017 WITH CIVIL APPEAL NOs.3819-3821 OF 2017 WITH WRIT PETITION (CIVIL) NO. 321 OF 2017 WITH CIVIL APPEAL NO.10674 OF 2017 WITH CIVIL APPEAL NO.11224 OF 2017 WITH CIVIL APPEAL NOs.72-73 OF 2018 WITH CIVIL APPEAL NO.104 OF 2019 WITH CIVIL APPEAL NO. 7790 OF 2019 (D.NO.5100 OF 2019) WITH CIVIL APPEAL NO.5338 OF 2019 WITH CIVIL APPEAL NOs.5215-5217 OF 2019 WITH CIVIL APPEAL NO. 7789 OF 2019 (D.NO.20271 OF 2019) Justice R. F. Nariman, Justice Surya Kant And Justice V. Ramasubramanian JUDGMENT R.F. Nariman, J. C.A. No.4184 of 2009 1. This Appeal arises out of a reference order by a Division Bench of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 994 Act. We find that the payments made by the permanent members are not considerations and in the case of Members' Clubs the suppliers and the recipients (Permanent Members) are the same persons and there is no exchange of consideration." Being of this view, the Tribunal accepted the contention of the respondent Club and opined that it is not eligible 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 Assn. of Eastern India [Automobile Assn. of Eastern India v. State of W.B., (2017) 11 SCC 811 : (2002) 40 STA 154 (SC)] , was not a precedent and came to hold that reading of the constitutional amendment, as well as the provisions of the definition under the Act, it was clear that supply of food, drinks and beverages had to be made upon payment of consideration, either in cash or otherwise, to make the same exigible to tax but in the case at hand, the drinks and beverages were purchased from the market by the Club as agent of the members. The High Court further ruled that the members collectively was the real life and the Club wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted even in the previous decision of this Court." 3. After then referring to a number of decisions on the doctrine of mutuality, the Court observed: "23. In the light of the aforesaid position and the law of mutual concerns, we have to ascertain the impact and the effect of sub-clause (e) to clause (29-A) to Article 366 of the Constitution of India, as enacted vide 46th Amendment in 1982 and applicable and applied to sales or VAT tax. The said clause refers to tax on supply of goods by an unincorporated association or body of 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 [Fateh Maidan Club v. CTO, (2017) 5 SCC 638 : (2008) 12 VST 598 (SC)] and Cosmopolitan Club [Cosmopolitan Club v. State of T.N., (2017) 5 SCC 635 : (2009) 19 VST 456 (SC)] in that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Law Commission Report"), which preceded the enactment of Article 366(29-A) of the Constitution of India; the 'Statement of Objects and Reasons' appended to the Constitution (Forty-sixth Amendment) Bill, 1981 [enacted as the Constitution (Forty-sixth Amendment) Act, 1982] (hereinafter referred to as the "Statement of Objects and Reasons"), which led to the insertion of Article 366(29-A); and then referred, in particular, to Article 366(29-A)(e) and (f). According to the learned Senior Advocate, 366(29-A)(e) was inserted in order to do away with the doctrine of agency/trust or mutuality, insofar as it applied to members' clubs and, therefore, sought to do away with the basis of the judgment in Young Men's Indian Association (supra). He argued that the language of 366(29-A)(e) did away with transfer of property in goods and was specifically differently worded from 366(29-A)(a) and (b), which referred to such transfer. According to him, the expression "unincorporated association or body of persons" in sub-clause (e) must be read disjunctively, and so read would include incorporated persons such as companies, cooperative societies, etc. According to him, it is important to construe a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mutuality ends and when trading begins. In any case, according to the learned Senior Advocate, the doctrine of mutuality has no application when a members' club is in the corporate form, as it is clear from Bacha F. Guzdar v. Commissioner of Income Tax, Bombay (1955) 1 SCR 876, where it was held that a shareholder is not the owner of the assets of a company and, therefore, the aforesaid principle cannot possibly apply to members' clubs in corporate form. According to him, it makes no difference that the company is one registered under Section 25 of the Companies Act, 1956 ("hereinafter referred to as the "Companies Act"), as is the case in the appeal in the present case. 6. Shri Jaideep Gupta, learned Senior Advocate appearing on behalf of the Respondent, has on the other hand referred to Section 2(5) of the West Bengal Sales Tax Act, and stated that the very first pre-requisite for falling within the provisions of that Act is that there should be a profit motive, as defined, and since there is none in members' clubs, the charging section will not be attracted on the facts of these cases. He relied strongly upon State of Gujarat v. Raipur Manufacturing Co. Ltd. (1967) 1 SCR 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is clear that the expression "unincorporated associations" must be read as ejusdem generis with "body of persons" and so read would not include members' clubs in corporate form. 7. Having heard the learned Senior Advocates on behalf of both sides, it is important to first set out the relevant Constitutional and statutory provisions. Article 366(29-A) reads as follows: "366. (29-A) "tax on the sale or purchase of goods" includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d who has, in the customary course of business, authority to sell goods belonging to principals, is a dealer; xxx xxx xxx (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 contract, of property in any goods for cash, deferred payment or other valuable consideration; (b)any delivery of goods on hire-purchase or any system of payment by instalments; (c)any transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (d)any 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les calculated from the commencement of any year exceeds the taxable quantum at any time within such year, be liable to pay tax under this Act on all sales, other than those referred to in section 15, effected on and from the date immediately following the day on which such gross turnover of sales first exceeds the taxable quantum. (3)In this Act the expression "taxable quantum" means- (a)In relation to any dealer who imports for sale any goods, other than those specified in Schedule IV, into West Bengal, 30,000 Rupees; or (b)[***] (c) In relation to any dealer who manufactures or produces any goods, other than those specified in Schedule IV [***] for sale, 1,00,000 rupees; or (d)[***] (e)In relation to any other dealer, 5,00,000 rupees, excluding turnover of sales of goods specified in Schedule IV. (4) Every dealer who has become liable to pay tax under sub-section (1) or sub-section (2) shall continue to be so liable until the expiry of three consecutive years, during each of which his gross turnover of sales has failed to exceed the taxable quantum, and such further period after the date of such expiry as may be prescribed, and on the expiry of this later perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not called upon in this case to decide whether an unincorporated club which supplies goods for a price to its members, may be regarded as selling goods to its members. 1D.4. Supply by club to members not 'sale'.- Then, there are clubs. In a case decided by the Supreme Court on appeal from Madras, the Cosmopolitan club, Madras, the Youngmen's Indian Association, Madras and the Lawley Institute, Ootacamund, filed writ petitions under Article 226 of the Constitution, challenging the levy of sales tax under Madras General Sales Tax Act, 1959, on snacks, beverages and other articles supplied to their members or guests. The High Court held that the club was not a 'dealer' within the meaning of section 2(g), read with Explanation I, of the Madras Act and that there was no 'sale' within the meaning of section 2(h), read with Explanation I, of the Act. On appeal to the Supreme Court it was held that a member's club cannot be made subject to the provisions of the Sale Tax Act concerning sales, because the members are joint owners of all the club property. The supply of articles to a member at a fixed price by the Club cannot be regarded as a "sale"; 1D.5.No 'sale' in such circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of "sale" for the purpose of the legislative power of the States,-a result which can be achieved only by amending the Constitution. 1D.7. Amendment of Constitution not needed.- We do not think that it would be appropriate to amend the Constitution of this purpose. The number of such clubs and associations would not be very large. Moreover, taxation of such transactions might discourage the cooperative movement. 1D.8. Unincorporated associations exist various arrangements.- Unincorporated associations exist in a "myriad of structural arrangements." As a general proposition, each is liable for the activities of its members when the activity has been authorised, supported, or ratified by the association. 1D.9. No evasion.- It should be also noted that there can be no serious question of evasion in such cases. A member really takes his own goods. 1D.10. We, therefore, do not recommend any change." 10. It will be seen from the above that the Law Commission was of the view that the Constitution ought not to be amended so as to bring within the tax net members' clubs. It gave three reasons for so doing. First, it stated that the number of such clubs and associations would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy sales tax on the transfer of property in the goods involved in the execution of such contract as it has been held that there is no sale of the materials as such and the property in them does not pass as moveables. Though practically the purchaser in a hire-purchase agreement gets the goods on the date of the hirepurchase, it has been held that there is sale only when the purchaser exercises the option to purchase at a much later date and therefore only the depreciated value of the goods involved in such transaction at the time the option to purchase is exercised becomes assessable to sales tax. Similarly, while sale by a registered club or other association of persons (the club or association of persons having corporate status) to its members is taxable, sales by an unincorporated club or association of persons to its members is not taxable as such club or association, in law, has no separate existence from that of the members. In the Associated Hotels of India case (A.I.R. 1972 S.C. 1131), the Supreme Court held that there is no sale involved in the supply of food or drink by a hotelier to a person lodged in the hotel. xxx xxx xxx The proposed amendments would help in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary to A.V. Meiyappan decision [(1967) 20 STC 115 (Mad)] a lease of a negative print of a picture would be a sale. Subclause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun as both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Subclause (f) pertains to contracts which had been held not to amount to sale in State of Punjab v. Associated Hotels of India Ltd. [(1972) 1 SCC 472 : (1972) 29 STC 474] That decision has by this clause been effectively legislatively invalidated." 14. In the separate concurring judgment of Lakshmanan, J., the learned Judge observed thus: "105. The amendment introduced fiction by which six instances of transactions were treated as deemed sale of goods and that the said definition as to deemed sales will have to be read in every provision of the Constitution wherever the phrase "tax on sale or purchase of goods" occurs. This definition changed the law declared in the ruling in Gannon Dunkerley & Co. [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] only with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] survived the Forty-sixth Constitutional Amendment in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29-A) operate. By introducing separate categories of "deemed sales", the meaning of the word "goods" was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. The courts must move with the times. [See Attorney General v. Edison Telephone Co. of London Ltd., (1880) 6 QBD 244 : 43 LT 697] But the Forty-sixth Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is unadvisable that intoxicating liquors should be sold anywhere without a license. The enactment is limited to "sales" of intoxicating liquors, and only seems aimed at sales by retail traders, because the wholesale trader is not touched. The question here is, Did Graff, the manager, who supplied the liquors to Foster, effect a "sale" by retail? I think not. I think Foster was an owner of the property together with all the other members of the club. Any member was entitled to obtain the goods on payment of the price. A sale involves the element of a bargain. There was no bargain here, nor any contract with Graff with respect to the goods. Foster was acting upon his rights as a member of the club, not by reason of any new contract, but under his old contract of association by which he subscribed a sum to the funds of the club, and became entitled to have ale and whisky supplied to him as a member at a certain price. I cannot conceive it possible that Graff could have sued him for the price as the price of goods sold and delivered. There was no contract between two persons, because Foster was vendor as well as buyer. Taking the transaction to be a purchase by Foster of all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... English cases cited hereinabove held: "7. The law in England has always been that members' clubs to which category the clubs in the present case belong cannot be made subject to the provisions of the Licensing Acts concerning sale because the members are joint owners of all the club property including the excisable liquor. The supply of liquor to a member at a fixed price by the club cannot be regarded to be a sale. If, however, liquor is supplied to and paid for by a person who is not a bona fide member of the club or his duly authorised agent there would be a sale. With regard to incorporated clubs a distinction has been drawn. Where such a club has all the characteristics of a members' club consistent with its incorporation, that is to say, where every member is a shareholder and every shareholder is a member, no licence need be taken out if liquor is supplied only to the members. If some of the shareholders are not members or some of the members are not shareholders that would be the case of a proprietary club and would involve sale. Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club. The supply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied goods to the members such supplies would not amount to a transaction of sale. The Mysore court expressed the same view that a purely members' club which makes purchases through a Secretary or Manager and supplies the requirements to members at a fixed rate did not in law sell those goods to the members." 21. The judgment heavily relied upon by Shri Dwivedi, namely, Enfield India Ltd. (supra) was then distinguished thus: "9. On behalf of the appellants reliance has been placed on a decision of this Court in Deputy Commercial Tax Officer v. Enfiend India Ltd. [(1968) 2 SCR 421] In that case the Explanation to Section 2(g) was found to be intra vires and within the competence of the State Legislature. The judgment proceeded on the footing that when a cooperative society supplied refreshments to its members for a price the following four constituent elements of sale were present: (1) parties competent to contract; (2) mutual consent; (3) thing, the absolute or general property in which is transferred from the seller to the buyer and (4) price in money paid or promised. The mere fact that the society supplied the refreshments to its members alone and did not make any pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Association (supra) expressly distinguished Enfield India Ltd. (supra), in paragraph 9 therein. The judgment in Enfield India Ltd. (supra), held on the facts of that case that there was nothing to show that the society in that case was acting as an agent of its members in providing facilities for making food available to them. A distinction was then made between a society which is a body corporate and its members, stating that the body corporate is a separate person in law. It then referred to various English judgments including Trebanog (supra), and refused to apply them on the ground that they were cases which dealt with criminal proceedings. The judgment then ended by stating that the Court was not called upon to decide whether an unincorporated club, supplying goods for a price to its members, may be regarded as selling goods to its members. 25. It can be seen from the above, that the ratio of the Three Judge Bench in Enfield India Ltd. (supra) does not square with the ratio of the Six Judge Bench in Young Men's Indian Association (supra). Young Men's Indian Association (supra) is expressly based upon the English judgments which disregarded the corporate form and stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 25 company - it dealt with two tea companies which were Public Limited Companies, registered under the Companies Act. It is in this context that this Court held: "That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word 'assets' in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them...The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. Reliance is placed on behalf of the appellant on a passage in Buckley's Companies Act (12th Edn.), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w was that the Club became an entity separate and distinct from its Members, so that, in providing catering facilities, the Club, as a separate legal entity, was entering into transactions with the Members who were distinct from the Club itself. In our opinion, the Tribunal was right in holding that the circumstance of incorporation of the Club as a Limited Company is not of importance. It is true that, for purposes of contract law and for purposes of suing or being sued, the fact of incorporation makes the Club a separate legal entity; but, in deciding whether the Club is an industry or not, we cannot base our decision on such legal technicalities. What we have to see is the nature of the activity in fact and in substance. Though the Club is incorporated as a Company, it is not like an ordinary Company constituted for the purpose of carrying on business. There are no shareholders. No dividends are ever declared and no distribution of profits takes place. Admission to the Club is by payment of admission fee and not by purchase of shares. Even this admission is subject to balloting. The membership is not transferable like the right of shareholders. There is the provision for expulsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or gains are yielded by the trade for tax purposes and therefore no assessment in respect of the trade can be made. Any surplus resulting from this form of trading represents only the extent to which the contributions of the participators have proved to be in excess of requirements. Such a surplus is regarded as their own money and returnable to them. In order that this exempting element of mutuality should exist it is essential that the profits should be capable of coming back at some time and in some form to the persons to whom the goods were sold or the services rendered.... *** It has been held that a company conducting a members' (and not a proprietary) club, the members of the company and of the club being identical, was not carrying on a trade or business or undertaking of a similar character for purposes of the former corporation profits tax. *** A members' club is assessable, however, in respect of profits derived from affording its facilities to nonmembers. Thus, in Carlisle and Silloth Golf Club v. Smith (Surveyor of Taxes) [(1913) 3 KB 75 (CA)] , where a members' golf club admitted non-members to play on payment of green fees it was held that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance Co. v. Styles (Surveyor of Taxes), (1889) LR 14 AC 381 : (1886-90) All ER Rep Ext 1362 : (1889) 2 TC 460 (HL)] , there is no profit. If the people were to do the thing for themselves, there would be no profit, and the fact that they incorporate a legal entity to do it for them makes no difference; there is still no profit. This is not because the entity of the company is to be disregarded; it is because there is no profit, the money being simply collected from those people and handed back to them, not in the character of shareholders, but in the character of those who have paid it. That, as I understand [it], is the effect of the decision in Styles case [New York Life Insurance Co. v. Styles (Surveyor of Taxes), (1889) LR 14 AC 381 : (1886-90) All ER Rep Ext 1362 : (1889) 2 TC 460 (HL)] ." Given these observations, it is clear that if persons carry on a certain activity in such a way that there is a commonality between contributors of funds and participators in the activity, a complete identity between the two is then established. This identity is not snapped because the surplus that arises from the common fund is not distributed among the members - it is enough that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Statement of Objects and Reasons, makes it clear that it was only clubs which are not in corporate form that were sought to be brought within the tax net, as it was wrongly assumed that sale of goods by members' clubs in the corporate form were taxable. "Any" is the equivalent of "all". This word, therefore, also lends itself to the aforesaid interpretation, as the emphasis of the legislature is on all unincorporated associations or bodies being brought within subclause (e). 34. Thus, it is clear that even going by Shri Dwivedi's eloquent argument as to the intention of the legislature, as seen through the object that the legislature sought to achieve, would lead to the aforesaid expression applying only to clubs which were not in the corporate form. 35. Even otherwise, on the assumption that "unincorporated association or body of persons" must be read disjunctively, "a body of persons" cannot be equated with "person". "Person" as defined by the General Clauses Act, (which applies to the interpretation of the Constitution vide Article 367) reads as follows: "3. Definitions.- xxx xxx xxx (42) "person" shall include any company or association or body of individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idea of reciprocity as the distinguishing mark; it is the gratuitous promise that is unenforceable in English law." 38. This is further reinforced by the last part of Article 366(29-A), as under this part, the supply of such goods shall be deemed to be sale of those goods by the person making the supply, and the purchase of those goods by the person to whom such supply is made. As the Young Men's Indian Association (supra) case and the doctrine of mutuality state, there is no sale transaction between a club and its members. As has been pointed out above, there cannot be a sale of goods to oneself. Here again, it is clear that the ratio of Young Men's Indian Association (supra) has not been done away with by the limited fiction introduced by Article 366(29-A)(e). 39. But, says Shri Dwivedi, even if sub-clause (e) does not apply, sub-clause (f) would apply, given the width of its language. Here again, it is clear that the reason for sub-clause (f), as has been stated in the Statement of Objects and Reasons, is the doing away with of two judgments of this Court, namely, State of Punjab v. Associated Hotels of India Limited AIR 1972 SC 1131 and Northern India Caterers (India) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oked at from another point of view, a members' club may supply goods which are not food or drink - for example, soap, cosmetics and other household items. These items would be "goods", but would not be within sub-clause (f) - not being food or drink, and cannot, therefore, be taxed under sub-clause (f), leading to the absurd situation of the supply of food and drink being taxable in members' clubs, and the supply of other goods in such clubs being outside the tax net. For this reason also, it is clear that the subject matter of sub-clause (f) is entirely different and distinct from that of sub-clause (e), and cannot possibly apply to members' clubs. In this view of the matter, the expression "in any manner whatsoever", being part and parcel of sub-clause (f) cannot be held to extend to a supply of all goods so as to bring such goods to tax when applied to members' clubs. 43. Judgments of this Court have also held that the subject matter of sub-clause (f) related to food and drink supplied in hotels and restaurants, the deeming fiction of sub-clause (f) being introduced only to get over certain judgments of this Court. In K. Damodarasamy Naidu & Bros. and Ors. v. State of T.N. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible to divide the "service element", which is the dominant element, from the "sale element", it is clear that such composite contracts cannot be the subject-matter of sales tax legislation, as was held in those judgments. 12. Bearing these judgments in mind, Parliament amended the Constitution and introduced the Constitution (Forty-sixth Amendment) Act, by which it introduced Article 366(29-A). Sub-clause (f), with which we are directly concerned, reads as follows: "366. (29-A)(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 supply or service, is 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 making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made." A reading of the constitutional amendment would show that supply by way of or as part of any service of food or other article for human consumption is now deemed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, 1961 is an example of a provision by which a deemed transfer by a person to himself gets taxed. Section 45(2) reads as follows: "45. Capital gains.- xxx xxx xxx (2) Notwithstanding anything contained in sub-section (1), the profits and gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of Section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset." It can be seen from this provision that profits or gains arising from a transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business, is by a deeming fiction brought to tax, despite the fact that there is no transfer in law by the owner of a capital asset to another person. Modalities such as these to bring to tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d judgment dated 15th March, 2012 by the High Court of Jharkhand set out the relevant provisions of the Finance Act, 1994 (hereinafter referred to as the "Finance Act"), by which service tax was levied on members' clubs, and arrived at the conclusion that such clubs stand on a different footing from proprietary clubs, as has been held in Young Men's Indian Association (supra). The High Court following Young Men's Indian Association (supra) then held, stating: "18. However, learned counsel for the petitioner submits that sale and service are different. It is true that sale and service are two different and distinct transaction. The sale entails transfer of property whereas in service, there is no transfer of property. However, the basic feature common in both transactions requires existence of the two parties; in the matter of sale, the seller and buyer, and in the matter of service, service provider and service receiver. Since the issue whether there are two persons or two legal entity in the activities of the members' club has been already considered and decided by the Hon'ble Supreme Court as well as by the Full Bench of this Court in the cases referred above, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuality that is laid down in Young Men's Indian Association (supra) has been expressly done away with in the service tax context, as there is in these cases no transaction of sale, unlike the sales tax cases that have just been heard. He cited a number of judgments to buttress his proposition that the High Courts of Jharkhand and Gujarat wrongly applied the judgment of Young Men's Indian Association (supra), which was in the context of Sales Tax acts, to Service Tax, and hence did not lay down the law correctly. 57. On the other hand, learned counsel appearing on behalf of the Respondents in these cases argued that when service tax was introduced in 1994, the legislature indicated activities which amounted to service, which were then selected for the purpose of imposition of tax. In 2005, despite the fact that members' clubs were so selected, members' clubs in incorporated form were expressly excluded from service tax. Post-2012, there was a sea change, as a result of which service tax was imposed on all taxable services, short of those which were in a negative list contained in Section 66D of the Finance Act. According to the learned counsel appearing on behalf of the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical nature, or (iv) any person or body of persons associated with press or media. 61. Likewise, in Section 65(105)(zzze), the expression "or any other person" was added after the expression "to its members", thus making it clear that the tax net had now been widened so as to include non-members of clubs or associations as well. 62. Under Section 66, it was stated that there shall be levied the tax (referred to as "the service tax") at the rate of 12% of the value of taxable services referred to in sub-clauses...(zzze) of clause (105) of section 65, and collected in such manner as may be prescribed. 63. Under Section 67, where service tax is chargeable on any taxable service with reference to its value, it was stated: "67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, - (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, which states as follows: "66B. Charge of service tax on and after Finance Act, 2012 There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed." 68. As was stated hereinabove, service tax was thus leviable on all services as defined, short of a negative list of services which was then set out in Section 66D of the Act. 69. In an interesting judgment of this Court, Union of India and Ors. v. Margadarshi Chit Funds Private Limited and Ors. (2017) 13 SCC 806, this Court outlined the history of service tax as follows: "19. The amendment was carried w.e.f. 1-6-2007 whereby the words "but does not include cash management" were deleted. This provision remained on statute book up to 30-6-2012. By the Finance Act, 2012, entire scheme of service tax was completely changed and overhauled with the introduction of altogether new system of service tax. There was a paradigm shift in the service tax regime. Initially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. First, the term "service" is defined whereas there was no definition of "service" in the Finance Act, 1994 which position remained till 2012. Earlier, each individual service on which tax was levied (known as taxable service) was defined. Secondly, the definition of "service" given now contains a negative list which is contained in Section 66-D of the Act. In other words, it specifically excludes certain transactions from the ambit of service. Thus, those transactions which are specifically excluded are not liable for service tax. Any other kind of service which qualifies the definition of "service" contained in the Act would be exigible to service tax." 70. In All-India Federation of Tax Practitioners and Ors. v. Union of India and Ors. (2007) 7 SCC 527, this Court upheld the constitutional validity of the levy of service tax, also stating: "8. As stated above, service tax is VAT. Just as excise duty is a tax on value addition on goods, service tax is on value addition by rendition of services. Therefore, for our understanding, broadly "services" fall into two categories, namely, property based services and performance based services. Property based services cover service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its wider significance, would include both, the idea of creating or establishing, and the idea of giving a legal form to, a partnership. The Bench of the Calcutta High Court in the case of R.C. Mitter and Sons v. CIT [(1955) 28 ITR 698, 704, 705] under examination now, was not, therefore, right in restricting the word "constitute" to mean only "to create", when clearly it could also mean putting a thing in a legal shape. The Bombay High Court, therefore, in the case of Dwarkadas Khetan and Co. v. CIT [(1956) 29 ITR 903, 907] , was right in holding that the section could not be restricted in its application only to a firm which had been created by an instrument of partnership, and that it could reasonably and in conformity with commercial practice, be held to apply to a firm which may have come into existence earlier by an oral agreement, but the terms and conditions of the partnership have subsequently been reduced to the form of a document. If we construe the word "constitute" in the larger sense, as indicated above, the difficulty in which the learned Chief Justice of the Calcutta High Court found himself, would be obviated inasmuch as the section would take in cases both of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. Earlier in this judgment qua sales tax, we have already held that the expression "body of persons" will not include an incorporated company, nor will it include any other form of incorporation including an incorporated co-operative society. 80. It will be noticed that "club or association" was earlier defined under Section 65(25a) and 65(25aa) to mean "any person" or "body of persons" providing service. In these definitions, the expression "body of persons" cannot possibly include persons who are incorporated entities, as such entities have been expressly excluded under Section 65(25a)(i) and 65(25aa)(i) as "anybody established or constituted by or under any law for the time being in force". "Body of persons", therefore, would not, within these definitions, include a body constituted under any law for the time being in force. 81. When the scheme of service tax changed so as to introduce a negative list for the first-time post 2012, services were now taxable if they were carried out by "one person" for "another person" for consideration. "Person" is very widely defined by Section 65B(37) as including individuals as well as all associations of persons or bodies of individ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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