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PETITIONER: MOULIN ROUGE PVT. LTD.

       Vs.

RESPONDENT: THE COMMERCIAL TAX OFFICERS & ORS.

DATE OF JUDGMENT:       12/11/1997

BENCH: S.P. BHARUCHA, SUHAS C.SEN

ACT:

HEADNOTE:

JUDGMENT:                THE 12TH DAY OF NOVEMBER,1997 Present:               Hon’ble Mr. Justice S.P.Bharucha               Hon’ble Mr. Justice Suhas C.Sen S.B. Sanyal, Sr. Adv. and B.B.Singh, Adv. for the appellant N.Santosh Hegde,  Sr. Adv., J.R. Das, D.K.Singh, D.Krishnan, for M/s. Sinha & DAs, Advs. with him for the Respondents.                       J U D G M E N T      The following Judgement of the Court was delivered: SEN,J,      The Appellant,  Moulin Rouge,  is a  company registered under the  India companies  Act. Its  business  consists  of running a  restaurant at 20, park Street, Calcutta-16. Apart from food  and drink, it provides the customers with various services and  amenities. The  restaurant is air-conditioned. It provides  upholstered cushioned  seating subdued lighting and also  music.    High  class  crockery  and  cutlery  are provided.  The  restaurant    also  employs  highly  trained individual  attention  is  given  to  the  customers  .  The customers cannot  take away and food from the restaurant fro home consumption. Even unused or unconsumed portions of food and drink  are to allowed to be taken away by the customers. There is  no sale  of  any  food  or  foodstuff  across  the counter.      This  Court   in  the  case  of  State  of  Punjab  vs. Associated     Hotels of  India Ltd.  (1972) 1  SCC 472 held that a transaction between a hotelier and a visitor to hotel was  essentially  of  service.  As  part  of  the  amenities incidental to  that service, meals are provided in the hotel at stated  hours. The  Revenue was  not entitled to split up the bills  of the  hoteliers on  the ground  that the  bills included not  only charges  for lodging but also charges for foodstuff with a view to bring the latter under the province of Punjab  General Sales Tax Act. It si to be noted that the case dealt  with the question of levy of sales tax on supply of food by a hotel to its residents.      The case of the appellant is that, on legal advice, and on the  basis of  the aforesaid  judgment is did not collect nay sales  tax for  food and  drinks provided  by it  to its customers. The  appellant had  no liability  to  pay  or  to

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collect any  sales tax on the food and drinks supplied by it as these were not separately charged for but were include in the bills  for various services and amenities provided by it to its  customers. However,  On 26.4.78,  the commercial Tax Officer passed  an ex-parte,  best  judgment  assessment  in respect of  the four  quarters ending  on  31.3.74,  31.1.75 31.3.76 and  31.3.77 imposing  sales tax  and penalty on the appellant.   Since the  appellant  failed  to  pay  the  tax demanded, a  certificate case  was started.  The appellant’s case is  that is   not  liable to  pay sales tax on food and drink sold by it in its restaurant. The principals laid down in the case of Associated Hotels (supra) apply in full force to its case.      The  question   of  leviability   of  food  sold  by  a restaurant  to   its  customers   directly   came   up   for consideration in the case of Northers India Caterers (India) Ltd. vs.  Lt.Governor of  Delhi (1978)  4 SCC  36 decided on September 7,  1978. That  was a  case under  Bengal  Finance (sales Tax)  Act, 1941 as extended to the Union Territory of Delhi. The  question was  whether service of meals to casual visitors in  the restaurant was taxable as a sale - (a) when the charges  were lump  sum per  meal or  (b) when they were calculated per  dish. It  was  held  that  Revenue  was  not entitled to  split up the transaction into two parts, one of service and  the other  of sale  of foodstuffs.  An approach similar to  the case  of the  hotels  was  adopted.  It  was explained that  the classical  legal view  was that  when  a number of  services were  concomitantly provided  by way  of hospitality,  the  supply  of  meals  must  be  regarded  as ministering to  a bodily  want or  to the  satisfaction of a human need. What the customer paid of included more than the price of the food as such. It included all that entered into the conception  of  service.  It  did  not  contemplate  the transfer of  the general  property in  the of  supplied as a factor to  the service rendered. It was ultimately held that the service  of meals  to visitors  in the restaurant of the appellant was not sale of food and was not taxable under the Bengal Fiance  (Sales Tax)  Act, 1941. The position would be the same whether a charge was imposed fr the meal as a whole or according to the dishes separately ordered.      As a  result of  these two  judgments, food served by a hotelier to  its boarder  or by a restaurant to its customer could not  be subjected  to sales tax. The Legislature tried to retrieve  the situation  for the  State  by  passing  the constitution (Forty-sixth Amendment) Act, 1982 by which sub- clause 29A  was inserted  in the  definition of  "tax on the sale or  purchase of  goods" by  amending Article 366 of the Constitution. as  a result of this amendment, tax on sale or purchase of goods was given an expanded meaning to include 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 articles for human consumption or any drink.      Following the  insertion of  clause 29A in Article 366, of the constitution, the Bengal Fiance (Sales Tax) Act, 1941 was amended.  The definition of "sale" in Section 2(g) (iii) was amended to include, inter alia, 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 was  for cash,  deferred payment or other valuable  consideration,  and  such  delivery,  transfer  or supply of  any goods  was deemed to be a sale of those goods by the  person making the delivery, transfer or supply and a purchase of those goods by the person to whom such delivery, transfer or  supply was  made. Section 26A was also inserted

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into the Act.      "26A validation and exemption - (1)      For the purposes of this Act, every      transaction by way of supply of the      nature  referred  to  i  sub-clause      (ii) of  clause (g)  of  section  2      shall be deemed to be, and shall be      deemed  always   to  have  been,  a      transaction by  way   of sale. with      respect to  which the person making      such supply  is the  seller and the      person to whom such supply is made,      is     the      purchaser;      and      notwithstanding    any    judgment,      decree  or   order  of  any  court,      tribunal    or     authority,    no      imposition  of   tax  on   any  sch      transaction before  the coming into      force of  section  3  of  the  West      Bengal   Taxation    Laws   (Second      Amendment)  Act,   1983,  shall  be      deemed to  be invalid  or  ever  to      have been  invalid, and accordingly      -      (i) all  the aforesaid taxes levied      or collected  or purporting to have      been levied or collected under this      Act shall  be deemed always to have      been validly levied or collected in      accordance with this Act;      (ii) no  suit or  other  proceeding      shall be maintained or continued in      any court or before any tribunal or      authority for the refund of, and no      enforcement shall  be made  by  any      court, tribunal or authority of any      decree  or   order  directing   the      refund of,  any sch  tax which  has      been collected;      (iii) recoveries  shall be  made in      accordance with  the provisions  of      this Act of all amounts which would      have been  collected thereunder  as      tax as  aforesaid if  this  section      had been  in force all the material      times.      (2)    Notwithstanding     anything      contained in  sub-section (1),  any      supply of  the nature  referred  to      therein shall  be exempted from the      aforesaid tax -      (a)  where  such  supply  has  been      made, by  any restaurant  or eating      house   (by whatever  name called),      at any time on or after the 7th day      of September,  1978 and  before the      commencement of  section 3  of  the      West Bengal  Taxation Laws  (Second      Amendment)  Act,   1983   and   the      aforesaid   tax    has   not   been      collected on  such  supply  on  the      ground that  no such tax could have      been levied  or collected  at  that      time; or      (b) where  such supply,  not  being

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    any such  supply by  any restaurant      or eating  house (by  whatever name      called), has  been made at any time      on or after the 4th day of January,      1972 and before the commencement of      section  3   of  the   West  Bengal      Taxation  Laws  (Second  Amendment)      Act, 1983 and the aforesaid tax has      not been  collected on  such supply      on the  ground  that  no  such  tax      could have been levied or collected      at that time :      Provided that the burden of proving      that  the  aforesaid  tax  was  not      collected  on  any  supply  of  the      nature referred  to in  clause  (a)      or, as  the case  may be clause (b)      shall lie  on the  person  claiming      the  exemption   under  this   sub-      section."      On 24.8.81,  the appellant  moved a writ petition under Articles 226  of the  Constitution alleging  that is was not liable to  pay a sales tax in view of the aforesaid judgment of the  Supreme Court in Norther India Caterers (India) Ltd. (Supra). the  High Court  issued a  rule nisi  on  the  writ petition and  passed an  order of injunction restraining the Sales  Tax   officer  from  proceeding  with  the  aforesaid certificate  cases.   The  writ   petition  was   ultimately transferred  to  the  West  Bengal  Taxation  Tribunal.  The Tribunal following its decision in the case of Nimai Chandra Guin vs.  Commercial Tax  Officer, Manicktola  & Ors. 75 STC 322 dismissed  the writ  petition in  view  of  the  amended definition of  ""sale" give  in section  2(g) of  the Bengal Fiance (Sales  Tax) Act  with retrospective  effect. It was, however, pointed  out by  the Tribunal that the petitioner’s case cam  in clause (a) of sub-section (2) of Section 26A of the Act.  Therefore, the  petitioner  was  entitled  to  tax exemption from  September 7, 1978 till the coming into force of Section  3 of  the  West  Bengal  Taxation  Laws  (Second Amendment) Act  1983. However, in order to take advantage of this provision,  the petitioner must provide that it did not collect sales tax during the period in question.      Mr. Sanyal,  on behalf  of the appellant, has contended that Section  36A of  the Bengal  Act has made an artificial distinction between supply of food by a restaurant in clause (a) supply   of  food by  any other  body by  whatever  name called in clause (b). I clause (a) a restaurant or an eating house has  been exempted  from tax  fro food  supplied on or after the 7th September, 1978 and before the commencement of Section  3   of  the   West  Bengal  Taxation  Laws  (Second Amendment) Act,  1983 provided  no tax had been collected by the restaurant  or that  eating house  from  its  customers. Clause (b)  grants a similar exemption to food supplied by a body other  than restaurant  or an eating house for a longer period of time i.e. on or after the 4th January, 1972 to the commencement of  Section 3  of the West Bengal Taxation Laws (Second Amendment)  Act, 1983.  Mr. Sanyal  contends that an invidious  distinction  has  been  made  in  the  period  of exemption for  restaurant under clause (a) and a hotel under clause (b) of Section 26A(2). According to Mr. Sanyal, there is no  rational basis for this distinction as the underlying principle behind these two decisions was the same.      This contention of Mr. Sanyal must fail for two reason. the question  of constitutional  validity of Section 26A was not raised  before the  tribunal and  cannot be  agitated in

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appeal against  the order of the tribunal. In any event that allegation that  an invidious and irrational distinction has been made  between a  hotel and  a restaurant is without any merit. The judgment in the case of M/s. Associated Hotels of India Ltd. (supra) was delivered on 4th January, 1972. After this Judgment,  sales tax could not be levied by the Revenue nor collected  by the  hotel on  sale of foodstuff when such sale constituted  part of  the services  rendered by  it its residents. Therefore,  even though   the  levy was validated retrospectively by sub-section (1) of Section 26A, exemption from payment of tax on such sales was given by clause (b) of sub-section (2)  of  Section  26A  from  the  date  of  that judgment to the date of the passing of the Amendment Act.      Sale of foodstuffs by a restaurant to its customers was dealt with  in the  case of  Norther India  Caterers (India) ltd. (supra)  where the judgment was pronounced on September 7, 1978.  The exemption  in clause (a) of Section 26A (2) to the restaurants or the eating houses has been given from the date of  that judgment.  When Section 26A validated the levy of tax  with retrospective  effect the legislature took care to ensure  that the persons who had not collected tax on the basis of  the aforesaid two decisions of this Court will not be burdened  with tax  with retrospective  effect. Since the two judgments  were delivered  on two  different dates,  two different periods  of time were fixed for granting exemption to two  different classes  of sellers. Restaurant and eating houses were  granted exemption  fro the date of the judgment in Norther  India Caterers  (India) Ltd. case i.e. September 7, 1978.  Others were  granted exemption  on  and  from  4th January, 1972  i.e. the  date of the judgment in the case of M/s Associated  Hotels of India Ltd.. The classification has been  based   on  an   intelligible  basis.   There  is   no irrationality about  it. The  same principles  may have been followed both the judgment bu the two judgments dealt with two different classes of assessees.      Mr. Sanyal,  however, contended  that  his  client  had stopped  paying   and  collecting  sales  tax  on  foodstuff supplied to  its customers  on and  from 4th  January,  1972 relying upon  the principle  laid down  in the  case of M/s. Associated Hotels  of India  Ltd.. That  may be  so. But the Associated Hotel’s  case did  not deal  with sales  may by a restaurant. The  retrospective operation of the Act is bound to affect  many tax  payers prejudicially  in many different ways. But that will not make the provision unconstitutional. The legislature  has decided  to grant relief to two classes of tax  payers from the burden of this retrospective levy of tax.  For   this  purposes,   it  has  drawn  a  justifiable distinction between  hotels and  restaurants and has decided to grant  exemption to them from two separate dates based on two separate judgments of this Court.      In our  opinion,  the  legislature  has  made  a  valid classification for  the purpose  of  granting  exemption  to hotels and  to restaurants  on the basis of the two dates of the aforesaid two judgments.      The case  of the appellants is without any merit and is dismissed. The  appellant must  pay  costs  of  this  appeal assessed at Rs. 1,700/-