07 September 1978
Supreme Court


Bench: PATHAK,R.S.
Case number: Review Petition (Civil) 111 of 1978








CITATION:  1978 AIR 1591            1979 SCR  (1) 557  1978 SCC  (4)  36  CITATOR INFO :  RF         1981 SC1751  (1)  C          1989 SC1371  (18)

ACT:      Bengal Finance (Sales Tax) Act 1941 (as extended to the Union  Territory  r  of  Delhi)-Service  of  meals  to  non- residents in a restaurant in a Hotel-Sales Tax-If payable on price charged for meals.

HEADNOTE:      The appellant runs a hotel in which meals are served to non-residents also  in the  restaurant located in the hotel. The sales  tax authorities treated a portion of the receipts as representing  the price  of foodstuffs  served and levied tax. The  High Court  affirmed the  view of  the  sales  tax authorities.        On  the question  whether the transaction constituted sale of foodstuffs.      Allowing the appeals ^        HELD.  1. Service  of meals  to non-residents  in the restaurant of ’the appellant is not taxable under the Bengal Finance (Sales  Ta%) Act  1941, as  extended  to  the  Union Territory of  Delhi. This  is so whether a charge is imposed for  the  meal  as  a  whole  or  according  to  the  dishes separately ordered. [562 F;        2.  In State  of Punjab  v. M/s. Associated Hotels of India [1972]  2 SCR  937 this  Court held  that there was no sale when food and drink were 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 the guests and could not be identified as a transaction of sale. This Court  declined to accept the position 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 restaurants. Like the hotelier, a  restaurateur provides many services in addition to  the   supply  of   food.  He   provides  furniture   and furnishings, linen,  crockery and  cutlery, and  he may  add music, an  area for  floor dancing and in some cases a floor



show. The  classical legal  view  being  that  a  number  of services are  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.  No reason has been shown for preferring any other view. [562 B, 560 F-G, 562 C]      State of Punjab v. M/s. Associated Hotels of India Ltd. [1972] 2 SCR 937 applied.        M/s. Associated Hotels of India Ltd., Simla v. Excise and Taxation Officer Simla AIR 1961 Punjab 449 not approved.        Municipal Corporation of Delhi v. Laxmi Narain Tandon and Another AIR 1970 Delhi 244 not approved.        Crisp  v. Pratt  [1639] Cro. Car 549, Parker v. Flint [1699] 12  Mod. 254  Newton v . Trigg 3 Mod. 327, Saunderson v. Rowles 4 Burr. 2065 Electa B. 558 Merrill v. James W. Hodson 1915-B L.R.A. 481, and Mary Nisky v. Child Company SO A.L.R. 227 referred. to.

JUDGMENT:        CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1768- 1769/ 72.        Appeals  by Special Leave from the Judgment and order dated 15-7-1971  of  the  Delhi  High  Court  in  Sales  Tax Reference No. 8 of 1969.        F.  S. Nariman, (In CA 1768/72), V. S. Desai (in C.A. 1769). M.  C. Bhandare  (C.A. 1768/72)  and Mrs. S. Bhandare and Miss M. Poduval for the Appellants.        P.  A. Francis, R. N. Sachthey and Miss A. Subhashini for the Respondent.        Y.  S. Chitale,  Vinay. Bhasin,  A. K. Srivastava and Vineet Kumar for the Interveners.      The Judgment of the Court was delivered by        PATHAK, J. This and the connected appeal are directed against the judgment of the High Court of Delhi disposing of a reference  made to  it under  section 21(3)  of the Bengal Finance (Sales  Tax) Act,  1941 as  extended  to  the  Union Territory of Delhi on the following question:-                "Whether  the  service  of  meals  to  casual      visitors in the Restaurant is taxable as a sale:           (i)  when charges are lumpsum per meal or           (ii) when they are calculated per dish ?" The High Court has answered the question in the affirmative.        The appellant runs a hotel in which lodging and meals are provided  on "inclusive  terms" to  residents. Meals are served to  non residents  also in  the restaurant located in the hotel.  In the assessment proceedings for the assessment years 1957-58  and 1958-59  under the  Bengal Finance (Sales Tax) Act,  1941, the appellant contended that the service of meals to  residents and  non-residents could not be regarded as a  sale and  therefore sales  tax could  not be levied in respect thereof.  The contention  was rejected  by the Sales Tax authorities,  who treated a portion of the receipts from the residents  and nonresidents as representing the price of the foodstuffs served. At the instance of the appellant, the High Court  called for  a  statement  of  the  case  on  two questions. One was whether the supply of meals to residents, who paid  a single  all-inclusive charge for all services in the 559 hotel, including  board, was  exigible  to  sales  tax.  The second was  the A  question set  forth above. The High Court answered the  first question  in favour of the appellant and



the second  against it.  And now  these appeals  by  special leave.        Tax  is payable  by a  dealer under  section 4 of the Bengal Finance  (Sales Tax)  Act, 1941  on sales effected by him, and the expression "sale’ has been defined by section 2 (g) of  the Act  to mean  "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.. ". The question is whether in the case of  non-residents the service of meals by the appellant in the  restaurant constitutes  a  sale  of  foodstuffs.  It appears to  us   that after  the view taken by this Court in State of  Punjab v.  M/s Associated Hotels of India Ltd.,(1) the approach to the question before us is clearly indicated.        This  is a  case  where  the  origin  and  historical development of  an institution  as profoundly influenced the nature and  incidents it possesses in law. In the case of an hotelier this  Court  proceeded  on  the  footing  that  his position in law was assimilable to that of an inn keeper. At common law an innkeeper was a person who received travellers and provided  lodging and  necessaries for  them  and  their attendants and  employed servants  for this  purpose and for the protection of travellers lodging in his inn and of their goods(2). It  was hospitality  that he offered, and the many facilities  that   constituted  the   components   of   that hospitality  determined   the   legal   character   of   the transactions flowing  from  them.  Long  ago,  in  Crisp  v. Pratt(3) it was pointed out that innkeepers do not get their living by  buying and  selling and  that although  they  buy provisions to be spent in their house, they do not sell them but what  they do  is to  "utter" them. "Their gain", it was added, "is  not only  by uttering  of their commodities, but for the  attendance of their servants, and for the furniture of their  house, rooms,   lodgings,  for their  guests.. ’‘. This test went to the root and we find it repeated in Parker v. Flint.(4)  In Newton  v. Trigg(5) Holt, C.J., defined the true status  of an  inn-keeper by  reference to the services afforded by  him? that  he was an "hospitator", and was "not paid  upon  the  account  of  the  intrinsic  value  of  his provisions,  but   for  other  reasons:  the  recompence  he receives, is  for care  and pains  and  for  protection  and security.......... but the end of an inn-keeper in      (1) [1972] 2 S. C. R. 937.      (2) Halsbury’s Laws of England, 3rd Edn. Vol. 21 p. 442 paras 932.      (3) [1639] Cro. Car. 549.      (4) [1699] 12 Mod 254.      (5) 3 Mod . 327. 2-549SCI/78 560 his buying,  is  not  to  sell,  but  only  a  part  of  the accommodation he  is bound  to prepare  for his guests." And for the  purpose of  the question  before  us  is  would  be relevant to quote Professor Beale(1):               As  an inn-keeper does not lease his rooms, so      he does  not sell the food he supplies to the guest. It      is his duty to supply such food as the guest needs, and      the corresponding  right of the guest is to consume the      food he needs, and to take no more. Having finished his      meal, he has no right to take food from the table, even      the uneaten portion of food supplied to him, nor can he      claim a certain portion of good as his own to be handed      over to  another in  case he  chooses not to consume it      himself. The  title to food never passes as a result of      an ordinary transaction of supplying food to a guest."



           Having   proper  regard   to  those   particular considerations, it  is not surprising that the principle was extended in  England to the service OF food at eating places or  restaurants.   The  keeper   of  an   eating  house,  or victualler,  was   regarded   fundamentally   as   providing sustenance to those who ordered food to eat in the premises. That eminent  and learned  Judge,  Lord  Mansfield,  saw  no distinction,  in   Saunderson  v.   Rowles(2),  between   an innkeeper and a victualler. He observed:- ’.               The  analogy between  the two cases of an inn-      keeper and  a victualler is so strong that it cannot be      got  over.   And  we   are  all  clear  that  this  man      (victualler)  is   not  within  these  laws;  upon  the      authority of  a determined  case of  an inn keeper, and      also upon  the reason  of the  thing.. He  buys only to      spend in  his house,  and when he utters it again it is      attended with many circumstances additional to the mere      selling price." Like the  hotelier, a restaurateur provides many services in addition to  the supply  of food.  He provides furniture and furnishings, linen,  crockery and cutlery, and in the eating places of  today he  may add  music and a specially provided area for  floor dancing  and in some cases a floor show. The view taken  by the  English law found acceptance on American soil, and  after some desultory dissent initially in certain states it very soon became firmly established as the general view of the law. The first edition of American Jurisprudence sets(3) forth  the statement  of the law in that regard, but we may  go to the case itself, Electa B. Merrill v. James W. Hodson(4), from which the      (1) Innkeepers & Hotels, para 169.      (2) 4 Burr. 2065.      (3) Vol. 46 p. 207 para 13.      (4) 1915-B L.R.A. 481. 561 statement has  been derived. Holding that the supply of food or drink  A to customers did not partake-of the character of a sale of goods, the Court commented:-               "The essence of it is not an agreement for the      transfer of  the general  property of the food or drink      placed at  the com  command of  the  customer  for  the      satisfaction of  his desires,  or actually appropriated      by him  in the  process of  appeasing his  appetite  or      thirst. The  customer does  not become the owner of the      food set before him, or of that portion which is carved      for his  use, or  of that  which finds a place upon his      plate, or  in side  dishes set  about it. No designated      portion becomes  his. He is privileged to eat, and that      is all.  The uneaten food is not his. He cannot do what      he pleases  with it.  That which  is set  before him or      placed at  his command  is provided  tc enable  him  to      satisfy his  immediate wants, and for no other purpose.      He may  satisfy those wants; but there he must stop. He      may not  turn over unconsumed portions to others at his      pleasure, or carry away such portions. The true essence      of the  transaction is service in the satisfaction of a      human need  or desire,  ministry to  a bodily  want.  A      necessary incident  of this  service or ministry is the      consumption of  the  food  required.  This  consumption      involves destruction,  and nothing  remains of  what is      consumed to  which the right of property can be said to      attach. Before  consumption title  does not pass; after      consumption there remains nothing to become the subject      of title.  What the  customer pays  for is  a right  to      satisfy his  appetite by  the process  of  destruction.



    What he  thus pays  for includes more than the price of      the food  as such. It includes all that enters into the      conception of  service, and  with it no small factor of      direct personal  service. It  does not  contemplate the      transfer of  the general  property in the food supplied      as a factor in the service rendered." Subsequent cases  drew on  these observations,  notably Mary Nisky v.  Childs Company.  (1) The  position  was  radically altered in the United States by the enactment of the Uniform Commercial Code,  which provides  in effect that the serving for value  of food  or drink  to be  consumed either  on the premises or  elsewhere constitutes a sale. Nonetheless it is affirmed in  the second edition of American Jurisprudence(2) that where  the Code  does not operate, "in general the pre- Code distinction between a contract for sale and one for the giving of services should continue."      (l) 5O A.L.R. 227.       (2) Vol. 67 p. 142 para 33. 562        It  has already been noticed that in regard to hotels this Court  has in  M/s. Associated  Hotels of India Limited (supra) adopted the concept of the English law that there is no sale  when food 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  restaurants.  No reason has  been shown  to us  for preferring any other. The classical legal  view being  that a  number of  services are 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 has  been said  in Electa B.  Merrill (supra)  appears to be as much applicable to restaurants  in India  as it  does elsewhere.  It has not been proved that any different view should be  taken, either at common law, in usage or under statute.        It  was urged  for the  respondent that in Associated Hotels of  India Ltd.  (supra) this Court drew a distinction between the  case of meals supplied to a resident in a hotel and those  served to  a customer  in a  restaurant.  We  are unable to find any proposition of law laid down by the court there which  could lead  to that  inference. We may point 13 out that  in the  view which appeals to us we find ourselves unable to  agree with  the observations to the contrary made by the  Punjab High Court in M/s. Associated Hotels of India Ltd., Simla  v. Excise and Taxation officer, Simla(1) and by the Delhi  High Court  in Municipal  Corporation of Delhi v. Laxmi Narain Tandon and another. (2),        In  the result,  we hold that the service of meals to visitors in  the restaurant  of the appellant is not taxable under the  Bengal Finance (Sales Tax) Act, 1941, as extended to the  Union Territory  of Delhi,  and this is so whether a charge is  imposed for  the meal  as a whole or according to the dishes separately ordered.        In the circumstances of the case, we make no order as to costs. N.V.K.                                       Appeals allowed      (1) A. I. R. 1966 Punjab 449.      (2) A, I. R. 1970 Delhi 244. 563