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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/-