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NORTHERN INDIA CATERERS (INDIA) LTD.

v.

LT. GOVERNOR OF DELHI

September 7, 1978

557

A

[P. N. BHAGWATI, V. D. TULZAPURKAR AND R. S. PATHAK, JJ.) B

Bengal Fi11ance (Sales Tax) Act 1941 (as extended to the Union Territory

-0/ Delhi)--Service of meals to non-residents in a restaurant in a hoter.-SaJe,y

Tax-If payable on price charged for meals.

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 treal<d

a portion 9f the receipts M representing the price Of foodstuffs served and C

levied tax. The High Court affirmed the view of tho sales tax authorities.

On th:. question whether the transaction constituted sale of foodstuffs.

Allowing the appeals

lll~LD: 1. Service of meals W non~residents in the restaurant of the appcl~

lant is not taxable under the Bengal Finance (Sales Tax) Act 1941, as extended. D

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·

G]

2. In State of Puniab v. Mjs. 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 coulcl

not be identified as a transaction of sale. Tb.is 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 furnish­

ings, 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

hae been shown for preferring

any other

view. (562 B, 560 F-G,

562 CJ

E

F

State of Puniab v. Mis. Associated Hotels of India I,td. [1972] 2 SCR 937 G

applied.

M Js. Associated Hotels of India Ltd., Sinila v. Excise and Taxation

Officer Simla AIR 1961 Punjab 449 not "Jlproved.

Municipal Corporation of Delhi v. Laxn1i Narain Tt1ndon <ind A11othtr

AIR 1970 Delhi 244 not approved.

Crisp v. Pratt [1639] Cro. Car 549, Parker v. Flint (1699] 12 Mod. 254

Nt!wton v. Trigg 3 Mod. 327, Sauttderson v. Rowles 4 Burr. 2065 Elecla B.

H

A

·B

c

558 SUPREME COURT REPORTS [1979] 1 S.C.R.

klerrill v. Jan1es W. Hodson 1915-B L.R.A. 481, and Mary Nisky v. Childr

Company 50 A.LR. 227 referred to.

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. /Jlumdare and Miss

M. Poduval for the Appellants.

P. A. Francis, R. N. Sachthey and Miss A. Subhashini for the

Respondent.

,,;: .

",,'rY. S. Chita/e, Vinay Bhasin, A. K. Srivastava and Vineet Kumar

.. 'tffor the Interveners.

di.p" The Judgment of the Court was delivered by

E

F

PATHAK, J. This and the connected appeal are directed against

the judgment of the Higb 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 arc 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 pro­

vided

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

G 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 res­

pect thereof. The contention

was rejected by the

Sales Tax authorities,

who treated a portion of the receipts from the residents and non­

residents

as representing the price of the foodstuffs served. At the

II instance of the appellant, the Higb 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

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NORTHERN INDIA CATERERS v. LT. GOVERNOR (Pathak,!.) 559

hotel, including board, was exigible to sales tax. The second was the

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

v~luable consideration including a transfer of properly in goods in-

volved in the execution of a contract

.......

". The question is

whether in the case of non-residents the service of meals by the appel­

lant 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. MI s Asso­

ciated 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 has 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 protec­

tion of travellers lodging in his inn and of their goods("). It was hos­

pitality 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(') 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,

and

loggings, for their guests ...... ". This test went to the root, and

w~ find it repeated in Parker v. Flint.(') In Newton v. Trigg(') Holt,

C.J., defined the true status of an inn-keeper by reference

to the

services

afforded by him, that he was an "hos pita tor", and was "not paid upon

the account

of the intrinsic

value pf 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

(I) [l972j 2 S. C. R. 937.

(2) Halsbury's Laws of England, 3rd l'dn. Vol. 21 p. 442 paras 93?.

(3) [1639! Cro.

Car. 549.

(4) [1699] 12 Mod 254.

(5) 3 Mod. 327.

2-549SCil78

A

B

c

D

E

F

G

R

A

B

560 SUPREME COURT REPORTS [1979] 1 S.C.R.

his buying, is not to sell, but only a part of the accommodation be

is bound to prepare for bis guests." And for the purpose of the question

betore

us it would be relevant to quote Professor

Beale(") :

''As an inu-keeper docs uot lease

his rooms, so he does

not sell the food be 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, be

has no right to

take food from the table, even the uneaten portion of food

supplied to him, nor can be claim a certain portion

of food

as bis own to

bll banded over to another in case he chooses

C not to consume it himself. The title to

food never passes as a

result of an ordinary transaction

of supplying food to a

guest."

D

E

F

G

n

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('), 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 accep­

tance 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(')

forth the statement of the law in that regard, but

we may go to the

case itself,

Electa B. Merrill v. James W.

Hodson('), from which the

(I) Inn-keeper.< & Hotels, para 169.

\2) 4 Burr. 2065.

(3) Vol. 46 p. 207 para 13.

t4) 1915-B L.R.A. 481.

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NORTHERN INDIA CATERERS V. LT. GOVERNOR (Pathak, J.) 561

statement has been derived. Holding that the supply of food or drink

to customers did uot 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

mand 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 un­

eaten 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 to enable him to satisfy his immediate wants, and

for no other purpose. He

may satisfy those wants; bnt 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 neces-

sary incident of

this service or ministry is the consumption

of the food required. This consumption involves destruc-

tion, and nothing remains of what

i~ consun1ed to which

the right of property can be said to attach. Before consump­

tion 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."

A

B

c

D

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F

Subsequent cases drew on these observations, notably Mary Nisky v.

Childs Company. (

1

)

The position was radically altered in the G

United States by the enactment of the Uniform Commercial Code,

which provides in effect that the serving for valne 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(') that where the

Code does not operate,

"in general

the pre-Code distinction between a contract for sale and one for the H

giving of services should continue."

(1) SO A.L.R. 227. (2) Vol. 67 p. 142 .P•ra 33,

A

B

c

D K

F

G

562 SUPREME COURT REPORTS (1979] 1 S.C.R.

It bas already been noticed that in regard to hotels this Court bas

in Mis. Associated Hotels of India Limited (supra) adopted the

concept of the English

Jaw 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 iden!ified 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

af

restaurants. No reason has been shown to us for preferring any other.

The classical legal view being that a number of services arc con­

comitantly 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 whi'ch could lead to that inference. We may point

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(') and by the Delhi High Court in

Municipal Corporation of Delhi v. Laxmi Narain Tandon and

another. (') .

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.

(1) A. I. R. 1966

Punjab 449.

(2) A, I. R. 1970 Delhi 244.

Appeals allowed.

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