Madras High Court
The Tamil Nadu Hotels Association vs State Of Tamil Nadu And Ors. on 11 October, 1988
Equivalent citations: [1989]74STC250(MAD)
JUDGMENT Swamikkannu, J.
1. This is a petition for issue of a writ of certiorari calling for the records relating to G.O. Ms. No. 1187 dated 22nd October, 1982, from the first respondent, State of Tamil Nadu, represented by the Secretary to the Government, Commercial Taxes and Religious Endowments Department, Madras-9 and quashing the same.
2. It is, inter alia, stated in the affidavit sworn to by the President of the petitioner-Association thus :
3. The Association constituted by the hotel owners in the State of Tamil Nadu is registered under the Societies Registration Act. Under the rules and regulations of the petitioner, any person carrying on the business of hotel or restaurant within the State of Tamil Nadu is eligible to become a member of the Association. As at present i.e., at the time of filing the writ petition, there are about 900 members on the rolls of the Association. The objects for which the petitioner - Association was established are among others :
(a) To educate all those who are interested in the trade in the various matters connected with the hotel industry and tourism with a view to place the hotel industry on a purposeful role in relation to the welfare of the public and to serve a useful purpose in society.
(b) To take steps to sponsor, to create public opinion in favour of or against proposed legislative enactments consistent with trade conditions, business needs and public welfare.
(c) To arrange supply of proper raw materials of quality for preparation of quality articles of food for supply to the members of the public at a cheap and uniform price, to arrange for procurement of raw materials through the Marketing Officers to the Government and co- operate with them and other authorities both public and private engaged in this direction and diffuse useful information and knowledge to the members in this respect.
4. The members of the petitioner-Association, carry on the business of running hotels and restaurants within the States of Tamil Nadu. The members of the petitioner - Association were originally registered under the provisions of the Tamil Nadu General Sales Tax Act as "dealers" and were submitting regular returns of their turnover and were being assessed to sales tax regularly, wherever there was liability under the provisions of the Act. These returns were being filed by the said members on the bona fide belief that sales of food and drink in a hotel were liable to sales tax under the provisions of the Act. This view was on the understanding of the definition of "dealer" and "turnover" under the Act as it then was.
5. The question of liability to sales tax in respect of the supply of food and drink by hotels to their customers came up for consideration before the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi reported in [1978] 42 STC 386. The Supreme Court in the said decision held that the service of food-stuffs or meals to visitors in a hotel or in an eating house does not amount to a "sale" and accordingly the transaction is not exigible to tax under the provisions of the Sales Tax Act. In view of the said decision, the transaction of food and drink by the members of the petitioner - Association was not liable to sales tax and consequently were not subject to assessment thereunder.
6. The aforesaid decision of the Supreme Court was rendered on 7th September, 1978 and was published in the "SALES TAX CASES" towards the end of 1978. In view of the said decision, the supply of food-stuffs by hotels to their customers cannot be treated as "sale". In view of the said decision, the assessment made by the sales tax authorities to sales tax of the supplies of food-stuffs in a hotel was not in accordance with law and was not tenable and was liable to be quashed. The collection of tax by the State in respect of such transactions also became erroneous and illegal and the State was liable to refund to the assessees the tax so collected. Not being aware of the correct state of law, prior to the decision aforesaid of the Supreme Court, no action had been taken against the said assessments and the assessments were allowed to become final.
7. In the case of another group of members of the petitioner- Association, the assessments had not been completed, though in some cases the returns had been filed. A representation by the petitioner- Association representing its members was made before the first respondent explaining the circumstances resulting from the decision of the Supreme Court in the aforesaid case. After considering the situation in detail, the first respondent passed two orders dated 27th April, 1981 in G.O. Ms. Nos. 436 of 437 of 1981. The said Government Orders were issued by the Governor of Tamil Nadu in exercise of the powers conferred on him under section 17 of the Act. Under the first of the aforesaid Government Orders, the Government made it clear that with a view to give relief to hotels and restaurants which cater to the needs of the common man, the Government had exempted hotels with effect from 6th October, 1980 supplying food and drink to the public from liability to sales tax. It was further clarified that hotels which had not collected sales tax in respect of supply of food and drink were exempt from sales tax from 7th September, 1978 onwards. Thus the tax due in respect of the supply of food and drinks in hotels in the State of Tamil Nadu was waived by the Government from 7th September, 1978 onwards under the aforesaid two notifications.
8. Further, by a Notification G.O. No. 1001 dated 6th October, 1980, issued by the first respondent, in exercise of the powers conferred under section 17 of the Act, exempted hotels from the liability to sales tax in respect of supply of food and drink for the period commencing from 6th October, 1980. All the aforesaid notifications were unconditional and provided for an unconditional waiver of the exemption in respect of the sales tax, if any, assessed or payable on hotels effecting supplies of food and drink within the State of Tamil Nadu.
9. While in view of the aforesaid notifications the hotels supplying food and drink in the State of Tamil Nadu were not liable to sales tax, the first respondent issued two subsequent notifications in G.O. Ms. Nos. 1186 and 1187 dated 22nd October, 1982. The first of the aforesaid notification stated that the Commissioner of Commercial Taxes has recommended that the taxes due from hotels and restaurants could be waived and that apart from sales tax, the tax due under section 7-A and all sales incidental and ancillary to the supply of food and drink as well as the additional sales tax and surcharge shall be waived and accordingly the Government waived the liability to sales tax, surcharge and additional sales tax as well as the tax due under section 7-A. However, in the subsequent notification in G.O. Ms. No. 1187 dated 22nd october, 1982 the first respondent superseded the notification in G.O. Ms. Nos. 436 and 437 and directed that the tax due from hotels and restaurants on the supply of food and drink as well as the tax under section 7-A and on sundry sales shall be waived subject to certain conditions, namely :-
(i) The waiver shall apply only to cases where the final assessments are kept pending, including those remanded on appeal or revision for fresh assessment and where the fresh assessment have not been made. The waiver shall not apply to cases where the assessments have become final.
(ii) The waiver shall not apply to cases where the dealer has collected tax which is equal to or in excess of the amount of tax due. In cases where the tax collected is less than the amount of tax due, the amount to be waived shall be restricted to the differences between the amount of tax due and the amount of tax collected by the dealer.
(iii) The tax, if any, paid by a dealer in all cases where he is eligible for waiver as per conditions (i) and (ii) shall be refunded to him to the extent to which he is eligible for waiver after deducting the tax, if any, collected by him; and
(iv) past assessments, if any, finalised levying no tax need not be reopened.
10. Mr. V. Ramachandran, learned counsel for the petitioner, contends that the members of the petitioner - Association are not liable to tax in respect of the value of the food and drink supplied nor in respect of the purchases under section 7-A in view of the decision of the Supreme Court aforesaid. It is only in pursuance of the decision of the Supreme Court that the first respondent waived the tax already levied on the petitioner irrespective of whether such levy had been challenged in appeal or not. By virtue of the original Government Order issued by the first respondent in G.O. Ms. Nos. 436 and 437 which was followed in later Government Orders, the members of the petitioner - Association carrying on the business of hotels and restaurants and effecting supplies of food and drink to the public are not liable to pay sales tax. The later G.O. Ms. No. 1187 dated 22nd October, 1982 restricting the scope of the earlier G.Os., in respect of the years are, therefore, without jurisdiction and cannot be invoked to deny the benefit of the wavier already granted under the earlier G.Os. In so far as the earlier G.Os., clearly holding that the tax would not be recovered without imposing any condition thereof, the first respondent erred in imposing additional conditions in the subsequent G.Os.
11. It is also contended on behalf of the petitioner by the learned counsel for the petitioner that in pursuance of the aforesaid G.Os., the assessing authorities had sought to recover from the members of the petitioner - Association the sales tax levied on them prior to the decision of the Supreme Court and which was disputed by them. They have also sought to compel the members of the petitioner - Association to register themselves as dealers though their transactions are not liable to sales tax. The petitioner's learned counsel further submits that the conduct of the assessing authorities who act under the directions of the second respondent in seeking to recover the taxes from the members and also in compelling them to get registered under the Tamil Nadu General Sales Tax Act is against law and against the decision of the Supreme Court.
12. The next submission of the learned counsel for the petitioner is that under the provisions of the Income-tax Act, the sales tax paid or demanded is a liability deductible in determining the total income. The said deduction has to be claimed in the year in which the assessment is completed in so far as the liability accrues in that year. Under the provisions of the Income-tax Act, unless the liability to sales tax is claimed in that respective year, it cannot be claimed in the subsequent year even though paid in that year. The liability to sales tax accrues, if any, on the completion of the same. Hence in respect of the assessment years up to 1979-80, the sales tax has to be claimed as a deduction during the respective assessment years. The assessment for 1979-80 has to be completed before 31st March, 1982 under the provisions of section 153 of the Income-tax Act.
13. At the relevant time, it is contended, when these assessments were taken up, the first respondent issued two G.Os. dated 27th April, 1981 whereunder the entire tax levied on the members had been waived and no tax was accordingly payable. In view of the aforesaid notifications which held the field till 22nd October, 1982, the members of the petitioner - Association had not claimed any deduction for sales tax and the income-tax assessments had been completed. In view of the present G.O. in the case of the members whose assessments had become final earlier notwithstanding the notifications issued by the respondent on 27th April, 1981 whereby the taxes have been waived a liability would be created for the payment of the said tax.
14. It is further contended that the petitioner bona fide relied on the G.O. dated 27th April, 1981 and accordingly had not claimed the sales tax as a liability for the purpose of income-tax on the basis of waiver. The first respondent thus having made the petitioner rely on the said notification and not claimed the sales tax as a deduction in the income-tax assessments is now estopped from unilaterally changing the position and making the sales tax payable thus putting the members of the petitioner - Association to double jeopardy. The first respondent is estopped under the principle of promissory estoppel from claiming the sales tax on the basis of the subsequent G.O. dated 22nd October, 1982 in supersession of the earlier G.O. dated 27th April, 1981.
15. It is also contended by Mr. Ramachandran, learned counsel for the petitioner, that the said G.O. has been issued in pursuance of the Supreme Court decision, that under the aforesaid decision of the Supreme Court, the respondents cannot claim to assess the transactions of the petitioner and that therefore the attempt of the first respondent to seek to recover the tax indirectly by withdrawing the waiver already granted to the petitioner is against the law as laid down by the Supreme Court and is wholly untenable. Learned counsel for the petitioner refers to the decision in [1986] 63 STC 18 (Mad.) (Sree Annapoorna v. State of Tamil Nadu) and submits that on the basis of the ratio decidendi in that case, this writ petition has to be allowed.
16. During the course of his argument, the learned counsel for the petitioner has referred to the provisions of section 20 of the Tamil Nadu General Sales Tax Act for the proposition that every dealer whose total turnover in any year is not less than Rs. 30,000 shall, and any other dealer or person intending to commence business may, get himself registered under the Act. "Turnover" is defined under section 2(r) to mean the aggregate amount for which goods are bought or sold, or supplied or distributed by a dealer. In the case of the members of the petitioner - Association in so far as the transactions do not constitute sales or purchases, the amount realised does not form part of the turnover and hence there is no liability to register as a dealer or renew the registration as a dealer after the decision of the Supreme Court. The sales tax authorities acting under the direction of the second respondent are seeking to compel the members of the petitioner - Association to register themselves as dealers and have issued notices to such members calling upon them to renew their registration as dealers and also pay the fee for such registration under threat of punitive action in the event of their failure to do so. This action of the respondents, according to the learned counsel for the petitioner, is wholly without jurisdiction and against the provisions of the Tamil Nadu General Sales Tax Act.
17. On behalf of the petitioner, it is submitted that the members do not have any remedy against the action of the respondents in seeking to recover the tax which has been waived and which they are not legally bound to pay and the direction in calling upon them to register themselves is erroneous notwithstanding the fact that in law they are not bound to so register themselves. No right of appeal or revision is provided against these proceedings. A registration under the provisions of the Tamil Nadu General Sales Tax Act in the case of persons who are not so bound to register would subject them to onerous responsibilities under the provisions of the Act.
18. In so far as there are a large number of members who face this harassment of being forced to pay the tax which has been waived and have been asked to register themselves are in law not bound to do so, the petitioner which is a registered society has sought to file the present writ petition in its representative capacity. Under these circumstances, the petitioner submits that G.O. Ms. No. 1187 dated 22nd October, 1982 is liable to be struck down in so far as it imposes additional conditions in respect of the waiver of sales tax as contemplated in G.O. Ms. Nos. 436 and 437 dated 27th April, 1981.
19. In the counter-affidavit filed on behalf of the respondents, sworn to by the Deputy Commissioner (Legal) in the Office of the Commissioner of Commercial Taxes, Madras-5, it is, inter alia, contended thus : The contention raised on behalf of the petitioner that all the members of the petitioner - Association are not liable to tax, is not acceptable, since the dominant object of the running of the hotel has to be assessed in each and every case separately. There is no blanket ban or bar in assessing hotels in view of the decision of the Supreme Court as there are various aspects that are to be taken into consideration before treating a hotel as liable to tax or not. The Government have passed orders exempting the supply of food and drink in hotels and restaurants during the period 7th September, 1978 to 20th December, 1979 and from 21st December, 1979 to 5th October, 1980 subject to certain conditions. G.O. Ms. No. 1186 and G.O. Ms. No. 1187 dated 22nd October, 1982 were quite essential and called for as guidelines to the assessing officers in order to have a uniform procedure in exempting hotels, ordering the refund of tax and waiver of tax assessed. If the conditions in the Government Orders are satisfied and the members had not collected tax after 7th September, 1978, there is no question of any levy of tax and if they had been assessed to tax without collecting, they are entitled for refund if already paid and if any tax had been assessed for appropriate waiver.
20. Hotels and restaurants are exempted under section 17 of the Act and they are, therefore, dealers and the officers are correct in demanding them to get registered under section 20 of the Act.
21. It is also contended in the counter-affidavit on behalf of the respondents that hotels and restaurants are exempted from payment of tax under section 17 of the Act, that means, they are dealers and that they effect sales whether in the nature of supply or service, such transactions are turnover and that they are exempt from tax by virtue of notification under section 17 of the Act. It is also contended that since the hotels and restaurants are dealers for all purposes, they are liable to get themselves registered under section 20 of the Tamil Nadu General Sales Tax Act and it cannot be questioned as illegal. According to the respondents G.O. Ms. No. 1187 is an executive direction and it imposed as many conditions as required in the smooth functioning of the department. A person whose assessment is pending is entitled for all the relief if he had not collected any sales tax on his sales. Similarly in a case where the assessment is pending and there is already a demand, the said person is entitled for waiver if he had not collected any tax. This is quite in agreement with the Constitution (Forty-sixth Amendment) Act. There is no additional clause in this Government Order which departs in substance from the earlier Government Orders referred to in regard to this subject. So it is submitted on behalf of the respondents that the G.O. Ms. No. 1187 dated 22nd October, 1982 is valid and it does not deserve to be struck down.
22. An objection was raised on behalf of the respondents by Mr. R. Lokapriya, that the petitioner herein is not a dealer and as such the President of the Tamil Nadu Hotels Association, Madras, cannot file the writ petition and as such this writ petition is not maintainable. He further submits that it is only the dealers who are competent to file a writ petition with respect to the prayer made in the writ petition.
23. Mr. V. Ramachandran, learned counsel for the petitioner relied on the decision in (Akhil Bharatiya Soshit Karamchari Sangh (Railway) v. Union of India), AIR 1981 SC 344 (Fertilizer Corporation Kamagar Union (Regd.), Sindri v. Union of India), (Gupta v. President of India) and [1985] 153 ITR 172 (Mad.) (Coimbatore Club v. Wealth-tax Officer) for his contention that the petitioner can file a writ petition in his representative capacity as the President of the Tamil Nadu Hotels Association, the members of which are only hotel owners.
24. Mr. Lokapriya, learned Government Advocate, on the other hand would submit that the decisions in [1965] 16 STC 862 (Ker) (Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Secretary, Quilon Club), (State of Andhra Pradesh v. Abdul Bakshi and Bros.) and (Joint Commercial Tax Officer v. Young Men's Indian Association) will support his contention that the President of the Tamil Nadu Hotels Association cannot represent the dealers who alone can institute proceedings. In this regard he also points out the provisions of section 20 of the Tamil Nadu General Sales Tax Act.
25. It is relevant to note that the specific case of the petitioner- Association, namely, the Tamil Nadu Hotels Association, is that it is an Association constituted by the hotel owners in the State of Tamil Nadu and that it is registered under the Societies Registration Act, 1975, under the rules and regulations of the petitioner any person carrying on the business of hotel or restaurant within the State of Tamil Nadu is eligible to become a member of the Association. During the time of the institution of the writ petition there were about 900 members on the rolls of the Association. A careful reading of section 20 of the Tamil Nadu Societies Registration Act, 1975 under which it is admitted that the petitioner - Association has been registered shows that a proceeding can be instituted by it. It is the President in his capacity as an officer of the Association has filed this writ petition. Under the circumstances, I find that the writ petition is maintainable, since the President of the Tamil Nadu Hotels Association which is a registered Association under the Tamil Nadu Societies Registration Act, 1975, can certainly institute any legal proceedings including the filing of a writ petition.
26. Now so far as the contentions raised on behalf of the petitioner is concerned, it is seen that they are similar to the contentions raised in the decision reported in [1986] 63 STC 18 (Mad.) (Sree Annapoorna v. State of Tamil Nadu). Therefore, the members of the petitioner- Association are entitled to the benefit of waiver under G.O. Ms. Nos. 436 and 437, Commercial Taxes and Religious Endowments Department, dated 27th April, 1981. Following the decision in [1986] 63 STC 18 (Mad.) (Sree Annapoorna v. State of Tamil Nadu) we find that the transactions relating to supply of food and drink in the hotels and restaurants during the assessment years are not sales and as such are not liable to sales tax under the Tamil Nadu General Sales Tax Act. In this view, the writ petition is allowed. No costs.
27. Writ petition allowed.