Madras High Court
K. Damodarasamy Naidu & Bros. vs State Of Tamil Nadu And Another on 8 February, 1990
JUDGMENT Venkataswami, J.
1. In all these writ petitions, the hotel/restaurant owners are the petitioners, except in W.P. No. 8516 of 1989 in which the Tamil Nadu Hotels Association represented by its Secretary is the 1st petitioner and one of the hotel owners is the second petitioner. Except in W.P. Nos. 8516, 12718 and 12719 of 1989, the relief prayed for in all other cases filed by Mr. C. Venkataraman is identical namely, for a declaration that G.O.P. No. 198, Commercial Taxes and Religious Endowments, dated 25th March, 1989, is unconstitutional, invalid and illegal in so far as it affected the petitioners.
2. In W.P. No. 8516 of 1989, the relief prayed for is, for the issue of a writ of mandamus forbearing the respondents from levying sales tax in respect of supply of food and drinks or another articles for human consumption by a hotel, restaurant, sweet-stall or other eating-houses of the members of the 1st petitioner-association.
3. The relief prayed for in W.P. Nos. 12718 and 12719 of 1989, is to quash a notice issued by the Deputy Commercial Tax Officer, Uthagamandalam, provisionally assessing the petitioners on the sales of eatables in the petitioner's hotels to sales tax.
4. Before going into the merits of the contentions, it must be pointed out that though the relief in terms of the prayers differ, in essence and in spirit, they relate to one and the same issue, namely, whether the eatables supplied in the hotel/restaurant/eating-house, are exigible to sales tax, and if so, the impugned G.O. is constitutionally valid in levying such sales tax only on the hotels/restaurants/eating-houses having a total turnover of Rs. 10 lakhs and above. The further question raised was, whether the supply of eatables consists of two elements, namely, service and supply of materials. If so, the Revenue is justified in levying tax on the total turnover without giving due regard to the service portion. One supplementary issue raised in all these writ petitions is, whether even after the Constitution (Forty-sixth Amendment) Act, 1982 (hereinafter called "the Amendment Act"), the legislature, having regard to entry 54, List II of the Seventh Schedule to the Constitution, is not empowered to widen the definition of "sale" beyond the definition of "sale" as defined in the Sale of Goods Act.
5. On behalf of the petitioners, learned Senior Counsel Messrs. V. Ramachandran, R. Krishnamurthy and G. Subramaniam advanced leading arguments. on behalf of the respondents, the learned Advocate-General, leading the learned Additional Government Pleader (Taxes), replied to the arguments addressed on behalf of the petitioners.
6. The sum and substance of the arguments advanced on behalf of the petitioners may be noted. Mr. V. Ramachandran, learned Senior Counsel, appearing in W.P. No. 8516 of 1989, submitted that factually there is no charging section authorising the levy of sales tax on the supply of food and drinks in eating-houses or restaurants or hotels in the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called "the TNGST Act"). Though the Amendment Act enlarged the definition of "sale", the power of the State to levy sales tax on goods is circumscribed by entry 54 and also by the definition of "sale" under the Sales of Goods Act. The next contention is that, even assuming without admitting that as a result of the Amendment Act, the legislature is authorised/empowered to levy sales tax on the supply of food and drinks in hotels without framing guidelines to separate the value of food and drinks supplied and the value of work (service) involved, to arrive at the taxable turnover, there cannot be any levy of sales tax on the turnover of supply of food and drinks in hotels/restaurants. The further contention of the learned counsel is that pursuant to the amendment, the executive has introduced rule 6-B to the Tamil Nadu General Sales Tax Rules in so far as levy of sales tax on works contracts is concerned. No such rule or guideline has been thought of or introduced for levying sales tax on the supply of food and drinks in hotels/restaurants. He also contended that wherever two elements go together, to make a sale or supply, the legislative practice is to provide guidelines to the executive to determine the taxable portion of the turnover and such guideline is absolutely necessary. Otherwise, the executive may exceed their power and exercise the same arbitrarily. Though necessary changes have been introduced to the definitions of "dealer", "sale" and "turnover", on the basis of the Amendment Act, in the absence of corresponding amendment to section 3 of the TNGST Act or inserting separate sections similar to section 3-A or section 3-B of the Act, the levy of sales tax on the supply of food and drinks in hotels/restaurants is unconstitutional.
7. In support of the above arguments, learned counsel placed reliance on the cases in A. R. Krishna Iyer v. State of Madras [1956] 7 STC 346 (Mad.), Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi , Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi . He also placed reliance on the recent judgment of the Supreme Court in Builders Association of India v. Union of India reported in [1989] 73 STC 370. He also placed reliance on the decision in Sree Annapoorna v. State of Tamil Nadu reported in [1986] 63 STC 18 (Mad.).
8. Mr. G. Subramaniam, arguing next, while adopting the arguments of Mr. V. Ramachandran, further submitted that the impugned G.O. is unsustainable as it is violative of article 14 of the Constitution. According to the learned counsel, the scheme of categorising the hotel owners as having a total turnover of Rs. 10 lakhs and above as one category and others as another category and subjecting the former alone for levy of sales tax on the supplies of food and drinks, violates article 14 of the Constitution. Learned counsel cited the following cases to support his contention. A. R. Krishna Iyer v. State of Madras reported in [1956] 7 STC 346 (Mad.), Sangu Chakra Hotels Private Limited v. State of Tamil Nadu reported in [1985] 60 STC 125 (Mad.), Arya Vaidya Pharmacy v. State of Tamil Nadu and Weston Electroniks v. State of Gujarat reported in [1988] 70 STC 52 (SC); AIR 1988 SC 2038.
9. Mr. R. Krishnamurthy, learned counsel arguing on behalf of Mr. C. Venkataraman, learned counsel for the petitioners in most of the cases, submitted that the points raised in this batch of cases have to be approached in the background of the earlier case on works contract and also the sales/supplies of food and drinks in hotels before the Amendment Act. Learned counsel also submitted that the circumstances, objects and the reasons for amending the Constitution by Forty-sixth amendment also should be borne in mind. In other words, the learned counsel submitted that the amendment introduced by the Forty-sixth amendment to the Constitution enabled the Revenue to split up the material portion and value of service, but for which the Revenue would not be in a position to levy sales tax. Apart from the above limited extent, the Amendment Act will not enable the Revenue to levy sales tax on the whole of the turnover on the supplies of food and drinks in the hotels/restaurants. When entry 54 in List II of the Constitution enables the legislature to levy a tax on the sales or purchase of goods, sufficient importance must be given to the word "goods". If so given, the attempt of the Revenue to levy sales tax on the entire turnover of supplies of food land drinks in hotels/restaurants is unsustainable. Learned counsel cited paragraph 25 in the judgment of the Supreme Court in Builders Association of India v. Union of India .
10. Mr. Advocate-General, contending contra, submitted that most of the arguments advanced by the learned counsel for the petitioners proceed on the premise that supply of food and drinks in hotels/restaurants consists of two elements, namely, supply and service. There is nothing to support that premise in the Amendment Act. May be, the judgments of the Supreme Court earlier to the Amendment Act, took the view that the supply of food and drinks in hotels and restaurants consists of supply and service. According to him, particularly to get over the above view of the Supreme Court, the Amendment Act was introduced and a perusal of clause (29A)(f) to article 366 of the Constitution, in clear and unequivocal terms, shows that it enables the legislature to levy sales tax on the supply of food and drinks without excluding the alleged service part. Therefore, most of the arguments which proceeded on the wrong assumption, fall to the ground. Learned Advocate-General further submitted that a Division Bench of this Court in Sangu Chakra Hotels Private Ltd. v. State of Tamil Nadu reported in [1985] 60 STC 125, has considered the scope of the Amendment Act and has rejected the contentions similar to the one advanced now by the learned counsel for the petitioners. It is further contended by the learned Advocate-General that the challenge to the impugned G.O. on the basis of the violation of article 14 of the Constitution, is also without substance. According to the learned Advocate-General, the classification of the hotel owners having a total turnover of Rs. 10 lakhs and above, and others is reasonable and, therefore, the same cannot be considered as violation of article 14 of the Constitution. In support of that, he cited three decisions of the Supreme Court, namely, Rashid and Son v. Income-tax Officer , Kodar v. State of Kerala and Mohamed Abdul Khader Firm v. State of Tamil Nadu .
11. Learned Advocate-General, placing reliance on the judgment of the Supreme Court upholding the Amendment Act, submitted that it contains answers to the contentions raised by the learned counsel for the petitioners and there is nothing to support the arguments of the learned counsel for the petitioners in that judgment of the Supreme Court.
12. Before considering the rival submissions, to appreciate the same it is necessary to extract the G.O.P. No. 198, Commercial Taxes and Religious Endowments, dated 25th March, 1989, relevant portion of the Amendment Act, and relevant definitions from the Tamil Nadu General Sales Tax Act, 1959, as amended by the Tamil Nadu Act 28 of 1984.
13. G.O.P. No. 198, CT & RE, dated 25th March, 1989, reads as follows :
"EXEMPTION IN RESPECT OF TAX PAYABLE ON SALE OF FOOD AND DRINKS OTHER THAN THOSE FALLING UNDER THE FIRST SCHEDULE BY ANY HOTEL, ETC., UNDER TAMIL NADU GENERAL SALES TAX ACT.
(G.O.P. No. 198, Commercial Taxes and Religious Endowments, dated 25th March, 1989, Panguni 12, Vibhava, Thiruvalluvar Aandu-2020).
No. II(1)/CTRE/37(c)/89. - In exercise of the powers conferred by sub-sections (1) and (3) of section 17 of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959), the Governor of Tamil Nadu in supersession of the Commercial Taxes and Religious Endowments Department Notification No. II(1)/CTRE/46(a-16)/87, dated the 20th March, 1987, published at page 13, in Part II, Section 1 of the Tamil Nadu Government Gazette, Extraordinary, dated the 20th March, 1987; and in supersession of the Commercial Taxes and Religious Endowments Department Notification No. II(1)/CTRE/70/87, dated the 10th June, 1987, published at page 46 in Part II, Section 1 of the Tamil Nadu Government Gazette, dated 24th June, 1987, hereby makes an exemption in respect of the tax payable on the sale of food and drinks other than those falling under the First Schedule to the said Act, by any hotel, restaurant, sweet-stall or any other eating-house, whose total turnover does not exceed rupees ten lakhs, per annum.
2. The notification hereby made shall come into force on the 25th March, 1989.
EXEMPTION OF SALES INCIDENTAL OR ANCILLARY TO SALE OF FOOD AND DRINKS, ETC., UNDER TAMIL NADU GENERAL SALES TAX ACT.
Amendment to notification (G.O.P. No. 198, Commercial Taxes and Religious Endowments, dated 25th March, 1989, Panguni 12, Vibhava, Thiruvalluvar Aandu-2020).
No. II(1)/CTRE/37(f)/89. - In exercise of the powers conferred by sub-section (3) of section 17 of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959), the Governor of Tamil Nadu hereby makes the following amendment to the Commercial Taxes and Religious Endowments Department Notification No. II(1)/CTRE/293/82, dated the 24th November, 1982, published in Part II, Section 1 of the Tamil Nadu Government Gazette, dated the 24th November, 1982.
2. The amendment hereby made shall come into force on the 25th March, 1989.
AMENDMENT. - In the said notification, the following proviso shall be added, namely :-
'Provided that the exemption shall not apply to any hotel, restaurant, sweet-stall or any other eating-house, whose total turnover exceeds rupees ten lakhs per annum'."
Clause (29A)(f) of article 366 reads as follows :
"(29A) 'tax on the sale or purchase of goods' includes -
(a) to (e) .......................
(f) 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 article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods, shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made".
The definitions of "dealer", "goods", "sale", "taxable turnover", "total turnover" and "turnover" as amended by Tamil Nadu Act 28 of 1984 in TNGST Act, 1959, read as follows :
"Section 2(g) 'dealer' means any per son who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable such consideration, and includes -
(i) to (viii) ....................
(ix) a person engaged in the business of supplying 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 is for cash, deferred payment or other valuable consideration;
Explanations ......................
Section 2(j) 'goods' means all kinds of movable property (other than newspapers, actionable claims, stocks and shares and securities) and includes all materials, commodities and articles including the goods (as goods or in some other form) involved in the execution of a work contract or those goods to be used in the fitting out, improvement or repair of movable property; and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale;
Section 2(n) 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes -
(i) to (v) ..............
(vi) a 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 is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;
Explanations ...............
Section 2(p) 'taxable turnover' means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed;
Section 2(q) 'total turnover' means the aggregate1 turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax;
Section 2(r) 'turnover' means the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of in any of the ways referred to in clause (n), by a dealer either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce, other than tea, grown with in the State by himself or on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover :
Explanations ..................."
It is also necessary to give a brief resume about the necessity for inserting clause (29A), in particular sub-clause (f) (as we are not immediately concerned with the other five sub-clauses) to article 366 of the Constitution by the Forty-sixth amendment in the year 1982.
14. In the year 1972, the Supreme Court, in State of Himachal Pradesh v. Associated Hotels of India reported in [1972] 29 STC 474, took the view that the supply of meals by hotelier to the resident guests is not sale of food liable to sales tax on the basis that the supply of food was essentially an indivisible transaction, namely, receiving a customer in the hotel to stay. Even if that indivisible transaction is to be disintegrated, there is no question of the supply of meals during such stay constituting a separate contract of sale as no intention on the part of the parties to sell and purchase of food-stuffs supplied during meal-times can be spelt out. This view was again reiterated in what is known as Northern India Caterers' case . In the said judgment, the Supreme Court observed as follows :
"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 food-stuffs. 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 ..............................."
Some time later, a review [See Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi of the said judgment was sought and the Supreme Court, while confirming the view once again, however, observed as follows :
"It seems to us that having regard to the facts upon which our judgment rests - undisputed as they have remained throughout the different stages of the litigation - and the considerations which they attract, no such apprehension can be reasonably entertained. Indeed, we have no hesitation in saying that where food is supplied in an eating-house, or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food and rendering of services is merely incidental, the transaction would undoubtedly be exigible to sales tax. In every case, it will be for the taxing authority to ascertain the facts when making an assessment under the relevant sales tax law and to determine upon those facts whether a sale of the food supplied is intended."
Aggrieved by the above mentioned judgments of the Supreme Court, number of States made representations for appropriate amendment to the definition of the word "sale". As a result of such representation, as appears from the "Objects and Reasons" to the Constitution (Forty-sixth Amendment) Act, 1982, the Parliament brought about the said amendment. The relevant portion of the "Objects and Reasons" reads as follows :
"Besides the above-mentioned matters, a new problem has arisen as a result of the decision of the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi . States have been proceeding on the basis that the Associated Hotels of India's case was applicable only to supply of food or drink by a hotelier to a person lodged in the hotel and that tax was leviable on the sale of food-stuffs by a restaurant. But overruling the decision of the Delhi High Court, the Supreme Court has held in the above case that service of meals whether in a hotel or restaurant, does not constitute a sale of food for the purpose of levy of sales tax but must be regarded as the rendering of a service in the satisfaction of a human need or ministering to the bodily want of human beings. It would not make any difference whether the visitor to the restaurant is charged for the meal as a whole or according to each dish separately.
It is, therefore, proposed to suitably amend the Constitution to include in article 366 a definition of "tax on the sale or purchase of goods" by inserting a new clause (29A). The definition would specifically include within the scope of that expression tax on -
(i) to (v) ................
(vi) the supply, by way of, or as part of any service, of food or any drink for cash, deferred payment or other valuable consideration (See clause 4).
* * * * The proposed amendments would help in the augmentation of the State revenues to a considerable extent. Clause 6 of the Bill seeks to validate laws levying tax on the supply of food or drink for consideration and also the collection or recoveries made by way of tax under any such law. However, no sales tax will be payable on food or drink supplied by a hotelier to a person lodged in the hotel during the period from the date of the judgment in the Associated Hotels of India's case and the commencement of the present Amendment Act if the conditions mentioned in sub-clause (2) of clause 6 of the Bill are satisfied. In the case of food or drink supplied by restaurants, this relief will be available only in respect of the period after the date of judgment in the Northern India Caterers (India) Ltd. case and the commencement of the present Amendment Act."
15. Armed by the Constitution (Forty-sixth Amendment) Act, the Tamil Nadu Legislature suitably amended the definition of the terms "dealer", "goods", "sale", "taxable turnover", "total turnover" and "turnover" as extracted above by the Tamil Nadu Act 28 of 1984. In this backdrop, let us consider the rival submissions.
16. The first contention advanced by Mr. V. Ramachandran is that there is no charging section authorising the levy of the sales tax on the supply of food and drinks in eating-house/restaurants/hotels in the TNGST Act, 1959. This contention is to be stated just to be rejected as without substance. After the amendment of the definition, bodily incorporating the definition in clause (29A)(f) of article 366 of the Constitution in the definition of "dealer" in the TNGST Act and also in the definition of "sale", it is futile to argue that section 3 which is the charging section does not cover the supply of food and drinks in hotels/restaurants.
Section 3(1) of the TNGST Act reads as follows :
"Levy of taxes on sales or purchases of goods. -
(1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than one lakh of rupees and every casual trader or agent of a non-resident dealer, whatever be his turnover for the year, shall pay a tax for each year at the rate of five per cent of his taxable turnover :
Provided ......................."
It is well-known that the words as defined in the definition section of the statute shall have to be understood in the same way unless the context otherwise requires when those words occur in other sections. If so understood, section 3 read with the definition of "dealer", "sale" and "turnover", it is quite clear section 3 clearly covers within its ambit the supply of food and drinks in hotels/restaurants. Therefore, we are unable to agree with the learned counsel for the petitioner on this contention.
17. The next contention is that notwithstanding the enlarged definition of "sale" as amended by the Amendment Act, still it is circumscribed by entry 54 and also by the definition of "sale" under the Sales of Goods Act. This contention again, in our view, is without substance. Except stating the argument, it has not been elaborated how it is circumscribed when the State Legislature has defined "sale" in consonance with the clear and unambiguous definition given in sub-clause (f) of clause (29A) of article 366 of the Constitution. The Constitution which is supreme, gives an inclusive definition to "sale" enabling the States to levy tax on the "sale or purchase of goods" in clause (29A) of article 366. Sub-clause (f) of clause (29A) specifically enables the State Legislature to levy 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 article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made. In view of this, we are unable to agree with the learned counsel for the petitioner that entry 54 in List II of the Seventh Schedule to the Constitution and the definition of "sale" in the Sale of Goods Act, still stand in the way of the States from levying sales tax on the supply of food and drinks by the hoteliers.
18. The third contention is that the supply of food and drinks in hotel/restaurant consists of two elements, namely, supply of material and service as held by the Supreme Court in several cases and without a guideline to separate the service portion, the attempt to tax the entire turnover is illegal. In this connection, as rightly pointed out by learned Advocate-General, the assumption on the part of the learned counsel for the petitioners that the judgments of the Supreme Court in State of Himachal Pradesh v. Associated Hotels of India reported in [1972] 29 STC 474, Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi reported in [1978] 42 STC 386 and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi reported in [1980] 45 STC 212, taking the view that the supply of food and drinks in hotels/restaurants consists of two elements, namely, supply and service and, therefore, not exigible to tax still stand in the way of the States from levying sales tax is wrong. Further there will be no scope for this type of argument advanced by Mr. V. Ramachandran, the learned counsel for the petitioners, if due regard is given to the deeming clause found in sub-clause (f) of clause (29A) of article 366 of the Constitution which is to the effect that "such transfer, delivery or supply of any goods shall be deemed to be a sale of goods .........". No distinction is made between the supply part and the service part in the supply of food and drinks in a hotel. As seen from the "Objects and Reasons" the Amendment Act was introduced expressly to get over the views expressed by the Supreme Court in those cases and to enable the State Legislature to levy sales tax on the supply of food and drinks in the hotels/restaurants. In this connection, the learned Advocate-General rightly relied on an observation of the Division Bench of this Court in Sangu Chakra Hotels Private Limited v. State of Tamil Nadu reported in [1985] 60 STC 125. Chandurkar, C.J., speaking for the Bench, while expressing about the effect of the Amendment Act, observed as follows :
"The overall effect of the Constitution Amendment Act is that the amended definition of 'tax on the sale or purchase of goods' has been given an extended meaning with a view to validate all sales tax legislation, which purported to levy sales tax on articles of food supplied in hotels to customers and in such of the cases where such recovery was not made, those sales have been exempted from sales tax. The further effect is that all such legislation has been given retrospective validity.
* * * The parliament, however, has now given an inclusive definition of 'tax on the sale or purchase of goods' intended to undo the effect of the Supreme Court decisions and it will now be permissible for the State Legislature to levy sales tax where there is supply of goods, being food or any other article for human consumption or any drink, even though it is by way of or as part of any supply or in any other manner whatsoever. In view of this specific expansion of the meaning by the constitutional amendment, we do not see how any objection can be raised that the supply of foods which were a part of service and which were originally found to be not taxable under the Sales Tax Act by the Supreme Court, cannot even now be taxed by proper legislative enactment."
The learned counsel appearing for the petitioners, however, contended that the above observations were only by way of obiter dicta as the case before the Bench was not concerned with this point. We do not agree. We find from the judgment, the learned Judges have said that one of the questions to be considered by them was, that the question of legislative competence with reference to the amendment in the Constitution. Even otherwise, we adopt, with respect, the above observations as part of our reasonings. Again, another Division Bench of this Court in Sree Annapoorna v. State of Tamil Nadu reported in [1986] 63 STC 18, while considering the scope and extent of the Amendment Act, in particular, clause (29A)(f) of article 366 of the Constitution, has observed as follows :
"It may be seen from the definition newly inserted in clause (29A) of article 366 and the objects as set out in the Statement of Objects and Reasons appended to the Bill, the Act intended to validate only the laws levying tax on supply of food and drinks and it does not have the effect of altering a definition of 'sale' in the various State legislations. The Supreme Court decisions are that 'sale' will not comprehend within it supply of food and drinks in a hotel or restaurant and that if any definition of 'sale' in a State law included those transactions it would be ultra vires on the ground of want of legislative competence. Therefore, if any States sales tax law had included any transactions of works contract, hire-purchase, supply of food and drinks in a hotel or transfer for consideration of controlled commodities in the definition of 'sale', then such a provision, though lacked legislative competence at the time when it was enacted, shall stand validated by the Constitution (Forty-sixth Amendment) Act so that the levy and collection of tax under those provisions would become legally valid.
* * * In fact, the Government also proceeded on this understanding of the provision, and the Tamil Nadu General Sales Tax (Fourth Amendment) Act (Act 28 of 1984), specifically amended prospectively the definition of 'sale' in clause 2(n) by section 2(c)(i) by including within the definition of 'sale' :
'(i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract;
(iii) a delivery of goods on hire-purchase or any system of payment by instalments;
(iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(v) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(vi) a 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 is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.' We have therefore no doubt that if the food and drinks supplied to a customer were not specifically included in the definition of 'sale', it could not have been taxed during the relevant assessment years."
The above observations of the Division Bench clearly support the view taken by us.
19. The fourth contention of Mr. V. Ramachandran that in the absence of a rule similar to 6-B in the Tamil Nadu General Sales Tax Rules to separate and ascertain the value of service wherever the element of service is present, the attempt to levy tax on the entirety of supply of food and drinks which includes service is illegal, cannot also be accepted for the reason stated above, which equally applies to this argument.
20. The last contention of Mr. V. Ramachandran is that a section similar to section 3-A or 3-B should have been introduced in the Tamil Nadu General Sales Tax Act expressly enabling the levy of sales tax on the supply of food and drinks in the hotels/restaurants. This argument proceeds on the basis that the charging section, namely, section 3 by itself is not sufficient to levy sales tax on the supply of food and drinks in hotels/restaurants. We have earlier rejected the contention of learned counsel Mr. V. Ramachandran that section 3 does not authorise the levy of sales tax on the supply of food and drinks in the hotels/restaurants. The same reasonings will apply to this contention as well. Therefore, we reject this contention.
21. The contention of Mr. G. Subramaniam, learned counsel appearing for some of the petitioners, is that the impugned G.O. is unconstitutional as it violates article 14 of the Constitution. Learned counsel submitted that the G.O. impugned brings into the net of taxation only the hoteliers whose total turnover per year is rupees 10 lakhs and above. The classification, according to the learned counsel, is irrational and arbitrary. In support of this argument, he cited decisions of this Court in A. R. Krishna Iyer v. State of Madras reported in [1956] 7 STC 346, Sangu Chakra Hotels Private Limited v. State of Tamil Nadu reported in [1985] 60 STC 125 and of the Supreme Court in Arya Vaidya Pharmacy v. State of Tamil Nadu reported in [1989] 73 STC 346.
22. In the first case, a Division Bench of this Court has held that a higher rate of tax on dealers of food and drinks having a particular turnover violates article 14 of the Constitution. In the second case, this Court held that there is no rationale behind entry 150 of the First Schedule to the TNGST Act to pick out all those hotels classified or approved by the Department of Tourism and Government of India for levy of sales tax. In the third case, the Supreme Court struck down the levy of higher rate of tax on "arishtams" and "asavas" on the ground that they come under the same class or category of medicinal preparations. All these cases are distinguishable on facts.
23. On the other hand, the learned Advocate-General cited decisions of the Supreme Court which are directly on point. In K. M. Mohamed Abdul Khader Firm v. State of Tamil Nadu , the Supreme Court, while reiterating similar contention based on article 14, observed as follows :
"Dealing with the contention that since the provisions of the Act imposed different rates of tax on different dealers depending upon their turnover there was a violation of article 14 of the Constitution, Mathew, J., who spoke for the Court observed; :
'The last contention, namely, that the provisions of the Act impose different rates of tax upon different dealers depending upon their turnover which in effect means that the rate of tax on the sale of goods would vary with the volume of the turnover of a dealer and are, therefore, violative of article 14 is also without any basis. Classification of dealers on the basis of their respective turnovers for the purpose of graded imposition so long as it is based on differential criteria relevant to the legislative object to be achieved is not unconstitutional. A classification, depending upon the quantum of the turnover for the purpose of exemption from tax has been upheld in several decided cases. By parity of reasoning, it can be said that a legislative classification making the burden of the tax heavier in proportion to the increase in turnover would be reasonable. The basis is that just as in taxes upon income or upon transfers at death, so also in imposts upon business, the little man, by reason of inferior capacity to pay, should bear a lighter load of taxes, relatively as well as absolutely, than is borne by the big one. The flat rate is thought to be less efficient than the graded one as an instrument of social justice. The large dealer occupies a position of economic superiority by reason of his greater volume of business. And, to make his tax heavier, both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus to arrive in the end at a more genuine equality. The economic wisdom of a tax is within the exclusive province of the legislature. The only question for the court to consider is whether there is rationality in the belief of the legislature that capacity to pay the tax increases, by and large, with an increase of receipts.
Certain it is that merchants have faith in such a correspondence and act upon that faith .......... If experience did not teach that economic advantage goes along with larger sales, there would be an end to the hot pursuit for wide and wider markets ........ In brief, there is a relation of correspondence between capacity to pay and the amount of business done. Exceptions, of course, there are. The law builds upon the probables, and shapes the measure of the tax accordingly ......... At the very least, an increase of gross sales carries with it an increase of opportunity for profit, which supplies a rational basis for division into classes, at all events when coupled with evidence of a high degree of probability that the opportunity will be fruitful. [Stewart Dry Goods Co. v. Lewis (1935) 294 US 550. See the dissenting judgment of Cardozo, J., Brandeis, J. and Stone, J.] The reasoning of the minority in that case appeals to us as more in consonance with social justice in an egalitarian State than that of the majority.
As we said, a large dealer occupies a position of economic superiority by reason of his volume of business and to make the tax heavier on him, both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus arrive in the end at a more genuine equality. The capacity of a dealer, in particular circumstances, to pay tax is not an irrelevant factor in fixing the rate of tax and one index of capacity is the quantum of turnover. The argument that while a dealer beyond certain limit is obliged to pay higher tax, when others bear a less tax, and it is consequently discriminatory, really misses the point, namely, that the former kind of dealers are in a position of economic superiority by reason of their volume of business and form a class by themselves. They cannot be treated as on a par with comparatively small dealers. An attempt to proportion the payment to capacity to pay and thus bring about a real and factual equality cannot be ruled out as irrelevant in levy of tax on the sale or purchase of goods. The object of a tax is not only to raise revenue but also to regulate the economic life of the society.' The same principles have been recently reiterated by a three Judge Bench of this Court in the case of Hoechst Pharmaceuticals Ltd. v. State of Bihar . In the light of the aforesaid pronouncements, it is manifest that the contentions put forward by the petitioners that the impugned enactment is devoid of legislative competence inasmuch as it imposes not a tax on sales but a tax on income, that the adoption of a slab system for determining tax liability is alien to the concept of sales tax and that the levy of additional tax under the impugned enactment violates articles 14 and 19 of the Constitution are all totally devoid of merit. We do not also see any substance in the plea raised in the writ petitions that the provisions of the impugned Act are violative of article 301 of the Constitution." [Paras (12) and (13)].
In Rashid and Son v. Income-tax Officer . The Constitution Bench of the Supreme Court, while dealing with a similar contention, has held as follows :
"The second point which is very important is that in regard to the cases falling under section 34(1A), action can be taken only where the income which has escaped assessment is likely to amount to Rs. 1 lakh or more. In other words, it is only in regard to cases where the escaped income is of a high magnitude that the restriction of the period of limitation has been removed. It is difficult to accept the argument that the legislature was not justified in treating this smaller class of assessees differently on the ground that the profits made by this class were higher and the income which had escaped assessment was correspondingly of a much larger magnitude. The object of the legislature being to catch income which had escaped assessment, it would be legitimate for the legislature to deal with the class of assessees in whose cases the income which had escaped assessment was much larger, because that would be a basis for rational classification which has an intelligible connection with the object intended to be achieved by the statute." [Paragraph (13)].
Further, it is now well-settled by the judgments of the Supreme Court that the State Government has got the power to classify exemption by exercising its discretion in such a manner as to adjust the system of taxation in a proper and reasonable way. It may select persons, properties, transactions and object and apply different methods and grant exemption.
24. For all those reasons, we do not think there is any force in the contention of Mr. G. Subramaniam, challenging the validity of the impugned G.O. on the basis of article 14 of the Constitution of India.
25. The contention of Mr. R. Krishnamurthy, learned senior counsel leading Mr. C. Venkataraman appearing for several petitioners, is that the amendment only enables the State Government to levy sales tax on the supply of food and drinks which, as per the judgments of the Supreme Court, the State Government did not have and that does not mean they can ignore the value of service portion and tax including that portion as well. This argument of the learned counsel cannot be accepted in view of the clear and unambiguous terms in which sub-clause (f) of clause (29A) of article 366 of the Constitution is given enabling the State Legislature to levy tax on the sale or purchase of goods. We have discussed in the earlier portion of our judgment about the effect of the amendment. The reasonings given in the earlier part of our judgment will be the answer for this contention.
26. For all the above reasons, we are of the view that the writ petitions are devoid of merits. Consequently, they are dismissed. However, there will be no order as to costs.
27. Writ petitions dismissed.