Bombay High Court
East India Hotels Ltd. vs State Of Maharashtra on 3 February, 1995
Author: D.K. Trivedi
Bench: D.K. Trivedi
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 61(1) of the Bombay Sales Tax Act, 1959, made at the instance of the assessee, the Maharashtra Sales Tax Tribunal has referred the following questions of law to this Court for opinion :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the service of food in the various eating rooms of the applicants was a sale as defined in section 2(28) of the Bombay Sales Tax Act, 1959, and was liable to tax ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in rejecting the alternative contention of the applicants that only 50 per cent of the receipts in respect of the services of food in the various eating rooms was liable to tax ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in its conclusion that the service of food by the applicants in the eating rooms was not incidental to the services and amenities offered to the customers ?
(4) Whether, on the facts and in the circumstances of the case, there were two implied contracts, one for environment and amenities and the other for food and the price received for food only was liable to tax under the Bombay Sales Tax Act, 1959 ?
(5) Whether, the Tribunal was justified in its conclusion that the department had discharged the burden that service of food by the applicants to its customers in the various eating rooms was a transaction liable to tax under the Bombay Sales Tax Act, 1959 ?"
2. Counsel for the parties are agreed that the controversy in question Nos. 1, 3 and 5 stands concluded in favour of the Revenue by the ratio of the decision of this Court in Yogi Restaurant v. Commissioner of Sales Tax [1991] 83 STC 122 and Naranga Hotels Private Ltd. v. Union of India [1994] 94 STC 5. In that view of the matter, we answer questions 1, 3 and 5 in the affirmative and in favour of the Revenue.
3. The only questions that fall for determination are questions 2 and 4. We shall, therefore, briefly state only those facts which are relevant for determining the controversy involved in the said questions. Such facts are :
The assessee, M/s. East India Hotels Limited, carries on business as a hotelier and runs a five star hotel at Bombay which is known as "Oberoi Sheraton". In the course of its activity as a hotelier, the assessee serves vegetarian and non-vegetarian dishes of food, snacks, coffee, tea, beverages, etc., to its resident as well as non-resident customers. The Sales Tax Officer assessed the assessee under the Bombay Sales Tax Act, 1959 ("the Act"), for the period from April 1, 1972 to March 31, 1973, by his order of assessment dated April 10, 1974 and levied tax on the receipts for supply of the above items. Against the above order of assessment, the assessee appealed to the Assistant Commissioner of Sales Tax (Appeals) and contended that the Sales Tax Officer ought to have determined the turnover of sales in respect of supply of food and drinks by the assessee to its customers after making deductions therefrom of the charges for various facilities and amenities provided by the assessee in its five star hotel. It was submitted by the assessee that having regard to the high rates charged by the assessee for foods and drinks, it could not be said that the same were only for the supply of food and drinks. It was, therefore, submitted that the charges recovered by the assessee for the service of food and drinks should be bifurcated into two parts; 50 per cent being for supply of food and 50 per cent being for other factors, such as atmosphere and other amenities provided by the assessee. The Assistant Commissioner rejected this contention of the assessee by his order dated November 23, 1976, as according to him, the customer has no option to have the food supplied to him at 50 per cent of the rates by foregoing other amenities. The Assistant Commissioner, therefore, held that the contract with the customers was an indivisible contract for supply of food and drinks for an all-inclusive price and hence it was not a divisible contract. Aggrieved by the above order of the Assistant Commissioner of Sales Tax, the assessee went in further appeal to the Maharashtra Sales Tax Tribunal ("the Tribunal") and reiterated the submissions made by it before the Assistant Commissioner. With the permission of the Tribunal, the assessee pressed another contention that there was no sale of food effected by the assessee and even 50 per cent of the receipts for service of food were not taxable. In support of the contention that the contract between the assessee and the customers was a contract for provision of amenities and facilities in decorated eating rooms, the assessee produced menu cards of nine different eating rooms. By referring to these menu cards, it was pointed out by the assessee before the Tribunal that different rates were charged for similar item of food in different eating rooms. The Tribunal rejected all these contentions of the assessee by its judgment and order dated April 18, 1977 and held that the service of food and drinks to the customers amounted to sales of taxable goods and that no part of the consideration received by the assessee was for something other than the supply of food and drinks. Hence this reference at the instance of the assessee.
4. We have heard the learned counsel for the assessee Mr. S. S. Gaitonde who submits that the assessee is entitled to get deduction of a sum equivalent to 50 per cent of the amount received by it from sale of food and drinks, which according to him, in effect, was for payment for enjoyment of facilities and amenities provided by the assessee in its five star hotel. We have given our careful consideration to the above submission. We, however, do not find any merit in the same. Tax is leviable under section 3 of the Act, inter alia, on the turnover of sales of a dealer. The expression "turnover of sales" has been defined in clause (36) of section 2 of the Act to mean -
"the aggregate of the amounts of sale price received and receivable by a dealer in respect of any sale of goods made during a given period after deducting the amount of sale price, if any, refunded by the dealer to a purchaser, in respect of any goods purchased and returned by the purchaser within the prescribed period."
"Sale price", as defined in clause (29) of section 2, means :
"the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the dealer in respect of goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged."
It is clear from the above definition that it is the amount payable to a dealer as consideration for the sale of goods which constitutes sale price. The test is what is the consideration passing from the purchaser to the dealer for the sale of goods. It is immaterial to enquire as to how the amount of consideration is made up. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale and not as to what is the net consideration which according to the seller is attributable to the real price of the goods. The concept of real price or actual price is irrelevant for the purpose of determining sale price. The price of a commodity may be a particular amount because of various factors, but on sale there is only one consideration, viz., the amount paid by the purchaser because when a seller offers goods for sale, it is for him to fix the price. If the buyer agrees to the same, it is not for him to consider how it is made up. As held by Goddard L.J., in Love v. Norman Wright (Builders) Ltd. [1944] 1 All ER 618 :
"So far as the purchaser is concerned, he pays for the goods what the seller demands, namely, the price ....... That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turnover."
It may be expedient in this connection to refer to the decision of the Supreme Court in McDowell & Co. v. Commercial Tax Officer [1985] 59 STC 277 where the question for consideration was whether excise duty on liquor sold by the dealer which was paid directly to the excise authorities by the buyers formed part of the sale price. Ranganath Misra, J. (as his Lordship then was), speaking for the Bench, referred to section 2(s) of the Andhra Pradesh General Sales Tax Act, 1957 which defines "turnover" to mean the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charged) as consideration for sale or purchase of goods, and observed :
"The definition clearly indicates that the total amount charged as the consideration for the sale is to be taken into account for determining the turnover. Where a bill of sale is issued (and obviously the bill has to state that total amount charged as consideration), the total amount set out therein is to be taken into account. In every transaction of sale, there is bound to be a seller at one end and a buyer at the other and transfer of title in the goods takes place for a consideration."
His Lordship also referred to the earlier decision of the Supreme Court in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 and quoted the following observations from the said judgment :
"The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is mad up, whether it includes excise duty or sales tax or freight. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale .........."
The court also quoted the following discussion form the said decision :
"Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily, it is not shown as a separate item in the bill, but it is included in the price charged by him. The 'sale price' in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. True, the excise duty component of the price would not be an addition to the coffers of the dealer, as it would go to reimburse him in respect of the excise duty already paid by him on the manufacture of the goods. But, even so, it would be part of the 'sale price' because it forms a component of the consideration payable by the purchaser to the dealer. It is only as part of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser. There is no other manner of liability, statutory or otherwise, under which the purchaser would be liable to pay the amount of excise duty to the dealer. And, on this reasoning, it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bill."
and added that the position was not different when under a prior agreement, the legal liability of the manufacturer-dealer for payment of excise duty is satisfied by the purchaser by direct payment to the excise authorities or to the State exchequer.
It was held that the excise duty, though paid by the purchaser to meet the liability of the appellant, was a part of the consideration for the sale and was includible in the turnover of the appellant. The purchaser had paid the tax because the law asked him to pay it on behalf of the manufacturer.
5. It is clear from the above discussion that the whole of the amount payable by the purchaser as consideration for the goods constitutes "sale price" and no deduction can be made therefrom of any amount even if it is referable to any component of such consideration. It would also be appropriate at this stage to refer to a decision of this Court in Sun-N-Sand Hotel P. Ltd. v. State of Maharashtra [1969] 23 STC 507, which in our opinion squarely applies to the facts of the present case. The facts of the said case are as follows :
The assessee ran at Juhu Beach in Bombay a hotel which had both a boarding and a lodging establishment. The customers who came to the hotel were informed of the charges they had to pay for lodging with different amenities and boarding according to their taste. They were also informed that they had to pay service charges at ten per cent of the tariff and sales tax at five paise per rupee. The assessee objected to the inclusion of the service charges in its gross turnover on the ground that they did not represent part of the sale price but were recovered from the customers for payment to the employees and for covering partly the breakages. The Tribunal found that the customers had no option but to pay the service charges which entirely depended on the food ordered and consumed by them - and hence formed part of the turnover of the assessee. On a reference at the instance of the assessee, it was held by this Court that on the facts and in the circumstances of the case, the service charges constituted part of "sale price" as defined in section 2(29) of the Bombay Sales Tax Act, 1959, and could be included in the assessee's gross turnover. It was observed :
"....... It will, therefore, be seen that what is charged as service charges and required to be paid by the customer is in effect an addition to the price which he has to pay and is properly to be considered as sale price of the food ordered by him in that establishment. It is true that the kind of service of a particular establishment may be of a particularly attractive order. The furniture may be good, the servants may be well dressed, there may be an accompaniment of music or a floor-show and many other amenities. But all this goes in determining the tariff at which the catering establishment caters to the needs of its customers, and admittedly is not separately charged for. It may be that the same kind of food served outside, say on the footpath, may be charged much less than when it is ordered and served in a posh establishment like the one which the assessee maintains. But all the same, it is the price of food that the customer has to pay for the luxury or the benefit of having delivered the articles of food in a nice place, in comfort and to the delightful accompaniment of music or such other entertainment. We fail to see, therefore, what difference does it make so far as the customer is concerned, whether the addition to his bill is named as service charges or simply as 10 per cent addition to the tariff. As it is not possible or permissible to separate the two charges as charges merely for the services and when mere services are not available for payment, the Tribunal seems to be right in coming to the conclusion that service charges are inseparably mixed up with the total amount or price that is charged to the customer for the food that is supplied to him."
The court proceeded to say :
".......... It is all a matter of agreement between the customers and the assessee; accordingly when the assessee tells the customers the moment he (the customer) enters the hotel, that for the purposes of goods supplied, the customer will have to pay not only the tariff rates which are fixed but also over and above it 10 per cent by way of service charges, the sale price quoted must include service charges. We have already observed that so far as the customer is concerned, he has to note by virtue of the tariff card that he has to pay the tariff rates plus 10 per cent as service charges plus 5 paise as sales tax per rupee; and all this is part of the contract or agreement between the customer and the assessee in respect of the price the customer has to pay for the food that is supplied to him. In other words, all this constitutes and goes into the formulation or fixation of the price for the goods supplied, and, therefore, it must be treated as 'sale price' within the meaning of section 2(29) of the Bombay Sales Tax Act, 1959."
Dealing with the contention of the assessee that the part of the amount goes to the benefit of the employees and hence it would not form part of the sale price, it was observed :
"....... The fact that part of the amount is utilised towards meeting the obligations of the employer in providing amenities to the employees, in our opinion, is hardly relevant in determining whether that charge or that extra payment demanded of the customer is or is not properly liable to be included in determining the sale price. In fact, that is the obligation of the employer vis-a-vis the employees under the contract or the settlement. Even if nothing were to be paid to the employees, the customer will still be required to pay 10 per cent over and above by way of service charges. Thus the fact that part of the amount goes for the benefit of the employees under the agreement between the employer and the employees can hardly be of any relevance in determining the nature of the payment and whether it could be properly included in determining the sale price of the goods supplied."
6. The ratio of the above decision applies with full force to case before us. In this case, the uncontroverted factual position is that the amount paid by the customer for food and drinks was the price stated in the menu card for supply of such food and drinks. How and why the price was fixed was not the look out of the customer. So far as he is concerned, he had to pay the price specified in the menu card if he wanted to take the food or drink. No option was given to him to buy it at half the price if he intended to carry it home. On the other hand, if he wanted to buy any item of food or drink from the assessee, he had to pay the amount demanded by him. In such a case, we fail to appreciate how the assessee can even contend that half of the sale price or a part of it should only be regarded as sale price for the purposes of section 2(29) of the Act and the balance amount should be regarded as payment for the comfort and luxury of a five star hotel. There is no justification whatsoever for such a contention. It is a well-known fact that prices of all commodities vary from shop to shop, area to area and town to town. The prices are often much higher in posh areas and in big air-conditioned stores than the prices in smaller shops in other areas or in roadside stall. Various factors like huge investment in shop premises, decoration, beautification, air-conditioning or maintenance thereof might have weighed with the dealer in fixation of high prices of the goods offered by it for sale. But that can in no way render the price fixed by him as price plus something. The whole of the amount is price which the purchaser has to pay as consideration for the purchase, if he wants to buy the same. That being so, the whole of the amount paid by the purchaser would be sale price.
7. In view of the above, we are of the clear opinion that the Tribunal was justified in rejecting the contention of the assessee that only fifty per cent of the receipts in respect of the service of food in the various eating rooms of the assessee's hotel was liable to tax. We do not find any base whatsoever of the contention of the assessee that there were two implied contracts, one for environment and amenities and other for food. This claim of the assessee is wholly unfounded and untenable. The obvious and incontrovertible factual position in the present case is only one contract between the assessee and its customers - express or implied - and the contract is the contract for supply of food and drinks. No part of it was relatable to anything else. Hence the whole of the consideration paid by the customers constituted sale price within the meaning of section 2(29) of the Act.
8. In view of the above, we answer questions 2 and 4 in the negative and in favour of the Revenue.
9. This reference is disposed of accordingly. In the facts and circumstances of the case, we make no order as to costs.
Reference disposed of accordingly.