Full Judgment Text
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4184 OF 2009
State of West Bengal and Others Appellant(s)
Versus
Calcutta Club Limited Respondent(s)
J U D G M E N T
DIPAK MISRA, J.
The present appeal, by special leave, is directed
JUDGMENT
against the judgment and order passed by the Division
Bench of the High Court of Calcutta in W.P.T.T. No.652 of
2006, wherein it has affirmed the view expressed by the
West Bengal Taxation Tribunal (for short, 'the tribunal')
and disposed of the appeal preferred by the respondent
along with other connected appeals holding, inter alia , that
the assessee, the Calcutta Club Limited, was not liable for
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payment of sales tax under the West Bengal Sales Tax Act,
1994 (for brevity, 'the Act').
2. The facts that are necessary to be stated are that
the Assistant Commissioner of Commercial Taxes issued a
notice to the respondent-Club assessee apprising it that it
had failed to make payment of sales tax on sale of food and
drinks to the permanent members during the quarter
ending 30.6.2002. After the receipt of the notice, the
respondent-Club submitted a representation and the
assessing authority required the respondent-Club to
appear before it on 18.10.2002. The notice and the
communication sent for personal hearing was assailed by
the respondent before the tribunal praying for a
declaration that it is not a dealer within the meaning of the
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Act as there is no sale of any goods in the form of food,
refreshments, drinks, etc. by the Club to its permanent
members and hence, it is not liable to pay sales tax under
the Act. A prayer was also made before the tribunal for
nullifying the action of the revenue threatening to levy tax
on the supply of food to the permanent members.
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3. It was contended before the tribunal that there
could be no sale by the respondent-Club to its own
permanent members, for doctrine of mutuality would come
into play. To elaborate, the respondent-Club treated itself
as the agent of the permanent members in entirety and
advanced the stand that no consideration passed for
supplies of food, drinks or beverages, etc. and there was
only reimbursement of the amount by the members and
therefore, no sales tax could be levied.
4. The tribunal referred to Article 366(29A) of the
Constitution of India, Section 2(30) of the Act, its earlier
decision in Hindustan Club Limited v. Additional
1
Commissioner of Commercial Taxes and Others ,
distinguished the authority rendered in The Automobile
JUDGMENT
Association of Eastern India v. State of West Bengal
2
and Others and, eventually, opined as follows:-
“Considering the relevant fact presented before
us and the different judgments of the Supreme
Court and the High Court we find that supplies of
food, drinks and refreshments by the petitioner
clubs to their permanent members cannot be
treated as 'deemed sales' within the meaning of
section 2(30) of the 1994 Act. We find that the
payments made by the permanent members are
1 (1995) 98 STC 347
2 (2002) 40 STA 154
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not considerations and in the case of Members'
Clubs the suppliers and the recipients
(Permanent Members) are the same persons and
there is no exchange of consideration.”
Being of this view, the tribunal accepted the contention
of the respondent-Club and opined that it is not exigible to
tax under the Act.
5. Being dissatisfied with the aforesaid order passed by
the tribunal, the revenue preferred a writ petition and the
High Court opined that the decision rendered in
Automobile Association of Eastern India (supra), was
not a precedent and came to hold that reading of the
Constitutional amendment, as well as the provisions of the
definition under the Act, it was clear that supply of food,
drinks and beverages had to be made upon payment of
JUDGMENT
consideration, either in cash or otherwise, to make the
same exigible to tax but in the case at hand, the drinks
and beverages were purchased from the market by the club
as agent of the members. The High Court further ruled
that the members collectively was the real life and the club
was a superstructure only and, therefore, mere fact of
presentation of bills and non-payment thereof
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consequently, striking off membership of the club, did not
bring the club within the net of sales tax. The High Court
further opined that in the obtaining factual matrix the
element of mutuality was not obliterated. The expression
of the aforesaid view persuaded the High Court to lend
concurrence to the opinion projected by the tribunal.
6. We have heard Mr. Kailash Vasdev, learned senior
counsel along with Mr. Soumik Ghosal, learned counsel for
the appellants and Mr. Rana Mukherjee, learned senior
counsel along with Mr. Arijit Prasad, learned counsel for
the respondent.
7. It is submitted Mr. Vasdev, learned senior counsel that
the reasoning of the tribunal as well as the High Court is
faulty as there has been erroneous appreciation and
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application of clause (29A) of Article 366 of the
Constitution of India. It is urged by him that after the
constitutional amendment, the concept of mutuality and
the pronouncements made in that context have no
applicability. He has commended us to the decision in
Bharat Sanchar Nigam Ltd. and another v. Union of
3
India and others .
3 (2006) 3 SCC 1
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8. Mr. Mukherjee, learned senior counsel for the
respondent, in his turn, would contend that the view
expressed by the High Court is absolutely flawless and
irreproachable inasmuch as the constitutional amendment
does not envision sale by one to himself or for that matter
by the agent to those who have engaged it as an agent. It
is further argued that the aspect of mutuality still holds
the field. For the aforesaid purpose, inspiration has been
drawn from the authorities in Fateh Maidan Club v.
4
Commercial Tax Officer, Hyderabad and
5
Cosmopolitan Club v. State of Tamil Nadu & Others .
Learned counsel has further submitted that the concept of
deemed sale is not attracted to the present nature of
transaction and supply.
JUDGMENT
9. At the very outset, we may mention certain undisputed
facts. It is beyond cavil that the respondent is an
incorporated entity under the Companies Act, 1956. The
respondent-assessee charges and pays sales tax when it
sells products to the non-members or guests who
accompany the permanent members. But when the
4 (2008) 12 VST 598 (SC)
5 (2009) 19 VST 456 (SC)
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invoices are raised in respect of supply made in favour of
the permanent members, no sales tax is collected.
10. Section 2(30) of the Act defines ‘sale’ as follows:-
“(30) “sale” means any transfer of property in
goods for cash, deferred payment or other
valuable consideration, and includes-
(a) any transfer, otherwise than in pursuance of a
contract, of property in any goods for cash,
deferred payment or other valuable
consideration;
(b) any delivery of goods on hire-purchase or any
system of payment by instalments;
(c) any 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;
(d) any supply, by way of, or as part of, any
service or in any other manner whatsoever, of
goods, being food or any other article for human
consumption or any drink(whether or not
intoxicating), where such supply or service is for
cash, deferred payment or other valuable
consideration;
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(e) any supply of goods by any unincorporated
association or body of persons to a member
thereof 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 or
unincorporated association or body of persons
making the transfer, delivery, or supply and a
purchase of those goods by the person to whom
such transfer, delivery, or supply is made, but
does not include a mortgage, hypothecation,
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charge or pledge.
Explanation: A sale shall be deemed to take place
in West Bengal if the goods are within West
Bengal –
(a) In the case of specific or ascertained goods,
at the time of the contract of sale is made; and
(b) In the case of unascertained or future goods,
at the time of their appropriation to the contract
of sale by the seller, whether the assent of the
buyer to such appropriation is prior or
subsequent to the appropriation:
PROVIDED that where there is a single contract
of sale in respect of goods situated in West
Bengal as well as in places outside West Bengal,
provisions of this Explanation shall apply as if
there were a separate contract of sale in respect
of the goods situated in West Bengal;.”
11. The said provision has been introduced after
incorporation of clause (29A) to Article 366 of the
th
Constitution vide 46 amendment, 1982, which reads as
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follows:-
“(29A) “tax on the sale or purchase of goods”
includes –
(a) a tax on the transfer, otherwise than in
pursuance of a contract, of property in any goods
for cash, deferred payment or other valuable
consideration;
(b) a tax on the transfer of property in goods
(whether as goods or in some other form) involved
in the execution of a works contract;
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(c) a tax on the delivery of goods on hire-purchase
or any system of payment by instalments;
(d) a tax on the 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;
(e) a tax on the supply of goods by any
unincorporated association or body of persons to
a member thereof for cash, deferred payment or
other valuable consideration;
(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;”
12. It is submitted by Mr. Vasdev that statutory
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provision is in accord with the Constitution of India.
Learned senior counsel would submit that clause (29A)(f)
clearly lays a postulate that when there is a supply by way
of or as a part of supply of food or any other article for
human consumption or any drink whether or not
intoxicating for supply or service, for cash or deferred
payment or valuable consideration would amount to
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deemed sale. According to Mr. Vasdev, the earlier decisions
which related to the concept of mutuality have lost their
force.
13. In this context, he has referred to the decision in
Northern India Caterers (India) Ltd. v. Lt. Governor of
6
Delhi , the three-Judge Bench was dealing with the issue
whether in the case of non-residents the service of meals
by the appellant in the restaurant constitutes a sale of
foodstuffs. Answering the said issue, the Court held:-
“It has already been noticed that in regard to ho-
tels this Court has in Associated Hotels of India
7
Ltd. adopted the concept of the English law 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 identified as a transaction of sale.
The Court declined to accept the proposition that
the Revenue was entitled to split up the transac-
tion into two parts, one of service and the other of
sale of foodstuffs. If that be true in respect of ho-
tels, 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 satisfac-
tion of a human need”.
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6 (1978) 4 SCC 36 : AIR 1978 SC 1591
7 State of Punjab v. Associated Hotels of India Ltd ., (1972) 1 SCC 472
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14. Earlier the Constitution Bench decision in Joint
Commercial Tax Officer v. Young Men’s Indian
8
Association dealing with the liability of a club to pay
sales tax when there is supply of refreshment to its
members, had Court concluded thus:-
“The essential question, in the present case, is
whether the supply of the various preparations
by each club to its members involved a transac-
tion of sale within the meaning of the Sale of
Goods Act, 1930. The State Legislature being
competent to legislate only under Entry 54, List
II, of the Seventh Schedule to the Constitution
the expression “sale of goods” bears the same
meaning which it has in the aforesaid Act. Thus
in spite of the definition contained in Section 2( n )
read with Explanation I of the Act if there is no
transfer of property from one to another there is
no sale which would be exigible to tax. If the club
even though a distinct legal entity is only acting
as an agent for its members in matter of supply
of various preparations to them no sale would be
involved as the element of transfer would be com-
pletely absent. This position has been rightly ac-
cepted even in the previous decision of this
Court”.
JUDGMENT
15. In Fateh Maidan Club (supra), the Court was
considering the defensibility of the judgment and order of a
Division Bench of the High Court of Andhra Pradesh
whereby it has held that the assessee club was liable to
pay sales tax under the Andhra Pradesh General Sales Tax
8 (1970) 1 SCC 462
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Act, 1957 on the supplies of food and drink to their
members. It was contended before the Court that when
the club supplies food or drink to its members, there is no
sale because a members’ club only acts as the agent of the
members. The Court placed heavy reliance on Young
Men’s Indian Association (supra) and remanded the
matters stating that:-
“In some of the present matters the appellants
filed writ petitions against notices seeking to
assess them to sales tax on the supply of food
and beverages to their members. There was,
therefore, no determination by the fact-finding
authorities of the relationship between the
appellants and their members in the matter of
supply by the former to the latter of food and
drink and such like; that is to say, was the club
acting as the agent of the members or did the
property in the food and drink pass from the club
to the members? In the other matters the High
Court was approached after orders of assessment
had been made and appeals filed but there was
no inquiry into the said relationship. We think it
appropriate, therefore, that the matters should go
back to the assessing authorities who will
determine, on facts in regard to each appellant.
What was the said relationship and, with that
finding in mind, decide, whether or not the
appellants are liable to sales tax in this behalf
under the provisions of the Andhra Pradesh
General Sales Tax Act, 1957.”
JUDGMENT
16. In the case of Cosmopolitan Club (supra), the
controversy related to liability of the club to pay sales tax
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under the Tamil Nadu General Sales Tax Act, 1959 for
supply of food and drinks to its members. Relying on the
earlier judgment, the Court remanded the matter by
holding that:-
“…. it may be further stated that the said show
cause notice was challenged in 1993 by the Club
by filing a Writ Petition in the High Court which
came to be later transferred to the Tribunal. The
Tribunal dismissed the matter on merits. That
decision of the Tribunal has been confirmed by
the impugned judgment. Suffice it to state that in
this case there was no determination by the fact
finding authorities regarding the relationship
between the Club and its members in the matter
of supply of food and drinks; that is to say, was
the Club acting as an agent of the members or
did the property in food and drinks pass from the
Club to the members?
At this stage it may be mentioned that after the
judgment of the High Court dismissing the Writ
Petition, the Assessment Order was passed
against which the Club has preferred an appeal
before the First Appellate Authority which has
also dismissed this appeal and as of today the
matter, being T.A.No. 17 of 2000, is pending
before the Tribunal.
JUDGMENT
In the circumstances, we think it appropriate
that the matter should go back to the Tribunal,
who will decide, on facts, as to the exact
relationship between the parties in the matter of
supply by the Club of food and drinks to its
members. In other words, the principle of
mutuality and agency among other
circumstances shall be gone into by the Tribunal
before which the said appeal is pending.”
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17. The aforesaid decisions, thus, refer to principle of
mutuality and agency. Submission of the learned counsel
for the appellant is that after the amendment the said
principles cannot be made applicable. For the aforesaid
purpose, he has commended us to the pronouncement in
Bharat Sanchar Nigam Ltd. (supra). Learned senior
counsel has drawn our attention to the views expressed by
Lakshmanan, J., which is to the following effect:-
“104. Parliament had to intervene as the power to
levy tax on goods involved in works contract
should appropriately be vested in the State Legis-
latures as was pointed out in Gannon Dunkerley
9
& Co . , the passages quoted hereinabove. There
were five transactions in which, following the
principles laid down in Gannon Dunkerley & Co.
relating to works contract, this Court ruled that
those transactions are not exigible to sales tax
under various State enactments. Parliament,
therefore, in exercise of its constituent power, by
the Forty-sixth Amendment, introduced Article
366(29-A). The Statement of Objects and Reasons
has fully set out the circumstances under which
the Forty-sixth Amendment was necessitated.
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105. The amendment introduced fiction by which
six instances of transactions were treated as
deemed sale of goods and that the said definition
as to deemed sales will have to be read in every
provision of the Constitution wherever the phrase
“tax on sale or purchase of goods” occurs. This
definition changed the law declared in the ruling
in Gannon Dunkerley & Co. only with regard to
9 State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., AIR 1958 SC 560
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those transactions of deemed sales. In other re-
spects, law declared by this Court is not neu-
tralised. Each one of the sub-clauses of Article
366(29-A) introduced by the Forty-sixth Amend-
ment was a result of ruling of this Court which
was sought to be neutralised or modified. Sub-
clause ( a ) is the outcome of New India Sugar Mills
10
Ltd. v. CST and Vishnu Agencies (P) Ltd. v.
11
CTO . Sub-clause ( b ) is the result of Gannon
Dunkerley & Co. Sub-clause ( c ) is the result of
12
K.L. Johar and Co. v. CTO . Sub-clause ( d ) is
13
consequent to A.V. Meiyappan v. CCT . Sub-
clause ( e ) is the result of CTO v. Young Men’s In-
14
dian Assn. (Regd.) . Sub-clause ( f ) is the result of
Northern India Caterers (India) Ltd. v. Lt. Governor
of Delhi (supra) and State of Punjab v. Associated
Hotels of India Ltd. (supra).”
18. In addition to the aforesaid paragraphs, learned
senior counsel appearing for the appellant has also heavily
relied on paragraphs 106 and 107 of the said judgment.
They read as follows:-
“106. In the background of the above, the history
prevailing at the time of the Forty-sixth Amend-
ment and pre-enacting history as seen in the
Statement of Objects and Reasons, Article
366(29-A) has to be interpreted. Each fiction by
which those six transactions which are not other-
wise sales are deemed to be sales independently
operates only in that sub-clause.
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107. While the true scope of the amendment may
be appreciated by overall reading of the entirety
of Article 366(29-A), deemed sale under each par-
10 1963 Supp (2) SCR 459: (1963) 14 STC 316
11 (1978) 1 SCC 520
12 AIR 1965 SC 1082
13 (1967) 20 STC 115 (Mad)
14 (1970) 1 SCC 462
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ticular sub-clause has to be determined only
within the parameters of the provisions in that
sub-clause. One sub-clause cannot be projected
into another sub-clause and fiction upon fiction
is not permissible. As to the interpretation of fic-
tion, particularly in the sales tax legislation, the
principle has been authoritatively laid down in
15
Bengal Immunity Co. Ltd. v. State of Bihar , SCR
at p. 647:
“The operative provisions of the several parts of
Article 286, namely, clause (1)( a ), clause (1)( b ),
clause (2) and clause (3) are manifestly intended
to deal with different topics and, therefore, one
cannot be projected or read into another.” (S.R.
Das, Actg. C.J.)”
19. Before we proceed further, it is necessary to
appreciate the doctrine of mutuality in proper perspective.
The said doctrine or the general law relating to mutual
concern is predicated on the principle enunciated in
16
Styles v. New York Life Insurance Company by Lord
Watson in the following words:-
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“When a number of individuals agree to
contribute funds for a common purpose, such as
the payment of annuities or of capital sums, to
some or all of them, on the occurrence of events
certain or uncertain, and stipulate that their
contributions, so far as not required for that
purpose, shall be repaid to them, I cannot
conceive why they should be regarded as traders,
or why contributions returned to them should be
regarded as profits.”
15 (1955) 2 SCR 603
16 (1889) 2 TC 460, 471 (HL)
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20. This doctrine was subsequently explained in IR v.
17
Cornish Mutual Assurance Co. Ltd. and it has been
laid down that the mutual concern should be held to be
carrying on business or trade with its members, albeit the
surplus arising from such trade is not taxable as income or
profit. However, the principle is not free from diversity or
contra opinion which can relate to issues like complete
identity between the contributors and participators or
whether such doctrine would equally apply to incorporate
company which is a juristic entity, and if so, under what
circumstances. The principle of mutuality was examined
by this Court in CIT v. Royal Western India Turf Club
18 19
Ltd. and then in CIT v. Bankipur Club Ltd. , followed
20
by Chelmsford Club v. CIT . In Bankipur Club Ltd.
JUDGMENT
(supra), it has been observed as under:-
“... The gist of the various English decisions has
been succinctly summarised in the textbooks
which we have adverted to hereinabove ( Hals-
bury’s Laws of England, Simon’s Taxes,
Wheatcroft etc.). Particular stress was laid on the
decisions of the Supreme Court in CIT v. Royal
Western India Turf Club Ltd. (supra), CIT v. Kum-
21
bakonam Mutual Benefit Fund Ltd . , Fletcher v.
17 [1926] 12 TC 841 [HL]
18 AIR 1954 SC 85
19 (1997) 5 SCC 394
20 (2000) 3 SCC 214
21 1964 SCR 204 : AIR 1965 SC 96
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22
CIT . We do not think it necessary to deal at
length with the above decisions except to state
the principle discernible from them. We under-
stand these decisions to lay down the broad pro-
position — that, if the object of the assessee com-
pany claiming to be a “mutual concern” or “club”,
is to carry on a particular business and money is
realised both from the members and from non-
members, for the same consideration by giving
the same or similar facilities to all alike in respect
of the one and the same business carried on by
it, the dealings as a whole disclose the same
profit-earning motive and are alike tainted with
commerciality. In other words, the activity carried
on by the assessee in such cases, claiming to be
a “mutual concern” or “members’ club” is a trade
or an adventure in the nature of trade and the
transactions entered into with the members or
non-members alike is a trade/business/transac-
tion and the resultant surplus is certainly profit
— income liable to tax. We should also state, that
“at what point, does the relationship of mutuality
end and that of trading begin” is a difficult and
vexed question. A host of factors may have to be
considered to arrive at a conclusion. “Whether or
not the persons dealing with each other, is a ‘mu-
tual club’ or carrying on a trading activity or an
adventure in the nature of trade”, is largely a
23
question of fact. ( Wilcock case Tax Cases at p.
132; KB at pp. 44 and 45).”
JUDGMENT
21. Earlier in Kumbakonam Mutual Benefit Fund
Ltd (supra) the Court had held that where an association
or a company trades with its members only and the
surplus out of the common fund is distributable among the
22 (1971) 3 ALL ER 1185 : (1972) 2 WLR 14 (PC)
23 Wilcock (Inspector of Taxes) v. Pinto & Co. , 9 TC 111 : (1925) 1 KB 30, CA
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members, there is no mutuality and the surplus is
assessable to tax as profit, for there is no complete identity
between the contributors and the participators. The reason
being that the members, who have not contributed to
surplus as customers, are nevertheless entitled to
participate and receive a part of the surplus. However,
where the surplus is distributed among the customers as
such, there would be complete identity between the
contributors and the participators, for only customers
would be entitled to participate in the surplus.
22. In the light of the aforesaid position and the law
of mutual concerns, we have to ascertain the impact and
the effect of sub-clause (e) to clause (29A) to Article 366 of
th
the Constitution of India, as enacted vide 46 amendment
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in 1982 and applicable and applied to Sales or VAT Tax.
The said clause refers to tax on supply of goods by an
unincorporated association or body of persons. The
question would be whether the expression ‘body of persons’
would include any incorporated company, society,
association, etc. The second issue is what would be
included and can be classified as transactions relating to
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supply of goods by an unincorporated association or body
of persons to its members by way of cash, deferred
payment or valuable consideration. Such transactions are
treated and regarded as sales. The decisions of the Court
in Fateh Maidan Club (supra) and Cosmopolitan Club
(supra) in that context have drawn a distinction when a
club acts as an agent of its members and when the
property in the goods is sold, i.e., the property in food and
drinks is passed to the members. The said distinction, it is
apparent to us, has been accepted by the two Benches.
However, the decisions do not elucidate and clearly
expound, when the club is stated and could be held as
acting as an agent of the members and, therefore, would
not be construed as a party which had sold the goods. The
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agency precept necessarily and possibly refers to a third
party from whom the goods, i.e., the food and drinks had
been sourced and provided to by the club acting as an
agent of the members, to the said members. These are
significant and relevant facets which must be elucidated
and clarified so that there is no ambiguity in appreciating
and understanding the aforesaid concepts “acting as an
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agent of the members” or when property is transferred in
the goods sold to the members.
23. At this stage, we would appropriately like to refer
to some of the arguments raised, to understand the scope
and width of the controversy. Learned senior counsel for
the State has submitted that the revenue has treated it as
a sale under Section 2(30) and clause (29A) (e) and (f) to
Article 366 of the Constitution. Mr. Rana, learned senior
counsel appearing for the respondent-assessee would
submit that once a club is incorporated, it is beyond the
State to impose tax or its provision. He would submit that
clause (29A)(f) would not apply and in any case when the
Club is acting as an agent for its members in supply of
various preparation, there cannot be any demand of any
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sales tax as the concept of mutuality is still alive after the
amendment to the Constitution. Mr. Vasdev has taken us
th
through the objects and reasons to the 46 amendment
and stressed how various decisions of this Court were
referred to in the objects and reasons to remove the base of
certain judgments. Paragraph 8 of the objects and reasons
which has been emphatically placed reliance upon is
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extracted below:-
“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 (supra). States
have been proceeding on the basis that the
Associates Hotels of India 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 foodstuffs 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”.
24. Learned senior counsel for the State would
contend that the objects and reasons throw immense light
JUDGMENT
how clause (29A) was added and what it intends to cover.
It is argued by him that the club has an independent entity
and it supplies food and beverages to the permanent
members and invoices are raised. Money goes to the club
and, therefore, there is supply or service for value. Mr.
Mukherjee would submit that the controversy is covered by
the decisions in Young Men’s Indian Association (supra)
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and the concept of mutuality applies, because neither
clause (e) or (f) to clause (29A) of Article 366 of the
Constitution has removed the concept of mutuality or
agency. It is urged by him that the club merely acts as an
agent for supply of goods and agent does not sell the goods
to the principal. It only acts as a conduit to pass on the
goods and the money whether it is in cash deferred
payment or by way of security.
25. Mr. Vasdev has submitted that whether mutuality
exists or not is a question of fact, for the contention of the
State is assuming the mutuality clause applies then also
the respondent assessee is liable to pay tax , for its supply
or sale to a member by the club which is a dealer. In
Bharat Sanchar Nigam Ltd. (supra), the Court has
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opined that by virtue of the constitutional amendment, the
Parliament has neutralised the rulings of this Court. In
Fateh Maidan Club (supra), the three-Judge Bench
remanded the matter as there was no determination by the
fact-finding authorities as regards the relationship between
the club and its members in the matter of supply by the
former to the latter of food and drinks and such like. The
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Court has also observed the relationship would govern the
fate of imposition of sales tax. In Cosmopolitan Club
(supra), the Court has remarked that there was no
determination that the club was acting as an agent of the
members or for that matter its property in food and drink
has passed from the club to the members. The matter was
remanded to the tribunal to decide on facts as regards the
relationship between the parties in the matter of supply of
food and drinks to its members. The Court clarified
whether the principle of mutuality amongst other
circumstances has to be gone into. Thus, in a way, the
principle of mutuality has been regarded as the base of
imposition or non-imposition of sales tax. It is also
noticeable that the Court has not addressed the issue
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whether the facet of mutuality survives after the
amendment to the Constitution. There is observation in
the case of Bharat Sanchar Nigam Ltd. (supra) that the
judgment of this Court has been neutralised. Clause
(29A)(f), as Mr. Vasdev would submit has to be understood
independently and not in conjunction with Clause 29A(e).
It is put forth by him that the litmus test has to be that the
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transaction has to be determined only within the
parameters of provisions in that sub-clause. Learned
senior counsel would submit that clause (29A)(e) relates to
a different field altogether and clause (29A)(f) has a
different field wherein it operates. In any case, according
to him, the club does not act as an agent. An attempt has
been made to draw a distinction between doctrine of
mutuality and principle of agency and also between
“unincorporated association” or “body of persons”.
26. It is appropriate to state here what has transpired
in the course of hearing. Learned senior counsel for both
sides, at one point of time, had submitted that this Court
following the decision in Cosmopolitan Club (supra) and
Fateh Maidan Club (supra) can remand the matter. In
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the said cases, the Court had observed that the authorities
below had not recorded any finding with regard to exact
relationship or the mutuality facet. The argument before
us is that even if the principle of mutuality or agency is in
existence or established, still it would be a sale on the
basis of clause (29A)(e) or (29A)(f). Thus, the initial
suggestion by the learned senior counsel for the parties
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was not pursued and we are disposed to think, rightly.
27. In our considered opinion, the controversy that
has arisen in this case has to be authoritatively decided by
a larger Bench in view of the law laid down in
Cosmopolitan Club (supra) and Fateh Maidan Club
(supra). We are disposed to think so as none of the
judgments really lay down that doctrine of mutuality would
apply or not but proceed on the said principle relying on
the earlier judgments. It is desirable that the position
should be clear. For the aforesaid purpose, the matter
should be referred to a larger Bench and for the said
purpose, we frame following three questions.
i. Whether the doctrine of mutuality is still
applicable to incorporated clubs or any club
th
after the 46 amendment to Article 366 (29A) of
the Constitution of India?
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ii. Whether the judgment of this Court in
Young Men’s Indian Association (supra) still
th
holds the field even after the 46 amendment of
the Constitution of India; and whether the
decisions in Cosmopolitan Club (supra) and
Fateh Maidan Club (supra) which remitted the
matter applying the doctrine of mutuality after
the constitutional amendment can be treated to
be stating the correct principle of law?
th
iii. Whether the 46 amendment to the
Constitution, by deeming fiction provides that
provision of food and beverages by the
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incorporated clubs to its permanent members
constitute sale thereby holding the same to be
liable to sales tax?
28. Let the papers be placed before the Hon’ble Chief
Justice of India for constitution of appropriate larger
Bench.
.........................J.
(Dipak Misra)
..........................J.
(Shiva Kirti Singh)
New Delhi;
May 04, 2016.
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