Full Judgment Text
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PETITIONER:
NORTHERN INDIA CATERERS (INDIA) LTD.
Vs.
RESPONDENT:
LT. GOVERNOR OF DELHI
DATE OF JUDGMENT07/09/1978
BENCH:
PATHAK, R.S.
BENCH:
PATHAK, R.S.
BHAGWATI, P.N.
TULZAPURKAR, V.D.
CITATION:
1978 AIR 1591 1979 SCR (1) 557
1978 SCC (4) 36
CITATOR INFO :
RF 1981 SC1751 (1)
C 1989 SC1371 (18)
ACT:
Bengal Finance (Sales Tax) Act 1941 (as extended to the
Union Territory r of Delhi)-Service of meals to non-
residents in a restaurant in a Hotel-Sales Tax-If payable on
price charged for meals.
HEADNOTE:
The appellant runs a hotel in which meals are served to
non-residents also in the restaurant located in the hotel.
The sales tax authorities treated a portion of the receipts
as representing the price of foodstuffs served and levied
tax. The High Court affirmed the view of the sales tax
authorities.
On the question whether the transaction constituted
sale of foodstuffs.
Allowing the appeals
^
HELD. 1. Service of meals to non-residents in the
restaurant of ’the appellant is not taxable under the Bengal
Finance (Sales Ta%) Act 1941, as extended to the Union
Territory of Delhi. This is so whether a charge is imposed
for the meal as a whole or according to the dishes
separately ordered. [562 F;
2. In State of Punjab v. M/s. Associated Hotels of
India [1972] 2 SCR 937 this Court held that there was no
sale when food and drink were supplied to guests residing in
the hotel. The Court pointed out that the supply of meals
was essentially in the nature of a service provided to the
guests and could not be identified as a transaction of sale.
This Court declined to accept the position that the Revenue
was entitled to split up the transaction into two parts, one
of service and the other of sale of foodstuffs. If that be
true in respect of hotels, a, similar approach seems to be
called for on principle in the case of restaurants. Like the
hotelier, a restaurateur provides many services in addition
to the supply of food. He provides furniture and
furnishings, linen, crockery and cutlery, and he may add
music, an area for floor dancing and in some cases a floor
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show. The classical legal view being that a number of
services are concomitantly provided by way of hospitality,
the supply of meals must be regarded as ministering to a
bodily want or to the satisfaction of a human need. No
reason has been shown for preferring any other view. [562 B,
560 F-G, 562 C]
State of Punjab v. M/s. Associated Hotels of India Ltd.
[1972] 2 SCR 937 applied.
M/s. Associated Hotels of India Ltd., Simla v. Excise
and Taxation Officer Simla AIR 1961 Punjab 449 not approved.
Municipal Corporation of Delhi v. Laxmi Narain Tandon
and Another AIR 1970 Delhi 244 not approved.
Crisp v. Pratt [1639] Cro. Car 549, Parker v. Flint
[1699] 12 Mod. 254 Newton v . Trigg 3 Mod. 327, Saunderson
v. Rowles 4 Burr. 2065 Electa B.
558
Merrill v. James W. Hodson 1915-B L.R.A. 481, and Mary Nisky
v. Child Company SO A.L.R. 227 referred. to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1768-
1769/ 72.
Appeals by Special Leave from the Judgment and order
dated 15-7-1971 of the Delhi High Court in Sales Tax
Reference No. 8 of 1969.
F. S. Nariman, (In CA 1768/72), V. S. Desai (in C.A.
1769). M. C. Bhandare (C.A. 1768/72) and Mrs. S. Bhandare
and Miss M. Poduval for the Appellants.
P. A. Francis, R. N. Sachthey and Miss A. Subhashini
for the Respondent.
Y. S. Chitale, Vinay. Bhasin, A. K. Srivastava and
Vineet Kumar for the Interveners.
The Judgment of the Court was delivered by
PATHAK, J. This and the connected appeal are directed
against the judgment of the High Court of Delhi disposing of
a reference made to it under section 21(3) of the Bengal
Finance (Sales Tax) Act, 1941 as extended to the Union
Territory of Delhi on the following question:-
"Whether the service of meals to casual
visitors in the Restaurant is taxable as a sale:
(i) when charges are lumpsum per meal or
(ii) when they are calculated per dish ?"
The High Court has answered the question in the affirmative.
The appellant runs a hotel in which lodging and meals
are provided on "inclusive terms" to residents. Meals are
served to non residents also in the restaurant located in
the hotel. In the assessment proceedings for the assessment
years 1957-58 and 1958-59 under the Bengal Finance (Sales
Tax) Act, 1941, the appellant contended that the service of
meals to residents and non-residents could not be regarded
as a sale and therefore sales tax could not be levied in
respect thereof. The contention was rejected by the Sales
Tax authorities, who treated a portion of the receipts from
the residents and nonresidents as representing the price of
the foodstuffs served. At the instance of the appellant, the
High Court called for a statement of the case on two
questions. One was whether the supply of meals to residents,
who paid a single all-inclusive charge for all services in
the
559
hotel, including board, was exigible to sales tax. The
second was the A question set forth above. The High Court
answered the first question in favour of the appellant and
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the second against it. And now these appeals by special
leave.
Tax is payable by a dealer under section 4 of the
Bengal Finance (Sales Tax) Act, 1941 on sales effected by
him, and the expression "sale’ has been defined by section 2
(g) of the Act to mean "any transfer of property in goods
for cash or deferred payment or other valuable consideration
including a transfer of property in goods involved in the
execution of a contract.. ". The question is whether in the
case of non-residents the service of meals by the appellant
in the restaurant constitutes a sale of foodstuffs. It
appears to us that after the view taken by this Court in
State of Punjab v. M/s Associated Hotels of India Ltd.,(1)
the approach to the question before us is clearly indicated.
This is a case where the origin and historical
development of an institution as profoundly influenced the
nature and incidents it possesses in law. In the case of an
hotelier this Court proceeded on the footing that his
position in law was assimilable to that of an inn keeper. At
common law an innkeeper was a person who received travellers
and provided lodging and necessaries for them and their
attendants and employed servants for this purpose and for
the protection of travellers lodging in his inn and of their
goods(2). It was hospitality that he offered, and the many
facilities that constituted the components of that
hospitality determined the legal character of the
transactions flowing from them. Long ago, in Crisp v.
Pratt(3) it was pointed out that innkeepers do not get their
living by buying and selling and that although they buy
provisions to be spent in their house, they do not sell them
but what they do is to "utter" them. "Their gain", it was
added, "is not only by uttering of their commodities, but
for the attendance of their servants, and for the furniture
of their house, rooms, lodgings, for their guests.. ’‘.
This test went to the root and we find it repeated in Parker
v. Flint.(4) In Newton v. Trigg(5) Holt, C.J., defined the
true status of an inn-keeper by reference to the services
afforded by him? that he was an "hospitator", and was "not
paid upon the account of the intrinsic value of his
provisions, but for other reasons: the recompence he
receives, is for care and pains and for protection and
security.......... but the end of an inn-keeper in
(1) [1972] 2 S. C. R. 937.
(2) Halsbury’s Laws of England, 3rd Edn. Vol. 21 p. 442
paras 932.
(3) [1639] Cro. Car. 549.
(4) [1699] 12 Mod 254.
(5) 3 Mod . 327.
2-549SCI/78
560
his buying, is not to sell, but only a part of the
accommodation he is bound to prepare for his guests." And
for the purpose of the question before us is would be
relevant to quote Professor Beale(1):
As an inn-keeper does not lease his rooms, so
he does not sell the food he supplies to the guest. It
is his duty to supply such food as the guest needs, and
the corresponding right of the guest is to consume the
food he needs, and to take no more. Having finished his
meal, he has no right to take food from the table, even
the uneaten portion of food supplied to him, nor can he
claim a certain portion of good as his own to be handed
over to another in case he chooses not to consume it
himself. The title to food never passes as a result of
an ordinary transaction of supplying food to a guest."
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Having proper regard to those particular
considerations, it is not surprising that the principle was
extended in England to the service OF food at eating places
or restaurants. The keeper of an eating house, or
victualler, was regarded fundamentally as providing
sustenance to those who ordered food to eat in the premises.
That eminent and learned Judge, Lord Mansfield, saw no
distinction, in Saunderson v. Rowles(2), between an
innkeeper and a victualler. He observed:- ’.
The analogy between the two cases of an inn-
keeper and a victualler is so strong that it cannot be
got over. And we are all clear that this man
(victualler) is not within these laws; upon the
authority of a determined case of an inn keeper, and
also upon the reason of the thing.. He buys only to
spend in his house, and when he utters it again it is
attended with many circumstances additional to the mere
selling price."
Like the hotelier, a restaurateur provides many services in
addition to the supply of food. He provides furniture and
furnishings, linen, crockery and cutlery, and in the eating
places of today he may add music and a specially provided
area for floor dancing and in some cases a floor show. The
view taken by the English law found acceptance on American
soil, and after some desultory dissent initially in certain
states it very soon became firmly established as the general
view of the law. The first edition of American Jurisprudence
sets(3) forth the statement of the law in that regard, but
we may go to the case itself, Electa B. Merrill v. James W.
Hodson(4), from which the
(1) Innkeepers & Hotels, para 169.
(2) 4 Burr. 2065.
(3) Vol. 46 p. 207 para 13.
(4) 1915-B L.R.A. 481.
561
statement has been derived. Holding that the supply of food
or drink A to customers did not partake-of the character of
a sale of goods, the Court commented:-
"The essence of it is not an agreement for the
transfer of the general property of the food or drink
placed at the com command of the customer for the
satisfaction of his desires, or actually appropriated
by him in the process of appeasing his appetite or
thirst. The customer does not become the owner of the
food set before him, or of that portion which is carved
for his use, or of that which finds a place upon his
plate, or in side dishes set about it. No designated
portion becomes his. He is privileged to eat, and that
is all. The uneaten food is not his. He cannot do what
he pleases with it. That which is set before him or
placed at his command is provided tc enable him to
satisfy his immediate wants, and for no other purpose.
He may satisfy those wants; but there he must stop. He
may not turn over unconsumed portions to others at his
pleasure, or carry away such portions. The true essence
of the transaction is service in the satisfaction of a
human need or desire, ministry to a bodily want. A
necessary incident of this service or ministry is the
consumption of the food required. This consumption
involves destruction, and nothing remains of what is
consumed to which the right of property can be said to
attach. Before consumption title does not pass; after
consumption there remains nothing to become the subject
of title. What the customer pays for is a right to
satisfy his appetite by the process of destruction.
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What he thus pays for includes more than the price of
the food as such. It includes all that enters into the
conception of service, and with it no small factor of
direct personal service. It does not contemplate the
transfer of the general property in the food supplied
as a factor in the service rendered."
Subsequent cases drew on these observations, notably Mary
Nisky v. Childs Company. (1) The position was radically
altered in the United States by the enactment of the Uniform
Commercial Code, which provides in effect that the serving
for value of food or drink to be consumed either on the
premises or elsewhere constitutes a sale. Nonetheless it is
affirmed in the second edition of American Jurisprudence(2)
that where the Code does not operate, "in general the pre-
Code distinction between a contract for sale and one for the
giving of services should continue."
(l) 5O A.L.R. 227. (2) Vol. 67 p. 142 para 33.
562
It has already been noticed that in regard to hotels
this Court has in M/s. Associated Hotels of India Limited
(supra) 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 transaction into two parts, one
of service and the other of sale of foodstuffs. If that be
true in respect of hotels, a similar approach seems to be
called for on principle in the case of restaurants. 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. What has been said in
Electa B. Merrill (supra) appears to be as much applicable
to restaurants in India as it does elsewhere. It has not
been proved that any different view should be taken, either
at common law, in usage or under statute.
It was urged for the respondent that in Associated
Hotels of India Ltd. (supra) this Court drew a distinction
between the case of meals supplied to a resident in a hotel
and those served to a customer in a restaurant. We are
unable to find any proposition of law laid down by the court
there which could lead to that inference. We may point 13
out that in the view which appeals to us we find ourselves
unable to agree with the observations to the contrary made
by the Punjab High Court in M/s. Associated Hotels of India
Ltd., Simla v. Excise and Taxation officer, Simla(1) and by
the Delhi High Court in Municipal Corporation of Delhi v.
Laxmi Narain Tandon and another. (2),
In the result, we hold that the service of meals to
visitors in the restaurant of the appellant is not taxable
under the Bengal Finance (Sales Tax) Act, 1941, as extended
to the Union Territory of Delhi, and this is so whether a
charge is imposed for the meal as a whole or according to
the dishes separately ordered.
In the circumstances of the case, we make no order as
to costs.
N.V.K. Appeals allowed
(1) A. I. R. 1966 Punjab 449.
(2) A, I. R. 1970 Delhi 244.
563
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