VENGAMMA TRUST Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) THIS revision petition by the assessee under the provisions of the Karnataka Sales Tax Act, 1957 ("the Act" for short) pertains to the assessment period April 1, 1983 to March 31, 1984. The petitioner is a hotelier wherein eatables and drinks are supplied. According to the petitioner there are two kinds of supplies. In one kind the customers may take the eatables and drinks themselves from the counter, for which the price charged is at a lower rate. In the other kind, food and drinks are served at the table in respect of which price charged includes what the petitioner terms as service charges. According to the petitioner this service charge should be excluded from the levy of sales tax because in this second category of sales, the dominant object is to render service of supplying the articles (food and drinks) and not the sale of food articles. This contention was not accepted by the Revenue and the Appellate Tribunal. The petitioner also challenges the levy of purchase tax on the turnover pertaining to fuel, i. e. , levy of purchase tax on the kerosene and diesel purchased by the petitioner, on the ground that the said goods have already suffered taxes even prior to the purchases by the petitioner.

(2.) DR . Krishna, learned counsel, placed before us certain papers to show that the petitioner has been charging differently for the two different kinds of customers. For a customer who takes coffee at the counter, the rate per cup of coffee is Rs. 1. 20, however, if the coffee is served at the table it is Rs. 2. Similarly, an eatable like masaladosa if taken by the customer directly at the counter, the charge levied is Rs. 2. 40, while if it is served at the table the customer has to pay Rs. 4 per dosa. Similar is the prices charged in respect of several other food articles. According to the petitioner nearly 40 per cent of the price collected from the customer when the article is served at the table represents the service charges and in the total turnover the petitioner actually claimed an exclusion of 33 1/3 per cent as representing the service charges. Dr. Krishna, strongly relied on a decision of the Supreme Court rendered in Builders Association of India v. Union of India [1989] 73 STC 370. In the said case the Supreme Court was primarily concerned with sub-clause (b) of clause (29-A) of article 366 of the Constitution of India and its impact on article 286 of the Constitution. The Supreme Court pointed out that the purpose of introducing clause (29-A) was to enable the States to levy tax in respect of the goods which stand transferred to the customer under a works contract. It was further held that the introduction of clause (29-A) in no way enlarged the legislative power of the State under entry 54 of List II of Seventh Schedule. The Supreme Court also held that article 286 governed and operated on such a transaction also. It was also pointed out by the Supreme Court that a transfer of property in goods under sub-clause (b) of clause (29-A) is deemed to be a sale of the goods involved in the execution of works contract by the person making the transfer and a purchase of those goods by the person to whom such transfer is made. The object of the definition introduced by clause (29-A) was to enlarge the scope of "tax on sale or purchase of goods wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery, or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) thereof, wherever such transfer, delivery or supply becomes subject to levy of sales tax". At page 400 the Supreme Court observed thus :

(3.) MATERIAL on record is not sufficient to hold that the dominant object was to render services, to avail of which the customers used to visit the hotel of the petitioner and that the sale of eatables and drinks was only incidental to the enjoyment of the services. Only because there are two types of sales is no ground to hold that in one type the dominant object was rendering of services. Rendering of service by a hotelier is inevitable if he wants to be successful in the business. In the instant case the services rendered seems to be nothing but serving at the table, a common feature in all the restaurants.