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Pandit Restaurant v. State Of U.P And Others
Structured Summary of the Opinion delivered by K.C. Agarwal, J.
Factual and Procedural Background
M/s Pandit Restaurant, 49/7, Generalganj, Kanpur (the petitioner) is a registered assessee with the Sales Tax Officer, Kanpur, engaged in the business of a hotel and serving food to customers who eat on the hotel premises. The Sales Tax Officer, by an assessment order dated 3 October 1983, assessed the petitioner for Rs. 20,800 and levied a tax of Rs. 832 for the period 3 February 1983 to 31 March 1983, applying the Constitution (Forty-sixth Amendment) Act, 1982 (which inserted clause (29-A) in article 366).
The petitioner filed a writ petition under article 226 of the Constitution challenging the tax assessment. The court heard the matter and, after analysing relevant constitutional amendments, statutory amendments and precedents, dismissed the writ petition under Chapter XXII, rule 2 of the Rules of Court.
Legal Issues Presented
- Whether the U.P. Sales Tax (Amendment and Validation) Act, 1985 (U.P. Act 25 of 1985) could validly be enacted with retrospective effect so as to be applicable from 2 February 1983 (the date of commencement of the Constitution (Forty-sixth Amendment) Act, 1982).
- Whether the U.P. Act 25 of 1985 (which altered the definition of the word "sale" to include supplies of food or drink by way of or as part of service) is valid and applicable to the petitioner, thereby permitting the imposition of sales tax on the supply of food at hotels/restaurants.
Arguments of the Parties
Petitioner's Arguments
- The petitioner relied upon pre-Amendment decisions of the Supreme Court (including Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi and State of Himachal Pradesh v. Associated Hotels of India Ltd.) to argue that supplies of food and drink to hotel guests or casual visitors did not constitute a "sale" for sales tax purposes and therefore were not taxable.
- The petitioner relied on the decision of this Court in Northern India Hotels Ltd. v. Commissioner of Sales Tax [1984] 55 STC 68 (All.) (B.N. Sapru, J.) which, among other things, had held that sub-section (1) of section 6 of the Forty-sixth Amendment did not apply to the U.P. Sales Tax Act and that the pre-existing definition of "sale" prevented imposition of sales tax where the dominant object of the transaction was service.
- The petitioner advanced an argument (recounted by the court) that an essential characteristic of sales tax is that the seller should be able to pass it on to the consumer; retrospective imposition which prevents the seller from recovering such tax would undermine the character of the levy as a sales tax (this contention was addressed and rejected in the court's review of authorities).
Respondent / State Arguments (as recorded)
- The state (and the legislative position) contended that the legislature possesses the power to enact laws with retrospective effect, including tax laws, and that precedent supports retrospective taxation and retrospective validation.
- The legislative change effected by U.P. Act 25 of 1985 — namely altering the statutory definition of "sale" to include supply of food or drink by way of or as part of service — cured the defect identified by earlier judicial decisions and thereby placed such supplies within the ambit of sales tax.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, [1978] 42 STC 386 (SC) | Held there is no sale when food and drink are supplied to guests residing in the hotel; meal supplies to visitors were not taxable as a "sale" under the Bengal Finance (Sales Tax) Act, 1941. | Identified as one of the Supreme Court decisions whose narrow interpretation prompted the Forty-sixth Amendment; relied upon by the petitioner but the court found those pre-Amendment decisions inapplicable after the legislative change. |
| State of Himachal Pradesh v. Associated Hotels of India Ltd., [1972] 29 STC 474 (SC) | Held that similarly supplies of meals were not "sales" under the applicable sales tax law. | Cited as part of the judicial backdrop that led to the Forty-sixth Amendment; relied upon by the petitioner but treated by the court as superseded in effect by the subsequent amendment and the U.P. legislative change. |
| Northern India Hotels Ltd. v. Commissioner of Sales Tax, [1984] 55 STC 68 (All.) | Held (per B.N. Sapru, J.) that (i) clause (29-A) widened State competence; (ii) sub-section (1) of section 6 of the Amendment Act had no application to the U.P. Sales Tax Act, 1948; (iii) the original definition of "sale" in the U.P. Act remained and precluded taxing transactions where the dominant object was service. | The court reviewed this decision, noted its holding and that its correctness had been doubted in subsequent proceedings; nonetheless the U.P. Legislature enacted U.P. Act 25 of 1985 to alter the definition of "sale" retrospectively. |
| Khyerbari Tea Company Ltd. v. State of Assam, AIR 1964 SC 925 | Article 304(b) does not require that laws passed under it must always be prospective; legislature may re-enact an Act and give it retrospective effect. | Relied upon to support the proposition that retrospective taxation and retrospective validation by the legislature is competent. |
| Misrilal Jain v. State of Orissa, (1977) 3 SCC 212 : AIR 1977 SC 1686 | Held that the power of the legislature carries with it the power to legislate retrospectively. | Applied to support the validity of retrospective amendments to tax statutes. |
| Hoechst Pharmaceuticals Ltd. v. State of Bihar, [1984] 55 STC 1 (SC) | Confirmed that retrospective enactment of tax laws is permissible and rejected the contention that inability of a dealer to pass on a tax to customers affects the competence of the State Legislature to levy the tax. | Used to repudiate petitioner's argument that retrospective application destroying the seller's ability to recover tax would negate the nature of the levy; supported the legislature's competence to validate/re-enact tax law retrospectively. |
| Tata Iron and Steel Co. Ltd. v. State of Bihar, [1958] 9 STC 267 (SC) and related authorities (J.K. Jute Mills Co. Ltd.; S. Kodar v. State of Kerala) | Principle: whether a law should impose a sales tax when the seller cannot pass it on is a policy question and does not affect the legislative competence; Article 19(1)(g) contention cannot be sustained. | Cited within the Hoechst discussion to support the position that competency to tax does not depend on the practical ability to pass on the tax to consumers. |
| Empire Industries Ltd. v. Union of India, [1987] 64 STC 42 (SC); (1985) 3 SCC 314 | Observed that tax may be imposed retrospectively. | Reinforced the court's acceptance of retrospective taxation as constitutionally permissible in appropriate circumstances. |
| Chhitter Mal Narain Das v. Commissioner Of Sales Tax, [1970] 26 STC 344 (SC) | Held that on account of statutory restriction there was no sale and therefore no tax leviable (factual/statutory restriction leading to no sale). | The court stated it was not concerned with the controversy involved in that case for purposes of the present petition. |
Court's Reasoning and Analysis
The court's analysis follows a chronological and statutory approach:
- It set out the factual basis: the petitioner, a hotelier, supplies food to customers who consume it on the premises and was assessed to tax for the relevant period by applying the Forty-sixth Constitutional Amendment (which added clause (29-A) to article 366).
- The court described the legal background: prior Supreme Court decisions (notably Associated Hotels of India and Northern India Caterers) had held that supplies of food to hotel guests or casual visitors were not "sales" for the purpose of sales taxation under earlier statutes. Those decisions produced a narrow interpretation that excluded such supplies from the definition of "sale."
- The Forty-sixth Amendment inserted clause (29-A) in article 366 expanding the scope of "tax on the sale or purchase of goods" to explicitly include supplies of food or drink by way of or as part of any service. The Statement of Objects and Reasons for the Amendment specifically referred to the earlier Supreme Court decisions.
- The court discussed the effect of a subsequent decision in this Court (Northern India Hotels Ltd. v. Commissioner of Sales Tax) where B.N. Sapru, J. held (inter alia) that sub-section (1) of section 6 of the Amendment Act did not apply to the U.P. Sales Tax Act and that the definition of "sale" in the U.P. Act remained unaltered, thereby precluding taxation where the dominant object was service.
- In response to that decision, the U.P. Legislature enacted the U.P. Sales Tax (Amendment and Validation) Act, 1985 (U.P. Act 25 of 1985), expressly altering the statutory definition of "sale" and providing retrospective effect to February 2, 1983 (the date the Forty-sixth Amendment commenced).
- The court identified the central controversy before it as whether the legislature could validly give retrospective effect to U.P. Act 25 of 1985 so as to operate from February 2, 1983. The court noted established authorities (Khyerbari Tea Co., Misrilal Jain, Hoechst, Empire Industries) supporting the proposition that the legislature can enact retrospective tax laws and that retrospective validation is constitutionally permissible.
- The court addressed the petitioner's contention that retrospective taxation which prevents a dealer from passing the tax to consumers undermines the nature of the tax (i.e., affects legislative competence). The court relied on precedent to reject that contention, observing that the question of whether such a tax should be imposed is one of policy and does not affect competence.
- Having regard to the legislative amendment that altered the statutory definition of "sale" (thereby bringing supplies of food and drink within the definition), and to the precedents upholding retrospective taxation and retrospective legislative validation, the court concluded that nothing illegal or invalid had been shown in U.P. Act 25 of 1985. The court thus held that the defects identified by pre-Amendment judicial decisions were cured by the legislative change.
Holding and Implications
Holding: The writ petition filed by M/s Pandit Restaurant is dismissed. The dismissal is recorded under Chapter XXII, rule 2 of the Rules of Court. The opinion concludes (in effect) that the U.P. Sales Tax (Amendment and Validation) Act, 1985, which retrospectively altered the definition of "sale" to include supply of food or drink by way of or as part of service (with effect from 2 February 1983), cannot be declared invalid on the grounds advanced in the petition.
Implications:
- Direct consequence for the parties: the petitioner's challenge to the assessment (based on the contention that supplies of food were not "sales") failed and the assessment stands as challenged in the writ petition; the writ is dismissed.
- The court treated the Forty-sixth Amendment and the subsequent U.P. legislative amendment as effecting a valid change in the statutory definition of "sale," curing the defect relied on in earlier judicial decisions and permitting taxation of supplies of food and drink in the circumstances envisaged by the amended definition.
- The opinion does not purport to establish a new legal principle beyond applying established precedent upholding retrospective taxation and legislative competence; it does not announce a novel precedent but applies existing authorities to the facts and statutory history before the court.
Order recorded: Writ petition dismissed.
K.C Agarwal, J.:— This writ petition under article 226 of the Constitution has been filed by M/s. Pandit Restaurant, 49/7, Generalganj, Kanpur which is a registered assessee with the Sales Tax Officer, Kanpur, and is engaged in the business of a hotel who used to serve food to the customers staying in the hotel on being demanded by them from the petitioner-hotel. The customers are required to eat the food so supplied at the hotel premises itself. The petitioner has been paying sales tax. The Sales Tax Officer by assessment order dated October 3, 1983, assessed the petitioner for Rs. 20,800 and taxed it with Rs. 832 for the period from February 3, 1983 to March 31, 1983, on the basis of the Forty-sixth Amendment of the Constitution. By this Constitution amendment article 366 was amended and a new definition of the word “sale” was inserted. The definition as inserted by the Forty-sixth Amendment of the Constitution reads as follows:
“(29-A) ‘tax on the sale or purchase of goods’ includes—
(a) ……………
(b) ……………
(c) ……………
(d) ……………
(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.”
2. Section 6 of the aforesaid Constitution amendment is a validation and exemption clause. Sub-section (1) of section 6 provides inter alia that notwith-standing any judgment, decree or order of any court, tribunal or authority, no law which was passed or made before such commencement and which imposed or authorised the imposition of the aforesaid tax shall be deemed to be invalid or ever to have been invalid on the ground merely that the legislature or other authority passing or making such law did not have competence to do so. At this juncture it is necessary to briefly point out that the Honourable Supreme Court in the case of Northern India Caterers (India) Ltd. v. Lt. Governor Of Delhi., [1978] 42 STC 386 held that there is no sale when food and drink are supplied to guests residing in the hotel while for this proposition the Supreme Court had relied on its earlier decision reported in State of Himachal Pradesh v. Associated Hotels of India Ltd., [1972] 29 STC 474. The decision rendered by the Supreme Court was that even on meals served to casual visitors in restaurant was not taxable as a sale under the Bengal Finance (Sales Tax) Act, 1941 (as applied to the Union Territory of Delhi). This was held to be so whether a charge was imposed for the meal as a whole or according to dishes separately ordered.
3. As a result of the aforesaid decision of the Supreme Court the Constitution (Forty-sixth Amendment) Act, 1982 was enacted. The Statement of Objects and Reasons attached to the Amendment Act as stated broadly that the expression “sale of goods” should have been interpreted broadly but it had been interpreted narrowly and the words “sale of goods” in the Seventh Schedule have been construed as having the same meaning as in the Sale of Goods Act, 1930.
4. In the Statement of Objects and Reasons various decisions of the Supreme Court were mentioned.
5. In paragraphs 8 and 13 of the Statement of Objects and Reasons the cases of Northern India Caterers (India) Ltd. v. Lt. Governor Of Delhi., [1978] 42 STC 386 (SC) and State of Himachal Pradesh v. Associated Hotels of India Ltd., [1972] 29 STC 474 (SC) have been referred.
6. In paragraph 13 of the Statement of Objects and Reasons, it is stated as follows:
“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 case, [1972] 29 STC 474 (SC) 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) Limited case, [1978] 42 STC 386 (SC) and the commencement of the present Amendment Act.”
7. About the effect of the amendment made by “Forty-sixth Amendment 1982” a case came up for decision in this Court before Honourable B.N Sapru, J., in Northern India Hotels Ltd. v. Commissioner of Sales Tax reported in [1984] 55 STC 68. Honourable B. N; Sapru, J., decided a number of revisions filed under Section 11 of the U.P Sales Tax Act by the aforesaid judgment. What is material about this decision is that they were in respect of the assessment years 1975-76, 1976-77 and 1977-78. Since it is not necessary for us to recite the fact of that decision excepting to point out the years in respect of which the controversy had arisen in Northern India Hotels Ltd., [1984] 55 STC 68 (All.), we do not wish to narrate the same in this judgment. Honourable Sapru, J., held:
“(i) Scope of the State's legislative competence under entry 54 of List II of the Seventh Schedule has been widened by the addition of clause (29-A) in article 366 of the Constitution and as from that date the State Legislatures are competent to enact taxes on sale or purchase of goods by hotel and restaurant owners to their customers.
(ii) Since the U.P Sales Tax Act, 1948 could not be said to have been made in pursuance of the expression ‘taxes on the sale or purchase of goods’ as was the entry 54 of List II, hence Sub-section (1) of section 6 of the Amendment Act has no application to the U.P Sales Tax Act, 1948.
(iii) The definition of the word ‘sale’ in section 2 of the U.P Sales Tax Act, 1948, having not been altered by the Amendment Act/the original definition stands. Under the original definition sales tax cannot be imposed on sales by a hotelier and in a restaurant where the dominant object of the hotelier or the restaurant owner when he effected the supply, was service.”
8. The net result of the decision of the Honourable B.N Sapru, J., was that Sub-section (1) of section 6 of the Forty-sixth Amendment of the Constitution was held not to applicable to the U.P Sales Tax Act.
9. After the decision in Northern India Hotels Ltd., [1984] 55 STC 68 (All.), the U.P State Legislature passed the U.P Sales Tax (Amendment and Validation) Act, 1985 (U.P Act 25 of 1985). The Statement of Objects and Reasons of this amending Act is:
“(1) By the Constitution (Forty-sixth Amendment) Act, 1982, a new clause (29-A) was inserted in article 366 defining the term ‘tax on the sale or purchase of goods’ to include within its ambit, inter alia, the tax on the transfer of property in goods involved in the execution of a works contract, the transfer of the right to use any goods for any purpose, the delivery of goods on hire-purchase or any system of payment by instalments, the supply of any food or drink, etc., by way of, or as part of, service or in any other manner. The State Government has since decided to levy tax on transactions of the above nature. It has therefore, become necessary to amend the definition of the word ‘sale’ with retrospective effect from February 2, 1983, the date of commencement of the Constitution (Forty-sixth Amendment) Act, 1982, and to insert the definition of the term ‘works contract’ in the Uttar Pradesh Sales Tax Act, 1948.”
10. By this Act the definition of the word “sale” was also altered. The relevant portion of the definition laying down that the same would be deemed to have been substituted on February 2, 1983 is as under:
“(2) for clause (h) including the explanation, the following clause shall be substituted and shall be deemed to have been substituted on February 2, 1983, namely:
(i) ……………
(ii) ……………
(iii) ……………
(iv) ……………
(v) ……………
(vi) 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.”
11. Section 17 of the U.P, Act 25 of 1985 is a provision dealing with validation. It confers power of reopening or for a review of the assessment or order by sub-section (2) of section 17. In this case we are not concerned with the validation, hence we do not think it necessary to refer it any more.-Before shifting to the points argued before us we wish to note that the correctness of the decision in Northern India Hotels Ltd. v. Commissioner of Sales Tax, [1984] 55 STC 68 (All.) came up for consideration before Honourable N.D Ojha, J. (as he then was), in Sales Tax Revision No. 171 of 1983. After having expressed his doubt on the correctness of the view stated above the learned Judge referred that case for the papers being placed before Honourable the Acting Chief Justice for constituting a Division Bench.
12. Before us the simple controversy is whether the legislature could enact the U.P Act 25 of 1985 which was published in the U.P Gazette dated 13th September, 1985, with retrospective effect to be applicable with effect from 2nd February, 1983. It is the date of commencement of the Constitution (Forty-sixth Amendment) Act, 1982. It is said that the power to legislate carries with it the power to legislate retrospectively as much as prospectively. This power of legislation with retrospective effect has been upheld with regard to tax laws as well. In Khyerbari Tea Company Ltd. v. State of Assam, AIR 1964 SC 925 it was held by the Honourable Supreme Court that article 304(b) of the Constitution does not require that laws passing under it must always be prospective nor was it correct, to say that once the State Legislature passes an Act without recourse to that article and that Act is struck down, the legislature cannot re-enact that Act under that article and give it retrospective effect.
13. In Misrilal Jain v. State of Orissa, (1977) 3 SCC 212 : AIR 1977 SC 1686 it was held that power of legislature carries with it the power to legislate retrospectively.
14. In Hoechst Pharmaceuticals Ltd. v. State of Bihar, [1984] 55 STC 1 (SC), similar view was pressed. This decision meets with another argument made by the learned counsel for the petitioner before us that since an essential characteristic of sales tax is that the seller must have the right to be passed it on to the consumer if the court upholds the power of legislation retrospectively. That would deprive the seller from recovering the same from the customers and in that event it would cease to be a sales tax. The Honourable Supreme Court repelled the argument by holding that merely because the dealer is prevented from collecting the surcharge recovered from him does not affect the competence of the State Legislature. The relevant portion of this controversy is:
“Whether a law should be enacted, imposing a sales tax when the seller is not in a position to pass it on to the consumer, is a matter of policy and does not affect the competence of the legislature: see Tata Iron and Steel Co. Ltd. v. State of Bihar, [1958] 9 STC 267, (SC); [1958] SCR 1355; AIR 1958 SC 452, J.K Jute Mills Co. Ltd. v. State of Uttar Pradesh, [1961] 12 STC 429 (SC); [1962] 2 SCR 1; AIR 1961 SC 1534 and S. Kodar v. State Of Kerala, [1974] 34 STC 73 (SC); [1975] 1 SCR 121; (1974) 4 SCC 422 : AIR 1974 SC 2272. The contention based on article 19(1)(g) cannot therefore be sustained.”
15. In Empire Industries Ltd. v. Union of India, [1987] 64 STC 42 (SC); (1985) 3 SCC 314 at 341 it was observed by the Honourable Supreme Court that tax may be imposed retrospectively.
16. Sri Vinod Misra, learned counsel appearing for the petitioner, had strongly relied upon the decision of this Court in Northern India Hotels Limited, [1984] 55 STC 68, Northern India Caterers, [1978] 42 STC 386 (SC), State of Himachal Pradesh v. Associated Hotels of India Limited, [1972] 29 STC 474 (SC) and Chhitter Mal Narain Das v. Commissioner Of Sales Tax., [1970] 26 STC 344 (SC). All the eases excepting Chittar Mal Narain Dasv. Commissioner of Sales Tax, [1970] 26 STC 344 (SC) have been dealt with by us above, as those cases, according to us, have no application to the present case. It is the validity and applicability of the U.P Act 25 of 1985 which is to be considered in this writ petition. As to what was the law before has a historical value but if nothing illegal or invalid is found in the U.P Act 25 of 1985, the said Act cannot be held to be invalid. By changing the definition of the word “sale” the legislature has brought 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 where such supply or service is for cash, deferred payment or other valuable consideration within the compass of the definition of the word “sale”. Whatever was the defect found by the Honourable Supreme Court in the cases before the Forty-sixth Amendment, that has been cured. In Chhitter Mal Narain Das v. Commissioner Of Sales Tax., [1970] 26 STC 344 (SC) the Honourable Supreme Court held that on account of the restriction imposed by the statute there was no sale and as such no tax was leviable. We are not concerned with the controversy involved in that case in the present petition.
17. In the result the writ petition is dismissed under Chapter XXII, rule 2 of the Rules of Court.
18. Writ petition dismissed.
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