1. This tax revision case by the State gives rise to a short but an interesting question of law, whether the transaction relating to supply of food by a hotel proprietor to his servants (employees) constitutes a sale within the meaning of Section 2(n) of the Andhra Pradesh General Sales Tax Act (6 of 1957) (hereinafter referred as

"the Act"

2. In order to appreciate the scope of the question, it is necessary to briefly refer to the material facts that gave rise to the question. For the year 1964-65, the Deputy Commercial Tax Officer, Visakhapatnam, had assessed Sri Lakshmi Bhavan, Visakhapatnam, a hotel represented by its proprietor P. Damodara Nair (hereinafter called "the assessee") to tax under the assessment order dated 20th January, 1966, on a net turnover of Rs. 55,003.31. In arriving at the net turnover, the assessing authority had allowed the turnover of Rs. 4,329.24, being the value of food supplied by the assessee to its employees, as a deduction. The Deputy Commissioner (C.T.), Visakhapatnam, suo motu seeking to revise the assessment in so far as it relates to the exemption of the turnover amounting to Rs. 4,329.24, representing the value of the food supplied by the assessee to its employees, granted by the assessing authority, issued a notice to show cause why the aforesaid turnover should not be assessed to tax. The assessee submitted its explanation stating that a sum of Rs. 25 per month per head was being deducted from money wages paid to the workers, as per the provisions of G.O. Ms. No. 950 Home (Labour) dated 25th May, 1962, and hence, the supply of food to its emyloyees does not constitute sale within the meaning of "the Act". Rejecting the objection raised by the assessee the Deputy Commissioner held that food was supplied to the workers in lieu of money and the same was for any other valuable consideration and, therefore, the supply of food amounts to sale assessable to tax. Aggrieved by the decision of the Deputy Commissioner, the assessee preferred an appeal to the Sales Tax Appellate Tribunal. The Appellate Tribunal, on a consideration of the facts and circumstances, found that there is a fundamental distinction between the supply of food to the customers and the employees in a hotel and that the supply of food to the hotel workers was under a contract of service under which the employees are employed by the assessee. The supply of food by the assessee to its employees was, in effect, payment of part of the wages to the workers in kind under the contract of service, but not under any contract of sale. It was further found that if the supply of food to the workers were under a contract of sale, one would expect the workers also to be charged for each meal at the same rate at which the customers were charged. In the case on hand, it was found that the flat rate of Rs. 25 at which deductions were made from the monthly wages of each worker towards supply of food was admittedly far below the amount which the customers would be charged and, therefore, the appeal was allowed. Hence this revision by the State.

3. Mr. Mahadev, the learned counsel appearing for the State, pressed upon us that a sum of Rs. 25 per mensem though not the usual price, has been paid by each of the employees for the supply of food by the assessee and the adequacy of price can never be a consideration for deciding whether a transaction partakes the character of a sale or not. In other words, he contended that there is transfer of property in goods for money consideration pursuant to an agreement of sale entered into between the assessee and its employees of their own free will and volition and, therefore, the transaction amounts to sale within the meaning of section 2(n) of "the act". As no one appeared for the assessee, though notice has been served in due course, we had appointed Mr. A. Balakoteswara Rao and Mr. C. Surya-narayana Murthy as amicus curiae to assist the court. Mr. Balakoteswara Rao opposed the claim of the State contending, inter alia, that the ingredients of the concept of "sale" have not been established by the State on whom the burden lies, before taxing the transactions in question, that the assessee was paying the wages to its employees partly in kind and partly in cash pursuant to the G. 0. issued by the State Government on 25th May, 1962, that there is no volition or free consent of the parties as the assessee is bound by the G.O. and that the Tribunal has rightly allowed the claim of the assessee. Mr. C. Suryanarayana Murthy, the learned counsel referred to the concept of contract in modern times and added that the supply of food by the assessee to its employees is only incidental to the contract of service agreed to by the parties, but does not amount to "sale".

4. For a proper appreciation of the respective contentions advanced on behalf of the parties, it is necessary to advert, at the outset, to the concept of "sale". "Sale" is defined under section 2(n) of "the act" as "every transfer of the property in goods by one person to another in the course of trade or business for cash, or for deferred payment, or for any other valuable consideration". It is trite law that the concept of sale under "the Act" has to be understood as a sale of goods within the meaning of Section 4 of the Sale of Goods Act. The essential ingredients or elements of "sale" are: (i) transfer of property or agreement to transfer property, (ii) by seller to buyer, (iii) pursuant to any bargain or agreement of sale or with mutual consent, and (iv) for the payment or promise of payment of a price or for consideration (See Poppatlal Shah v. State of Madras [1953] 4 S.T.C. 188 (S.C.), State Of Madras v. Gannon Dunkerley & Co., (Madras) Ltd. and Co. [1958] 9 S.T.C. 353 (S.C.), Bhopal Sugar Industries v. D.P. Dube [1963] 14 S.T.C. 406 (S.C.), Devi Dass Gopal Krishnan v. State of Punjab [1967] 20 S.T.C. 430 (S.C.), and Indian Steel and Wire Products Ltd. v. The State of Madras [1968] 21 S.T.C. 138 (S.C.).

5. Mere transfer or every transfer of property, if there is no element of volition to choose the terms of the contract, cannot be termed to be a sale. Where the contracting parties have no option but to complete the transaction, it amounts to acquisition but not a sale of goods. The heart of the matter is that there should be an agreement or mutual consent between the contracting parties in order to make such a transaction a valid and complete sale. In other words, a sale predicates a contract. A contract cannot be assumed but has to be proved on the materials on record in each case (See Chhitter Mal Narain Das v. Commissioner Of Sales Tax. [1970] 26 S.T.C. 344 at 348 (S.C.). In order to arrive at the nature of the transaction, one of the guiding factors is the primary object and intendment of the parties in entering into the transaction. The intendment and object of the transaction has to be gathered from the terms of the agreement or contract entered into by the parties. However, it may be noticed that it is the substance but not the form of the contract entered into that should be looked into or taken as the guide to decide the intendment and the object of the contract (See Commissioner of Sales Tax, Madhya Pradesh v. Mohammad Rasul of Panna [1970] 26 S.T.C. 202 at 205.

6. In the light of the foregoing discussion, we shall now examine, what exactly is the nature of the transaction and intendment of the parties herein when the assessee supplied food to its employees. As pointed out earlier, the Sales Tax Tribunal, which is the final fact-finding authority, has held that the supply of food by the assessee to its employees was in effect payment of part of the wages to the workers in kind and the other in cash under the contract of service and the supply of food was not made under any contract of sale. Under the G.O. Ms. No. 950 Home (Labour) dated 25th May, 1962, issued by the State Government under Section 11(2) of the Minimum Wages Act, 1948, the assessee can deduct only rupees twenty-five from the monthly wages of a worker employed by it in lieu of the food supplied to him. It has been the custom and practice of the assessee to pay wages partly in kind and partly in cash. Hence, there is no volition or free consent of the parties as the assessee is bound by the G. 0. The primary intendment and object of the transaction between the assessee and its servants must be held to be not to sell food but to supply the same under a statutory obligation. Otherwise the employees have to pay much more than Rs. 25 per month for the supply of food made to them by the assessee. The transaction is really in the interests of the employees. The supply of food by the assessee to its employees would also be beneficial to it as it can expect better work and service from its employees.

7. The submission of Mr. Mahadev that the supply of food by the assessee to its servants amounts to "sale" as there was "valuable consideration" within the meaning of section 2(n) of "the act" and there was profit-motive, cannot be acceded to. Valuable consideration cannot be equated to the payment of wages in kind. The expression "any other valuable consideration" used in section 2(n) of "the act" must mean any monetary payment other then payment in the nature of cash or deferred payment. In other words, payment of money by way of bank cheque, draft, insurance, promissory note or any other monetary payment in the nature of cash or deferred payment, must be construed as any other "valuable consideration". Further the term "price" means money consideration. It takes in only cash or deferred payment. The expression "any other valuable consideration" has a wider connotation than the term "price". As ruled by the learned Judge, Subba Rao, C.J., speaking for the court in Devi Dass Gopal Krishnan v. State of Punjab [1967] 20 S.T.C. 430 at 445 (S.C.), "the expression 'valuable consideration' takes colour from the preceding expression 'cash or deferred payment'. If so, it can only mean some other monetary payment in the nature of cash or deferred payment". For these reasons, we are unable to subscribe to the view canvassed on behalf of the sales tax department that though the supply of food by the assessee to its employees is not for price, it is for "any other valuable consideration" within the meaning of section 2(n) of "the act".

8. We shall now turn to the plea of Mr. Mahadev that the transaction in the case on hand is a "sale" although there is no profit-motive in the supply of food to the employees. In support of this contention, reliance has been placed on the definition of "business" and on the decisions in (i) Dunkerley and Co. v. State of Madras A.I.R. 1964 Mad. 1130, (ii) 5. R.E. Workshop Canteen v. Deputy Commercial Tax Officer, Tiruchirapalli [1965] 16 S.T.C. 187, (iii) Deputy Commercial Tax Officer v. E.I.L. Co-operative Canteen Ltd. [1968] 21 S.T.C. 317 (S.C.), and (iv) The Hyderabad Asbestos Cement Products Limited v. State of Andhra Pradesh [1972] 30 S.T.C. 26.

9. The definition of "business" under clause (bbb) of section 2 of "the act" has been inserted by Section 2 of the Amendment Act 7 of 1966, which came into force with effect from 1st April, 1966. This definition is an inclusive one. By Sub-clause (i) thereof, it takes in any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture irrespective of whether such trade, commerce, manufacture, adventure or concern is carried on or undertaken with a profit-motive or not and whether or not any gain or profit accrued therefrom. Under sub-clause (ii) of section 2 (bbb) of "the act", any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern, also amounts to business. This definition would doubtless support the submission of Mr. Mahadev that the element of profit-motive or gain is not a necessary ingredient for a valid sale to be assessable to sales tax. However, it must be held that this definition of "business" is not applicable to the case on hand. As pointed out earlier, this definition is only prospective and has come into force only on 1st April, 1966. We are now concerned with the assessment for the year 1964-65 which ended with 31st March, 1965, and, hence, we are not governed by the new definition of "business". The definition of "business" which was in force at the relevant time does not support the contention advanced on behalf of the sales tax department.

10. We shall now turn to the decided cases relied upon by the State. In Dunkerley and Co, v. State of Madras A.I.R, 1954 Mad, 1130, (sic) it was held that sale of foodgrains by the company to its workmen without profit-motive was none the less a sale assessable to sales tax as there was transfer of property in the goods for consideration in the course of business or trade. In S.R.E. Workshop Canteen v. Deputy Commercial Tax Officer, Tiruchirapalli [1965] 16 S.T.C. 187, Ramakrishnan, J., held that "the power of the State to tax sales of goods is not restricted to sales which are in the course of trade or business with a profit-motive". True, the expression " trade or business" need not necessarily connote a profit-motive, though such motive ordinarily exists when a business is done as a means of livelihood. In Deputy Commercial Tax Officer v. E.I.L. Co-operative Canteen Ltd. [1972] 30 S.T.C. 26, supply of refreshments by a co-operative society to its members was held to be taxable even though there was no profit-motive in that transaction. Therein, the co-operative society registered under the Madras Co-operative Societies Act was a legal entity which satisfied the ingredients of the definition of "dealer" under the Madras General Sales Tax Act. The society being a separate independent taxable entity was competent to deal with its members. It can, therefore, sell, supply or distribute goods from or to its members, whether in the course of business or not. The refreshments were supplied for a price in the canteen maintained by it and all the constituent elements of "sale" have been satisfied. Therefore, though there was no profit-motive in the supply of refreshments to its members by the registered society, the transactions were held to be valid sales assessable to sales tax. To the same effect is the decision of a Division Bench of this Court in Hyderabad Asbestos Cement Products Limited v. The State of Andhra Pradesh [1972] 30 S.T.C. 26, wherein it was held that supply of food and drink by a company to its employees at the canteen maintained by it was chargeable to sales tax. In these cases, the co-operative societies are admittedly legal entities and every transaction of purchase or supply of an item of refreshment by the society or canteen to the employees was for a price and all the ingredients of sale were found. The aforesaid decisions do not advance the plea of the petitioner herein and those cases are distinguishable on facts.

11. The supply of food by the assessee to its employees appears to be more in the nature of a domestic transaction as there is no element of commerce or profit. It admits of no doubt that the utility of goods by a dealer for his personal consumption is not assessable to sales tax as the constituent elements of "sale" are not present. However, the consumption of goods by a dealer in the course of his manufacturing process or business may be regarded as a "sale" assessable to sales tax. The supply of food by a hotel proprietor to his employees may be pursuant to the service contract or the usual custom prevalent in a particular area. Each case depends upon its own facts and circumstances. When judged from the commercial or business point of view, the supply of food by a hotel proprietor to his employees must ordinarily, unless the contrary is established, be regarded as part payment of wages in kind which is incidental to the contract of service.

12. We shall now refer to (i) Chandrabhava Boarding and Lodging v. State of Mysore A.I.R. 1968 Mys. 156, (ii) Chhitter Mal Narain Das v. Commissioner Of Sales Tax. [1970] 26 S.T.C. 344 (S.C.), (iii) Salar Jung Sugar Mills Ltd. v. State of Mysore [1972] 29 S.T.C. 246 (S.C.), and (iv) State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 S.T.C. 474 (S.C.), cited by Mr. Balakoteswara Rao.

13. Chandrabhava Boarding and Lodging v. State of Mysore A.I.R. 1968 Mys. 156, is a case arising under the Minimum Wages Act, 1948, wherein a Division Bench of the Mysore High Court held that the supply of food by the owners of residential houses and eating houses to their employees was an advantage amounting to an amenity within the meaning of the Minimum Wages Act. It was observed by the court at page 178 as follows:

We see no reason why food provided by the employers to their employees in hotel industry cannot be regarded as an advantage and why that advantage should not be regarded as an 'amenity' within the meaning of the Minimum Wages Act.

14. We are not impressed with the submission of Mr. Mahadev that Section 11(3) of the Minimum Wages Act, 1948, requires the State Government to issue a notification authorising the provision of supplies of essential commodities at concessional rates by the employer to the employees only in appropriate cases and does not compel it to do so in every case, and, therefore, the hotel proprietors need not invariably supply food at concessional rates to their employees. This plea is besides the point at issue as the Government had, in fact, issued a G. 0. on 25th May, 1962, under section 11(2) of "the act". By virtue of the aforesaid notification, the employees have a right or choice to question the quality of food supplied to them by the assessee, although there is no compulsion on them to invariably take food.

15. In Chhitter Mal Narain Das v. Commissioner Of Sales Tax. [1970] 26 S.T.C. 344 (S.C.), the supply of wheat by a dealer to the Food Controller at the controlled price under clause 3 of the U.P. Wheat Procurement (Levy) Order, 1959, was held by the Supreme Court to be not a sale within the meaning of Section 2(h) of the U.P. Sales Tax Act, 1948, assessable to sales tax. Therein it was held that the U.P. Wheat Procurement (Levy) Order had imposed a liability on the licence-holder (dealer) to deliver half the quantity of wheat on hand to the Controller at the controlled price and if he failed to carry out that obligation, he was liable to be penalised. Hence, it was held that the Wheat Procurement (Levy) Order ignored the volition of the dealer.

16. The Supreme Court in Solar Jung Sugar Mills v. State of Mysore [1972] 29 S.T.C. 246 (S.C.), on a consideration of the terms of the agreements entered into between the sugar mills and the growers for the supply of sugarcane, held that the Sugarcane Control Orders promulgated by the Mysore State Government controlling and regulating the sale or purchase of sugarcane, which was declared to be an essential commodity, did not absolutely impinge on the freedom to enter into contract, and delimiting areas for transactions or parties or denoting prices for transactions were all within the area of individual freedom of contract with limited choice. Therein, the grower could bargain for a higher price and could also ask for payment in advance. Payment might be made in cash or in kind. There was scope for rejection of goods as the sugarcane supplied by the grower would be accepted only after inspection. On a consideration of the entire facts, it was ruled that there was offer, inspection and appropriation of goods to the contiact and the mutual assent was not only implicit but also explicit and the transactions constituted "sales" within the meaning of Section 2(t) of the Mysore Sales Tax Act, 1957, exigible to tax.

17. We shall now turn to the decision in State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 S.T.C. 474 (S.C.), which appears to be the nearest case on the point. Therein, the Associated Hotels of India Limited received guests in its several hotels. They provided lodging, public and private rooms, bath with hot and cold running water, meals and other amenities. They charged the guests with a fixed sum for their stay in the hotel for each day. The question that fell for decision was whether the company was liable to pay sales tax under the Punjab General Sales Tax Act, 1948, in respect of meals served in the hotel to the guests who stayed there. The Supreme Court, confirming the decision of the High Court, held that the supply of meals by the Associated Hotels of India Ltd. to the guests who stayed in the hotels did not amount to "sale" within the meaning of the Punjab Sales Tax Act as the entire transaction was essentially one and indivisible, namely, one of receiving a customer in the hotel to stay. The amenities provided to the guests were found to be incidental to the service and the transaction entered into between the hotel management and the guests was held to be essentially one of service, as this service of receiving guests was not liable to be split up into two parts, one of service and the other of sale of food-stuffs. The learned Judge, Shelat, J., who spoke for the court, ruled thus (at pages 480-481):

In considering whether a transaction falls within the purview of sales tax, it becomes necessary at the threshold to determine the nature of the contract involved in such a transaction for the purpose of ascertaining whether it constitutes a contract of sale or a contract of work or service. If it is of the latter kind it obviously would not attract the tax. From the decisions earlier cited it clearly emerges that such determination depends in each case upon its facts and circumstances. Mere passing of property in an article or commodity during the course of the performance of the transaction in question does not render it a transaction of sale. For, even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case the court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into a contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale.

18. While considering the facts in that case, the learned Judge proceeded to observe thus:

The transaction in question is essentially one and indivisible, namely, one of receiving a customer in the hotel to stay. Even if the transaction is to be disintegrated there is no question of the supply of meals during such stay constituting a separate contract of sale, since no intention on the part of the parties to sell and purchase food-stuffs supplied during meal-times can be realistically spelt out. No doubt, the customer, during his stay, consumes a number of food-stuffs. It may be possible to say that the property in those food-stuffs passes from the hotelier to the customer at least to the extent of the food-stuffs consumed by him. Even if that be so, mere transfer of property, as aforesaid, is not conclusive and does not render the event of such supply and consumption a sale, since there is no intention to sell and purchase. The transaction essentially is one of service by the hotelier in the performance of which meals are served as part of, and incidental to, that service, such amenities being regarded as essential in all well conducted modern hotels.

19. On the application of the aforesaid principles laid down by the Supreme Court, we have no hesitation to hold that the supply of food by the assessee to its employees is essentially an amenity and an incident of contract of service entered into between the parties. The supply of food cannot, in the circumstances, be held to be in pursuance of any contract of sale. The concept of contract of sale is different from that of service. The onus is admittedly on the sales tax department to prove the necessary ingredients of sale before levying tax on any transaction. The department has failed to establish any intention on the part of the assessee to sell food to its employees for a price or for any other valuable consideration. Unless and until the department establishes the essential ingredients of a valid sale, the supply of food by the assessee to its employees cannot be held to be a sale exigible to sales tax. The principles enunciated by the Supreme Court in State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 S.T.C. 474 (S.C.). governs the case on hand. For all the reasons stated and on a consideration of the entire facts and circumstances, we hold that the supply of food by the assessee to its employees does not amount to "sale" within the meaning of section 2(n) of "the act". Our answer to the question is in the negative and against the department.

20. In the result, the tax revision case is dismissed with costs. Advocate's fee is fixed at Rs. 200 payable to Sri A. Balakoteswara Rao and Sri C. Suryanarayana Murthy, Advocates, appointed as amicu in equal proportion.