JUDGMENT Alladi Kuppuswami, Ag.C.J.

1. The common question for consideration in this batch of writ petitions is whether the State is entitled to levy and collect sales tax under the A.P. General Sales Tax Act where restaurants supply food-stuffs, drinks, etc., to customers. In some of these cases the restaurants are attached to hotels which afford both boarding and lodging facilities. In other cases the petitioners are restaurants which are not attached to any hotel.

2. In the decision reported in State of Himachal Pradesh v. Associated Hotels of India , the Supreme Court had to consider the case where hotels serve meals to guests who stay in the hotel. It was contended that such a transaction did not amount to a sale within the meaning of the Punjab General Sales Tax Act. The submission on behalf of the assessee was that the hotel receives a guest primarily for the purpose of lodging, that the management provides him with a number of amenities incidental to such lodging which includes supply of meals at fixed hours, that the bill given by the hotel and paid by the guest is one and indivisible, that is, a fixed amount per day during his stay in the hotel and the transaction so entered into does not envisage any sale of food. This contention was accepted by the Supreme Court. The Supreme Court held that 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, and the bill prepared by the hotelier is one and indivisible not being capable by approximation of being split up into one for residence and the other for meals. It is true, such a bill would be prepared after consideration of the cost of meals, but that would be so for all other amenities given to the customer. The revenue, therefore, is not entitled to split up the transaction into two parts, one of service and the other of sale of food-stuffs and to split up also the bill charged by the hotelier as consisting of charges for lodging and charges for food-stuffs served to him with a view to bring the latter under the Act.

3. In a later case in Northern India Caterers v. Lt. Governor of Delhi the Supreme Court had to consider the case of service of meals to casual visitors in a restaurant. The Supreme Court referred to the decision in State of Himachal Pradesh v. Associated Hotels of India , in which it was held that there is no sale when food and drinks are supplied to guests residing in a hotel. The Supreme Court observed that if that be true in respect of hotels, a similar approach seems to be called for on principle in the case of restaurants. 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. It was, therefore, held 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. The expression "sale" has been defined by section 2(g) of the Bengal Finance (Sales Tax) 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 definition of "sale" under section 2(1)(n) of the Andhra Pradesh General Sales Tax Act also is almost identical and reads thus :

"Section 2. (1)(n) 'Sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or commerce, for cash, or for deferred payment, or for any other valuable consideration ....."

4. It would, therefore, appear that having regard to the decision in Northern India Caterers v. Lt. Governor of Delhi , which is directly in point, the service of meals, food-stuffs, snacks, drinks, etc., to the visitors in restaurants is not a sale and therefore not taxable under the A.P. Sales Tax Act. The State, however, relies on the decision reported in Northern India Caterers v. Lt. Governor, Delhi . The said decision was rendered in an application to review the judgment in Northern India Caterers v. Lt Governor of Delhi . The review petition was heard by Krishna Iyer, Tulzapurkar and Pathak, JJ. The first of them was not a party to the original judgment but the other two were members of the court which rendered the original judgment. Pathak, J., delivered the main judgment for himself and on behalf of Tulzapurkar, J., in the review petition. While dismissing the review petition on the ground that there was no error apparent on the face of the record in the judgment sought to be reviewed, it was stated in paragraph No. 12 of the judgment as follows :

"12. It appears from the submissions now made that the respondent as well as other States are apprehensive that the benefit of the judgment of this court will be invoked by restaurant-owners in those cases also where there is a sale of food and title passes to the customers. It seems to us that having regard to the facts upon which our judgment rests - undisputed as they have remained throughout the different stages of the litigation - and the considerations which they attract, no such apprehension can be reasonably entertained. Indeed, we have no hesitation in saying that where food is supplied in an eating-house or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food and the rendering of services is merely incidental, the transaction would undoubtedly be exigible to sales tax. In every case it will be for the taxing authority to ascertain the facts when making an assessment under the relevant sales tax law and to determine upon those facts whether a sale of the food supplied is intended."

5. Relying upon these observations it is contended for the revenue that in all these cases the dominant object is a sale of food or food-stuffs and the rendering of service is merely incidental and hence the transaction amounts to a sale and would be exigible to sales tax. Reliance is placed also on the following observations of Sri Krishna Iyer, J. :

"In mere restaurants and non-residential hotels, many of these transactions are sales and taxable. Nor are additional services invariably components of what you pay for. You may go to an air-conditioned cloth-shop or sweetmeat store or handicrafts emporium where cups of tea may be given, dainty damsels may serve or sensuous magazines kept for reading. They are devices to attract customers who buy the commodity and the price paid is taxable as sale. The substance of the transaction, the dominant object, the life-style and other telling factors must determine whether the apparent vendor did sell the goods or only supply a package of services."

6. Before deciding whether the contention of the revenue based on the above observations of the Supreme Court in the review petition that the dominant object of sales of food-stuffs by the restaurant to the customers is a sale of food and food-stuffs and rendering of service is merely incidental and the transaction therefore would amount to sale, it is necessary to consider in detail the three decisions of the Supreme Court referred to above on this subject. As we have already noticed, in the first decision, the Supreme Court was considering a transaction between a hotelier and a person who stayed in the hotel to whom the hotel supplied food and food-stuffs. In paragraph No. 13 in State of Himachal Pradesh v. Associated Hotels of India , the Supreme Court observed as follows :

"What precisely then is the nature of the transaction and the intention of the parties when a hotelier receives a guest in his hotel ? Is there in that transaction an intention to sell him food contained in the meals served to him during his stay in the hotel ?"

7. They answered the question in paragraph No. 14 as follows :

"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. The bill prepared by the hotelier is one and indivisible, not being capable by approximation of being split up into one for residence and the other for meals. No doubt, such a bill would be prepared after consideration of the cost of meals, but that would be so for all the other amenities given to the customer. For example, when the customer uses a fan in the room allotted to him, there is surely no sale of electricity, nor a hire of the fan. Such amenities, including that of meals, are part and parcel of service which is in reality the transaction between the parties."

8. In the decision in Northern India Caterers v. Lt. Governor of Delhi the appellant was running a hotel in which lodging and meals are provided on inclusive terms of residents. Meals were also served to non-residents in the restaurant located in the hotel. The Supreme Court had to consider the case where the meals were served to casual visitors in the restaurant. The Supreme Court considered in detail the origin and historical development of the law relating to hotels in England and referred in particular to a passage of Professor Beale in which it was pointed out that having finished his meal, a customer had 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 food 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. Reference was also made to the American case of Electa B. Merrill v. James W. Hodson (L.R.A. 1915-B 481.), wherein it was again pointed out that the supply of food or drink to customers does not amount to the character of sale of goods. It was observed in that case that the true essence of the transaction is service in the satisfaction of the human need or desire - ministry to a bodily want. Before consummation title does not pass; after consumption there remains nothing to become the subject of title. It was also pointed out that a customer does not become the owner of the food set before him, or of that portion which is served for his use, or of that which finds a place on 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 to 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 Supreme Court held that

"what has been said in the above case appears to be as much applicable to restaurants in India as it does elsewhere and it has not been proved that any different view should be taken, either at common law, in usage or under statute"

. Dealing with the argument that in State of Himachal Pradesh v. Associated Hotels of India the Supreme Court had drawn a distinction between a case of meals supplied to a resident in a hotel and those served to a customer in a restaurant, the Supreme court observed that they were unable to find any such proposition of law laid down by the court in that case. It is thus clear from the decision of the Supreme Court in the second case that they held that the transaction whereby a customer is supplied food in a restaurant does not amount to a sale for two reasons, (1) there is no agreement to transfer the property in the food or drink to the customer. He does not become owner of the food set before him, the uneaten food does not belong to him and he cannot carry away the food; (2) the true essence of the transaction is service in the satisfaction of the human needs or desire, ministry to a bodily want. In Northern India Caterers v. Lt. Governor, Delhi , the Supreme Court refused to review their earlier decision and dismissed the review petition. The learned Advocate-General, however, referred to the passage in paragraph No. 12 set out earlier and submitted that the Supreme Court in the later judgment was of the view that where food is supplied in an eating-house or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food and the rendering of services is merely incidental, the transaction would be exigible to sales tax. He submitted that in all the cases before us the dominant object is to sell food and the providing of amenities or rendering of service is only incidental. On the other hand, Sri Nariman who addressed the main argument in this batch of writ petitions submitted that the later Supreme Court decision in review petition cannot be understood as in any way going back upon the previous decision in which it was clearly held that supply of food by restaurants to customers is not a sale. In this connection it has to be noticed that broadly speaking there are two types of transactions in restaurants. The supply of food, etc., by restaurants may be made to customers who sit in the restaurants and consume the food. In such a case they enjoy the amenities provided by the owners of the restaurants. The amenities may vary from restaurant to restaurant. In some cases the restaurants may provide air-conditioned halls and in others they may provide only fans. In some they provide costly furniture whereas in others they may provide only tables and chairs. The second class of cases consists of supply of food-stuffs, snacks, drinks, etc., across the counter where there is practically no service rendered or amenities provided except in the manner of supplying the goods like packing, etc.

9. It may be that some of the restaurants may be attached to hotels and some may not be so attached. But there is no distinction between the two in so far as the question with which we are concerned, viz., supply of food-stuffs by restaurants to customers and as a matter of fact the counsel on both sides did not make any distinction between the two types of restaurants.

10. In the judgment of the Supreme Court in Northern India Caterers v. Lt. Governor of Delhi stress is laid on the fact that there is no transaction of sale as the property does not pass to the customer and the customer has no right to take away the goods. The supply of goods is only a part of the service contract. This fact is emphasised even in the judgment in the later case in more than one place. At the end of paragraph No. 2 in Northern India Caterers v. Lt. Governor of Delhi , the Supreme Court observed dealing with the previous judgment that the court had held that when meals were served to casual visitors in the restaurant the service must be regarded as providing for the satisfaction of a human need and could not be regarded as constituting a sale of food when all that the visitors were entitled to do was to eat the food served to them and were not entitled to remove or carry away uneaten food. Supporting consideration included the circumstance that the furniture and furnishing, linen, crockery and cutlery were provided, and there was also music, dancing and perhaps a floor show. Again in paragraph No. 10 dealing with the previous judgment, the Supreme Court observed :

"What were the considerations on which this court held that the transaction was not a sale ? The court said, and this was emphasised in no small degree, that the supply and service of food to a customer to be eaten in the restaurant was not a sale for the reason that he was merely entitled to eat the food served to him and not to remove and carry away the unconsumed portion of the food. Had that amounted to a sale, the unconsumed portion would have belonged to the customer to take away and dispose of as he pleased. Besides, the court noted, there were other amenities and services of considerable materially which were also provided."

Even in the judgment of Krishna Iyer, J., it was pointed out that on the earlier occasion the appeal proceeded on the admitted footing that the visitor to the restaurant who sat at the table and was served the dishes he desired had, in that case, no right to carry home what he wanted, after eating what he wanted.

11. In view of these observations we agree with the submission of Mr. Nariman that the Supreme Court even in the review petition stuck to the position of law stated in the earlier decision that if there was no right to carry away the food, then there could be no sale in favour of the customer. The learned Advocate-General submitted that when food-stuffs were supplied to the customer for a consideration there was a sale and it is absolutely irrelevant as to whether the customer consumed the food or took it home or left part of the food on the table. Speaking for ourselves, we find considerable force in that argument and if the matter were res integra we might have agreed with the contention that the supply of food-stuffs to the customer in the restaurant would also amount to a sale. Once the food is supplied and the price is paid there is a transaction of sale. It appears to us that even if there is an express or implied condition that the goods bought have to be consumed in the premises or left there but cannot be carried away, the character of the transaction as a sale is not affected. But we are bound by the decision of the Supreme Court in Northern India Caterers v. Lt. Governor of Delhi which was also affirmed in Northern India Caterers v. Lt. Governor, Delhi . What then is the meaning and effect of the observations made in paragraph No. 12 relied on by the learned Advocate-General, viz., that where food is supplied in an eating-house or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food and the rendering of services is merely incidental, the transaction would undoubtedly be exigible to sales tax ? What apparently their Lordships had in mind was that even if a person had a right to take away the food-stuffs it would still be open to the assessee to argue that the transaction was in essence a transaction of service and not a transaction of sale. The observations of the Supreme Court in paragraph No. 12 would apply to such cases and the Supreme Court apparently wanted to emphasis that in such a case where the customer had a right to take away the food, if the dominant object was the sale of food and the rendering of service is merely incidental, then the transaction would be a transaction of sale and not a service contract. Even in such a case, if the dominant object was rendering of service it would not be a sale. This seems to be the only way in which these observations can be reconciled with the previous judgments. We cannot understand the Supreme Court to have held by these observations that even when the customer has no right to take away the food still would be a sale if the dominant object was a sale of food. That is how the revenue seems to have understood the observation, but we are unable to agree with the reading of that part of the judgment in such a manner.

12. Even in the judgment of Krishna Iyer J.,he observed that the earlier judgment had proceeded on the admitted footing that the visitor to the restaurant who sat at the table and was served the dishes he desired had, in that case, no right to carry home what he wanted, after eating what he wanted. He further observed that myriad situations, where the transaction is a sale of a meal, or item to eat or part of a package of service plus must not be governed by standard rule. Finally he observed :

"Was there a right to take away any eatable served, whether it be bad manner to do so or not ? In the case we have, the decision went on the ground that such right was absent. In cases where such a negative is not made out by the dealer - and in India, by and large, the practice does not prohibit carrying home - exigibility is not repelled."

13. To summarise the position at the end of the three decisions of the Supreme Court discussed earlier appears to be as follows :

1. If there is no right to carry away the food there would be no sale in favour of the customer.

2. Even if there is a right to carry away if in essence the transaction is a transaction of service and not a transaction of sale it would not be exigible to tax.

3. If, however, where the customer has a right to take away the food if the dominant object is the sale of food and the rendering of service is merely incidental, then the transaction would be a transaction of sale and not a service contract.

4. The question whether the dominant object was the sale of food or rendering of service would depend upon the facts and circumstances of each case which has to be decided by the assessing authority in the light of the evidence before it.

14. In this connection, we may observe that sales across the counter will obviously be transactions of sale. It may be that in doing so some services are rendered by packing the food-stuffs, etc., but this part of the service is so infinitesimal and insignificant that the transaction would nevertheless be one of sale. Even in a case where a customer is asked to sit down in a chair or a more comfortable seat while the food-stuff is packed and handed over to him, still we consider that the transaction would be one of sale. No serious attempt was made by Mr. Nariman or other Advocates that such transactions are not sales exigible to tax.

15. The only other question which remains to be considered is the question of burden of proof. Sri Nariman took exception to that part of the observations of Krishna Iyer, J., quoted earlier, in which it is stated that where such a negative is not made out by the dealer (meaning that the dealer is not able to prove that there is no right to take away) exigibility is not repelled. He submitted that the burden is upon the taxing authorities to show that a transaction is liable to tax as a sale and, therefore, the burden is upon the revenue to show that the dealer (sic) has a right to take away the goods. It is true that the normal rule is that the burden is upon the revenue to prove that a transaction is taxable : vide Government of Andhra Pradesh v. Guntur Tobaccos Ltd. But it cannot be forgotten that the question whether a customer has a right to take away the food-stuffs or not is peculiarly within the knowledge of the dealer. It may be that there is an express contract whereby it is provided that the dealer (sic) has no right to take away the goods or it may that there is such a custom or practice prohibiting the dealer (sic) from taking away the food-stuffs. These matters are within the knowledge of the dealer only. Hence the initial burden is on the dealer to prove that the customer has no right to take away the food-stuffs and, therefore, the transaction is not a transaction of sale but of service. The observations of Krishna Iyer, J., have to be understood only in the light of these principles.

16. In this batch of cases in pursuance of the interim orders of this Court assessment proceedings were allowed to go on, but collection of tax was stayed. In cases where no order of assessment has been passed the assessing authority will proceed to make the assessment in the light of the above principles. Even where there have been orders of assessment, as the orders have been made without proper appreciation of the correct principles of law, we set aside all the orders of assessment and direct the assessing authorities to consider the matter afresh in the light of the principles laid down in this decision.

17. The writ petitions are allowed to the extent indicated above, but in the circumstances without costs. Advocate's fee Rs. 75 in each.

18. An oral application has been made by the learned Advocate-General on behalf of the State for leave to appeal to the Supreme Court. We consider that a substantial question of law of general importance is involved, viz., where food-stuffs are supplied by restaurants whether attached to a hotel or not and the food-stuffs are consumed in the restaurant itself, whether the transaction is exigible to sales tax as constituting a sale, and if so in what circumstances. Hence leave is granted.

19. W.P. Nos. 2815, 2822, 3588 and 3589 of 1980. - In these writ petitions Sri T. Ramakrishna Rao makes an oral application for leave to appeal to the Supreme Court, in so far as our judgment is against the petitioners therein, by holding that the sale across the counter are liable to sales tax. We do not consider that to be a substantial question of law of general importance which requires consideration by the Supreme Court. Hence the application for leave is dismissed.

20. Petitions partly allowed.