Holding

Food and drink served in a hotel or restaurant are goods, and their supply constitutes a sale under the Delhi Sales Tax Act, 1975, making them liable to sales tax at the rate prescribed by Section 4(1)(c) when entertainment is present and by Section 4(1)(d) otherwise.

Summary

The East India Hotels Ltd. challenged an assessment that taxed sales made in the restaurants of its hotels under the Delhi Sales Tax Act, 1975. The appellant argued that food served in a hotel restaurant does not constitute a "sale" of goods and that Section 4(1)(c) of the Act applies only where cabaret or similar entertainment is provided. The Supreme Court examined the definitions of "goods" (Section 2(g)), "sale" (Section 2(1)), and the charging provisions (Sections 3 and 4) and held that food and drink are goods and their supply involves a transfer of property, thereby qualifying as a sale. Consequently, such transactions are taxable, with the tax rate determined by Section 4(1)(c) when entertainment is present and by Section 4(1)(d) otherwise. The Court rejected the reliance on earlier decisions that limited taxability and dismissed the appeal with costs.

Issues considered

Whether food and drink supplied in a hotel or restaurant constitute "goods" under the Delhi Sales Tax Act, 1975.
Whether the supply of such food and drink amounts to a "sale" within the meaning of Section 2(1) of the Act.
Whether Section 4(1)(c) of the Act is applicable only when cabaret, floor show or similar entertainment is provided, or also in its absence.
Whether earlier judgments (Northern India Caterers) are applicable to the present statutory scheme.
Whether the 46th Amendment to the Constitution affects the definition of "sale of goods" for tax purposes.

Legislation cited

Delhi Sales Tax Act, 1975s. 2(1), s. 2(e), s. 2(g), s. 3, s. 4(1)(c), s. 4(1)(d)

Subjects

sales taxgoodssalehotel restaurantDelhi Sales Tax Actstatutory interpretationcabarettax rate46th Amendmenttransfer of property

Judgment

A THE EAST INDIA HOTELS LTD. AND ANR.
v.
UNION OF INDIA AND ANR.

NOVEMBER 15, 2000

B [B.N. KIRPAL, N. SANTOSH HEGDE AND
DORAISWAMY RAJU, JJ.]

Sales Tax:
c Delhi Sales Tax Act, 1975.

Sections 2(e), {g), (l) , 3 and 4-lmposition of Sales Tax-Sale of
foodstuffs in hotel or restaurant-Whether can be subjected to Sales Tax-
Held, food and drink have to be regarded as goods-There is transfer of
property in such goods by hotelier in favour of customer-The moment goods
D are supplied and sale price paid, it would amount to sale and would be
subject to Sales Tax-No cabaret, floor show or similar entertainment in
hotel or restaurant-Sales Tax-Rate of-Held, rate of tax applicable would
be as stipulated in Section 4 (/) (d).
Interpretation of Statutes-Harmonious Construction-Interpretation
E suggested making provisions otiose-Whether sustainable-Held, an Act ~as
to be read as a whole, different provision have to be harmonised and effect
has to be given to all the provisions.
Appellant was subjected to tax in respect of sales ma.de in restaurants
situated in its hotels. Appeal filed by appellant against assessment on the
F ground that sales made in restaurant could not be taxed, was dismissed. Hence,
this app~al.
Appellant contended that there is no sale in restaurant in a hotel and
sales tax could not be levied in view of the provisions of the Delhi Sales Tax
Act, 1975; and that Section 4 (1) (c) is only relatable to sale of foodstuffs in
G hotels or restaurants where there is cabaret or floor show or similar
entertainment and not to others.
. Dismissing the appeal, the Court
HELD: 1. According to Section 2(g) of Delhi Sales Tax Act, 1975 all
H movable properties, materials, articles or commodities are goods. Therefore,
658
EAST INDIA HOTELS LTD. v. U.0.1. 659

food in a restaurant has necessarily to be regarded as goods. According to A
Section 2(1), transfer of property in goods by one person to another would
amount to sale. With cooked food or food which is supplied in a restaurant
falling within the definition of the word 'goods' in Section 2(g), transfer of
property in the same would amount to sale as provided by Section 2(1). (655-Ff

2. If the contention of the appellant that in a restaurant no sale at all B
takes place to a customer is correct, then the question of any tax being levied
in respect of food or drink supplied in a hotel or restaurant in which there is
a cabaret would not arise. In other words, Section 4(1) (c) would become otiose.
[666-A-B)

This obviously cannot be so. An Act has to be read as a whole, the C
different provisions have to be harmonised and effect has to be given to all of
them. Reading Sections 2(e), 2(g), 2(1), 3 and 4 together, it is clear that food
and drink would fall within the definition of'goods' under Section 2(g). There

... would be a transfer of property in the same by a hotelier in favGur of the
customer. (666-B-CI D
3. When a customer goes to a restaurant and orders food and in respect
of which he pays the price indicated therein and the said food items are
supplied to him, it would clearly be a case of transfer of property in goods to
the customer. Whether the customer eats the entire or part of the dish or
chooses not to eat at all would make no difference if he pays for the dishes E
supplied. The moment the dish is supplied and sale price paid, it would amount
to a sale. f667-A-BI

The State of Punjab v. Mis Associated Hotels of India Ltd, (197211 SCC
472, followed.
F
Northern India Caterers (India) Ltd v. Lt. Governor of Delhi., (1978) 4
sec 36, distinguished.
Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi., (1980) 2
sec 167, cited.
G
4. It is clear. that if the food or drink is supplied in a hotel or restaurant
where there is a cabaret, floor show or similar entertainment, the rate of tax
would be under Section 4(1) (c) and where there is no such cabaret, floor
show or similar entertainment the rate of tax would be the one stipulated in
Section 4(1) (d). f667-CI H
660 SUPREME COURT REPORTS [2000] SUPP. 4 S.C.R.

A CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5086of1989.

From the Judgment and Order dated 20.9.85 of the Sales Tax Assessing
Authority, Ward No. l 8 New Delhi for the Assessing year 1982-83.

Gopal Subramanium," Ms. Nina Gupta, Uday Gupta, Ms. Jaya Shrivastava
B and Yineet Kumar for the Appellants.

Harish N. Salve, Solicitor General, Ashok Bhan, Dileep Tandon, Harish
C. Bhatia, Ms. Neera Gupta, B.Y. Bairam Das and S.N. Terdol for the
Respondents.

The Judgment of the Court was delivered by
c
KIRPAL, J. This appeal by way of special leave arises from assessment
order in respect of the year 1982-83 passed by the Sales Tax Officer, Delhi,
subjecting to tax sales made by the appellants in the restaurants owned by
them which are situated in the appellants' hotels.

D In the appeal which was filed, the two grounds which were taken were
firstly challenge to the 46th Amendment to the Constitution whereby definition
of expression 'sale of goods' was amended and the Second ground taken was
that on a correct interpretation of the Delhi Sales Tax Act, 't 975, the sales
made in the restaurants could not be taxed. ·

E Mr. Gopal Subramaniam, learned senior counsel for the appellants, has
not argued or urged the first contention with relation to the challenge to the
46th Amendment. His contention is that on a correct interpretation of the
provisions of the Delhi Sales Tax Act, 1975 and Sections 2(1) in particular,
there is no sale in a restaurant in a hotel and, therefore, no sales tax could
p be levied. He submits that after the 46th Amendment it was open to the
legislature to amend the law and bring it in line with the said Amendment to
the Constitution which permitted such transactions being subjected to sales
tax where food is supplied in a restaurant. Relying upon the decision of this
court in Northern India Caterers (India) ltd. v. Lt. Governor of Delhi, [1978]
4 sec 36, he contends that meals which are served by a hotel in a restaurant
G to non-residents does not constitute sale of foodstuffs and, therefore, no
sales tax could be levied.

The Sheet-anchor of Mr. Subramanium 's submis'sion is this decision of
Northern India Caterer's case. That was a case where this court was concerned
with the assessment proceedings in respect of the assessment years 1957-58
H and 1958-59. It was contended by the appellant therein that this court in an
EAST INDIA HOTELS LTD. v. U.0.1. [KIRPAL. J.) 661

earlier decision in The State of Punjab v. fl,fls. Associated Hotels of India Ltd., A
[ 1972) I SCC 4 72, had held that no Sales Tax was leviable in respect of the
food which was supplied by a hotel to its residents. Applying the same
principle, this Court in Northern India Caterers· case referred to the definition
of the word 'sale' in Section 2(g) of the Bengal Finance (Sales Tax) Act, 1941,
as extended to Delhi, and observed that when a hotel serves food to a non- B
resident it does not amount to sale.

Mr. Subramanium submits that what was held in Northern India Caterers'
case was reiterated by the Court in the review judgment reported as Northern
India Caterers (India) Ltd. v. Lt. Governor of Delhi, [1980) 2 SCC 167.

In the present case, we are not concerned with the provisions of the C
Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi. What is applicable
in the present case are the provisions of the Delhi Sales T~x Act, 1975 (for
short "the 1975 Act"). Keeping in mind the provisions of Article 246(4) of the
Constitution which enabled the Parliament to enact laws with regard to Delhi
even on matters relating to subjects enumerated in List II as well as List I and D
which entitled an artificial definition being given to the word 'sale' or which
enabled a service of works contract to be split up so as to entitle the
imposition of sales tax on the. transfer of the materials or goods in the
....
execution thereof, we find that on a correct interpretation of the 1975 Act the
ratio of the decision of this Court in Northern India Caterers' case would
not be applicable. E
Section 2(e) defines 'dealer', Section 2(g) 'goods' and Section 2(1)
'sale'. The said provisions are as follows:

"2(e) "dealer means any person who carries on business of selling
goods in Delhi and includes - F
(i) the Central Government or a State Government carrying on such
business;

(ii) as incorporated society (including a co-operative society), club or
association which sells or supplies goods, whether or not in the G
course of business, to its members for cash or for deferred payment
or for commission, remuneration or other valuable consideration;

(iii) a manager, factor, broker, commission agent, delcredere agent or
any mercantile agent, by whatever name called, and whether of the
same description as hereinbefore mentioned or not, who sells goods H
662 SUPREME COURT REPORTS (2000] SUPP. 4 S.C.R.

A belonging to any principal whether disclosed or not; and

(iv) an auctioneer who sell or auctions goods belonging to any principal,
whether disclosed or not and whether the offer of the intending
purchaser is accepted by him or by the principal or a nominee of the
principal;"
B
"2(g) "goods'" includes all materials, articles, commodities and all
other kinds of movable property, but does not include newspapers,
...
actionable claims, stocks, shares, securities or money;"

"2(1) "sale'', with its grammatical variations and cognate expressions,
C means any transfer of property in goods by one person to another for
cash or for deferred payment or for any other valuable consideration,
and includes -

(i) a transfer of goods on hire-purchase or other system of payment
by instalments, but does not include a mortgage or hypothecation of
D or a charge or pledge on, goods;

(ii) supply of goods by a society (including a co-operative society),
club, firm or any association to its members for cash or for deferred
payment, or for commission, remuneration or other valuable
consideration, whether or not in the course of business; and
E
(iii) transfer of goods by an auctioneer referred to in sub-clause (iv)
of clause (e);"

Section 3 is the charging Section according to which every dealer <
whose turnover during the year immediately preceding the commencement of
F the year exceeds taxable turnover becomes liable to pay sales tax. Section 4
stipulates the rate of tax and the same reads as under :

"4. Rate of tax.- (I) The tax payable by a dealer under this Act shall
be levied -

G (a) in the case of taxable turnover in respect of the goods specified
in the First Schedule, at the rate of twelve paise in the rupee;

(b) in the case of taxable turnover in respect of the goods specified
in the Second Schedule, at such rate not exceeding four paise in the
rupee as the Lieutenant Governor may, from time to time, by notification
H in the Official Gazette, determine;
EAST INDIA HOTELS LTD. v. U.0.1. [KIRPAL, J.] 663

(c) in the case of taxable turnover in respect of any food or drink A
served for consumption in a hotel or restaurant or part thereof, with
which a cabaret, floor show or similar entertainment is provided therein, .
at the rate of forty paise in the rupee;

(cc) in the case of taxable turnover in respect of goods specified in
Fourth Schedule, at the rate of twenty paise in the rupee; B
(ccc) in case of taxable turnover in respect of Liquor (Foreign Liquor
and India Made Foreign Liquor) and Narcotics (Bhaang), at the rate
of twenty paise in the rupee;
(d) in the case of taxable turnover in respect of any other goods, at
. the rate of eight paise in the rupee: C
Provided that the Lieutenant Governor may, by notification in the
Official Gazette, add to or omit from, or otherwise amend, the First
Schedule, the Second Schedule or the Fourth Schedule either
retrospectively or prospectively, and thereupon the First Schedule or
the Second Schedule or, as the case may be, the Fourth Schedule shall D
be deemed to be amended accordingly:
Provided further that no such amendment shall be made
'· retrospectively if it would have the effect of prejudicially affecting the
interests of any dealer:
E
Provided also that in respect of any goods or class of goods if
the Lieutenant Governor is of the opinion that it is expedient in the
interest of the general public so to do, he may by notification in the
Official Gazette, direct that the tax in respect of the taxable turnover
of such goods or class of goods shall, subject to such conditions as
may be specified, be levied at such modified rate not exceeding the F
rate applicable under this section, as may be specified in the
notification.

(2) For the purposes of this Act, "taxable turnover" means that part
of a dealer's turnover during the prescribed period in any year which
remains after deducting therefrom - G
(a) his turnover during that period on -

(i) sale of goods, the point of sale at which such goods shall be
taxable is specified by the Lieutenant Governor under Section 5 and
in respect of which due tax is shown to the satisfaction of the H
664 SUPREME COURT REPORTS (2000] SUPP. 4 S.C.R.

A Commissioner to have been paid;
(ii) sale of goods declared tax-free under section 7;

(iii) sale of goods not liable to tax under section 8;

(iv) sale of goods which are proved to the satisfaction of the
B Commissioner to have been purchased within a period of twelve
months prior to the date of registration of the dealer and subjected
to tax under the Bengal Finance (Sales Tax) Act, 1941 (7 of 1941 ), as
it was then in force, or under this Act;

(v) sale to a registered dealer -
c
(A) of goods of the class or classes specified in the certificate of
registration of such dealer, as being intended for use by him as raw
materials in the manufacture in Delhi of any goods, other than goods
specified in the Third Schedule or newspapers -

D (I) for sale by him inside Delhi; or

(2) for sale by him in the course of inter-State trade or commerce,
being a sale occasioning, or effected by transfer of documents of title
to such goods during the movement of such goods for Delhi; or

E (3) for sale by him in the course of export outside India being a sale
occasioning the movement of such goods from Delhi, or a sale effected
by transfer of documents of title to such goods effected during the
movement of such goods from Delhi, to place outside India and after
the goods have crossed the customs frontiers of India; or

F (B) of goods of the class or classes specified in the certificate of
registration of such dealer as being intended for resale by him in
Delhi, or for sale by him in the course of inter-State trade or commerce
or in the course of export outside India in the manner specified in the
sub-item (2) or sub-item (3) of item (A), as the case may be; and

G (c) of containers or other materials, used for the packing of goods, of
the class or classes specified in the certificate of registration of such
dealer, other than goods specified in the third Schedule, intended for
sale or resale;

(vi) such other sales as are exempt from payment of tax under section
H 66 or as may be prescribed :
EAST INDIA HOTELS LTD. v. U.0.1. [KI RP AL, J.] 665
Provided that no deduction in respect of any sale referred to in A
sub-clause (iv) shall be allowed unless the goods, in respect of which
deduction is claimed, are proved to have been sold by the dealer
within a period of twelve months from the date of his registration and
the claim for such deduction is included in the return required to be
furnished by the dealer in respect of the said sale:
B
Provided further that no deduction in respect of any sale referred
to in sub-clause (v) shall be ~!lowed unless a true declaration duly
filled and signed by the registered dealer to whom the goods are sold
and containing the prescribed particulars in the prescribed form
obtainable from the prescribed authority is furnished in the prescribed C
manner and within the prescribed time, by the dealer who sells the
goods :

Provided also that where any goods are purchased by a registered
dealer for any of the purposes mentioned in sub-clause (v) but are not
so utilised by him, the price of the goods so purchased shall be D
allowed to be deducted from the turnover of the selling dealer but
shall be included in the taxable turnover of the purchasing dealer; and

(b) the tax collected by the dealer under this Act as such and shown
separately in cash memoranda or bills, as the case may be."
E
From a reading of Section 2(e), it is clear that, though it is an inclusive
definition and not an exhaustive one, even in case of the supplies made by
a club or an association to its members, whether or not in the course of
business, the club or association is regarded as a dealer. According to Section
2(g), all movable properties, materials, articles or commodities are goods.
Therefore, food in a restaurant has necessarily to be regarded as goods. F
According to Section 2(1), transfer of property in goods by one person to
another would amount to sale. With cooked food or food which is supplied
in a restaurant falling within the definition of the word 'goods' in Section 2(g),
transfer of property in the same would amount to sale as provided by Section
2(1). These definitions have to be read along with Sections 3 and 4. Section G
4(1 )(c) clearly shows that in respect of food or drink served for consumption
in a hotel or restaurant or a part thereof, the same would be regarded as a
sale and taxable turnover in respect thereto would be taxed.

It was contended by Mr. Subramanium that Section 4(1 )(c) is only
relatable to hotels or restaurants where there is cabaret or floor show or H
666 SUPREME COURT ·REPORTS [2000) SUPP. 4 S.C.R.

A similar entertainment and this cannot lead one to the conclusion that in the
case of restaurants other than those which fall under this category when the
customer takes food the same can be regarded as sale to him. We are unable
to agree with this submission. If the contention of Mr. Subramanium is
correct, namely, that in a restaurant no sale at all takes place to a customer,
by ~elying upon Northern India Caterers' case, then the question of any tax
B being levied in respect of food or drink supplied in a hotel or restaurant in
which there is a cabaret would not arise. In other words, Section 4(l}(c) would
become otiose. This obviously cannot be so. An Act has to be read as a
whole, the different provisions have to be harmonised and the effect has to
be given to all of them. Reading the said provisions together, it is clear that
C food and drink would fall within the definition of 'goods' under Section 2(g).
There would be a transfer of property in the same by a hotelier in favour of
the customer and in this respect it will be useful to refer to an observation
by this Court in The State of Punjab v. Mis. Associated Hotels of India ltd.,
[1972] I SCC 4 72 when at page 4 78 it was observed as follows:

D " ......... 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
E render the event of such supply and consumption a sale, since there
is no intention to sell and purchase."

In Associated Hotels' case, this Court was dealing with a situation
where the hotel was receiving guests and providing them with all the amenities
along with food and the bill which was tendered to the guests was all
F inclusive. In other words, whether the customer staying at the hotel consumed
the food supplied to it or not, made no difference and the composite price
or amount had to be paid by him. The Court made it clear that it was not
dealing with a case where food was being supplied by a restaurant to a
customer against payment of various items of food which he consumed but
G the Court was concerned with a situation where a composite amount was
being charged by the hotel supplying all the facilities including food in a
restaurant. The observations of the Constitution Bench in Associated Hotels'
case referred to hereinabove clearly show that property in foodstuff passes
from the hotelier to the customer at least to the extent of foodstuff consumed.
Section 2(1) clearly provides that sale would mean any transfer of property in
H goods by one person to another.
EAST INDIA HOTELS LTD. v. U.0.1. [KIRPAL, J.] 667
In the present case, when a customer goes .to _a restaarant and orders A
food and in respect of which he pays the price indicated therein and the said
food items are supplied to him, it would clearly be a case of transfer of
...
-
property in goods to the customer. Whether the customer eats the entire or
part of the dish or chooses not to eat at all would make no difference if he
pays for the dishes supplied. The moment the dish is supplied and sale price B
paid, it would amount to a sale.

In Northern India Caterers' case, this. Court did not have occasion to
consider either the definition of 'dealer' or a provision similar to Section 4
which exists in the 1975 Act. The observations of this Court in Northern
India Caterers' case can, therefore, be of no assistance to the appellants. It C
is clear that in a case like this if the food or drink is supplied in a hotel or
restaurant where there is a cabaret, floor show or similar entertainment, the
rate of tax would be under Section 4(1 )(c) and where there is no such cabaret,
floor show or similar entertainment the rate of tax would be the one stipulated
in Section 4( l )(d).
D
For the aforesaid reasons, we see no merit in this appeal. The same is,
accordingly, dismissed with costs.

A.K.T. Appeal dismissed.