IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06-10-2009 Coram: THE HONOURABLE MR.JUSTICE M.JAICHANDREN W.P.Nos.10154 to 10157 of 2005 M/s.Hotel Saravana Bhavan Represented by its Managing Director, Mr.P.Rajagopal, No.19, Vadapalani Andavar Koil Street, Chennai-26. .. Petitioner. Versus The Commercial Tax Officer, Vadapalani-I Asst. Circle, Chennai-600 106. .. Respondent. PRAYER in W.P.No.10154 of 2005: Petition filed seeking for a Writ of Certiorarified Mandamus to call for the records of the impugned proceedings of the respondent in TNGST No.1460553/1998-99, dated 11.3.2005, and quash the same and further direct him to assess the sale of food and drinks by the petitioner under Section 3-D of the Tamil Nadu General Sales Tax Act, 1959, as applicable till 1.4.2002. PRAYER in W.P.No.10155 of 2005: Petition filed seeking for a Writ of Certiorarified Mandamus to call for the records of the impugned proceedings of the respondent in TNGST No.1460553/2000-2001, dated 30.7.2004, and quash the same and further direct him to assess the sale of food and drinks by the petitioner under Section 3-D of the Tamil Nadu General Sales Tax Act, 1959, as applicable till 1.4.2002. PRAYER in W.P.No.10156 of 2005: Petition filed seeking for a Writ of Certiorarified Mandamus to call for the records of the impugned proceedings of the respondent in TNGST No.1460553/1999-2000, dated 30.7.2004, and quash the same and further direct him to assess the sale of food and drinks by the petitioner under Section 3-D of the Tamil Nadu General Sales Tax Act, 1959, as applicable till 1.4.2002. PRAYER in W.P.No.10157 of 2005: Petition filed seeking for a Writ of Certiorarified Mandamus to call for the records of the impugned proceedings of the respondent in TNGST No.1460553/2001-2002, dated 30.7.2004, and quash the same and further direct him to assess the sale of food and drinks by the petitioner under Section 3-D of the Tamil Nadu General Sales Tax Act, 1959, as applicable till 1.4.2002. For Petitioner : Mr.P.Rajkumar For Respondents : Mr.R.Tholgappian Government Advocate (Taxes) O R D E R
As similar issues are arising for consideration in all the four writ petitions and since the reliefs sought for are also similar in nature, a common order is passed by this Court, in the above writ petitions.
2. The petitioner is a registered dealer, registered under the provisions of the Tamil Nadu General Sales Tax Act, 1959. Various food items and drinks are served in the hotels and restaurants, in the name of the petitioner, namely, M/s.Hotel Saravana Bhavan. Out door catering is also undertaken by the petitioner. It also prepares and serves ready to eat food items, like idly, dosai, vadai, noodles, fried rice, meals, cold and hot beverages, soft drinks, ice creams, mineral water, etc. Generally, the food items and drinks are made ready and served, based on the orders placed by the customers. Only items like packaged bottled drinks and ice creams, purchased from local dealers, are kept in ready form.
3. The above writ petitions have been filed for different assessment years, which are prior to 1.4.2002. Writ petition No.10154 of 2005 relates to the assessment year 1998-1999. Writ petition No.10155 of 2005 relates to the assessment year 2000-2001. The Writ petition No.10156 of 2005 relates to the assessment year 1999-2000. The Writ petition No.10157 relates to the assessment year 2001-2002.
4. It has been stated by the petitioner that, as per Section 3-D of the Tamil Nadu General Sales Tax Act, 1959, as it existed upto 31.3.2002, every dealer, whose total turnover is not less than Rs.25 lakhs for the concerned year, on the sale of food and drinks in hotels, restaurants, sweet stalls and any other eating houses, shall pay tax at the rates specified in Part-A of the Ninth Schedule to the Act. Since the petitioner’s turnover exceeded Rs.50 lakhs in a year the petitioner was paying tax at the rate of 2% on the total turnover of sale of food and drinks. While so, the respondent, by relying on the clarifications issued by the Commissioner of Commercial Taxes, in Clarification No.156 of 2003 in D.Dis.Acts Cell II/31073/2003/dt.26.06.2003 and based on the inspection report received from the officials of the enforcement wing, had come to an erroneous conclusion that the food and drinks sold by the petitioner in its restaurants are branded foods. Accordingly, the respondent had proposed to levy tax at the rate of 16%, under Entry 4 (iii) of Part-E to the First Schedule of the Tamil Nadu General Sales Tax Act, 1959.
5. It has been further stated that Section 3-D, which was in existence upto 31.3.2002, made no distinction between the food and drinks that was sold as branded items and those that were sold as unbranded items. However, by an amendment to Section 3-D, the difference between branded and unbranded items had been introduced. Accordingly, the respondent, by relying on the subsequent amendment, had treated the food and drinks sold by the petitioner, during the period prior to 1.4.2002, as branded food and drinks and thereby, he had proposed to levy higher rate of tax at 16%. Even after the amendment to Section 3-D of the Tamil Nadu General Sales Tax Act, with effect from 1.4.2002, it cannot be said that the food and drinks sold by the petitioner would come under the category of branded items. Therefore, the impugned proceedings of the respondent proposing to levy the higher rate of sales tax, on the food and drinks items sold by the petitioner, at 16%, is arbitrary, illegal and void.
6. The learned counsel Mr.P.Rajkumar, appearing on behalf of the petitioner, had submitted that the respondent had wrongly levied the higher rate of tax on the food and drinks items sold by the petitioner on the misconception that they are branded items. Further, for the assessment years 1998-1999, 1999-2000, 2000-2001 and 2001-2002, it would not be open to the respondent to invoke the amended version of Section 3-D, for levying the sales tax on the food and drinks items, sold by the petitioner, at 16%. The respondent could have only invoked Section 3-D, as it stood prior to 1.4.2002 and therefore, the sales tax that could have been levied on such items should have been only at 2%.
7. The learned counsel for the petitioner had further submitted that the respondent had relied on the Clarification No.156 of 2003, in D.Dis.Acts Cell II/31073/2003/dt.26.06.2003, in proposing to levy the tax at 16%, even though the said clarification, dated 26.6.2003, had been quashed by a Division Bench of this Court in Pizzeria Fast Foods Restaurant (Madras) Pvt. Ltd. Commissioner of Commercial Taxes, Chennai and others (Vol.140 2005 STC 97). The Division Bench, while holding that the said clarification cannot be the basis for imposing the tax at the rate of 16%, had held as follows:
“31. In the present case, the petitioner was served with a pre-revision notice on the basis of a circular issued on March 19, 2002, which stipulated that branded pizza could be taxed at 16 per cent. Accordingly, the assessments which had been initially completed and which levied a tax of 2 per cent under Section 3-D of the Act were sought to be revised and tax at 16 per cent was proposed to be levied. A plain reading of Section 30D, as it existed prior to April 1, 2002, indicates that it levies a tax on all foods and drinks sold in hotels and restaurants having a total turnover of not less than Rs.25 lakhs at a flat rate of 2 percent. The section made no distinction as to whether the food and drink that was sold was branded or unbranded. Section 3-D introduced the concept of sale of unbranded foods and drink only in the amended provisions, which came into effect on April 1, 2002. Hence, in our opinion, it was clearly not permissible for the Commissioner of Commercial Taxes to issue a clarification that branded pizza would be taxed at 16 per cent.”
8. It has been further stated that the First Bench of this Court by its order, dated 24.8.2007, made in W.A.No.903 of 2007 (Global Franchise Architects India Pvt. Ltd. Vs. The Commercial Tax Officer, Vadapalani I Assessment Circle, Chennai) had also come to a similar conclusion. In such circumstances, the learned counsel for the petitioner had submitted that the proceedings of the respondent, impugned in the present writ petitions, are unsustainable in the eye of law.
9. Per contra the learned counsel appearing on behalf of the respondent had submitted that the writ petitions are not maintainable in view of the fact that the petitioner ought to have availed of the alternate remedy, as provided under the Tamil Nadu General Sales Tax Act, 1959. The petitioner could have raised all the relevant grounds before the authority concerned, in challenging the impugned proceedings of the respondent. The learned counsel had relied on the following decisions in support of his contentions:
1)Union of India V. Tata Engineering & Locomotive Co. Ltd. (AIR 1998 SC 287)
2)Karnataka Chemical Industries V. Union of India (1999(113) E.L.T. 17 (S.C.)
10. However, the learned counsel appearing for the petitioner had relied on the decision, reported in Sakthi Masala (P) LTD & Ors. Vs. Spl.C.C.T & Anr. (2007-08(13) TNCTJ), to show that it would be futile for the petitioner to approach the authorities concerned, by invoking the alternate remedy, especially, in view of the fact that the Clarification No.156 of 2003 in D.Dis.Acts Cell II/31073/2003/dt.26.06.2003, has been issued by the higher authority creating an obligation on the part of the lower authorities to follow the same.
11. In view of the submissions made by the learned counsels appearing on behalf of the petitioner, as well as the respondent and on a perusal of the records available, this Court is of the considered view that the impugned proceedings of the respondent cannot be sustained in the eye of law. It is clear that Section 3-D of the Tamil Nadu General Sales Tax Act, 1959, as it stood prior to the amendment, which came into effect, from 1.4.2002, there was no distinction between branded and unbranded food and drinks. As such, sales tax was levied on the food and drinks sold by the petitioner, at 2%, in accordance with the unamended Section 3-D of the Tamil Nadu General Sales Tax Act, 1959. Since the assessment years of 1998-1999, 1999-2000, 2000-2001 and 2001-2002, relate to the period prior to the amendment of Section 3-D, it would not be open to the respondent to levy sales tax at the higher rate of 16%.
12. Further, in view of the cases cited by the learned counsel for the petitioner, it is clear that the respondent had erred in relying on the Clarification No.156 of 2003, in D.Dis.Acts Cell II/31073/2003/dt.26.06.2003 in proposing to impose the higher rate of tax on the food and drinks sold by the petitioner. For the reasons stated above, the impugned proceedings of the respondent are set aside and the respondent is directed to assess the sale of food and drinks sold by the petitioner, under Section 3-D of the Tamil Nadu General Sales Tax Act, 1959. Accordingly, the writ petitions are allowed. No costs.
csh
To
The Commercial Tax Officer,
Vadapalani-I Asst. Circle,
Chennai 600 106