JUDGMENT
A.K. Padhi, J.
1. Reference has been made to a larger Bench to consider the scope and ambit of Section 6(2) of the Constitution (Forty-sixth Amendment) Act, 1982, vis-a-vis, the Orissa Sales Tax Act, 1947. The former Act is hereinafter referred to as “the Amendment Act” and the latter as “the Act”. In essence the dispute is when the taxable event is supply of eating materials in a restaurant, or eating house or in a place not being a restaurant, where such supply or service was for cash, deferred payment or valuable consideration for the period at any time on or after 7th day of September, 1978 and before 2nd February, 1983, in a given case, where the assessee had not collected tax from the buyer, whether he shall be exempted from tax in view of Section 6(2)(a) of the Constitution (Forty-sixth Amendment) Act, 1982 or exigibility of tax shall be dependent on dominant object of the assessee while supplying articles of food for cash or deferred payment. Consequentially it has to be adjudicated whether the taxing authorities are required to investigate as to whether the supply of food for cash or deferred payment by the assessee in question at the relevant tune was a package of service or was sale of food, service being incidental when the assessee raised such a question.
2. The historical background of levy of tax on supply of food-stuff and service of meals and various decisions on the point need reference. Whether service of meals to casual visitors in a restaurant, a lodging house where meals are provided, when the charges are lump sum per meal or charged along with the services for the entire day had come up for consideration before the apex Court from time to time (sic). In State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 STC 474 (SC) the question that arose was whether the supply of food to the residents of a hotel, constituted “sale” for the purpose of levy of sales tax and whether it was legally permissible for the Revenue to split up the transaction into two parts, namely, one of service and the other of sale of food-stuffs in order to tax sale of food. Their Lordships were of the opinion that the transaction between a hotelier and a visitor to a hotel was essentially one of service in performance of which, as part of the amenities incidental to that service, the hotelier serves meals and, therefore, does not come within the definition of “sale”.
Following that principle it was reiterated in the subsequent decision in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 (SC) ; AIR 1978 SC 1591, which reads thus :
“……….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.”
While concluding, their Lordships observed that :
“In the result, we hold that the service of meals to visitors in the restaurant of the appellant is not taxable.”
3. The Revenue filed an application for review of the judgment and the judgment in review is reported in [1980] 45 STC 212 [Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi]. Honourable Justice R.S. Pathak’s view, so far as it is relevant is as follows :
“….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.”
Honourable Justice Krishna Iyer while concurring, observed that :
“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.”
Parliament enacted the Amendment Act to nullify the effect of the aforesaid decisions. One of the objects and reasons of the Amendment Act is stated to be :
“8. Besides the abovementioned matters, a new problem has arisen as a result of the decision of the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 ; AIR 1978 SC 1591. States have been proceeding on the basis that the Associated Hotels of India case [1972] 29 STC 474 (SC), was applicable only to supply of food or drink, by a hotelier to a person lodged in the hotel and that tax was leviable on the sale of food-stuffs by a restaurant. But overruling the decision of the Delhi High Court, the Supreme Court has held in the above case that service of meals whether in a hotel or restaurant does not constitute a sale of food for the purpose of levy of sales tax but must be regarded as the rendering of a service in the satisfaction of a human need or ministering to the bodily want of human beings. It would not make any difference whether the visitor to the restaurant is charged for the meal as a whole or according to each dish separately.”
The Amendment Act came into force on 2nd February, 1983. Under Section 4 of the Amendment Act, Clause (29A) was inserted in Article 466 of the Constitution and it reads as follows :
“(29A) ‘tax on the sale or purchase of goods’ includes–
………….
(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……….”
Section 6 of the Amendment Act deals with validation and exemption. Section 6(1)(a) of the Amendment Act prescribed that wherever the expression–
” ‘tax on the sale or purchase of goods’ occurs in any of the provisions of the Constitution, and for the purposes of any law passed or made or purporting to have been passed or made, before the commencement of the amending Act, in pursuance of any such provision shall be deemed always to have included, 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) for cash, deferred payment or other valuable consideration.”
Under Section 6(1)(b) certain transactions were validated. While nullifying the effect of the decisions of the apex Court, to save the restaurant, lodgings, eating-house, etc., from levy of sales tax for the interregnum, as the law in this regard was in fluid and uncertain state on account of the decisions of the apex Court, exemption has been granted under Section 6(2) of the Amendment Act.
Section 6(2) of the Amendment Act starts with non obstante clause to the effect that notwithstanding anything contained in Sub-section (1), any supply of the nature referred to therein shall be exempted from the aforesaid tax. We are concerned with the exemption under Section 6(2)(a) which reads as follows :
“6(2)(a). Where such supply has been made, by any restaurant or eating house (by whatever name called), at any time on or after the 7th day of September, 1978 and before the commencement of this Act and the aforesaid tax has not been collected on such supply on the ground that no such tax could have been levied or collected at that time ;”
Section 6(2)(a) provides for exemption from 7th September, 1978 till 2nd February, 1983, when the amending Act came into force. The other requirements of Section 6(2) are :
(a) that tax had not been collected on supply of articles of food ; and
(b) that such collection was not made on the ground that no such tax could have been levied or collected.
4. According to the assessee for the period for which exemption has been granted under Section 6(2)(a) of the Amendment Act, the assessing authorities are required only to find out whether the assessee had collected sales tax during the relevant period or not, the burden being on the assessee to prove that he had not collected it. The authorities are not required to find out the dominant object of the assessee regarding the supply of such foodstuff, that is, whether the supply of such food articles during the relevant period was in lieu of package of service or was intended to be sale of foodstuffs, service being incidental. Reliance is placed on a decision in Shri Krishna Enterprises v. State of Andhra Pradesh [1990] 76 STC 67 (SC), in which their Lordships remitted the matter to the assessing authorities directing to give opportunity to the assessees to establish that they come within the exemption clause of Section 6 of the Constitution (Forty-sixth Amendment) Act, 1982.
5. In Shri Krishna Enterprises’ case [1990] 76 STC 67 (SC), the question before their Lordships was whether the assessees were entitled to the exemption under Section 6(2)(a) of the amending Act it being their plea that they had not. collected the tax during the relevant period. Finding that opportunity had not been given to them to establish the fact so as to entitle them to claim the benefit of exemption, their Lordships remanded the matter for grant of opportunity to the assessees to establish that they were covered under the exemption clause and hence were not liable to pay the tax in respect of supply of goods. While narrating the facts it has been stated “until the Forty-sixth Amendment of the Constitution became effective, the supplies which have been made by these eating-houses to consumers were not treated as sale assessable to tax on account of decisions of this Court”. Therefore it is clear that the question of necessity or otherwise of establishing the dominant intention was not directly considered by their Lordships. When the remand was made their Lordships directed the authorities to give opportunity to the assessees to establish that they come within the protection of the exemption granted under Section 6(2)(a) of the Amendment Act and they were required to establish all the ingredients necessary to establish the same.
6. In Piplani Sweets v. Sales Tax Officer [1988] 70 STC 153, the Amendment Act was considered by this Court. After construing the provisions it was observed that where sale of food happened to be dominant object of the transaction in the case of an eating house or restaurant and not exempted, such sale was taxable under the exemption clause of the Amendment Act. The same provision was again considered in Sagarika Hotel v. Union of India [1988] 70 STC 269 (Orissa) ; (1988) 1 OLR 348 and in Prince Hotel v. State of Orissa (S.J.C. No. 38 of 1983, disposed of on 17th August, 1990). In the latter case, their Lordships have opined that :
“………….Non-collection of tax would not give exemption in cases where supply is with dominant object of sale. A dealer has option not to collect tax. Under Section 4 of the Act which is charging section, liability is on the dealer. Accordingly, absence of collection of tax where dominant object was sale would not be of any assistance to the dealer under Section 6(2) of the Constitution (Forty-sixth Amendment) Act.”
In Prince Hotel’s case Reported in [1992] 85 STC 563 (Orissa), their Lordships held that the dominant object of the assessee was sale of food-stuffs and therefore came to the conclusion that the authorities were not required to enquire into the question as to whether in fact tax was collected at the relevant point of time or not as the assessee was liable to be assessed for the sale of food-stuff, the same being exigible taking into consideration the law as declared by the apex Court in Northern India Caterers case [1978] 42 STC 386 and [1980] 45 STC 212.
7. In both the original and review judgments in Northern India Caterers’ cases [1978] 42 STC 386 and [1980] 45 STC 212, the apex Court in unambiguous terms had observed that where sale of food happened to be the dominant object in the case of an eating house or a restaurant, the transaction would be undoubtedly exigible to sales tax. This declaration of law made by the apex Court must be deemed to be the legal position in existence all through. Therefore, the assessee whose dominant object while supplying food articles was sale of the food-stuffs, services being incidental, was all through liable to pay sales tax. Therefore, in each case even after the amendment the taxing authorities are required to investigate as to whether at the time the assessee sold the food-stuffs, service was incidental or the supply of food was in lieu of package of service, if the assessee claims that his dominant object in supply of food was in lieu of package of service. If the assessing authorities find that the dominant object was the “sale” of the food-stuff within the ambit of the interpretation by their Lordships in Northern India Caterers case [1978] 42 STC 386 and [1980] 45 STC 212, they are no more required to investigate as to whether sales tax was in fact collected or not. In the scheme of tax levy, the stages are fixation of liability to tax by prescription in statute, quantification or assessment of tax payable and recovery of tax assessed. All the three stages are involved in the case at hand. The procedure for assessment is laid down in Section 12 of the Act. When the assessee is a registered dealer and has filed returns, either within or beyond prescribed time, several courses are open. The return may be accepted by the assessing authority as correct and complete, in case the return was filed within time. Where the attendance of the assessee is required in such a case, notice is to be issued and tax is to be assessed under Section 12(2). Where either the return is filed beyond the prescribed time, or, there is no response to the notice under Section 12(2), the assessing authority has power to assess to the best of judgment. In the former case however, notice to the assessee before assessment is mandated. If on appearance the assessee satisfies the assessing officer that the returns are correct with reference to the books of accounts, documents, etc., the same shall be accepted and assessment made accordingly. Where however, the assessing officer does not accept the returns to be correct, he shall assess to the best of judgment after indicating reasons therefor. Sections 12(5) and 12(8) deal with unregistered dealers and cases of escaped assessment and under-assessments. These assessments are made after the assessee is noticed to file returns. In these cases also the assessing officer has power of assessment to the best of his judgment. Best judgment assessment however is not necessarily enhancement assessment and if the books of accounts, documents, etc., show that the return submitted is correct and complete, the same is to be accepted. Even in cases covered under Section 12(4), (5), (8) the turnovers returned may be accepted and appropriate tax rate, if not correctly reflected, may be applied and assessment made. Therefore, the dominant object aspect assumes importance.
8. As has been seen before, it is the exclusive responsibility of the assessee to establish, so as to bring itself within the protection of the exemption, that during the period for which exemption has been granted it had not collected the tax for supply of the articles of food in question and that such collection had not been made because of the fact that sales tax was not leviable nor collectible at that time because of the nature of the transactions effected by it. The only ground on which the contention that the tax was neither leviable nor collectible during the transactions, it was principally rendering service and not selling and because of the law decided by the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 and [1980] 45 STC 212 no tax was leviable or collectible on such transactions. To establish such fact it has necessarily to establish that in effecting the transactions its dominant intention was rendering service and not sale. Viewed from this perspective an assessee who puts forth the objection of it being not liable to sales tax on account of the exemption under Section 6(2)(a) has to establish that its dominant intention in making the supplies was rendering service and not transferring any property in goods and that for such reason no tax was leviable or collectible in view of the decisions of the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 and [1980] 45 STC 212 and that in fact it had not collected any tax. If it succeeds in establishing such facts, it is outside the tax net.
If the assessing authority is satisfied that the dominant object of the assessee was only package of services, investigation as to whether the assessee in fact had collected the sales tax or not during the relevant period becomes necessary. The burden shall be on the assessee to prove that he had not collected tax. Whether he had collected tax or not, is within his special knowledge. He must satisfactorily prove that no tax had been collected. On consideration of materials placed about collection or otherwise of taxes, the assessing authority shall quantify the tax liability. If tax has not been collected during the period indicated in Section 6(2) of the Amendment Act, in respect of transactions involving dominant object of service, exemption is to be granted.
9. On the basis of the Amendment Act, the Orissa Sales Tax Act was amended and the amended provisions came into force on 7th April, 1984, with provisions corresponding to those contained in the Amendment Act. The effect of the said amendment in the Act, therefore, is that the benefit contemplated by the Forty-sixth Amendment was extended up to the date of the State legislation. This view was expressed by the Supreme Court in Shri Krishna Enterprises’ case [1990] 76 STC 67.
10. To sum up, our conclusions are as follows :
(i) There is no conflict between the judgment of the apex Court rendered in Shri Krishna Enterprises’ case [1990] 76 STC 67 and the decisions of this Court rendered in [1988] 70 STC 153 (Piplani Sweets v. Sales Tax Officer), [1988] 70 STC 269 ; (1988) 1 OLR 348 (Sagarika Hotel v. Union of India) and S.J.C. No. 38 of 1983 (Prince Hotel v. State of Orissa) Reported in [1992] 85 STC 553, disposed of on 17th August, 1990 as in Krishna Enterprises’ case [1990] 76 STC 67, their Lordships proceeded on the admitted facts “until the Forty-sixth Amendment of the Constitution became effective, the supplies which have been made by these eating-houses to consumers were not treated as sale assessable to tax on account of decisions of this Court”, for which their Lordships were not called upon to decide, when there are disputed facts before the assessing authority as to the transaction of supply of food being by way of sale or was in lieu of package of services ;
(ii) Transactions in hotels and restaurants where dominant object was sale were taxable all through. It is for the assessing authority to ascertain from the facts and to determine that sale of food supplied was intended if such question is raised by the dealer claiming exemption under Section 6(2)(a) of the Act ;
(iii) Transactions where dominant object is service, are not to be taxed between the period from 7th September, 1978 to 2nd February, 1983, and thereafter till 7th April, 1984 (date of amendment of the definition of “sale” in the Act), if no tax has been collected by the assessee ; and
(iv) The assessing officer has to give opportunity to the assessee to show that no tax was collected. The burden of proof is on the latter.
The reference is accordingly answered.
B.L. Hansaria, C.J.
11. I agree.
L. Rath, J.
12. I agree.