{"id":195345,"date":"1972-01-04T00:00:00","date_gmt":"1972-01-03T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/state-of-punjab-vs-ms-associated-hotels-of-india-on-4-january-1972"},"modified":"2017-06-11T12:36:23","modified_gmt":"2017-06-11T07:06:23","slug":"state-of-punjab-vs-ms-associated-hotels-of-india-on-4-january-1972","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/state-of-punjab-vs-ms-associated-hotels-of-india-on-4-january-1972","title":{"rendered":"State Of Punjab vs M\/S. Associated Hotels Of India … on 4 January, 1972"},"content":{"rendered":"
Supreme Court of India<\/div>\n
State Of Punjab vs M\/S. Associated Hotels Of India … on 4 January, 1972<\/div>\n
Equivalent citations: 1972 AIR 1131, \t\t 1972 SCR (2) 937<\/div>\n
Author: Shelat<\/div>\n
Bench: Sikri, S.M. (Cj), Shelat, J.M., Dua, I.D., Khanna, Hans Raj, Mitter, G.K.<\/div>\n
           PETITIONER:\nSTATE OF PUNJAB\n\n\tVs.\n\nRESPONDENT:\nM\/S.  ASSOCIATED HOTELS OF INDIA LTD.\n\nDATE OF JUDGMENT04\/01\/1972\n\nBENCH:\nSHELAT, J.M.\nBENCH:\nSHELAT, J.M.\nMITTER, G.K.\nSIKRI, S.M. (CJ)\nDUA, I.D.\nKHANNA, HANS RAJ\n\nCITATION:\n 1972 AIR 1131\t\t  1972 SCR  (2) 937\n 1971 SCC  (1) 472\n CITATOR INFO :\n D\t    1974 SC2309\t (110)\n RF\t    1977 SC1642\t (6)\n RF\t    1978 SC 621\t (28)\n R\t    1978 SC1591\t (3,6,7)\n R\t    1980 SC 674\t (4)\n E\t    1984 SC 744\t (18)\n F\t    1989 SC 285\t (10)\n\n\nACT:\nSales tax-Sale and contract of Work and\t service-Distinction\nand tests.\n\n\n\nHEADNOTE:\nThe  respondent-company\t was  running  the  business  of   a\nhotelier  and  was registered as a dealer under\t the  Punjab\nGeneral\t Sales Tax Act, 1948.  It applied for a\t declaration\nthat  it  was not liable to sales-tax in  respect  of  meals\nserved\tto  the guests staying in the hotel on\tthe  grounds\nthat  :\t (1)  the hotel receives guests\t primarily  for\t the\npurpose\t of  lodging; (2) when so  received  the  management\nprovides  him with a number of amenities including meals  at\nfixed hours, incidental to such lodging and with a view\t to\nrender\thi-, stay comfortable; (3) the\ttransaction  between\nthe respondent and the guests is one for the latter to\tstay\nand  not one of sale of food stuffs supplied; (4)  the\tbill\ngiven  by  the respondent and paid by the guest is  one\t and\nindivisible, being a fixed amount per day during his stay in\nthe hotel and does not consist of separate items in  respect\nof  the\t several  amenities furnished to him,  and  (5)\t the\ntransaction  does  not envisage any sale of food  since\t the\nguest cannot demand a rebate or deduction if he were to miss\na  meal\t or meals nor is he entitled to carry away  or\tdeal\nwith, in any manner, the food served on his table if a\tpart\nof it is not consumed.\nThe  department rejected the company's application  but\t the\nHigh Court allowed its writ petition.\nDismissing the appeal to this Court,\nHELD : The transaction is one essentially of service in\t the\nperformance of which and as part of the amenities incidental\nto that service, the hotelier serves meals at stated  hours.\nThe  Revenue,  therefore, was not entitled to split  up\t the\ntransaction  into two parts one of service and the other  of\nsale  of  food stuffs and to split up the  bill\t charged  as\nconsisting  of\tcharges\t for lodging and  charges  for\tfood\nstuffs served with a view to bring the latter under the Act.\n[947 F-G]\nThe distinction between a contract of sale and a contract of\nwork  and service is fine especially when the contract is  a\ncomposite  one\tinvolving both.\t In  considering  whether  a\ntransaction  is a sale falling within the purview of  sales-\ntax it is necessary to determine the nature of the  contract\ninvolved  on the facts of each case.  A contract of sale  is\none  whose  main  object is the\t transfer  of  property\t and\ndelivery  of possession of a chattel to the buyer;  but\t the\nmere  passing of property in an article or commodity  during\nthe  course  of the performance of a  transaction  does\t not\nrender\tit a transaction of sale when there is no  intention\nto  sell  and purchase.\t When the principal object  of\twork\nundertaken by the payee of the price is not the transfer  of\na  chattel  qua\t chattel the contract is  one  of  work\t and\nlabour.\t  The  test  is whether or not the  work  or  labour\nbestowed  ends\tin  anything that can  properly\t become\t the\nsubject of sale; neither the ownership of the materials\t nor\nthe value of the skill\n938\nand  labour  as\t compared with the  value  of  materials  is\nconclusive,   although\tsuch  matters  may  be\ttaken\tinto\nconsideration.\t In every case the court would have to\tfind\nout  what is the primary object of the transaction  and\t the\nintention  of the parties while entering into it. [942\tD-G:\n944 F-G.  H]\nThe transaction in the present case is one and\tindivisible,\nnamely,\t one of receiving a customer in the hotel  to  stay.\nThe  bill  is  not capable of being split up  into  one\t for\nresidence   and\t another  for  sale  of\t meals.\t   Amenities\nincluding  meals, are part and parcel of the service  which,\nin reality, is the transaction between the parties.  Even if\nit  was to be disintegrated the supply of meals during\tsuch\nstay does not constitute a separate contract of sale,  since\nno intention on the part of the parties to sell and purchase\nthe food stuffs supplied during meal time can be spelt\tout.\n[945 G-H; 946 A-C]\nMadras\tv. Gannon Dunkerley & Co. Ltd.,<\/a> [1959]\tS.C.R.\t379,\nMohanlal Jogani Rice & Atta Mills. v. Assam [1953] 4  S.T.C.\n129,  Masanda & Co. v. Commissioner of Sales-tax,  [1957]  8\nS.T.C. 370, United Bleachers Ltd. v. Madras, (1960) 9 S.T.C.\n278,  Krishna & Co. Ltd. v. Andhra Pradesh, [1956] 7  S.T.C.\n26,  Patnaik & Co. v. Orissa,<\/a> [1965] 16 S.T.C.\t364,  Andhra\nPradesh\t v.  Guntur Tobaccos Ltd.<\/a> [1965] 2  S.C.R.  167\t and\nEnglish Law and United States Law, referred to.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1207 of 1968.
\nAppeal\tby special leave from the judgment and\torder  dated
\nMay 10, 1967 of the Punjab and Haryana High Court in Letters
\nPatent Appeal No. 159 of 1966.\n<\/p>\n
V.   C. Mahajan and R. N. Sachthey, for the appellants.
\nM.   C.\t Setalvad,  M. C. Bhandare, Rameshwar  Nath,  T.  R.
\nBhasin and Lalit Bhasin, for the respondent.
\nThe Judgment of the Court was delivered by
\nShelat,\t J.  The respondent-company carries on\tbusiness  as
\nhoteliers  and conducts several hotels including the  ‘Cecil
\nHotel’ at Simla.  Besides conducting hotels, it also carries
\non  restaurant\tbusiness.   As\tpart  of  its  business\t  as
\nhoteliers, the company receives guests in its several hotels
\nto whom, besides furnishing lodging, it also serves  several
\nother amenities, such as public and private room, bath\twith
\nhot and cold running water, linen, meals during stated hours
\netc.   The  bill tendered to the guest is an  all  inclusive
\none,  that  is to say, a fixed amount for the  stay  in\t the
\nhotel  for each day and does not contain different items  of
\neach of the aforesaid amenities.  That is, however, not\t the
\ncase  in its restaurant business where a customer takes\t his
\nmeal  consisting either of items of food of his choice or  a
\nfixed menu.  The primary function of such a restaurant is to
\nserve  meals desired by a customer, although along with\t the
\nfood,  the customer gets certain other amenities also,\tsuch
\nas service, linen etc.\tThe bill which
\n939<\/span>
\nthe  customer  pays is for the various food items  which  he
\nconsumes  or at a definite rate for the fixed menu, as\tthe
\ncase may be, which presumably takes into account service and
\nother related amenities.\n<\/p>\n
The   respondent-company,  as  such  hoteliers,\t  has\tbeen
\nregistered  as a dealer under the Punjab General  Sales\t Tax
\nAct, XLVI of 1948 and has been filing quarterly returns\t and
\npaying sales tax under that Act.\n<\/p>\n
On  September 2, 1958 the company applied for a\t declaration
\nthat it was not liable to pay sales tax in respect of  meals
\nserved\tin the said Cecil Hotel to the guests  coming  there
\nfor  stay.  In support of its plea, the company\t raised\t the
\nfollowing contentions : (1) that the, hotel receives  guests
\nprimarily  for\tthe  purpose of lodging, (2)  that  when  so
\nreceived,  the\tmanagement  provides him with  a  number  of
\namenities  incidental  to such lodging and with\t a  view  to
\nrender his stay in the hotel comfortable including meals  at
\nfixed  hours, (3) that the transaction between the  company
\nand  such a guest is one for the latter to stay and not\t one
\nof  sale  of food stuffs supplied as one of  the  incidental
\namenities,  (4) that the bill given by the company and\tpaid
\nby the guest is one and indivisible, that is, a fixed amount
\nper day during his stay in the hotel and does not consist of
\nseparate items in respect of the several amenities furnished
\nto  him\t including  meals served to him, and  (5)  that\t the
\ntransaction  so entered into does not envisage any  sale  of
\nfood since the guest cannot demand a rebate or deduction  if
\nhe were to miss a meal or meals, nor is he entitled to carry
\naway  or  deal\twith in any manner the food  served  at\t his
\ntable,\tif a part of it remains unconsumed.  It is,  on\t the
\nother hand, the management which has the right to deal\twith
\nsuch  unconsumed  remainder as it likes.  Such\ta  position,
\ntherefore,  is\tinconsistent  with a sale  under  which\t the
\nproperty  in the whole must pass to the purchaser,  and\t who
\ncan deal with the remainder in any manner he likes.
\nThe Sales Tax Officer rejected the company’s application  on
\nthe  ground that the transaction Which takes  place  between
\nthe  management and a resident guest takes in  both  lodging
\nand boarding and the hotel charges include consideration for
\nboth.\tA revision under S. 21 of the Act by the company  to
\nthe Commissioner met the same fate.  The company then  filed
\na  writ petition for an order quashing the said decision  as
\nalso  the notices issued by the Sales Tax authorities  under
\nthe Act.  The grounds put forward in the writ petition\twere
\nalmost\tthe same which the company had previously  urged  in
\nits application for declaration.\n<\/p>\n
There was no dispute regarding the facts stated in the\twrit
\npetition  and particularly with regard to the fact that\t the
\ntransac-\n<\/p>\n
940<\/span><\/p>\n
tion  which  a\tvisiting  resident  enters  into  with\t the
\nmanagement is one and indivisible, that the bill charged  on
\nhim  is likewise one and indivisible, that the\tcharges\t are
\nfor  each day of stay, and that that being so, the bill\t was
\nincapable  of being split up into separate charges for\teach
\nof the amenities furnished and availed of by such a visiting
\nresident.   The\t dispute  was  as  to  the  nature  of\t the
\ntransaction  and whether such transaction included  sale  of
\nfood  stuff  supplied at various meals supplied\t to  such  a
\ncustomer.\n<\/p>\n
The  High Court, on a consideration of the  arguments  urged
\nbefore it and relying mainly upon the decision of this Court
\nin  Madras  v. Gannon Dunkerley and Co.\t Ltd.<\/a>(,’),  to\tthe
\neffect\tthat where a transaction is one and  indivisible  it
\ncannot\tbe split up so as to attract the Sales Tax Act to  a
\npart  of  it , allowed the writ petition.  It  held  that  a
\ntransaction between a hotelier and his resident visitor\t did
\nnot involve a sale of food when the former supplied meals to
\nthe latter as one of the amenities during his residence, and
\nthat  if there was one inclusive bill, it was  incapable  of
\nbeing  split  up in the absence of any rates for  the  meals
\nagreed\tto  between the parties as part of  the\t transaction
\nbetween\t the  two.   The  High\tCourt  also  held  that\t the
\ntransaction  was primarily one for lodging, that  the  board
\nsupplied by the management amounted to an amenity considered
\nessential  in these days in all properly  conducted  hotels,
\nand  that  when\t so  supplied,\tit  could  not\tbe  said  to
\nconstitute  a  sale every time a meal was served to  such  a
\nresident  visitor.  This appeal, by special leave, is  filed
\nagainst this view of the High Court.\n<\/p>\n
The question in this appeal, it would appear, arises in\t the
\npresent\t form for the first time.  There are, therefore,  no
\nprevious  decisions to guide its determination.\t  It  would,
\nhowever,  be helpful to consider certain decisions  both  of
\nthis  Court as also of the High Courts, in which  different
\ntypes  of  transactions\t which\tcame  up  before  them\t for
\nconsideration  in sales tax cases have been dealt  with\t and
\nwhich might throw some light upon the problem before us.
\nIn a case arising under the Assam Sales Tax Act, 1947 though
\nthere was no express sale in respect of gunny bags in  which
\nrice,  an  exempted commodity, was supplied  to\t Government,
\nthey  were  held to form assessable  turnover.\t There\twas,
\nhowever,  in  that  case evidence  that\t the  assessees\t had
\ncharged the Government for those bags (Mohanlal Jogani\tRice
\n& Atta Mills V.\t    Assam) (2).\n<\/p>\n
In  D. Masanda and Co. v. Commissioner of Sales Tax(3),\t the
\nquestion was whether photographic materials imported and
\n(1)  [1959] S.CR. 379.\n<\/p>\n
(3)  [1957] 8 S.T.C. 370.\n<\/p>\n
(2) [1953] 4 S.T.C. 129.\n<\/p>\n
941<\/span><\/p>\n
used  in  the process of  manufacturing\t photographic  work,
\ncopies of which were supplied by the assessee to a customer,
\nwas  a transaction involving sale of those  materials.\t The
\nHigh Court held that such a transaction did not cease to  be
\na  sale merely because the materials were not sold  directly
\nin  their  original form but in another form,  forming\tthe,
\ncomponents  of the finished product, namely, the  copies  of
\nthe photograph, and that the transaction was not merely\t the
\nperformance  of skilled services but the supply of  finished
\ngoods.\t This  was,  however,  a  border  line\tcase.\t The
\ntransaction  might  well be considered as  one\tof  service,
\nduring\t performance  of  which,  a  transfer\tof   certain
\nmaterials,  in\trespect of which there was no  contract\t for
\nsale,  either express or implied, may be said to have  taken
\nplace.\t An illustration of such a kind is furnished by\t the
\ncase  of United Bleachers Ltd. v. Madras(1).  In  that\tcase
\nthe  assessee  bleached and dyed,  calendered,\tpressed\t and
\nfolded unbleached yarn and cloth manufactured by his  custo-
\nmer  textile  mills.   The  bills  issued  by  the  assessee
\ncontained,  (a)\t bleaching  charges,  and  (b)\tcharges\t for
\nstitching,  folding,  stamping,\t baling etc.,  but  did\t not
\ncontain separately charges for the materials used for those’
\npurposes.  The Revenue contended that there was transfer  of
\nthose materials and separately assessed the charges of those
\nmaterials   holding  that  though  the\tassessee   did\t not
\nspecifically  deal  in\tthose materials, a  portion  of\t the
\nprofit\tearned in the business of bleaching and\t calendering
\ncould  legitimately be attributed to the  packing  materials
\nand   the   transaction\t involved  a  sale   of\t  them\t for
\nconsideration.\tOn a reference, the High Court held that the
\ncase was one of contract of service as distinguished from  a
\nsale  of a principal commodity, such as rice in\t Assam\tcase
\n(supra)\t and  salt in Varasuki and Co. v. Madras(1)  On\t the
\nother hand, where a contract is to supply such commodity  in
\na  packed  condition,  it  could  be  inferred,\t though\t the
\ncontract  might\t not be express that the  intention  of\t the
\nparties\t was to give and accept delivery of the goods  in  a
\npacked\tcondition  and not to take the\tprincipal  commodity
\nalone  so that in the contract of sale of such\ta  commodity
\nthere  was  implicit the sale of packing material  as  well.
\nEven  in  a  contract  of  service  such  as  bleaching\t and
\ncalendering  where  the\t goods\tafter  such  processing\t are
\ndelivered  packed a sale of packing, materials is  possible,
\nquite  apart from the contract of service.  The question  in
\nsuch cases would be one of evidence, whether there is such a
\ncontract beside the one of service.  Where however there are
\nno  such  distinct  contracts and the contract\tis  one\t and
\nindivisible, the essential part of which is one of  service,
\npacking\t would be part of or incidental to the service,\t and
\nunless an intention to charge for the materials used in\t the
\npacking can be spelt out, the Revenue would not be
\n(1) [1960] 9 S.T.C. 278.\n<\/p>\n
(2) [1950] 2 S.T.C. 1.\n<\/p>\n
942<\/span><\/p>\n
entitled  to split up the contract,  estimate  approximately
\nthe charges for such materials and treat them as  chargeable
\non the mere ground that the transaction involved transfer of
\npacking\t materials,  whose value must have been\t taken\tinto
\nconsideration while fixing charges for the service.  Such an
\nimplied contract of supply of packing materials was inferred
\nin  a  contract of service, namely, drying  raw\t tobacco  in
\nKrishna\t and Co. Ltd. v. Andhra Pradesh But the decision  in
\nthat case did not rest on there being a transfer of  packing
\nmaterials  in  favour of the customer.\tThere  was  evidence
\nthat such a transfer was for consideration, inasmuch as\t the
\namounts\t charged as remuneration for service also  contained
\ncharges\t for the packing materials though such charges\twere
\nnot separately shown in the assessee’s accounts.  In such  a
\nstate  of  evidence it would be possible for  the  Court  to
\ninfer  a  separate  implied  contract  of  sale\t of  packing
\nmaterials  and\tnot  as part of the service  of\t drying\t raw
\ntobacco and delivering it in packed condition.
\nThe  difficulty which the Courts have often to meet with  in
\nconstruing  a contract of work and labour, on the one  hand,
\nand  a contract for sale, on the other, arises\tbecause\t the
\ndistinction between the two is very often a fine one.\tThis
\nis  particularly  so when the contract is  a  composite\t one
\ninvolving both a contract of work and labour and a  contract
\nof  sale.   Nevertheless, the distinction  between  the\t two
\nrests on a clear principle.  A contract of sale is one whose
\nmain object is the transfer of property in, and the delivery
\nof  the possession of, a chattel as a chattel to the  buyer.
\nWhere  the principal object of work undertaken by the  payee
\nof  the price is not the transfer of a chattel qua  chattel,
\nthe contract is one of work and labour.\t The test is whether
\nor not the work and labour bestowed end in anything that can
\nproperly  become the subject of sale; neither the  ownership
\nof  materials,\tnor the value of the skill  and\t labour as
\ncompared  with\tthe value of the materials,  is\t conclusive,
\nalthough  such\tmatters may be taken into  consideration  in
\ndetermining,  in  the circumstances of\ta  particular  case,
\nwhether the contract is in substance one for work and labour
\nor one for the sale of a chattel(1).\n<\/p>\n
In  Patnaik and Co. v. Orissa<\/a> (3), a difference\t of  opinion
\narose because of the fine distinction between the two  types
\nof  contract.  The contract there was for  constructing\t and
\nfixing\tbus  bodies on the chassis supplied  by\t the  Orissa
\nGovernment.   The  contract, infer alia,  provide  that\t the
\nappellants  were  to construct the bus bodies  in  the\tmost
\nsubstantial and workmanlike manner
\n(1)  [1956] 7 S.T.C. 26. (2) Halsbury’s Laws of England, 3rd
\nEd.  Vol. 34, 6-7.\n<\/p>\n
(3)  [1965] 16 S.T.C. 364.\n<\/p>\n
943<\/span><\/p>\n
both as regards materials and otherwise in every respect  in
\nstrict compliance with the specifications and should deliver
\nthem  to  the  Governor on or  before  the  dates  specified
\ntherein.  The majority rejected the contention that that was
\na contract of work and labour and held that the\t transaction
\nwas  one  of  sale.   The  question  primarily\twas  one  of
\nconstruction  of  the contract, and the majority  held\tthat
\nboth  the  agreement  and the sale related to  one  kind  of
\nproperty,  namely,  the\t bus bodies.   The  reason  for\t so.
\nholding was stated to be that it was clear from the contract
\nthat  the property in the bus bodies did not pass  on  their
\nbeing constructed on the chassis, but only when the vehicles
\nincluding  the bus bodies were delivered.  Such\t a  contract
\nwas  unlike a building contract or a contract under which  a
\nmovable is to be fixed on to another chattel or on the land,
\nwhere the intention plainly is not to sell that article\t but
\nto   improve  the  land\t or  the  other,  chattel  and\t the
\nconsideration is not for the transfer of the chattel but for
\nthe  work and labour done and the materials furnished.\t The
\ncontract  in question was to manufacture a bus body and\t fix
\nit  on\tthe chassis supplied and transfer the  bus  body  so
\nconstructed for consideration.\n<\/p>\n
In  Madras  v.\tGannon Dunkerley and Co.  Ltd.<\/a>(1)  the\tmain
\nquestion  was  as regards the vires of\tthe  Madras  General
\nSales.\tTax Act, 1939, as amended by Madras Act XXV of\t1947
\nwhich  widened the definition of ‘sale’ by including,  inter
\nalia, in it a transfer of property in the goods involved  in
\nthe  execution of a works contract.  Under this\t definition,
\nthe Sales Tax authority brought into chargeable turnover the
\nmaterials used in the constructiOn works carried out by\t the
\ncompany.   This Court held that a power to enact a law\twith
\nrespect to tax on sale of goods under entry 48 of List 11 in
\nthe  1935 Constitution Act must, to be intra vires,  be\t one
\nrelating  in fact to a sale of goods and that  a  Provincial
\nLegislature  could  not, in the purported  exercise  of\t its
\npower,\ttax transactions which were not sales,\tby  enacting
\nthat  they  should be deemed to sales, that  to\t construe  a
\ntransaction as sale there should be an agreement relating to
\ngoods  to be supplied by passing title in those\t goods,\t and
\nthat it was of the essence of such a concept that both\tthe,
\nagreement  and\tthe sale should relate to one and  the\tsame
\nsubject\t matter.   The conclusion arrived at was that  in  a
\nbuilding  contract,  even if it were  to  be  disintegrated,
\nthere  was no passing of title in the materials as  movables
\nin favour of the other party of the contract.  The  contract
\nwas one and indivisible, there was no sale of materials, and
\nconsequently,  there  was  no  question\t of  title  to\t the
\nmaterials used by the builders passing to the other party to
\nthe  contract.\t Even  where  the  thing  produced  under  a
\ncontract is movable property, the materials in-
\n(1) [1959] S.C.R. 379.\n<\/p>\n
944<\/span><\/p>\n
corporated into it might pass as a movable.  But there would
\nbe  no\ttaxable sale if there was no agreement to  sell\t the
\nmaterials  as  such.  In arriving at  this  conclusion,\t the
\nCourt  relied upon Appleby v. Myres(1) and the\tobservations
\nof  Blackburn,\tJ., at 659-660 of the report  to  show\tthat
\nthread\tstitched into a coat which is under  repair  becomes
\npart  of the coat, but in a contract for repairing the\tcoat
\nthe  parties surely did not enter into an agreement of\tsale
\nof  that  thread.   In Andhra  Pradesh\tv.  Guntur  Tobaccos
\nLtd.<\/a>(2),   the\t  transaction  was  for\t  redrying   tobacco
\nentrusted  to the respondent-company by its customers.\t The
\nprocess\t involved  the keeping of the  moisture\t content  of
\ntobacco leaf at a particular level and for that purpose\t the
\nleaf  had  to  be packed in bales,  in\twater-proof  packing
\nmaterial, as it emerged from the reconditioning plant.\t The
\ntobacco\t was then returned to the customer packed in  costly
\npacking\t material.  In the, company’s charges  for  redrying
\nthere  was no separate charge for the value of such  packing
\nmaterial.   It was held that the redrying process could\t not
\nbe  completed without the use of the packing material,\tthat
\npacking\t formed an integral part of that process,  and\tthat
\nalthough the redried tobacco was returned together with\t the
\npacking\t materials there was no sale of those  materials  as
\nthere  was no intention on the part of the parties to  enter
\ninto  any  transaction of sale as regards  those  materials.
\nThe  mere  fact that in such a contract of work\t or  service
\nproperty  in  goods which belonged to the  party  performing
\nservice\t or  executing the work stands\ttransferred  to\t the
\nother  party is not enough.  To constitute a  taxable  sale,
\nthe Revenue has to establish that there was a sale, distinct
\nfrom  the  contract of work or service, of the\tproperty  so
\npassing to the other party.\n<\/p>\n
Thus,  in  consider whether a transaction falls\t within\t the
\npurview\t of sales tax it becomes necessary at the  threshold
\nto  determine the nature of the contract involved in such  a
\ntransaction  for  the  purpose of  ascertaining\t whether  it
\nconstitutes  a\tcontract of sale or a contract\tof  work  or
\nservice.  If it is of the latter kind it obviously would not
\nattract\t the  tax.   From the  decisions  earlier  cited  it
\nclearly emerges that such determination depends in each case
\nupon its facts and circumstances.  Mere passing of  property
\nin  an\tarticle\t or  commodity\tduring\tthe  course  of\t the
\nperformance  of the transaction in question does not  render
\nit a transaction of sale.  For, even in a contract purely of
\nwork or service, it is possible that articles may have to be
\nused  by the person executing the work and property in\tsuch
\narticles  or  materials may pass to the other  party.\tThat
\nwould not necessarily ,convert the contract into one of sale
\nof  these materials. in ,every case the Court would have  to
\nfind out what was the primary
\n(1) [1867] L.R.2C.P.651.\n<\/p>\n
(2) [1965] 2 S.C.R. 167.\n<\/p>\n
945<\/span><\/p>\n
object\tof the transaction and the intention of the  parties
\nwhile  entering into it.  It may in some cases be that\teven
\nwhile  entering\t into a contract of work  or  even  service,
\nparties\t might enter into separate agreements, one  of\twork
\nand service and the other of sale and purchase of  materials
\nto be used in the course of executing the work or performing
\nthe service.  But, then in such cases the transaction  would
\nnot be one and indivisible, but would fall into two separate
\nagreements, one of work or service and the other of sale.
\nWhat precisely then is the nature of the transaction and the
\nintention  of the parties when- a hotelier receives a  guest
\nin his hotel ? Is there in that transaction an intention  to
\nsell  him food contained in the meals served to\t him  during
\nhis  stay  in the hotel ?  It stands to reason\tthat  during
\nsuch  stay  a well equipped hotel Would have  to  furnish  a
\nnumber\t of   amenities\t to  render  the   customer’s\tstay
\ncomfortable.   In  the\tsupply\tof  such  amenities  do\t the
\nhotelier and his customer enter into several contracts every
\ntime an amenity is furnished ? When a traveler, by plane  or
\nby steam-ship, purchases his passage-ticket, the transaction
\nis  one for his passage from one place to another.   If,  in
\nthe course of carrying out that transaction, the traveler is
\nsupplied  with drinks or meals or cigarettes, no  one  would
\nthink that the transaction involves separate sales each time
\nany  of\t those\tthings\tis  supplied.\tThe  transaction  is
\nessentially one of carrying the passenger to his destination
\nand if in performance of the contract of carriage  something
\nis  supplied to him, such supply is only incidental to\tthat
\nservices,  not changing either the pattern or the nature  of
\nthe contract.  Similarly, when clothes are given for washing
\nto  a  laundry,\t there is a  transaction  which\t essentially
\ninvolves work or service, and if the laundery man stitches a
\nbutton\tto a garment which has fallen off, there is no\tsale
\nof  the\t button\t or  the thread.  A  number  of\t such  cases
\ninvolving incidental uses of materials can be cited. none of
\nwhich  can  be said to involve a sale as part  of  the\tmain
\ntransaction.\n<\/p>\n
The   transaction  in  question\t is  essentially   one\t and
\nindivisible.  namely,  one of receiving a  customer  in\t the
\nhotel\tto  stay.   Even  if  the  transaction\tis   to\t  be
\ndisintegrated,\tthere is no question of the supply of  meals
\nduring\tsuch stay constituting a separate contract of  sale.
\nsince  no intention on the part of the parties to  sell\t and
\npurchase  food\tstuff  supplied during\tmeal  times  can  be
\nrealistically spelt out.  No doubt, the customer, during his
\nstay, consumes a number of food stuffs.\t It may be  possible
\nto  say that the property in those food stuffs\tpasses\tfrom
\nthe  hotelier to the customer at least to the extent of\t the
\nfood  stuffs  consumed\tby him.\t Even if that  be  so,\tmere
\ntransfer  of property, as aforesaid, is not  conclusive\t and
\ndoes not render the event of such supply and con-\n<\/p>\n
946<\/span><\/p>\n
sumption  a  sale, since there is no intention to  sell\t and
\npurchase.  The transaction essentially is one of service  by
\nthe hotelier in the performance of which meals are served as
\npart of and incidental to that service, such amenities being
\nregarded  as essential in all well conducted  modem  hotels.
\nThe  bill prepared by the hotelier is one  and\tindivisible,
\nnot  being capable by approximation of being split  up\tinto
\none for residence and the other for meals.  No doubt, such a
\nbill  would be prepared after consideration of the costs  of
\nmeals,\tbut  that would be so for all  the  other  amenities
\ngiven to the customer.\tFor example, when the customer\tuses
\na  fan in the room allotted to him, there is surely no\tsale
\nof  electricity,  nor a hire of the  fan.   Such  amenities,
\nincluding  that\t of meals, are part and\t parcel\t of  service
\nwhich is in reality the transaction between the parties.
\nEven in the case of restaurants and other such places  where
\ncustomers go to be served with food and drink for  immediate
\nconsumption at the premises, two conflicting views appear to
\nprevail\t in the American courts.  According to one view,  an
\nimplied\t warranty  of wholesomeness and\t fitness  for  human
\nconsumption  arises in the case of food served by  a  public
\neating place.  The transaction, in this view, constitutes  a
\nsale  within the rules giving rise to such a warranty.\t The
\nnature\tof the contract in the sale of food by a  restaurant
\nto  customers implies a reliance, it is said, on  the  skill
\nand  judgment of the restaurant-keeper to furnish  food\t fit
\nfor  human  consumption.   The other view is  that  such  an
\nimplied warranty does not arise in such transactions.\tThis
\nview  is based on the theory that the transaction  does\t not
\nconstitute  a sale inasmuch as the proprietor of  an  eating
\nplace does not sell but “utters” provisions, and that it  is
\nthe service that is predominant, the passing of title  being
\nmerely incidental(‘,’).\t The two conflicting views present a
\nchoice between liability arising from a contract of  implied
\nwarranty and for negligence in tort, a choice indicative  of
\na  conflict,  in  the words of Dean  Pound,  between  social
\ninterest  in the safety of an individual and the  individual
\ninterest of the supplier of food.  The principle accepted in
\ncases where warranty has been spelt out was that even though
\nthe  transaction  is not a sale, the basis  for\t an  implied
\nwarranty  is  the justifiable reliance on  the\tjudgment  or
\nskill  of  the warrant or and that a sale is  not  the\tonly
\ntransaction  in which such a warranty can be  implied.\t The
\nrelationship  between  the  dispenser of food  and  one\t who
\nconsumes   it  on  the\tpremises  is  one   of\t contractual
\nrelationship,  a  relationship\tof such\t a  nature  that  an
\nimplied\t warranty of wholesomeness reflects the\t reality  of
\nthe   transaction   involved  and  an\texpress\t  obligation
\nunderstood  by\tthe parties in the sense that  the  customer
\ndoes, in fact, rely upon such dispenser
\n(1)  Corputs Juris Section, Vol\t 77,1215-1216.\n<\/p>\n
947<\/span><\/p>\n
of  food for more than the use of due care. (see Cushing  v-
\nRodman(1).   A representative case propounding the  opposite
\nview is the case of F. W. Woolworth Co. v. Wilson(2), citing
\nNisky  v. Childs Co.(3), wherein the principle accepted\t was
\nthat such cases involved no sales but only service and\tthat
\nthe dispenser of food, such as a restaurant or a drug  store
\nkeeper serving food for consumption at the premises did\t not
\nsell  and  warrant food but uttered and served\tit  and\t was
\nliable\tin negligence, the rule in such cases  being  caveat
\nemptor.\n<\/p>\n
In England, a hotel under the Hotel Proprietors Act, 1956 is
\nan  establishment  held out by the  proprietor\tas  offering
\nfood,  drink,  and if so required,  sleeping  accommodation,
\nwithout\t special  contract,  to\t any  traveller\t  presenting
\nhimself and who appears able and willing to pay a reasonable
\nsum   for  the\tservices  and  facilities  provided.\tThis
\ndefinition,  which is also the definition, of an inn,  still
\nexcludes,  as formerly, boarding houses, lodging houses\t and
\npublic\thouses\twhich are merely alehouses and\tin  none  of
\nwhich  there  is  the obligation to  receive  and  entertain
\nguests.\t An innkeeper, that is to say, in the present days a
\nhotel proprietor, in his capacity as an in keeper is, on the
\nother  hand,  bound by the common law or the custom  of\t the
\nrealm  to  receive and lodge in his inn all comers  who\t are
\ntravellers  and\t to  entertain\tthem  at  reasonable  prices
\nwithout any special or previous contract unless he has\tsome
\nreasonable   ground  of\t refusal  (4)  .  The\trights\t and
\nobligations  of\t hotel proprietors are governed\t by  statute
\nwhich  has  more or less incorporated the common  law.\t The
\ncontract  between  such a hotel proprietor and\ta  traveller
\npresenting  himself  to\t him for lodging  is  one  which  is
\nessentially a contract of service and facilities provided at
\nreasonable price.\n<\/p>\n
The  transaction  between a hotelier and a  visitor  to\t his
\nhotel is thus one essentially of service in the\t performance
\nof  which  and as part of the amenities incidental  to\tthat
\nservice,  the  hotelier serves meals at stated\thours.\t The
\nRevenue,  therefore,  was  not\tentitled  to  split  up\t the
\ntransaction into two parts, one of service and the other  of
\nsale of food stuffs and to split up also the bill charged by
\nthe  hotelier  as  consisting of  charges  for\tlodging\t and
\ncharges\t for food stuffs served to him with a view to  bring
\nthe latter under the Act.\n<\/p>\n
The  conclusion\t arrived at by the High Court  is  one\twith
\nwhich  we  agree.   Consequently, the appeal  fails  and  is
\ndismissed with costs.\n<\/p>\n
V.P.S.\t\t\t\t     Appeal dismissed.\n<\/p>\n
(1)  104 American L.R. 1023; 82 T.R. 2nd Srs. 864, 868.
\n(2) 74 F.R. 2nd Srs. 439.\n<\/p>\n
(3)  103 N.J. Law 464.\n<\/p>\n
(4)  Halsbury’s Laws of England, 3rd Ed., Vol. 21, 445-446.\n<\/p>\n
948<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India State Of Punjab vs M\/S. Associated Hotels Of India … on 4 January, 1972 Equivalent citations: 1972 AIR 1131, 1972 SCR (2) 937 Author: Shelat Bench: Sikri, S.M. (Cj), Shelat, J.M., Dua, I.D., Khanna, Hans Raj, Mitter, G.K. PETITIONER: STATE OF PUNJAB Vs. RESPONDENT: M\/S. ASSOCIATED HOTELS OF INDIA LTD. DATE […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-195345","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nState Of Punjab vs M\/S. 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