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Calcutta Club Ltd. Vs. Deputy Commissioner of - Court Judgment

LegalCrystal Citation
CourtSales Tax Tribunal STT West Bengal
Decided On
Judge
Reported in(2007)10VST385NULL
AppellantCalcutta Club Ltd.
RespondentDeputy Commissioner of
Excerpt:
1. in these batch of cases two well-known members' clubs, namely, calcutta club and hindusthan club have challenged the actions of the sales tax authorities of the state of west bengal to levy sales tax on the supplies of food, drinks and refreshments to their permanent members and their guests upon payment. different applications have been moved in respect of notices, orders and/or actions for different assessment years. as similar questions of fact and law are involved in all these applications, those were heard together and are being disposed of by this common judgment.2. controversies involved in the present applications arise out of a conflict between settled legal concepts of sale and persistent effort by the revenue to extend the meaning of sale by creating legal fictions through.....
Judgment:
1. In these batch of cases two well-known members' clubs, namely, Calcutta Club and Hindusthan Club have challenged the actions of the sales tax authorities of the State of West Bengal to levy sales tax on the supplies of food, drinks and refreshments to their permanent members and their guests upon payment. Different applications have been moved in respect of notices, orders and/or actions for different assessment years. As similar questions of fact and law are involved in all these applications, those were heard together and are being disposed of by this common judgment.

2. Controversies involved in the present applications arise out of a conflict between settled legal concepts of sale and persistent effort by the Revenue to extend the meaning of sale by creating legal fictions through legislative interventions in order to widen the tax net and to augment revenue. The controversies are old one having different facets and ramifications. Although some aspects of the legal problem have been resolved, several other aspects like the present disputes still await judicial pronouncement.

3. In several decisions the Supreme Court followed its earlier decision in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. and held that in order to levy sales tax under entry 92A of the Union List or entry 54 of the State List a transaction should have all the ingredients which constitute sale within the meaning of the Sale of Goods Act, 1930. According to the Central and the State Government such strict legal view led the dealers to adopt various devices to avoid payment of sales tax and to put certain transactions resembling sale of goods outside the pale of the sales tax laws. One of those transactions which different State Governments wanted to rope in for the purpose of realising sales tax was supply of food, beverages, drinks and other food articles by different clubs to their members upon payment.

4.3 To overcome such legal obstacle the Constitution was amended by 46th Amendment to include a wider definition of "tax on the sale or purchase of goods" by inserting new Clause (29A) to Article 366. Clause (29A) of Article 366 as inserted by the 46th Amendment of the Constitution is quoted below: (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments ; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (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, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.

5. After the said 46th Amendment of the Constitution different States incorporated either all or almost all the transactions included in Clause (29A) of Article 366 in the definition of "sale" in respective Sales Tax Acts. In West Bengal, the Bengal Finance (Sales Tax) Act, 1941 was amended to widen the definition of "sale" therein with effect from April 1, 1984. The West Bengal Sales Tax Act, 1994 (hereinafter referred to as, "the Act of 1994") has defined "sale" in Section 2(30) thereof to include all the transactions covered by Clause (29A) of Article 366.

6. Being armed with the extended meaning of sale as included in 1941 Act and 1994 Act, the sales tax authorities in West Bengal proceeded to treat supplies of food, drinks and other articles for human consumption supplied to its members, members' guests, temporary or seasonal members and other non-members as sales within the meaning of the prevailing sales tax laws and levy sales tax thereon. Such attempts were being resisted legally by some well-known members' clubs on the strength of well-settled principles governing the nature and characteristics of a members' club and the doctrine of mutuality and unity of identity, two essential features of the mutual relationship between the members' club and its permanent members'.

7. Clubs are generally classified into two main classes, viz., members' clubs and proprietary clubs. In members' club, management of the affairs of the club is retained in the hands of the members themselves and the relationship between the club and the members is governed by the doctrine of mutuality. A proprietary club is controlled and administered by a proprietor or proprietors who utilises the surplus income as profit and appropriates such profit for his own benefit.

There are wide variations in the nature and activities of the proprietary clubs and many of them are purely commercial undertakings and the members thereof do not enjoy any status than that of the customers of the proprietor.

8. It is now almost a settled position that supply of food articles and drinks to the members in proprietary club involve transfer of property in those goods from the proprietor to the members and those are sales exigible to sales tax and the profits, if any, are incomes chargeable to income-tax.

9. Revenue authorities under the Income-tax Act or the Sales Tax Acts have been aiming at bringing the supplies of food articles and drinks by all clubs, members or proprietor, to its members for cash or deferred payment, within the tax net. Even before the 46th Amendment of the Constitution, such attempts were being made.

10. In or about I960, sales tax authorities in the State of Madras (now State of Tamil Nadu) proceeded to levy sales tax under the provisions of the Madras General Sales Tax Act, 1959.

11. Several members' clubs challenged such assessment proceedings before the Madras High Court which ultimately accepted the contention of the clubs. The case of Joint Commercial Tax Officer, Harbour Division II, Madras v. Young Mens' Indian Association, Madras went up to the Supreme Court. In the aforesaid case, the Supreme Court ultimately dismissed the appeals preferred by the Revenue authorities and explained the nature and characteristics of a members' club. In its judgment dated February 12, 1970 Joint Commercial Tax Officer v. Young Mens' Indian Association , the Supreme Court explained the characteristics and nature of the members' club and the relationship of such members and the members' club.

12. On or about February 16, 1988 three notices of assessments under Sections 11 and 14(1) of the Bengal Finance (Sales Tax) Act, 1941 were issued to Automobile Association of Eastern India, a company incorporated under the Indian Companies Act, 1913 as a non-profit earning institution and run as a club for various objects. Automobile Association of Eastern India (in short, "AAEI") challenged those notices before this Tribunal in RN No. 131 (T) of 1989 Automobile Association of Eastern India v. State of West Bengal [1991] 81 STC 185 (WBTT).

13. On or about November 17, 1988, a notice under Section 14(1) of the 1941 Act was issued to the Bengal Rowing Club, a company limited by guarantee under Section 26 of the Indian Companies Act, 1913 and Section 25 of the Indian Companies Act, 1956 and run as a social club of its members for various objects. Bengal Rowing Club challenged the said notice before this Tribunal in RN-470(T) of 1989 Bengal Rowing Club v. Commissioner of Commercial Taxes 14. In or about the first week of August, 1988, the commercial tax officials visited Hindusthan Club, an incorporated members' club, made inquiries and directed the club to get registered as dealer under the 1941 Act and the 1954 Act. Hindusthan Club applied for registration without prejudice to its contention that supply of food and drinks to members and their guests did not amount to sale. Dismissing the objection of the club, the Commercial Tax Officer, Bhowanipur Charge, issued registration certificates under both the 1941 and 1954 Acts.

Hindusthan Club moved higher authorities in revisions. As the revisions were rejected, the club moved this Tribunal in RN-39 of 1993 Hindusthan Club Limited v. Additional Commissioner of Commercial Taxes [1995] 98 STC 347.

15. By judgment and order dated June 22, 1990, this Tribunal dismissed the application of the AAEI. In its judgment Automobile Association of Eastern India v. State of West Bengal reported in [1991] 81 STC 185 (WBTT) the Tribunal recognised the principle that if a club, though a separate legal entity, acted as an agent of its members in supplying food articles and drinks to them there would be no sale as the important ingredient of transfer of property in the goods would be absent. But the Tribunal dismissed the application upon the view that (i) as AAEI was supplying refreshments to certain non-members also, it could not be said to be purely members' club and acting as agent of the members only and that (ii) by supplying refreshments to its members for a price AAEI was undertaking an activity in the nature of trade or commerce even though there was no profit-motive.

16. By judgment and order dated July 25, 1991, this Tribunal rejected the application of the Bengal Rowing Club v. Commissioner of Commercial Taxes reported in [1993] 88 STC 389. In Bengal Rowing Club also the Tribunal recognised the settled principle that if a club, whether incorporated or not, acts as an agent of its members in the matter of supply of refreshments/drinks to them, it cannot be treated as a dealer but on the basis of the facts and circumstances of the said case, the Tribunal held that Bengal Rowing Club was not acting as agent of its members.

17. Hindusthan Club's case [1995] 98 STC 347 (WBTT) came up for hearing before this Tribunal after judgments in the aforesaid two cases of Automobile Association of Eastern India [1991] 81 STC 185 (WBTT) and Bengal Rowing Club [1993] 88 STC 389 (WBTT). By judgment and order dated December 21, 1994, the Tribunal allowed the application of the Hindusthan Club.Hindusthan Club Limited v. Additional Commissioner of Commercial Taxes reported in [1995] 98 STC 347 (WBTT), this Tribunal considered, thoroughly discussed and distinguished its earlier judgments in Automobile Association of Eastern India [1991] 81 STC 185 (WBTT) and the Bengal Rowing Club [1993] 88 STC 389 (WBTT). In the said judgments, Tribunal also considered the legal effect of the 46th Amendment of the Constitution and pronounced its decision. The Tribunal held therein: ...With or without the aid of the Statements of Objects and Reasons, we are of the opinion that Sub-clause (e) of Article 366(29A) does not apply to an incorporated club, and Sub-clause (f) does not override the law of agency, if otherwise applicable to a case.

19. The Tribunal also noted therein that in the case of Bengal Rowing Club [1993] 88 STC 389 (WBTT) it was not decided whether existence of different classes of members by itself would deprive a club from claiming the status of a members' club and whether use of the supplies arising out of catering activities in a particular manner would be a deviation from the theory of recoupment.

20. In Hindusthan Club [1995] 98 STC 347 (WBTT), upon consideration of various decisions on the subject, the impact of the 46th Amendment of the Constitution and the extended definition of "sale" as contained in the concerned Sales Tax Act, this Tribunal expressly held: (i) Enjoyment of club facilities by guests, spouse and children of members does not, by itself, unless there is some other adverse factor, convert a members' club to a different one.

(ii) The principle of mutuality or reciprocity which is the essence of agency cannot be invoked to determine the relationship between the members' club and its temporary members.

(iii) Temporary members and permanent members cannot be treated to constitute a single body of members.

(iv) There is identity between the contributing permanent members and a members' club and supply of food and refreshments by such club to its permanent members is an act of agency and protected by the doctrine of mutuality.

(v) Payments received from permanent members against supply of food, beverages and drinks are in the nature of recoupment of cost.

(vi) Transactions of food, drinks and refreshments between a members' club and temporary members amount to "sale" within the meaning of the Bengal Finance (Sales Tax) Act, 1941 and the West Bengal Sales Tax Act, 1954.

21. On the basis of the aforesaid findings, the Tribunal allowed the application of Hindusthan Club in part.

22. Aforesaid decision of the Tribunal in Hindusthan Club's case [1995] 98 STC 347 was being initially followed by some of the commercial tax authorities and in some cases, assessment orders were being directed to be reconsidered in the light of the aforesaid decision. In an appeal filed by the Calcutta club, the Deputy Commissioner of Commercial Taxes, Corporate Division, by his order dated March 22, 2000 followed the decision in Hindusthan Club [1995] 98 STC 347 (WBTT), set aside the assessment order and remanded the assessment proceeding back to the assessing authority for fresh assessment of transactions of supply of food and drinks.

23. Automobile Association of Eastern India filed special leave petition before the Supreme Court against the judgment of the Tribunal dismissing its application. By judgment and order dated May 11, 1994 Automobile Association of Eastern India v. State of West Bengal [2002] 40 STA 154 (SC), the Supreme Court granted special leave and disposed of the said civil appeal by a short order as quoted below: 2. The short question that arises for our consideration is whether the appellant is liable to pay sales tax, under the Bengal Finance (Sales Tax) Act, 1941. For the period commencing from October 1, 1983 in view of the Constitutional amendment, the levy can easily be sustained. But for the period between January, 1982 and 30th September, 1983 whether in view of the decision of this Court in The Joint Commercial Tax Officer, Harbour Division II, Madras v. Young Men's Indian Association Madras [1970] 26 STC 241, he would be liable to pay sales tax or not is a question which unfortunately was not raised in that form and therefore there has not been any adjudication. We permit the appellant to raise his objection as to his liability for payment of sales tax for the period from January, 1982 to September 30, 1983 within 30 days from today before the assessing authority. If so raised within the said period, that shall be adjudicated upon regardless of limitation. If the appellant is aggrieved, he could pursue such remedies as are available to him.

The appeal is ordered in the above terms.

24. Although said civil appeal filed by Automobile Association of Eastern India was disposed of on May 11, 1994, the order of the Supreme Court in Automobile Association of Eastern India v. State of West Bengal reported in [2002] 40 STA 154. Presumably, after publication of the said order of the Supreme Court, the commercial tax authorities changed their earlier stand and s-tarted demanding sales tax on the supplies of food and drinks by the members' clubs to their permanent members.

25. Notices were issued against Calcutta Club demanding sales tax on its supplies of food and drinks to its permanent members during the assessment year 2001-2002 and treating such transaction as deemed sales within the extended meaning "sale" as provided in Section 2(30)(d) of the 1994 Act.

26. Calcutta Club objected to the aforesaid notices and referred to the decision of the Tribunal in Hindusthan Club [1995] 98 STC 347 (WBTT) and the appellate order passed by the Deputy Commissioner in the club's appeal against an order of assessment. The Assistant Commissioner of Commercial Taxes, Corporate Division, sent a reply dated October 1, 2002 refuting the contentions of the Calcutta Club on the ground that Tribunal's judgment in Hindusthan Club [1995] 98 STC 347 was confined to the said club only and no club other than Hindusthan Club could claim the benefit of the said judgment. Being aggrieved by such attempt of the commercial tax authorities to levy sales tax on the supplies made to its permanent members as evidenced by the communications dated August 29, 2002 and October 1, 2002 sent by the Assistant Commissioner of Commercial Taxes, Corporate Division, Calcutta Club moved this Tribunal in RN-17 of 2003.

27. Although Hindusthan Club was directly covered by the Tribunal's decision in RN-39 of 1993 Hindusthan Club Limited v. Additional Commissioner of Commercial Taxes [1995] 98 STC 347, commercial tax authorities proceeded against Hindusthan Club to levy sales tax on supplies of food and drinks to its permanent members and issued notices to show clause why penalty of Rs. 22,50,000 would not be imposed on the said club for concealment of sales, which according to the Tribunal, were not exigible to sales tax. The commercial tax authorities proceeded upon the impression that the Supreme Court's order in AAEI's case [2002] 40 STA 154 had the effect of superseding the inter-parties decision of the Tribunal and the Tribunal's decision lost its legal force even in respect of Hindusthan Club. Against the notice dated February 13, 2003 issued in form 51 under Section 76 of the 1994 Act, Hindusthan Club has moved this Tribunal in RN No. 73 of 2003.

(i) Relationship between permanent members and the members' clubs being that of principal and agent governed by the doctrines of mutuality and reciprocity, supplies of food, drinks and refreshments to those permanent members upon payments are not sales even within the extended meaning of sale as contained in Section 2(30) of the West Bengal Sales Tax Act, 1994.

(ii) There being unity of identity between the permanent members and the members' club, payments made by the members for obtaining supplies of food and drinks is payment to themselves and do not amount to consideration.

(iii) Payment received by the members' club from its permanent members against such supply of food articles and drinks are in the nature of recoupment of cost and do not amount to consideration.

(iv) As the transactions are between the principal and the agent and there is no transfer of property in such food articles from the club to its members, those transactions do not constitute sale in law and are not exigible to sales tax.

29. Written notes on submissions have been filed on behalf of the petitioners and the respondents.

30. Mr. Bajoria, learned Senior Advocate appearing for the petitioner-clubs, has pointed out that there is no dispute that both these clubs are members' clubs incorporated as Companies limited by guarantee under the special provision of Section 25 of the Indian Companies Act, 1956. He has further submitted that it is now an almost universally accepted principle that the relationship between a members' club and its permanent members is that of agent and principal governed by the doctrine of mutuality. Mr. Bajoria has referred to several decisions of the Supreme Court, different High Courts and this Tribunal to point out the features of members' club and applicability of the doctrine of mutuality to the supplies of food and drinks made by the club to its permanent members.

31. Mr. Goswami, learned State representative, has nqt disputed the doctrine of mutuality or the legal nature of the relationship between a members' club and its permanent members. He has submitted that after the 46th Amendment of the Constitution and insertion of Clause (29A) to Article 366 all supplies of food, drinks and articles of human consumption on payment by all clubs irrespective of their nature and constitution are to be regarded as "deemed sales" notwithstanding the doctrine of mutuality or relationship of principal and agent. He has referred to the definition of "sale" in the 1994 Act. According to Mr.

Goswami, the decision of the Supreme Court in Automobile Association of Eastern India reported in [2002] 40 STA 154 has settled the law finally and the incorporated members' clubs like the petitioners cannot escape legal liability to pay sales tax. He has also relied upon the decision of the Supreme Court in Tamil Nadu Kalyana Mandapam Assn. v. Union of India reported in [2004] 135 STC 480, the decision of the Madras High Court in Cosmopolitan Club v. Tamil Nadu Taxation Special Tribunal reported in [2002] 127 STC 475 and the decision of the Andhra Pradesh High Court in Jubilee Hills International Centre v. Commercial Tax Officer reported in [1992] 87 STC 227.

32. It is, therefore, to be considered whether extended definition of "sale" as provided in Section 2(30)(d) of 1994 Act in consonance with Article 366 (29A)(f) of the Constitution has brought supplies of food, drinks and articles for human consumption by members' clubs governed by the principles of agency and doctrine of mutuality to its permanent members within its fold as deemed sale.

33. Relevant portion of Section 2(30) of the 1994 Act is reproduced herein-below: Section 2(30). 'sale' means any transfer of property in goods for cash, deferred payment or other valuable consideration, and includes- (d) any 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; and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person or unincorporated association or body of persons making the transfer, delivery, or supply and a purchase of those goods by the person to whom such transfer, delivery, or supply is made, but does not include a mortgage, hypothecation, charge or pledge.

34. An analysis of the aforementioned definition indicates that the supply of articles as mentioned in Section 2(30)(d) must be for "valuable consideration" in order to come within the "deemed sale" as contemplated therein. The words "or other valuable consideration" at the end of Clause (d) make it clear that "cash" or "deferred payment" is to be in the nature of "consideration" for the supplies obtained. No transaction or supply without any exchange of consideration will constitute "deemed sale" even within the extended definition of "sale".

35. Last part of the definition also makes it clear that the supply is to be by one person to another person to come within the meaning of "deemed sale".

36. It is now well-settled that members' club acts on behalf of its members to make available to them refreshments and other food articles and such club, though a distinct legal entity, acts as an agent for its members in the matter of supply of various articles.Commissioner of Income-tax v. Bankipur Club Ltd. that in a company conducting a members' club (and not a proprietary club) the members of a company and the club are identical.

38. Identity of the contributors and participators is an essential element in the doctrine of mutuality. The Supreme Court in Commissioner of Income-tax v. Royal Western India Turf Club Ltd. andChelmsford Club v. Commissioner of Income-tax [2000] 243 ITR 89 (SC) approved three conditions which constitute the foundation of the doctrine of mutuality. Those three conditions are: (1) the identity of the contributors to the fund and the recipients from the fund, (2) the treatment of the company, though incorporated as a mere entity for the convenience of the members and policy holders, and (3) the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.

39. Principles of mutuality have been uniformly applied to members' clubs incorporated as companies limited by guarantee in almost all the decisions on the relationship between the members' club and the members. Once it is accepted that doctrine of mutuality governs the relationship of the members' club and its permanent members, existence of unity of identity is also established.

40. It has been held by a Division Bench of the Calcutta High Court in Automobile Association of Bengal v. Commissioner of Income-tax, Calcutta .

...It is also well-settled that, in order that the principle of mutuality should come into play, there must be an identity between the contributors to the fund and the participators in the fund. The essence of mutuality lies in the return of what one has contributed to the common fund.

41. When there is identity between the contributors and participators and the incorporated club merely acts as an instrument or agent, payment made by the permanent members for obtaining supplies of food, drinks and beverages is not "consideration", the members themselves as a class supply those articles through the instrument of the club to themselves and the supplier and the receiver are not different persons.

When the supplier and the receiver is the same person, payment for obtaining such supply is a payment to himself and payment to oneself cannot be consideration.

42. A Division Bench of the Calcutta High Court in Moni Prosad Singh v.State of West Bengal reported in [1977] 39 STC 131 held that to constitute sale, there must be two different persons and when one person transfers goods to himself, there cannot be sale. As already pointed out, under Section 2(30) of the 1994 Act there must be two different personsone supplier and one recipient in order to bring "supplies" within the meaning of "deemed sale".In Hindusthan Club Limited v. Additional Commissioner of Commercial Taxes ...According to us, there is identity between the contributing permanent members and the club. The principle of mutuality would fully satisfy in respect of the transactions of food and refreshments, etc., made by the club to permanent members as their agent. It is a question of recoupment, as far as the transactions with permanent members are concerned. But as regards the temporary members, the same principle cannot be applied. There is no reciprocity or mutuality and consequently there is no identity as between the temporary members and the club. Therefore, the transactions of food, drink and refreshments made by the club with temporary members will amount to 'sale' within the meaning of Section 2(g) of the Bengal Finance (Sales Tax) Act, 1941 and Section 2(1d) of the 1954 Act in view of Sub-clause (f) of Article 366(29A) of the Constitution and such transactions should be exigible to sales tax under the said 1941 Act and 1954 Act as the case may be, but similar transactions of the club with its permanent members should be saved from sales tax under the 1941 Act and the 1954 Act.

44. On the basis of its findings, the Tribunal passed the following order in Hindusthan Club Ltd. [1995] 98 STC 347 (WBTT): In the result, the application is allowed in part. We declare that the applicant-club is a 'dealer' and liable to pay tax under the Bengal Finance (Sales Tax) Act, 1941 and the West Bengal Sales Tax Act, 1954, for its transactions of supply of food, drinks and refreshments with temporary members; but it is neither a 'dealer', nor liable to pay tax under the said Acts for its similar transactions with permanent members. The impugned orders of the Commercial Tax Officer, Assistant Commissioner and Additional Commissioner dated September 20, 1988, June 6, 1989 and October 22, 1992, respectively, and the registration certificates issued by the Commercial Tax Officer will be subject to this judgment. All past and future assessments of the applicant-club will follow this judgment. If by virtue of the interim order dated March 12, 1993 passed by this Tribunal, any assessments have already been made in respect of the applicant, we direct that such assessment orders should be revised according to this judgment within four weeks from now and then respondent No. 3 may issue notice of demand, and proceed according to law. If any sum is found to have been paid by the applicant-club in excess, we direct respondent No. 3, Commercial Tax Officer, Bhowbanipur Charge, to refund the same to the applicant within eight weeks of any assessment order or revision thereof. No order for costs.

45. In Hindusthan Club [1995] 98 STC 347, this Tribunal rendered its decision after considering earlier judgments of this Tribunal in Bengal Rowing Club [1993] 88 STC 389 and Automobile Association of Eastern India [2002] 40 STA 154 and the extended definition of "sale" inserted in the Acts of 1941 and 1954.

46. It may be noted that there is no material difference between the definition of "sale" inserted in 1941 and 1954 Acts and the definition of "sale" in the 1994 Act. In all these acts certain specified transactions, though not sale in strict sense of laws and within the meaning of Sale of Goods Act, have been treated to be deemed sales and included within the inclusive part of the definition.

47. As already pointed out, Mr. Goswami, learned State representative, has strongly relied upon the order of the Supreme Court in Automobile Association of Eastern India's appeal reported in [2002] 40 STA 154 and submitted that this Tribunal's judgment in Hindusthan Club Ltd. [1995] 98 STC 347 has lost its binding force as the Supreme Court has settled the law that after the 46th Amendment of the Constitution, supplies of food and drinks by members' club to its members would be deemed sales notwithstanding the doctrine of mutuality, reciprocity and unity of identity.

48. We have already quoted the full order of the Supreme Court.

According to us, the said order of the Supreme Court has not laid down any principle of law. The Supreme Court merely disposed of the appeal without any kind of discussion and without assignment of any reason. It is not possible to know the submissions made on behalf of the Automobile Association of Eastern India in that case. It is well-settled that such bald observations cannot be treated as declaration of law within the meaning of Article 141 of the Constitution and do not have any value as precedents to be followed in other cases. In State of U.P. v. Synthetics and Chemicals Ltd. ...A decision which is not express and is not founded on reasons nor proceeds on consideration of issues cannot be deemed to be a law declared to have a binding effect as is contemplated by Article 141.

Uniformity and consistency are core of judicial discipline. But that which escapes in the judgment without any occasion is not ratio decidendi. In B. Shama Rao v. Union Territory of Pondicherry it was observed, 'it is trite to say that a decision is binding not because of its conclusions but in regard to its ratio and the principles, laid down therein'. Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be declaration of law or authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law.

...Law declared is not that can be culled out but that which is stated as law to be accepted and applied. A conclusion without reference to relevant provision of law is weaker than even casual observation.

The doctrine of precedent, that is being bound by a previous decision, is limited to the decision itself and as to what is necessarily involved in it. It does not mean that this Court is bound by the various reasons given in support of it, especially when they contain 'propositions wider than the case itself required'....

In other words, the enunciation of the reason or principle upon which a question before a court has been decided is alone binding as a precedent. The ratio decidendi is the underlying principle, namely, the general reasons or the general grounds upon which the decision is based or the test or abstract from the specific peculiarities of the particular case which gives rise to the decision. The ratio decidendi has to be ascertained by an analysis of the facts of the case and the process of reasoning involving the major premise consisting of a preexisting rule of law, either statutory or judge-made and a minor premise consisting of the material facts of the case under immediate consideration. If it is not clear, it is not the duty of the court to spell it out with difficulty in order to be bound by it....

50. Same view has been taken by the Supreme Court in several decisions.

We may refer to a recent decision of the Supreme Court in State of Orissa v. Mohammad Illiyas reported in [2006] 1 Cal HN 119. It has been observed therein: ...A decision is a precedent on its own facts. Each case presents its own features. It is not everything said by a Judge while giving judgment that constitutes a precedent. The only thing in a Judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates- (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent ..

51. The order of the Supreme Court in Automobile Association of Eastern India [2002] 40 STA 154 did not refer to any argument nor deal with the question whether "deemed sale" as contemplated by Section 2(30) of the 1994 Act covers transactions without any consideration or without involving any transfer of property in the goods or articles. It will appear from the judgment of this Tribunal in Automobile Association's case [1991] 81 STC 185, that this Tribunal did not have any occasion to deal with the present question that the payments made by the members of the members' clubs for supplies of food articles and drinks to them by the club do not amount to consideration in the eye of law. Obviously this question did not fall within the scope of the appeal before the Supreme Court. The order of the Supreme Court does not contain any kind of discussion or any kind of reasoning. The said order of the Supreme Court is hit by the principle of sub silentio and cannot be treated as binding precedent.

52. We are unable to accept the submission that observations contained in the order of the Supreme Court in Automobile Association of Eastern India [2002] 40 STA 154 obliterated all earlier judgments and declare any law that supplies of food and drinks by members' clubs to their members would always be "deemed sales" even if those do not satisfy all the ingredients of "deemed sale" as contemplated by Clause (29A) of Article 366 of the Constitution and as defined in Section 2(30) of the 1994 Act.

53. In Jubilee Hills International Centre [1992] 87 STC 227, the Andhra Pradesh High Court was, among others, considering whether after the 46th Amendment of the Constitution and insertion of Clause (29A) in Article 366 sales tax or turnover tax could be imposed on the supplies made by unincorporated clubs to its members although there was no transfer of title in the goods to the members and whether incorporated clubs should be asked to pay sales tax even if they were not doing any business and not earning any profit. The questions raised in the present application were not before the Andhra Pradesh High Court.

Observations made in the judgment in Jubilee Hills International Centre v. Commercial Tax Officer [1992] 87 STC 227 (AP) were in different context and cannot be applied to determine the present issue in controversy before us. In the present case Mr. Bajoria has not argued that there cannot be sale without profit but has referred to absence of profit or business motive to explain the nature of the relationship between the members' clubs and their permanent members.Cosmopolitan Club v. Tamil Nadu Taxation Special Tribunal [2002] 127 STC 475 contains certain sweeping observations which apparently support the submissions of Mr.

Goswami in this case. It appears to us that the learned Judges of the Madras High Court indulged in over-simplified generalisations without adverting to a long catena of decisions on the doctrine of mutuality, reciprocity and unity of identity governing the relationship between the members' clubs and their members. With due respect we are unable to accept those sweeping observations in Cosmopolitan Club [2002] 127 STC 475 (Mad) as correct statements of law or proper interpretation of the effect of the 46th Amendment of the Constitution. In any event, the present question was neither raised nor considered in the said case of Cosmopolitan Club [2002] 127 STC 475 (Mad).

55. Mr. Goswami has relied on the judgment of the Supreme Court in Tamil Nadu Kalyana Mandapam Assn. [2004] 135 STC 480 to show the effect of inclusive part of a definition clause. It is well-settled that the word "include" is used in statutory definition to enlarge the meaning of the words preceding "include" and to comprehend such things which do not naturally or in normal course come within the scope of the expression sought to be defined.

56. In the present case, we are called upon to decide whether the disputed supplies by the petitioners to their permanent members can be "deemed sales" even within the extended definition of "sale". None of the cases relied on by Mr. Goswami deals with or lays down any law on the question required to be determined in this application.

57. Mr. Goswami has further submitted that the word "or" after "cash, deferred payment" and before "other valuable considerations" has been used in disjunctive sense and those should be read separately from valuable consideration. According to Mr. Goswami the words "valuable consideration" should be read separately and delinked from the words "cash, deferred payment". Mr. Goswami has conveniently avoided reference to whole of the relevant expression, namely, "or other valuable considerations". The use of the word "other" makes it clear that cash or deferred payment are mentioned as specific types of consideration while "other valuable considerations" refer to considerations of types other than cash or deferred payment. We are unable to accept that cash and deferred payment are not contemplated as considerations.

58. Considering the relevant facts presented before us and the different judgments of the Supreme Court and the High Court, we find that supplies of food, drinks and refreshments by the petitioner-clubs to their permanent members cannot be treated as "deemed sales" within the meaning of Section 2(30) of the 1994 Act. We find that the payments made by the permanent members are not considerations and in the case of members' clubs the suppliers and the recipients (permanent members) are the same persons and there is no exchange of consideration.

59. For the reasons aforesaid we accept the contention of the petitioner-clubs that the supplies made to their permanent members are not sales even within the extended meaning of sale in Section 2(30) of the Act of 1994 and are not exigible to taxes imposed by the Act of 1994.

60. The applications are thus allowed. The impugned notices and orders so far as those seek to impose sales tax on the supplies made by the petitioners-members' clubs to their permanent members are set aside.


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