R.S. Narula, J.
1. The main question of law which calls for decision in this case is whether the approximate cost of food included in the consolidated charge made by a hotelier from a resident client during his stay in the hotel is liable to tax under the Punjab General Sales Tax Act, 46 of 1948 or not. I will refer to the said Act in this judgment as the Punjab Act. In other words the question is whether hoteliers who make one consolidated charge from their clients for providing them with residential accommodation, services, linen, food, etc. and who do not allow any rebate if food is not taken or served transfer the food to their customers for consideration so as to attract the provisions of S. 2(h) of the Punjab Act or not.
2. Messrs Associated Hotels of India Ltd., petitioners in this case are such hoteliers. They have been duly registered since March 30, 1949 as dealers under the Punjab Act. The business carried on by the petitioners consists of two branches. The first is the hotelier's business proper. The second is their restaurant business. As hoteliers, the petitioners are receiving guests in their hotel where they provide them with comfortable lodging and various other amenities such as public and private rooms, bath with hot and cold running water, clean linen and various other services and comforts. The guests staying in the petitioners' hotel, if they so desire, are supplied with meals by the petitioners during the hours restricted for that purpose. A guest is entitled to take food so as to satisfy his personal needs and to the extent to which he can consume it for that purpose. A guest staying In the hotel cannot, however, say that the food which was to be served to him may be served to his friend instead. Nor can he claim any rebate if he does not want to take food even on a single day during his stay in the hotel. If he wants to take pecked food outside the hotel instead of taking in the hotel he has to pay for it separately. The guest cannot take away any food which is left over. Nor can he ask the same to be served to anyone else in his place. The petitioners provide for serving the food a furnished place, crockery, linen, waiters, music etc.
These facts stated in paragraph 2 of the writ petition have been expressly admitted in the corresponding paragraph of the written statement of the respondents. The only variation in the stand taken up by the respondents in this respect is that during the two months of summer i.e., during May and June the petitioners also use their hotel as a restaurant. As I have stated above I will be treating the restaurant business as a separate branch of the petitioners' enterprise.
3. It is not disputed that the guests are charged a rate per day without working out, giving or disclosing any possible breakup of the charges as for board and lodging, etc.
4. The petitioners have been filing returns of their quarterly turnover since their registration as dealers under the Punjab Act till September, 1958. In that month the petitioners made an application dated September 2, 1958 objecting to the levy of the tax under the Punjab Act. Respondent No. 1 by his reply dated September 12, 1958 declined to entertain the objection of the petitioners and turned down their plea on the ground that the petitioners were making the sales of the food while providing meals to the resident visitors of the hotel. The stand of the respondents was that a visitor who stays in the hotel certainly pays to the petitioners for the board as well as for the lodging and also for other amenities which the hotel undertakes to provide and that it makes no difference whether the petitioners charge a visitor for the food along with the charges for lodging or separately.
The petitioners filed an application for revision of the order of the Assessing Authority under Section 21 of the Punjab Act before the Excise and Taxation Commissioner, Punjab. Patiala. A copy of the revision petition is annexure C to the writ petition. This was filed in November, 1958. The revision 'petition was not disposed of and remained pending till November, 1963 when respondent No. 1 sent a notice to the petitioners for getting their turnover for the financial year 1960-61 assessed under the Punjab Act. Written objections to the notice were filed before the Assessing Authority. It was firstly contended by the petitioners that they were not liable to assessment under the Act at all. The second point raised in the objection petition was that in any case the Authority could not discriminate against the petitioners qua similar other hoteliers who had been given 75 per cent rebate in their overall charges made from the guests in respect of the year in question, i.e.. 1960-61 This point was based on an alleged information received by the petitioners to the effect that in their case the Assessing Authority was going to allow only 50 per cent rebate in that behalf for the year in question. By letter dated November 30, 1963 respondent No. 1 informed the petitioners that the Assessing Authority could not wait any further for the result of the pending revision petition because any further delay would make the assessment for the years 1960-61 barred by time. Under protest the petitioners produced their books of accounts and they have since been assessed for the relevant year but the recovery of the amount has been stayed under orders of this Court.
5. On December 19, 1963 the petitioners filed this writ petition. The respondents have filed a written statement to which detailed reference has already been made by me in my interim order dated September 27, 1965. When this writ petition came up for hearing before me on that day, Shri Jagan Nath Kaushal, the learned Advocate-General, took up a preliminary objection to the effect that the writ petition should not be heard on merits as the revision petition filed by the petitioners in November, 1958, was still pending. I was asked by the learned Advocate General to wait for the decision of the appropriate revisional authority in the said petition so as to enable me to be assisted by a considered judgment of the revising authority on the merits of the contentions raised by the petitioners. At that time the learned Advocate General further undertook that if and after the revision petition was disposed of and a copy of the same made available to this Court he would have no objection to the questions arising in this writ petition being heard and finally decided by this Court in this case instead of the department being asked to refer the case on those points to this Court, a course which would normally be commendable to be adopted.
On account of the undertaking and assurance given by the Advocate General, the learned counsel for the petitioners did not object to the hearing of the writ petition being adjourned by me to await the decision of the revisional authority. By my order dated September 27, 1965, therefore, I adjourned the hearing of this case and directed the revising authority to hear both sides and to pronounce judgment in the revision petition which had been filed in November, 1958 by the 1st of November, 1965, if possible. By his order dated October 27, 1965 Shri Daryao Singh, Additional Assistant Excise and Taxation Commissioner, Punjab, Patiala has now dismissed the revision petition of the petitioners. A copy of his judgment in revision has been placed by the petitioners on the record of this case. In view of the undertaking given by the learned counsel for the State before me on September 27, 1965 no objection has been raised as to the alternative mode of bringing this matter before this Court by a reference under the Punjab Act. The revisional authority in its order dated October 27, 1963 has described the hotel business of the petitioner-company as distinct from its restaurant business in the following words:
'As hoteliers they provide comfortable lodging and other amenities such as luxurious public and private rooms, bath with cold and not running water, clean linen and other services and comforts to their guests. The guests are supplied with meals by the petitioners during the restricted hours fixed for the purpose. The guests were entitled to meals for themselves only and cannot take away the food or cannot serve to their friends or anyone else instead if they do not take means themselves.
For service of the food the petitioners provide a furnished place, crockery, linen, waiters, music, etc.'
6. The restaurant business of the petitioners has been described by the revisional authority in the abovesaid order as below:
'Under the restaurant business the guests are charged at fixed rate without giving any breakup of the charges as for the meals consumed and the service enjoyed by the guests.'
7. After noticing the rival contentions of the counsel for the petitioners and of the departmental representatives the learned Additional Assistant Excise and Taxation Commissioner referred to para 4 (b) of the Chart of Oberoi Mount View, Chandigarh which chart was before the revisional authority (and appears to have been produced before him by the departmental representatives as reference to the same was made by them before the revisional authority). A copy of the chart has now been placed on the record of this case also during the hearing of this writ petition on November 16, 1965. Para 4 (b) of the chart on which the taxing authorities rely is' in these terms:
'(b) The Tariff rates are inclusive of Lodging and Board which consist of the 3 Principal Meals, Breakfast, Lunch and Dinner served during the following hours:
(Then the hours of service are given) There is no sale of meals to the visitors. It is only a personal service and no rebate is allowed if the meals are missed.'
8. In fairness to the petitioners' counsel the contents of Para. 1 of the same chart should also have been noticed. The said paragraph reads as below:
'Nothing herein shall be deemed to constitute the relation of Landlord and Tenant or buyer and seller between the Company or the Hotel and any visitor or Resident, but the Company shall always be deemed to be in possession and control of the whole of the hotel premises.'
9. The ultimate finding of the Additional Assistant Excise and Taxation Commissioner on the first contention raised before him is recorded by the revisional authority in the following words:
'I am of the confirmed view that the food supplied to the resident visitors who enter into a contract for boarding and lodging with the petitioners in overall and all inclusive bills does include the element of sale price of the food consumed by the resident guests and hence amounts to sale and is liable to sales tax.'
10. On the other point (i.e., relating to the restaurant business) the revisional authority has held as below:
'On the basis of the above I hold that the sale of meals at the restaurant by the petitioners to casual and non-resident visitors is a sale of goods and not service as contended.'
11. Mr. Prem Nath Khanna, the learned counsel for the petitioners contends that the taxing authorities are trying to usurp jurisdiction where they have none by passing the above-said impugned orders dated October 27, 1965 in which errors of law are apparent on its face. Three questions appear to call for decision in this case namely:
(i) Whether the supply of meals to residents in the petitioners' hotel in the admitted circumstances of this case amounts to sale of foodstuffs in question within the meaning of Section 2(h) of the Punjab Act;
(ii) If so, whether allowing 75 per cent rebate for charges other than those relating to food in the case of other hoteliers and only 50 per cent rebate being allowed to the petitioners amounts to an objectionable discrimination against them and is liable to be restrained on that account or not; and
(iii) Whether supply of meals or other eatables to casual and non-resident visitors in the restaurant of the petitioner-company is sale OT mere service.
12. In order to answer the above questions, I may first refer to some of the relevant provisions of the Act. Section 4 is the charging section. The incidents of taxation under that provision is on all sales effected by a dealer after the coming into force of the Punjab Act, Section 2(d) defines a dealer. It is not disputed that the petitioners would fall within that definition. Sale is defined in Clause (h) of Section 2. The original definition of sale was to the following effect:
'(h) 'Sale' means any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge.
Explanation (1). A transfer of goods on hire-purchase or other instalment system of payment shall, notwithstanding that the seller retains a title to any goods as security for payment of the price, be deemed to be a sale.
Explanation (2). A transfer of goods by a dealer to himself or his family or any other relation without payment shall also be deemed to be a 'sale'.'
13. Section 2(i) defines turnover. The only disputed question involved in this case is whether the transaction in question amounts to a sale or not. The essential ingredients of a sale as defined in Section 2(h) of the Punjab Act appear to be these:
(i) the existence of goods which form the subject-matter of the sale;
(ii) passing of the property in the goods for a price;
(iii) payment or promise of payment of price; and
(iv) passing of title.
(14) By operation of Section 2(i)(2) of the Punjab Act the valuable consideration for carrying out a contract (less certain permitted amounts spent in carrying out the same) is to be included in the turnover. 'Contract'' in the phrase 'including a transfer of property in goods involved in the execution of a contract' as originally used in Section 2(h) of the Punjab Act as also used in Section 2(i)(2) of the said Act did not include all kinds of contracts but only those defined in Section 2(c) of the Act. The restricted definition of contract in Section 2(c) of the Punjab Act was to the following effect:
(c) 'Contract' means any agreement for carrying out for cash or deferred payment or other valuable consideration--
(i) The construction, fitting out, improvement or repair of any building, road, bridge or other immovable property; or
(ii) The installation, or repair of any machinery affixed to a building or other immovable property; or
(iii) The overhaul or repair of any motor vehicle.'
15. The definition of sale in Section 2 (h) of the Madras General Sales Tax Act, 9 of 1939 was enlarged by an Amending Act so as to include therein a transfer of property in goods involved in the execution of a works contract. Similarly, to the definition of turnover in Section 2 (i) of the Madras Act the amending Act of 1947 added the words 'the amount for which goods are sold shall in relation to a works contract be deemed to be the amount payable to the dealer for carrying out such contract less such portion of the same comprised of such amount representing the usual proportion of the cost of material used in carrying out such contract'. It is not disputed that the Madras Legislature as well as the Punjab Legislature could impose a tax on sales only within the scope of entry 48 in list II of the Seventh Schedule to the Government of India Act, 1935 which was the Constitution Act in force at that time. Entry 48 is 'Sale of goods'. Question as to the scope of the said entry and the consequent legislative authority of the State Legislatures to make laws thereunder arose before the Supreme Court in State of Madras v. Cannon Dunkerley and Co (Madras) Ltd., AIR 1958 SC 560.
In that case it was held that the expression 'sale of goods' in Entry 48 is a nomen juris, its essential ingredient being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract, held the Supreme Court, which is entire and indivisible there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such contract treating it as a sale. The Supreme Court further held that the words 'sale of goods' in Entry 48 cannot be construed in its popular sense but must be interpreted in its legal sense. It was held that a power to enact a law with respect to tax on sale of goods under the said entry must, in order to be intra vires, be one relating in fact to the sale of goods and accordingly, the Provincial Legislature cannot in the purported exercise of its power to tax sales, tax transactions which are not sales by merely enacting that they shall be sales. According to the law both of England and India, held the Supreme Court, in order to constitute sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods which presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Thus, it was held, if merely title to goods passes but not as a result of any contract between the parties, express or implied, there is no sale. So also if the consideration for the transfer was not money but other valuable consideration it may then be an exchange or barter but not sale. And if under the contract of sale, title to the goods has not passed, then there is an agreement to sell and not a complete sale.
Regarding the possibility of splitting up a contract into its sale component or otherwise, the Supreme Court held that the theory that a works contract can be broken up into its component parts so as to hold that as regards one of them there is a sale, must fail both on the grounds that there is no agreement to sell materials as such, and that property in them does not pass as movables. As under the law there cannot be an agreement relating to one property and sale as regards another for the sale of goods', there must be an agreement between the parties for the sale of the very goods in which the property eventually passes. In a building contract the agreement between the parties is that the contractor should construct a building according to the specifications contained in the agreement and in consideration therefor receive payment as provided therein. In such an agreement there is neither a contract to sell the materials used in the construction, nor does property pass therein as movables. In these circumstances it was finally held by their Lordships of the Supreme Court that there is no sale as such of the materials used in a building contract and the Provincial Legislature has, therefore, no competence to impose a tax thereon under Entry 48,
The principal Punjab Act is also a pre-Constitution Act. But even otherwise Entry 54 in the State List in the 7th Schedule to the Constitution is in the same terms as Entry 48 in the said list in the 7th Schedule to the Government of India Act, 1935. Mr. Prem Nath Khanna, the learned counsel for the petitioner-company has emphasised the dictum of the Supreme Court in the above-said case wherein it was held that the agreement for sale in order to be within the entry in question must be an agreement for the sale of the very goods in which property eventually passes. The judgment of the Supreme Court in the above-said case was also referred to by Mr. Khanna to emphasise the fact that splitting up of an overall contract not otherwise for sale of goods is not permissible for the purposes of the imposition of sales tax.
16. After the above-said judgment of the Supreme Court the Punjab Legislature made amendment in the original Punjab Act by certain provisions contained in the Punjab General Sales Tax (Amendment) Act, 18 of 1960. The first relevant amendment was made by deleting and omitting altogether Clause (c) of Section 2 of the principal Act wherein a restricted deeming definition of the word 'contract' was contained, The second relevant amendment was in the definition of 'sale'. The words 'including a transfer of property in goods involved in the execution of a contract' were omitted from Section 2(h) of the principal Act. Another relevant amendment was made in Section 2(i)(2) of the principal Act, i.e., in the definition of 'turnover'. Reference to contracts in the said definition was taken out by the Amending Act.
17. According to Mr. Khanna even under the principal Punjab Act before its amendment a transaction of the kind which is entered into between the petitioners and their resident clients could not be taxed as nothing is sold during that transaction. In any case he contends that after even the deeming provisions relating to contracts have been taken out by the Amending Act it cannot possibly be argued against the petitioners that a contract of this type involves any sale of goods. Mr. Khanna's argument is that a mere reference to the admitted facts and the chart referred to by the revising authority shows that there is no agreement for sale of the foodstuffs nor does the property in the foodstuffs pass to the guest. It is further contended that no price is fixed or agreed to be charged or in fact charged for the foodstuffs in question. No price is either paid or promised to be paid. In the peculiar admitted circumstances of the case it is argued that so long as the food is on the table the property in it has certainly not passed to the guest. As soon as he puts the food in the mouth it is consumed and the property does not continue to exist which could pass to the resident customer. It is further stressed by Mr. Prem Nath that if it was a transaction of sale the crucial test is that as soon as the food is brought on the table the guest should be able to say, 'I will take it with me outside the hotel' or 'it is now mine and that I will give it to a friend of mine'. Similarly it is contended that if it was a transaction of sale the guest could say, 'I am going to dine outside today; send the dinner meant for me to my friend'. Since it is admitted that none of these things can happen, it is argued that no sale of foodstuffs is involved in a transaction of the kind which is in question before me.
18. Reference has been made by Mr. Khanna to various judgments. The nearest and most helpful judgment cited before me is of the Court of Errors and Appeals of New Jersey in Nisky et al. v. Childs Co. No. 49, cited as 130 N. J. L. 464. Mary Nisky brought an action for damages against the Childs Company at whose restaurant she had taken some oysters which caused her serious illness. She was nonsuited by the county court. In her appeal before the Court of Errors and Appeals, New Jersey, she relied amongst others on the sub-division 1 of Section 15 of a local Act of 1907 concerning the sale of goods. Under that provision she claimed an implied warranty of good quality of food sold to her by the restaurant. The question that arose for decision in the above context was whether food served by a restaurant amounts to a sale. Affirming the judgment of the county Court, Justice Lloyd (speaking for himself, for the Chancellor, the Chief Justice and Justices Trenchard, Minturn, Kalisch, Black, Katzenbach, Campbell and Judges Van Buskirk. McGlennon, Kays, Hertfield and Dear), held as follows:
'It may be fairly assumed that the appellant in the present case by implication appraised the respondent that the oysters were to be eaten, and if the transaction constituted a sale of the oysters within the purview of either the common or statute law, then there would seem to have been a warranty, and the respondent would be liable. From the earliest times, however, a distinction has been drawn between a sale of an article and the furnishing of food at an eating house, hotel or restaurant; the latter partaking rather of the character of service, in which case the standard of liability is the failure to use that reasonable care which the circumstances require. As was said many years ago in Parker v. Flint, reported in 12 Mod 1303, 'An innkeeper...... does not sell but utters his provisions', and by Professor Beale in his treatise on Innkeepers, p. 169,, 'As an innkeeper does not lease his room, he does not sell the food he supplies to his guests. It is his duty to supply such food as the guest needs, and the corresponding right of the guest to consume the food he needs and to take no more. Having finished his meal he has no right to take food from the table, even the uneaten portion of the food supplied to him. Nor can he claim a certain portion of the food as his own to be handed over to another in case he chooses not to consume it himself,'
The authorities distinguishing the transaction from a sale recognise that while the food served constitutes, of course, an essential part, yet serving it cannot be regarded as a sale of goods, and this we think the common understanding. A customer at an eating place seeks not to make a purchase but to be served with rood to such reasonable extent as his present needs require. With the service go a place, more or less attractive, in which to eat is, a table, dishes, linen, silver, waiters, and sometimes music as an accompaniment, all tending to render more agreeable and palatable that which he eats. The food he obtains is then and there consumed; he does not eat the portion he can comfortably devour and place the remainder in his pockets or other receptacle, to be stored away for future needs. So one who purchases a steamship ticket, or one who registers at a hotel, does not conceive the transaction as a sale of goods when, as part of his passage in the one case, and as a guest in the other, he is supplied with meals; nor does one who enters a restaurant to be supplied with a meal or any portion thereof so regard the supplying of his food. This attitude of the public mind is indicated by the familiar signs, Meals served here.' 'Dinners served here,' and the like.
We think enough has been said to indicate that the service of food at eating houses has never been and cannot be regarded as a sale at common law, but this view is fortified by the absence of litigation (until quite recent years), based upon a claim of warranty, which would necessarily follow if the transaction constituted a sale. In no case in this State has such a contention ever been made, and even in the States of Massachusetts and New York, from which cases so strongly relied upon by the appellant come, it remained for the modern Sale of Goods Act to invite litigation along such lines. Answering appellant's second contention that the common law has been modified by the Sale of Goods Act, already referred to, we think it is clear, not only from the foregoing, but from the avowed scope and purpose of the Act, which, in respect to the question here involved, is but declaratory of the common law, that such contention cannot be sustained. The fifteenth section, sub-division 1, reads:
'Where the buyer, expressly or by implication makes known to the seller the particular purpose for which the goods are required, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose.'
This is the language of the cases and was already the rule at common law. Unless, therefore, food served at a restaurant becomes a 'sale of goods' by virtue of that Act, it is quite clear that no change has arisen through legislation. Our reading of the Act convinces us that such change was neither effected nor intended. There is nothing in the Act to suggest that it was intended to bring a transaction theretofore not recognised as a sale within the scope. We find no suggestion that a qualified transfer of food for limited purposes as hereinbefore indicated is to be transferred into a sale within the intendment of the Act. The Act contemplates a seller and a buyer and a contract under which the seller shall part with dominion and control over the article sold either at once or in the future, and that such dominion and control shall pass exclusively to the buyer to do with the article purchased as he will. The Act is commonly known as the 'Sale of Goods Act,' and its title implies that sale of goods alone is its subject. The Legislature not having declared that a transaction such as this, in which service to the individual forms so large a part, shall constitute a sale, we are not privileged to incorporate it in the Act by judicial ruling.'
19. If the distinction brought out by Justice Lloyd between sale of an article and service of food at an eating house is correct and the service of food really partakes of the character of a 'Service' only the petitioners appear to have an ostensibly good case.
20. The next case relied on by Mr. Khanna is the judgment of the High Court of Andhra Pradesh in the Guntur Tobaccos Ltd., Guntur v. Government of Andhra, 1961-12 STC 668, AIR 1961 Andh Pra 520 (FB). The assessees in that case were engaged in the business of redrying raw tobacco entrusted to them by their customers. They packed the redried tobacco in water-proof packing materials purchased by them and delivered the tobacco thus packed to their customers charging them as inclusive rate for redrying and packing. The question that arose for decision before the Andhra Pradesh High Court in that case was whether the price of materials used for packing the redried tobacco was liable to be included in the taxable turnover of the assessees under Section 2 (1) of the Madras General Sales Tax Act, 1939. The High Court held that where the contract was one, entire and indivisible it was not within the competence of the State Legislature to impose a tax on the supply of materials used in such a contract treating it as a sale. It was held that as the contract between the assessees and their constituents in that case was one and indivisible, the assessing authorities were not entitled to include in the taxable turnover of the assessees the price of the packing materials. The test for determining the crucial question was laid down in the following words at p. 676:--
'One of the tests which may be usefully applied in judging whether there are really two agreements, one for the transfer of materials for money consideration, and the other for payment of remuneration for services, is to find whether the assessees could make a higher charge if the price of the materials goes up and the constituent is entitled to insist upon a reduction of the total charge if the price of the materials goes down.'
21. In that case the Andhra Pradesh High Court emphasised the fact that there is no agreement between the parties either for a variation of the price depending on the variation in the prices of the materials supplied or otherwise. The assessees were charging a fixed amount in either case not depending on the fluctuation in the prices of materials. Having regard to the fact that the contract between the assessees and their constituents was one and indivisible, there was no sale of the materials as such Involved in that transaction. The above-said judgment of the Andhra Pradesh High Court was the subject-matter of a further appeal to the Supreme Court. The judgment of the Supreme Court is reported as 1965-16 STC 240: (AIR 1965 SC 1396). Justice Shah who wrote the judgment of the majority of the Court held, inter alia, as follows:--
'The question in each case is one about the true agreement between the parties and the terms of the agreement must be deduced from a review of all the attendant circumstances. But one fundamental fact has to be borne in mind that from the mere passing of title to goods either as integral part of or independent of goods it cannot be inferred that the goods were agreed to be sold, and the price was liable to sales tax. In AIR 1958 SC 560, this Court held that the expression 'sale of goods' was, at the time when the Government of India Act, 1935, was enacted, a term of well-recognised legal import in the general law relating to sale of goods and in the legislative practice relating to that topic, and must be interpreted in Entry 48 in List II in Schedule VII of the Act as having the same meaning as in the Sale of Goods Act, 1930.'
'In order that there should be a sale of goods which is liable to sales tax as part of a contract for work under a statute enacted by the Provincial or State Legislature, there must be a contract in which there is not merely transfer of title to goods as an incident of the contract, but there must be a contract, express or implied, for sale of the very goods which the parties intended should be sold for a money consideration, i.e., there must be in the contract for work an independent term for sale of goods by one party to the other for a money consideration.'
'Whether a contract for service or for execution of work, involves a taxable sale of goods must be decided on the facts and circumstances of the case. The burden in such a case lies upon the taxing authorities to show that there was a taxable sale, and that burden is not discharged by merely showing that property in goods which belonged to the party performing service or executing the contract stands transferred to the other party.'
'In the absence of any evidence from which contract to sell 'packing material' for a price may be inferred, the use of 'packing material' by the respondent-company must be regarded as in execution of the works contract and the fact that the tobacco delivered by the constituent is taken away with the 'packing material' will not justify an inference that there was an intention to sell the 'packing material'.'
22. Applying the tests laid down in the above-mentioned two judgments in the case of the Guntur Tobaccos Ltd., 1961-12 STC 668: AIR 1961 Andh Pra 520 (FB) and 1965-16 STC 240: (AIR 1965 SC 1396), and keeping in view the admitted facts of the instant case particularly the facts (i) that there is no splitting up of the charge made from a resident in a hotel, and (ii) mat a guest in a hotel is not only not entitled but is specifically debarred from claiming any reduction in his bill if he does not take food in the hotel, it appears to me that no sale of food takes place when a resident in a hotel is served with meals which he is entitled to consume only for his personal needs when on the dining table.
23. It also appears to me to be equally clear that in the absence of any specific valid statutory provision made by a competent Legislature it is not open to the taxing authorities to split up the contract of the kind involved in the instant case so as to try to spell out a fictitious sale. The Supreme Court held in the Madras case that adopting such a course was beyond the scope of Entry 48 in the State List of the 1935, Government of India Act as the State Legislature is not competent to levy tax on something which is not a sale according to the ordinary law of the land by calling it a sale by an enlarged definition involving therein a legal fiction. Under the unamended Punjab Act, Rule 28 had been framed to provide for the manner of splitting up contracts covered by Clause (c) of Section 2 of the principal Punjab Act. The said rule is no more in force. Now when even that clause which related to splitting up of contracts of the type originally defined in Section 2(c) of the Punjab Act has been deleted by the amending Act 18 of 1960 it is certainly not permissible to allow a thing of the type done in the instant case in the total absence of any legal provision purporting to authorise such splitting up. Moreover in the absence of any such rule as was originally framed by the Punjab Government for carrying into effect the splitting up provisions contained in the unamended Act, there exists no criteria, basis or yardstick to split up a contract between a guest and the hotel in which he stays, and to determine as to how much should be related to the supply or service of food and how much to other matters which are admittedly not relevant for the purposes of imposition of sales tax. This has then to be left to the whim or sweetwill of the taxing authority. A situation of this kind would be violative of the rule of law.
24. On the other hand Mr. Sharma, the learned counsel for the State has invited a reference to various provisions in the Sale of Goods Act including Section 5 which defines a contract of sale, Section 9 which provides that a contract of sale can be entered into in the course of dealings between the parties and Section 13 which provides that a contract of sale can be entered into subject to any conditions. He has also referred me to Section 63 of the Contract Act and has argued that read with Sections 13 and 23 of the Sale of Goods Act the law does envisage a contract providing for conditional apportionment and appropriation. Reference has also been made in this connection to Section 33 of the Sale of Goods Act.
25. It has been authoritatively held by the Supreme Court in New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, 1963-14 STC 316: (AIR 1963 SC 1207), that in the definition of the sale in the Sales Tax Acts it must be regarded as implicit that the transaction has all the elements which constitute a sale within the meaning of Sale of Goods Act. Under Section 4(1) of the Indian Sale of Goods Act, 3 of 1930, a contract is that of sale whereby the seller transfers or agrees to transfer the property in certain goods to the buyer for a price. As held above, the property in the food is not allowed to be transferred to the guest by the petitioner in this case. It is of the essence of a transaction of sale that both the agreement for sale and the sale itself should relate to the same subject-matter. Where the goods delivered are not the goods contracted for the purchaser has got a right under the agreement for sale to reject them or to accept them and claim damages for breach of warranty under the law relating to sale of goods. This concept is also missing in the instant case.
26. The first case to which Mr. Sharma has referred is the judgment of the Sales Tax Tribunal, Bombay, in Friends Union Joshi Club v. State of Bombay, 1956-7 STC 257. Food was sold by the assessee in that case at Rupees 29-14-0 per fortnight or Rs. 59-8-0/- per month. Under the Bombay Act, a sale would not be susceptible to taxation if the cost for each meal would be less than rupee one. The only dispute before the Sales Tax Tribunal in that case was about the method to be adopted for finding out the sale price of one meal when the agreed price was fixed on a monthly or a fortnightly basis. It was held by the Tribunal that the only rational method of arriving at the average cost of meal would be to divide the total amount for a month or a fortnight by the number of meals supplied to each boarder during the month or fortnight. Decision was given in favour of the taxing authorities by giving a finding of fact to the effect that on Sundays only one meal was given and, therefore, the cost of each meal came to rupee one thus inviting the tax. No question as to whether the agreement involved any sale or not arose in that case. Nor did the agreement in that case involve anything except providing meals at the fixed periodical rate. The judgment of the Sales Tax Tribunal Bombay in the case of Friends Union Joshi Club, 1956-7 STC 257, is, therefore, of no assistance whatever for deciding the point involved in the instant case.
27. Mr. Sharma has then invited a reference to the judgment of this Court (Dulat and Grover, JJ.) in Jiwan Singh and Sons v. State of Punjab, 1963-65 Pun LR 878. The first question which had been referred to this Court for decision by the Financial Commissioner in that case was in the following words:--
'(a) Whether in the circumstances of the case, the contract of fitting and building the bodies on the chassis supplied by the customer, and the amount charged therefor could be said to constitute a 'sale' within the definition of the word 'sale' as given in the Punjab General Sales Tax Act, 1948 (Act XLVI of 1948) ?'
28. Before the Court, it was expressly admitted in that case on behalf of the assessee that a readymade bus body would be 'goods' and that if anybody carried on trade of supply of readymade bus bodies he would be selling the same. Reference was then made in the judgment of this Court to the following passage occurring in the judgment of Desai, C. J. in Commissioner of Sales Tax v. Haji Abdul Majid and Sons, 1963-14 STC 435 (All):--
'In the instant case what the customer wanted was the construction of bodies on the chassis of his buses. The assessee could have prepared the bodies first and then fixed them on to the chassis or could have started the construction of the bodies by putting one plank after another on the chassis themselves. All the materials were to be supplied by the assessee. The element of sale predominated over the element of contract of work.'
29. The Division Bench of this Court adopted the above-said observations of Desai, C. j. for answering the first question quoted above against the assessee. But the facts of the bus body case are entirely different. A bus body is the article specifically contracted to be supplied, property in which actually passes to the customer. He can take it home, use it, sell it or gift it away to anyone. The customer pays for the body, the property in it passes to him and on purchasing it the body belongs to the customer. No such thing happens regarding the food served to a resident in a hotel. The Division Bench judgment in the case of Jiwan Singh and Sons, 1963-65 Pun LR 878, was clearly given on its own facts and does not at all appear to assist in arriving at a decision of the present case. Where as in the bus body instance, the predominant element is of sale, such an element is wholly wanting qua service of food in the case of a resident in a hotel where the predominant element appears to be providing residence and service.
30. It appears to me that the only practical way to decide a question of the type involved in the present case is to look at the contract in question and to find out what wag the real intention of the parties. In a sale, one of the necessary ingredients and concepts is that property in the specific goods must at some stage pass from the seller to the buyer. That concept is wholly wanting in the circumstances of the present case.
31. The concept of sale as it obtains in our jurisprudence has its original roots in the system of Roman Law. Under that system, sale, emptio venditio, is an agreement by which a person agrees to transfer to another the exclusive possession of something for consideration. In the instant case the exclusive possession of the food in question is not transferred to the guest at any stage so as to entitle him to enjoy it or utilise it in any manner he likes. One of the necessary ingredients of sale, i.e., absolute or general property in the article in question being transferred from the seller to the buyer is, therefore, absent in this case.
32. The learned counsel for the Sales Tax authorities next referred to a Division Bench judgment of the Madhya Pradesh High Court in D. Masanda and Co. v. Commissioner of Sales Tax, 1957-8 STC 370; ((S) AIR 1957 MP 76). In that case, it was held that a photographer can be assessed to Sales tax on the value of the material imported and used by him in taking photographs as there is a sale of the said material when with the aid thereof he takes photographs for his customers and supplies to them copies of photographs on payment. The decision in that case depended on a finding as to whether the photographer would be a 'manufacturer' within the meaning of that term given in Section 2 (k) of the Madhya Bharat Sales Tax Act, 1950. Applying the said definition contained in that section it was held that photographic materials sold in the process of manufacture of photographic work could be treated as sale under Section 2 (o) of the Madhya Bharat Sales Tax Act and the photographer is a dealer vis-a-vis such material within the meaning of Section 2 (f) of the said Act.
I do not think the judgment of the Madhya Pradesh High Court in any way goes contrary to the arguments of the petitioner in the instant case. When a customer goes to a photographer for being photographed and pays for the copies of the photographs which he obtains, the substance of the contract between him and the photographer is not the performance of skilled services but of the supply of the finished and completed photographs. A photographer cannot claim the price of the photograph without supplying any. He must bring into existence the physical thing known as a photograph and has to use the substances and materials for bringing out that physical object. The materials with which the photograph is prepared are not merely ancillary to the contract but are the very goods of which the photograph is the resultant effect. No such consideration prevails in the case before me.
33. The next case to which Mr. Sharma referred is the judgment of the West Bengal Board of Revenue in P. R. Das and Sons v. State of West Bengal, 1955-6 STC 111 (Cal). In that case it was held that where spare parts, such as mainsprings, wheels, escapement, etc., were supplied by the dealer in connection with the repairing of watches, sales tax could be levied on the sale of such items though no tax was leviable on the charges for labour involved in repairing the watch. Once again it is clear from the admitted facts of that case that the articles the transfer of which was held to be liable to imposition of sales tax were actually handed over to the customer fitted in the watch and he had to take those away to his house. Thereafter, if he liked he could take them out of the watch and throw them away or use them in his friend's watch. Those concepts are wholly absent in the case of food supplied by a hotelier to his resident customer.
Reference was then made to the case of the sale of zari which was not handed over separately but was used on readymade garments. In that context it was held that the zari was sold. There is no difficulty in appreciating the zari case. The admitted facts were that zari was charged according to weight. The weight was obtained by weighing the garment before putting zari on it and the garment was re-weighed after the zari work was done on it. In his way the zari was specifically charged for. The predominant element in the contract was of providing zari and what was paid for was mainly the zari and not the labour. Moreover the zari fixed on the garment was actually taken away by the customer and there was nothing to prohibit him from removing the zari from the garment and putting it on another or selling away the zari after the garment became useless. The customer in a hotel cannot do the same to the food served to him. The zari case is, therefore, not helpful for deciding the present dispute.
34. The last case to which Mr. Sharma referred is the judgment of Tek Chand, J. in Munsha Singh Dhaman Singh v. State of Punjab, AIR 1960 Punj 317. In that case, however, it was clearly emphasised by the learned Judge that the concept of ownership and the right to consume or destroy the article was of crucial importance in deciding what is sale or not. Applying those tests to the instant case it appears that a guest in a hotel can never claim ownership of the food served to him and he has admittedly no right to destroy it. Mere right to consume food is like other services of which a guest can avail in the hotel.
35. After a careful consideration of the entire law referred to above and the facts and circumstances of this case I hold on the first question formulated by me as below:--
(i) Whenever the taxing authorities contend that the transfer of certain movables in the course of discharge of mutual obligations in a contract amounts to a sale the burden in such a case would lie heavily upon the taxing authorities to show that there has in fact been a taxable sale. Such burden is not discharged by merely showing that some movables have passed from the alleged seller to the alleged buyer in the course of the supposed sale in performing an overall service or in execution of a contract.
(ii) A transaction between a hotelier and its resident client is an indivisible contract of multiple service and does not involve any sale of food inasmuch as it does not involve any lease of the room made available for the residence of the client.
(iii) It is not open to the taxing authorities under the Punjab Act after its amendment by Act 18 of 1960 to split up the composite contract so as to make out an agreement of sale where in fact none exists. The transaction as a whole has to be seen to find out if it is a sale or not. Seen in that perspective the service of food in the admitted circumstances of this case does not amount to sale.
(iv) Food given by a first class hotel to its client who makes one consolidated payment per day or periodically for residence in that hotel is not 'sold' by the hotel but merely 'served' to the resident. This does not constitute 'sale' of the food within the meaning of the Sale of Goods Act nor falls within Section 2(h) of the Punjab Act. It partakes more of the nature of a service than a sale for the following amongst other reasons:--
(a) No price is paid or agreed to be paid for the food.
(b) The predominant purpose of the agreement is to reside in the hotel and not to get food.
(c) It is clearly stipulated in the relevant chart of the hotel produced before the revising authority that service of food would not constitute a sale of the food.
(d) There is no understanding or contract for the supply of any particular food nor even of any kind of food. The guest cannot ask for any particular diet or dish. The choice is entirely one-sided, i.e., of the hoteliers.
(e) If the food is not to the taste of the guest or if he is to be away at the time of lunch or dinner he may not take it but he gets no rebate or remission in the overall charges made from him.
(f) Property in the food does not pass to the guest at any stage. At no stage can a guest say that he has paid for the food or agreed to pay for it and that he would, therefore, take it away or keep it for being taken later or give it to a friend.
(g) The guest has to pay the same amount even if he does not take the food. He cannot ask for the food offered to him to be served out even to another resident in the hotel.
(h) The guest has no right to reject the food. This salient feature of the sale of goods is wholly wanting.
(i) The food is not appropriated to the guest at any time so long as it retains the nature of an eatable. At no stage can the guest say that he may do anything with the food which is meant for him A guest cannot remove the food and he can only take as much as he can consume on the board He cannot remove from the table even an uneaten part of the food supplied to him Dominion or control over the articles of food is not parted with by the petitioner till it is eaten.
(j) Food forms a very insignificant part of the services rendered by a hotelier for which a guest pays so heavily
(k) A hotelier does not extend or imply any warranties normally attached to sale of goods, while serving food.
(v) Food served to a resident guest in a hotel without any separate or distinct charge being made for it is as much not a sale as edibles drinks and beaverages served by an airlines or a steamship company to persons holding tickets for availing of the service of travel. Passengers holding such tickets are no doubt entitled as of right during the journeys performed by them under that ticket to avail of such edibles, drinks, beaverages, etc., as may be given to them. It may be possible that while working out a reasonable fare to be charged from a passenger the airlines or steamship company keeps in mind the cost of the food to be served to the passenger. Still no one has ever suggested that a passenger in a plane or a steamship, buys the food for which he has paid price included in the fare given by him. Similarly no one goes and stays in a hotel to buy food.
36. I, therefore, answer the first question formulated by me in favour of the petitioners.
37. In view of the answer given by me to the first question the second question relating to alleged discrimination does not arise and need not be answered specifically.
38. The third question relates to the restaurant business of the petitioners. The considerations which have impelled me to decide the first question in favour of the assesses are wholly absent in the case of the restaurant business. A customer can pay for a plate of fish and can take it home. He can ask for a packed lunch and pay for it and take it away. The moment he takes delivery of the food and he is free to remove it or to serve it to his wife or friend accompanying him the property in the goods passes to the customer and is appropriated to him. This is clearly sale. The customer can order for a particular dish at the restaurant and reject it when it is offered to him if it is not in accordance with his orders. I, therefore, hold that the restaurant sales to non-residents and sales of packed food by the petitioner-company to its customers are taxable under the Punjab Act.
39. No other point has been argued before me in this case by either of the sides.
40. This writ petition, therefore, succeeds and is allowed with costs. The impugned orders of the assessing authority and the revisional authority are set aside and quashed. The taxing authorities would be free to assess the petitioners for their restaurant sales but are hereby restrained and prohibited from taxing the petitioners on the basis of any legal fiction qua the food served to the resident customers in the petitioners' hotel who do not pay for the food separately.