1. In these two petitions, the Cosmopolitan Club, Madras, represented by its Honorary Secretary seeks to challenge the legality of the levy of sales tax on the supply of refreshments to the Club members. The 1st respondent impleaded is the Deputy Commercial Tax Officer of the Triplicane Division and the second respondent the State of Madras.
2. The prayer in C. M. P. No. 3414 of 1951 is for the issue of a Writ of Certiorari or other appropriate writ or order to quash G. O. Ms. No. 2472 dated 21-9-49 of the Revenue Department, Government of Madras, which declined to grant exemption from such sales tax on a letter dated the 22nd of August 1949 addressed to the Honourable Minister for Finance of the Government of Madras. In that letter it was represented that there were about 1200 members on the rolls of the Club, which acorded amenities in sports, indoor games and in various directions to its members, and that refreshments were supplied to members as an amenity and not on any commercial basis. The letter was an appeal for exemption in the circumstances from the payment of sales tax. On this, the Government passed the G. O., soughtto be quashed on the ground that they did not see sufficient justification for exempting the sale of refreshments by the Cosmopolitan Club, Madras from liability to pay sales tax. In the original letter of the Cosmopolitan Club Ex. R-2 produced by Government, there was no specific objection to the levy of this tax as illegal underthe Sales Tax Act. This allegation however appears in the common affidavit filed in support of these two petitions. C. M. P. No. 3415 of 1951 seeks for a writ by way of mandamus to direct the respondents to forbear from levying the collecting such sales tax in future.
These two petitions were admitted by Raghava Rao and Viswanatha Sastry JJ. sitting as a Bench on the 9th of March this year. Mr. Jayarama Ayyar, who appears for the Cosmopolitan Club, says that he had to argue at some-length before he persuaded them to admit them. There is no order of course giving any reasons for admission. The Government Pleader has, as may be expected, raised strenuous objections to maintainability, which I shall first consider.
3. The levy of Sales tax was first made in 1939. The fiscally operative section is Section 3(a) of the Madras Sales Tax Act under which subject to the provisions of the Act, every dealer shall pay for each year a tax on his total turnover for such year. Section 2(b) defines a 'dealer' as 'any person who carries on the business of buying or selling goods', with the following very important explanation 'A cooperative Society, a Club, a firm or any association, which sells goods to its members is a dealer within the meaning of this clause'.
4. The Cosmopolitan Club has been paying sales tax since 1939, which grew from a comparatively insignificant levy of a few rupees a year to a considerable sum. The first objection by the Government Pleader is that the Club has raised no objection to the legality of the tax before the Deputy Commercial Tax Officer and has not explored the machinery of relief by way of appeal and revision provided by the Act itself. Under Section 11, an assessee objecting to an assessment has a right of appeal within 30 days to the appellate authority, which is admittedly the Commercial Tax Officer. Section 12 specifically provides for a revision by the Board of Revenue. He also urges that the right of suit is also not barred as under Section 18 no suit shall be instituted against the State in respect of any act done unless it is initiated within 6 months from the date of the act complained of. This section also clearly leaves open the ordinary right of suit subject to a restricted time limitation as has been held in -- Province of Madras v. Satyanarayanamurthi, : AIR1952Mad273 by Govinda Menon and Basheer Ahmed Sayeed JJ. It is also pointed out that under the Madras Amending Act VI of 1951 an appeal also lies to the newly constituted Sales Tax Appellate Tribunal with right of revision to the High Court. There can be no doubt that there exists very elaborate machinery under the Sales Tax Act, which an aggrieved assessee can explore. It is true that ordinarily the existence of alternative remedies exclude the remedy by way of writ, nor will a Court interfere to enforce the law of the land by this extraordinary remedy in cases where an action at law will lie for complete satisfaction.
It is not necessary to refer to the wealth of English case law quoted to support this position in Halsbury's laws of England Vol. IX p. 774. There have been however cases where writs by way of Certiorari or mandamus have been granted to aggrieved persons despite their failure to explore other avenues open to them. In -- 'King v. Postmaster-General Exparte Car-michael, (1923) 1 K. B. 291 the applicant Mrs. Carmichael had what Avory J. held, a right of appeal under the Workmen's Compensation Act, which gave all the relief which she can require. I would be most reluctant to import into Indian Law the view of Avory J. which is rather anextreme one, expressed in the following sentence:
'But even if that remedy is open to her, it is undoubtedly goods law that if the application for a certiorari is made by a party aggrieved then it ought to be granted 'ex debito justitiae' and the Court has not the general discretion which it would have when the application is made by one of the public who is not personally concerned'.
Halsbury's Law of England page 873 refers to a decision -- 'R. v. Blathwayt', (1846) 3 Dow & L 542 in which a dissatisfied party was permitted to apply for a writ of certiorari instead of appealing, though it was held that he could not do so till the time for appealing had expired. It is not necessary to pursue further investigation into English Writ case law on this point in view of the decision of our own Supreme Court -- 'Rashid Ahmed v. The Municipal Board, Kairana', 1950 S.C.K. 566. That was an application under Article 32 of the Constitution to enforce the fundamental right to carry on a business. It was held that although the petitioner had a right of an appeal under the U. P. Municipalities Act, it was not in the circumstances an adequate legal remedy, the existence of which would disentitle the petitioner from maintaining his application.
5 The maintainability of writ petitions under Article 226 of the Constitution is extremely difficult, if not impossible to circumscribe, define and restrict I had occasion in a recent petition -- 'In re Amndan N imbiar C. M. P. No. 1767 of 1951 (Mad) as a member of the Bench, which decided that matter, to make the following observation to which I adhere.
'Article 226 confers on us extremely wide powers of interference and a corresponding extremely heavy burden of responsibility.........It isonly in exceptional cases that writs under these wide powers 'for any other purpose' can in our opinion be issued, such as for instance when there has been a clear violation of statutory law, when principles of natural justice have been violated or perhaps where there has been mala fide discrimination against an individual to the detriment of his rights. It is impossible to define with exactitude the cases in which Article 226 of the Constitution can be rightly invoked. They should be comparatively exceptional and very few. But we view with growing apprehension and alarm the very large number of petitions under this Article seeking our intervention and to make it an avenue for redress. This may be partly due to a tendency to exploit it with legal ingenuity seeking fresh avenues for the invocation of this Article.'
I propose to consider the question of maintainability and also the propriety of issuing a writ in the light of those observations I made then.
6. These are in many respects peculiar petitions, challenging as they do the validity of a sales tax which not only this club but other clubs also have been paying without demur or objection since 1939. , Mr. Jayarama Ayyar has referred me to Article 265 of the Constitution according to which no tax shall be levied or collected except by the authority of law. I do not think that the failure of the Cosmopolitan Club to object to this tax since 1939 and to explore the long and tedious avenue of appealand revision provided by the Act is an impediment in the way of issuing a Writ, if it be found that the sales tax levy is really illegal. There are some other cogent reasons, which appeal to me for a finding that the remedy by way of a writ under Article 226 is not only open to the petitioning Club but is also the appropriate and correct one. In the first place, the appellate and revisional machinery provided by the Sales Tax Act is primarily intended for individual assessees, dissatisfied with the assessment made. This however is a case of the very legality of a sales tax levy itself on the petitioning Club and similar social Clubs being challenged. Before a suit can be filed for a declaration that the tax is illegal and claiming also consequential relief by way of refund of tax illegally collected, the whole gamut of appellate and revisional machinery must take its course, and then a suit with the possibility of an appeal and a Second Appeal, which may take years finally to conclude and in the meantime this tax, if ultimately held to be illegal, will continue to be collected. Social organisations like Clubs, which do not exist for profit or gain cannot afford the luxury of prolonged litigation, nor do they ordinarily seek litigation against Government presuming as they probably do that the taxes that they are called upon to pay are in accordance with law. This appears to be the reason why the legality of this Act has never been challenged before,
7. In evolving our own case law under Article 226 of the Constitution, which confers on High Courts far wider powers than those exercised by the King's Bench Division in England, it is in my view neither necessary nor is it possible to follow the precedents in English prerogative writ and other writ case law, in particular the distinction between writs of course or ex debito Justitiae and what are known as discretionary writs. If we follow for instance as a precedent the view of Avory J., in -- 'King v. Postmaster-General Ex parte Carmichael', (1928) 1 K. B. 291 which I have referred to our High Court may be Inundated with writ petitions to such a degree as to bring other work to a comparative stand-still with the spate of legislation which has flooded this state and discretionary rules framed under statutes having the force of law, all providing avenues for appeal and revision. The only broad criterion that we can apply is whether In view of the nature of the case and the illegality alleged and the wrong complained of, a relief by way of writ Is the correct and appropriate remedy. Article 226 confers on High Courts power to issue to any person or authority including in appropriate cases any Government, directions, orders or writs including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari or any of them not only for the enforcement of fundamental rights in Part III of the Constitution but 'for any other purpose.' It does not appear to be even necessary to confine and restrict a petitioner to a particular writ on English precedents nor would it be proper to dismiss a petition invoking relief by way of a writ of certiorari on the ground that the correct remedy would be a writ by way of mandamus or prohibition. I would prefer to take the view that there is no such thing in Article 226 as a writ of course or a writ by right and that the writs which lie under Section 226 (1) are all discretionary writs which are dependention the facts of each case, and the nature of the illegality and wrong alleged.
8. A further preliminary point arises in view of an objection by the Government Pleader that the petitioning Club at no time specifically challenged the legality of this tax before filing this petition. In their letter to the Finance Minister marked for ready reference as Ex. R-2 dated 22-8-1949, the Club asked for exemption from this tax on grounds that the refreshments were supplied to members as in their homes without any profit motive and so on. The only section dealing with exemption is Section 6 which empowers the Provincial Government by notification to exempt or reduce sales tax on specified classes of goods at all or specified points in a series of sales by successive dealers or by any class of persons. The G. O. passed by Government declining to grant exemption in favour of the petitioning Club technically, legally or strictly correct as nowhere was the legality of this tax challenged as such in Ex. R-2.
9. Mr. Jayarama Ayyar for the Club filed an uninitialled office copy Ex. P. 2 of Ex. R-2 sent to him by the Club Secretary containing a paragraph to the effect that two legal opinions Exs. P-2(a) and P-2(b) had been taken to the effect that this tax was illegal. The club Secretary has also filed an explanatory affidavit Ex. P-3 to the effect that the paragraph referring to the two legal opinions was deleted from the original letter contemplated (Ex. P-2) and that the legal opinions Exs. P-2 (a) and P-2(b), were sent as enclosures to Ex. R-2. This fact is however nowhere mentioned in Ex. R-2, and an affidavit has been filed Ex. R-4 by the Commercial tax officer that these two legal opinions were not received by Government at all. There appears to have been some confusion in this matter arising from the un business like manner in which social clubs, which are not commercial concerns working for profit are managed by elected committees and honorary presidents and secretaries who draw no remuneration.
10. The lack of notice or representation to Government prior to the filing of a writ petition under Article 226 may assume considerable importance in some cases to the extent of justifying a dismissal in limine. It is ordinarily just, convenient and also necessary that Government should have an opportunity of examining the illegality complained of before being summarily dragged to court on a writ petition. Even Section 80 of the Civil Procedure Code requires a statutory notice by a plaintiff to be served on Government two months before the filing of any suit. Such previous notice is not necessary in writ petitions where aggrieved persons challenge the validity of any legislation under which Government have acted, where Government has exercised quasi- judicial unctions and the representations of the aggrieved petitioner have been heard. I would express the view that the general principle should be that Government should have notice of the alleged illegality or wrong on which the writ petition is founded before it is filed, and given a reasonable opportunity of investigating the grievance and remedving it before such a step is taken. In this particular case, the letter of the Club to Government though it asks for exemption, which may be construed as a discretionary favour really gives reasons now advanced seriously for challenging the very legality of:the tax. The legality has of course been challenged in the affidavit supporting these writ petitions, and in para 3 of the counter-affidavit opposing it, there is the specific contention that 'the supply of refreshments by the petitioner in law constitutes a sale or transfer of property in the refreshments by the Club to its members'. The Government Pleader concedes that the legal position has been examined, nor is there any likelihood in a case of this kind that Government would have conceded on a mere challenge of the legality of this tax paid without demur for over 10 years that they collected it illegally during this long period. There is of course no provision in the Constitution requiring notice to Government before putting it on its defence as under Section 80 C. P. C. There is no inflexible rule. I am of the opinion that in the particular circumstances of these petitions, they should not be rejected on this ground, and that the legality of this tax can only be properly investigated by this Court on a petition under Article 226.
11. The simple point for determination is whether the supply of refreshments by the petitioning Club to its members charging a fixed rate constitutes in law a sale. The Articles and Memorandum of Association of the Cosmopolitan Club Ex. P-l said to be based on those of the Eccentric Club London is that of a social or members' Club, not conducted for gain or profit, but with the objective of providing amenities to its members for meeting in the Club premises, for recreative and social activities varying from strenuous games to pastimes of less vigorous character, for social intercourse for interchange of ideas on a variety of topics serious and light, ranging from Ethics and Philosophy to the prattle of idle gossip. I can take judicial notice of the necessity to sustain and refresh members of a Club indulging in these generally wholesome social and recreative activities by a supply of refreshments, both liquid and solid.
12. The Petitioning Club has admittedly been registered under Section 26 of the Companies Act, though it does not require registration. Section 26 makes special provision for an association such as the petitioning Club, formed for promoting commerce, art, science, religion, charity or any other useful object and applies or intends to apply its profits, if any, or other income in promoting its objects being registered under the Companies Act. Such registration can only be ordered if the Central Government is satisfied with the bona fides of such a club and that it is an association formed not for profit. The Club, if registered, has the privilege of limited liability without the addition of the word 'limited' to its name. Registration under Section 26 of the Act is prima facie proof, if it were needed, that the petitioning Club is not an association for profit. Lord Halsbury in his Laws of England Vol. IV at page 484 paragraph 883 differentiates between two kinds of incorporated Clubs under the English Companies Act of 1929, i.e.. between what is in substance a members' Club, with the advantages incident to incorporation as a company, especially that of suing and being sued as a legal entity, and a proprietary club with an incorporated company as proprietor instead of an individual. A proprietary Club is something quite different in which non-proprietary members may be excluded from any share in the management which is run lor profit. (See --Cole v. Merton Park-Wimbledon Golf Club Ltd.', (1927) 43 T.L.R. 400 . It is only a members Club which is eligible for registration under Section 26 of the Indian Companies Act.
13. There can in the first place be no doubt that the petitioning Club is a members' club which is not conducted for profit or gain. In -- 'Inland Revenue Commissioners v. Westleigh Estates Co. Ltd.', (1924) 1 K. B. 390 it was held by the Court of appeal reversing the decision of Rowlatt J. that the Club being a members' and not a proprietary club, the club was not carrying on any 'undertaking of a similar character to that of a trade or business and was therefore not liable to corporation profit tax because its accounts showed a surplus of income over expenditure'.
14. Now from its constitution, the petitioning Club is a society of persons, each o whom contributes funds, out of which the Club expenses are met. Such contribution is made by means of entrance fees, or monthly or annual subscriptions and other charges paid by members. It is not recognised as having any legal existence apart from the members of which it is composed. All the members of the petitioning Club are on an equal footing with an equal interest in the Club and its property. The President, Honarary Secretary, Treasurer and so on are all unpaid officers, nor would in effect a paid full-time secretary divest such a club of the distinctive features of a non-proprietary members' Club. Each member has an equal legal interest not only in the Club property but also in the service of Club servants. The Club of course through its Secretary employs servants including its cooks. It purchases on behalf of the Club and for the consumption of its members commodities on which sales tax is paid and some of these commodities are converted and cooked into edible food, and supplied to members when required. If a club has say 500 members, each member would have a 1/500 share in the service of the club cook, waiters and other servants. When he is supplied through his club with refreshments and drinks, cigarettes, tennis balls and so on, as he needs, them for use, he is charged on his bill a fixed rate determined by the cost thereof including sales tax already paid, cost of establishment and so on. The question of profit does not enter into the question of supply.
15. Can such a supply by a Club to a member be in law regarded as a sale. At first blush the explanation to Section 2(b) of the Madras General Sales Tax Act appears to have been expressly designed to bring within the scope of sales tax levy 'a Co-operative Society, a Club or firm or any association, which sells goods to its members' as a dealer, Section 2 (b) however defined dealer as any person, who carries on the business of buying or selling, goods. The emphasis in both the sections and the explanation is on the word 'sale' and indeed this cannot be otherwise, the tax leviable being one on sales. Nor has the legislature sought to give any unusual meaning to the word 'sale'.
It is defined in Section 2(h) as follows:
'Sale with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration.'
A sale therefore must in the first place be a transfer of property in goods. I hold that thesupply of refreshments in a members' club such as this registered under Section 26 of the Companies Act, purchased out of Club funds, composed of members subscriptions is not a transfer of property from the club as such to a member.
The second and more important and also as it appears to me, a mandatory requirement of the definition is that the transfer of property must be in the course of trade or business. A members' Club, such as the petitioning Club, does not do any trade or business in purchasing from outside the requirements of members and supplying it to them at a fixed charge. On these two grounds, the levy of sales tax on such supplies of refreshments by clubs to members must be held to be illegal.
16. Mr. Jayarama Ayyar has referred me to some English case law, all drawn from the domain of public house licensing. Though the analogy is not perhaps very happy in this State which is now committed to prohibition they strongly reinforce the view I have taken. The oldest decision is -- 'Graff v. Evans', (1882) 8 Q.B.D. 373 one of the year 1882, in which the manager of a bonafide members' club was prosecuted for selling by retail intoxicating liquors without a licence under the Licensing Act of 1872. Holding that the transaction was not a sale, some interesting reasons were given both by Field J. and Huddleston B. Field J. was of the opinion that Foster, to whom the manager Graft' supplied the liquor, was an owner of the property together with all the other members of the Club and was entitled to obtain the goods on payment of the fixed price. He also held that a sale involved an element of bargain and that Graff could not have in any event sued Foster for the price as the price of goods sold and delivered. Huddleston B. took the view that there was no transfer of the general or absolute property in the goods to Foster but a transfer of a special interest. This decision was followed in -- 'Metford v. Edwards', (1915) 1 K. B. 172 and applied to a working Men's Club which was not a bona fide Club and liable to be struck off the register. The criterion applied by Lush J. was summed up in the following sentence:
'If there was a club whose members owned the liquors consumed there was distributionas opposed to sale of those liquors no matterhow the club was conducted.'
The decision in -- 'Graff v. Evans', (1882) 8 Q.B.D. 373 was also followed in a more recent case -- Trebanog Working Men's Club and Institute Ltd. v. Macdonald', (1940) 1 K. B. 576. That was an interesting case in which two member Clubs were incorporated under the Industrial and Provident Societies Act respectively, the share-holders and the members being in each case identical.
They purchased intoxicating liquor and supplied it from time to time to individual members for payment as in an ordinary club. It was held that the two clubs were a legal entity as distinct from the members and could therefore act as their agents or trustees, the real interest being in the members so that the societies did not require to be licenced. All these cases arose out of convictions for violation of the Licensing Act or for sale of liquor without a licence. Underlying them all, there is the basic legal principle that a purely members Club which makes purchases through a Secretary or manager & supplies requirementsto members at a fixed rate does not in law sell these goods to members but merely distributes them, all the essential elements of a sale in the transaction being wanting.
17. It is not necessary for me to go outside the scope of the present petition and speculate as to the intention of the Legislature in enacting the explanation to Section 2 of the Sales Tax Act. All that I can say is that it can only apply to a Co-operative Society, Club, Firm or any Association, which sells goods to its members. This will depend upon the constitution of the society or club as the case may be and other incidents of the alleged transactions. I have no hesitation in holding that in the case of a members' club, it does not sell goods to its members when it supplies them with refreshments and other requirements purchased out of club funds to which the members have contributed and in which they have a joint legal interest and that a sales tax levy on such turnover is illegal. C. M. P. No. 3414 of 1951 for the issue of a writ of certiorari or other appropriate writ to quash G. O. Ms. No. 2472 dated 21-9-1949 is dismissed as not pressed, and C. M. P. No. 3415 of 1951 which seeks by way of a writ of mandamus to direct the respondents to forbear from levying and collecting sales tax on the value of the refreshments supplied to the members by the Club is allowed and a writ in these terms will issue. The parties will bear their own costs.
This is in some respects an unusual petition,the unusual feature attaching to the case beingthat Government have perfectly bona fide collected this tax on this and similar Clubs formore than 10 years without any demur, protestor challenge as to legality. The finding that thistax is illegal, which I have had under law togive, may raise some hopes in the petitioningClub and also other clubs of claiming a refundof some of the tax paid in the past from Government. I would like to express the viewthat no such claim would, in the circumstances,be really equitable, the collection of this taxhaving been acquiesced in all these years. Norcan I of course grant any such relief on thispetition. The petitioning Club which is givenon this petition the relief it seeks, can wellrest content with it and the freedom this decision gives them from any future levy of thetax, regarding the past tax they have paid asan 'ex gratia' contribution to the State treasury.