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By Shruti Bisht  

In State Of West Bengal Vs. Calcutta Club Limited, Counsel for petitioner argued that as per Article 366 29 A of Constitution tax on the sale or purchase of goods includes a tax on the transfer, otherwise than in pursuance of a contact, of property in any goods for cash, deferred payment or other valuable consideration and a tax on the transfer of property in goods. The supply of food and beverages to members of Club will not thus be within ambit of sale tax. Service tax is imposed on value added service thus service tax shall not be imposed on club for supply of food and drinks.

The present appeal, by special leave, is filed against the judgment and order passed by the Division Bench of the High Court of Calcutta wherein it has affirmed the view expressed by the West Bengal Taxation Tribunal and disposed of the appeal preferred by the respondent along with other connected appeals holding, inter alia, that the assessee, the Calcutta Club Limited, was not liable for   payment of sales tax under the West Bengal Sales Tax Act, 1994 (for brevity, ‘the Act’).  The facts that are necessary to be stated are that the Assistant Commissioner of Commercial Taxes issued a notice to the respondent-Club assessee apprising it that it had failed to make payment of sales tax on sale of food and drinks to the permanent members during the quarter ending 30.6.2002. A prayer was  made before the tribunal for nullifying the action of the revenue threatening to levy tax on the supply of food to the permanent members. It was contended before the tribunal that there could be no sale by the respondent-Club to its own permanent members, for doctrine of mutuality would come into play. To elaborate, the respondent-Club treated itself as the agent of the permanent members in entirety and advanced the stand that no consideration passed for supplies of food, drinks or beverages, etc. and there was only reimbursement of the amount by the members and therefore, no sales tax could be levied.

In   The Automobile Association of Eastern India v. State of West Bengal and it was concluded 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.

However the above limit may not cover every housing association especially when the cost of maintenance of luxurious societies now-a-days is much more than INR 7,500/- per member per month. Moot question before us is whether tax is payable in cases where the amount exceeds the exemption limit ? It must also be noted that said exemption does not apply to club or commercial complexes. Hence again the issue is whether tax is payable on contributions received from members of club or commercial complexes ? For the purpose of our analysis we are assuming that aggregate turnover of such association or club exceeds INR 20 lakhs.

Following question of law has been framed

  1. Whether the doctrine of mutuality is still applicable to incorporated clubs or any club after the 46th amendment to Article 366 (29A) of the Constitution of India?
  2. Whether the judgment of this Court in Young Men’s Indian Association (supra) still holds the field even after the 46th amendment of the Constitution of India; and whether the decisions in Cosmopolitan Club (supra) and Fateh Maidan Club (supra) which remitted the matter applying the doctrine of mutuality after the constitutional amendment can be treated to be stating the correct principle of law?
  3. Whether the 46th amendment to the Constitution, by deeming fiction provides that provision of food and beverages by the 27 incorporated clubs to its permanent members constitute sale thereby holding the same to be liable to sales tax?

As per Sec. 9 of the Central Goods & Services Tax (“CGST”) Act, 2017, levy of tax is on an event called ‘supply’. Scope of supply is stated u/s 7. Relevant portion of said provision is reproduced below for ready reference:

Sec. 7. (1) For the purposes of this Act, the expression “supply” includes––

  1. all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
  2. the activities specified in Schedule I, made or agreed to be made without a consideration’

To tax the transaction between an association or club and its members, said transaction must either fit either under clause (a) or clause (c) above.

Clause (a) covers all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

Hence following ingredients must be satisfied:

  1. There must be supply of goods or services or both for a consideration
  2. And such supply must be in the course or furtherance of business

In this context a classic example would  be a case pronounced by honourable Supreme court in case of K. Damodarasamy Naidu & Bros. Versus State of Tamil Nadu and Another 1999 (10) TMI 598 – SC it is observed that” para 9.. The provisions of sub-clause (f) of clause (29A) of article 366 need to be analysed. Sub-clause (f) permits the States to impose a tax on the supply of food and drink. The supply can be by way of a service or as part of a service or it can be in any other manner whatsoever. The supply or service can be for cash or deferred payment or other valuable consideration. The words of sub-clause (f) have found place in the Sales Tax Acts of most States. The tax, therefore, is on the supply of food or drink and it is not of relevance that the supply is by way of a service or as part of a service. In our view, therefore, the price that the customer pays for the supply of food in a restaurant cannot be split up as suggested by learned counsel. The supply of food by the restaurant owner to the customer though it may be a part of the service that he renders by providing good furniture, furnishing and fixtures, linen, crockery and cutlery, music, a dance floor and a floor show, is what is the subject of the levy. The patron of a fancy restaurant who orders a plate of cheese sandwiches whose price is shown to be Rs. 50 on the bill of fare knows very well that the innate cost of the bread, butter, mustard and cheese in the plate is very much less, but he orders it all the same. He pays Rs. 50 for its supply and it is on Rs. 50 that the restaurant owner must be taxed.

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