GSTR No. 01 of 2009 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH GSTR No. 01 of 2009 Date of Decision: 7.9.2010 M/s CAP 'N' Chops Caterers ....Petitioner. Versus State of Haryana ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Avneesh Jhingan, Advocate and Mr. Khagesh Gautam, Advocate for the petitioner. Mr. Gagandeep Singh Wasu, Senior DAG, Haryana. ADARSH KUMAR GOEL, J. 1. This order will dispose of GSTR Nos. 1 and 2 of 2009 as both the references are interconnected. 2. In GSTR No.1 of 2009, the Haryana Tax Tribunal, Chandigarh has referred for opinion of this Court following question of law under Section 42 of the Haryana General Sales Tax Act, 1973 (in short “the Act”) arising out of its order dated 12.4.2006 passed in STA Nos. 482 and 483:- “Whether on the facts and in the circumstances of the case, the receipts from the catering contract were taxable as sale of goods within the meaning of definition of sale given in sub-clause (v) of clause (l) of section 2 of the Haryana General Sales Tax Act, GSTR No. 01 of 2009 -2- 1973, as held by the Haryana Tax Tribunal as against the contention of the assessee that the same were taxable as works contract within the meaning of definition given in clause (pa) of section 2 of the Act ibid?” 3. The dealer-assessee is carrying on business of catering. It entered into an agreement with the Management of Staff Training Colleges of State Bank of India and State Bank of Patiala for catering, house keeping and maintenance during the period from 1.4.2001 to 5.8.2001. The Assessing Authority created demand of tax in respect of turnover under the contract in question. The plea of the assessee that the contract in question was works contract and did not involve any sale was rejected which was upheld by the Appellate Authority as well as the Tribunal. The finding recorded by the Assessing Authority is as under:- “By legal fiction such transfer, delivery or supply of any goods has been deemed to be sale of goods by person making it and purchase of goods by the person to whom such transfer delivery or supply is made. There was only one contract express or implied for supply of food and drinks in the mess of the training institute. No part of it is relatable to anything else. Hence the whole consideration received for the supply of food and drinks is held to be 'SALE '. This point also gets strength from the judgment of the Hon'ble Member Sales Tax Tribunal, Haryana dated 15.3.2000 in the case of M/s. GSTR No. 01 of 2009 -3- Shahnoor Caterers, Gurgaon wherein the taxability of transaction of supply of food and drinks was clearly and conclusively upheld. The contract made is basically for supply of meal to the college on regular basis against monetary consideration and these conditions were put into the contract to facilitate the regular upkeep of the kitchen and diligent discharge of duties of purchase and preparation of food. None of the conditions give strength to legitimize his claim that he is covered under the works contract. The legal pronouncement enumerated from serial No.1 to 7 pertain mostly to the period prior to 46th amendment and are regarding railway coaches, photos, printed material, supply of vessels and some movable possession etc. None of them covers the claim of this esteemed dealer. Here in this case, the contract is between the parties for the food and drinks so supplied and the end product of the work or service rendered is meals and is only consequential and incidental to the execution of contract. As such the contract is one for sale of goods and the monetary consideration is exigible to tax.” 4. The finding of the Appellate Authority is as under:- “A careful perusal of the agreement deeds definition of “sale” and the definition of “Works Contract” lead GSTR No. 01 of 2009 -4- to the conclusion that the main purpose of the contract is the supply of food articles and drinks etc. to the resident trainee against a consideration, which constitutes “Sales”. The services rendered by the appellant are only incidental and ancillary to the main function of supply of food. The Banks might have statutory obligations to provide meals canteen facilities to the trainees but so far as the appellant is concerned, it had no such responsibility or liability and it was merely engaged in business activity in supplying the meals to the Banks on payment. The purpose for which the meals were procured was irrelevant for the purpose of interpreting the taxing statute. The property in the goods is the meals, snacks etc. was transferred to Bank. Once they are supplied against payment the said transaction would amount to sale as it was for consideration. In these appeals the question is not of criminal or quasi- criminal liability but is one of liability under a taxing statute. The authority in determining the liability of the appellant to pay sales tax cannot ignore the form and look at what is called the “substance of the transaction.” Exfacie, the transaction is one in which the legal owner of the property transferred to another pursuant to a contract for a price, and that transaction must be regarded as a sale. GSTR No. 01 of 2009 -5- The argument of the counsel for the appellant that supply of food is only incidental or ancillary transaction cannot be accepted in view of my above observations and discussion. Even if for argument sake the view of the appellant is accepted it would not help him because these so called connected, incidental or ancillary transactions are so large as to render the main activity infinite or very small bringing the transaction under the purview of “Sales” and not under the “Works Contract”. The appellant has relied upon a number of court rulings in support of his case. He has made every effort to distinguish between a contract for sale and a contract for labour or service. The rulings cited in defence include Gujrat Vs. Variety Body Builders (1976) 38 STC 176, Commissioner of Sales Tax Madhya Pradesh Vs. Parshotam Prem Ji (1970) 26 STC 38 (SC), ASTO Vs. B.C. Kami (1977) 39 STC to 37 (S.C.), Hindustan Shipyard Ltd. Vs. State of Andhra Pradesh (2000) 119 STC 533, Rainbow colour lab and others Vs. State of Madhya Pradesh and others (2000) 15 PHT 98 (S.C.), Hindustan Aeronautics Vs. State of Karnataka (1984) 55 STC 314, Krishna Studio Vs. State of Haryana (2000) 16 PHT 264 M/s Gannon Dunkerley & Co. and others Vs. State of Rajasthan (1993) 88 STC 248 (SC) etc. All these rulings are GSTR No. 01 of 2009 -6- not even remotely connected with facts and circumstances of the cases in hand. None of them deals with the subject of catering. They are connected with the activities of photographics, printing press owners etc. and refer to different context and a distinct set of circumstances and facts. In view of the above, let us examine the factual matrix of the present appeals. The appellant is running a canteen as per the work order placed by the Banks. The appellant is purchasing a lot of raw materials and selling the finished products at the rates fixed by the Banks. The appellant is selling goods to the Banks against payment and the goods are delivered to the inhouse trainees of the Banks. The agreement deed makes it clear that the appellant will be responsible for the payment of sales tax and other taxes as applicable. Further, the appellant owning his liability to the payment of tax applied for registration. The appellant was granted registration with retrospective liability w.e.f. 1.11.2000, which has not been challenged by the appellant.” 5. Before the Tribunal, there was difference of opinion between the two Members and the matter was referred to third Member. The finding recorded by third Member is as under:- “After going through the arguments of both cited and considering the various citations and above GSTR No. 01 of 2009 -7- mentioned facts and circumstances combined together lead to clear conclusion that there is no merit in the plea of the learned counsel for the appellant especially because the definition of the works contract contained in clause (pa) of section 2 of the HGST Act does not cover the agreement (contract) in question involved in the case in hand which is general in nature, whereas the definition of sale envisaged in section 2(l)(v) of the Haryana General Sales Tax Act, 1973, specific that the supply of food, snacks, drinks and tea etc. involved in this case is sale which is liable to tax as sale and not as works contract and therefore no fault can be found in the impugned order of the first appellate authority who has confirmed the order of the Assessing authority. To understand the matter clearly a glance over both the clauses will help in resolving the same. Section 2(pa) Works contracts “Works contact means any agreement for executing for cash, deferred payment or other valuable consideration. (i) the construction, fitting improvement or repair of any building road, wall bridge, embankment, dam or other immovable property; or GSTR No. 01 of 2009 -8- (ii) the assembling, fabrication, installation, repair, fitting out, altering, ornamenting, blending, finishing, improving, processing, treating or adapting any movable property, whether attached to any immovable property or not; and includes a sub-contract for executing the whole or any part of such work. Section 2(l)(v) Sale “Sale means any transfer of property in goods for cash or deferred payment or other valuable consideration and includes:- XX XX XX (v) 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. A bare perusal of the contract in question it transpires that the works contract entered into between the dealer-appellant with the management of the two banks aforementioned is primarily meant for supply of food, drinks and tea etc. and for that purpose the services of the persons needed for GSTR No. 01 of 2009 -9- cooking of food, drinks and tea etc. and its supply and maintenance of kitchen and utensils etc. is ancillary and the supply of food, drinks and tea etc. is for consideration in cash. In any case the definition of sale aforementioned includes the supply of food, snacks and tea etc. meant for human consumption by way of or as part of any service. Such being the situation the contract between the appellant with the management of the said 2 banks involved in the present case primarily envisaging supply by way of or as part of any service of goods being food and other articles for human consumption or any drink, such supply or services for cash is to be deemed to be sale of those goods by person making the transfer/delivery/supply to a person to whom such transfer/delivery/supply is made and therefore, the agreement in question clearly falls within the specific definition of 'sale' embodied in sub clause (v) of clause (l) of section 2 of the HGST Act concerning supply of food and/or other articles of human consumption and it does not fall within the ambit of the general definition of 'works contract' contained in clause (pa) of section 2 of the HGST Act which is for executions of works like construction, repair of buildings etc. and things concerning movable as well as immovable properties etc. especially because it GSTR No. 01 of 2009 -10- does not envisage the agreement concerning supply of food etc. meant for human consumption.” 6. Learned counsel for dealer submits that total receipts from the catering contract could not be treated as taxable turnover and only that component of turnover which related to sale of goods could alone be covered by taxable turnover. Catering contract by nature is a contract having element of sales and service. Referring to the history of sales tax law, it was submitted that prior to 46th amendment to the Constitution, composite contracts of sale and service were not covered by definition of “sale” as held in the judgment of the Hon'ble Supreme Court in State of Madras v. Gannon Dunkerley & Co. Madras Ltd. [1958] 9 STC 353. This interpretation was sought to be reversed by the Constitution (Forty-sixth Amendment) Act, 1982 by incorporating, in the concept of sale, composite transactions or categories mentioned therein. 7. In Bharat Sanchar Nigam Ltd. and another v. Union of India and others, (2006) 3 SCC 1 effect of Forty-sixth Amendment was considered and it was observed that deemed sales under Article 366 (29-A) were transactions of composite nature which involved sale as well as service and only element was sale of goods was exigible to sales tax. This view was reiterated in Imagic Creative (P) Ltd. v. Commissioner of Commercial Taxes and others, (2008) 2 SCC 614. It was observed as under:- “23. The question yet again came up for consideration before a Three Judge Bench of this Court in BSNL v. Union of India (supra) wherein it was held: (SCC pp. 30-31 & 32, GSTR No. 01 of 2009 -11- paras 44-45 & 50) “44. Of all the different kinds of composite transactions the drafters of the Forty-sixth Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring them within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub- clauses (b) and (f) of clause (29-A) of Article 366, there is no other service which has been permitted to be so split. For example, the sub-clauses of Article 366(29-A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the Sales Tax Authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking, with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we GSTR No. 01 of 2009 -12- see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366(29-A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is 'the substance of the contract'. We will, for the want of a better phrase, call this the dominant nature test. 50. What are the 'goods' in a sales transaction, therefore, remains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject-matter of sale or purchase. The court would have to arrive at the conclusion as to what the parties had intended when GSTR No. 01 of 2009 -13- they entered into a particular transaction of sale, as being the subject-matter of sale or purchase. In arriving at a conclusion the court would have to approach the matter from the point of view of a reasonable person of average intelligence.” 24. We may, at this juncture, also notice the decision of this Court in Associated Cement Companies. The question which arose for consideration therein was as to whether any intellectual property contained in a software would be subject to customs duty within the meaning of Section 2(22) of the Customs Act, defining goods. A three-Judge Bench of this Court sought to make a distinction between such a contingency arising under the Customs Act involving a works contract and a contract of sale stating : (SCC p.611, para 32) “32. In the sales tax cases referred to hereinabove no doubt the question which arose was whether in a works contract, where there was a supply of materials and services in an indivisible contract, but there the question had arisen because the States' powers prior to the Forty-sixth Amendment to the Constitution, were not entitled to bifurcate or split up the contract for the purpose of levying sales tax on the element of moveable goods involved in the contract. Apart from the decision in Rainbow Colour Lab case which does not appear to be correct, the GSTR No. 01 of 2009 -14- other decisions cited related to the pre-Forty-sixth Amendment period. Furthermore, the provisions of the Customs Act and the Tariff Act are clear and unambiguous. Any moveable articles, irrespective of what they may be or may contain, would be goods as defined in Section 2(22) of the Customs Act.” 25. Evidently, therefore, the decision of Associated Cement Company whereupon strong reliance has been placed by the Tribunal as also by the High Court seeks to make a distinction between cases arising out of works contract wherefor sales tax is liable to be paid and the cases under the Customs Act. 26. Our attention has furthermore been drawn to the decision of this Court in BSNL wherein referring to Tata Consultancy it was observed that the approach of this Court in the said decision as to what would be “goods” for the purpose of sales tax is correct. 27. What, however, did not fall for consideration in any of the aforementioned decisions is the concept of works contract involving both service as also supply of goods constituting a sale. Both, in Tata Consultancy as also in Associated Cement Company, what was in issue was the value of the goods and only for the said purpose, this Court went by the definition thereof both under the Customs Act as also the Sales Tax Act to hold that the same must have the attributes of its utility, capability of being bought and GSTR No. 01 of 2009 -15- sold and capability of being transmitted, transferred, delivered, stored and possessed. As a software was found to be having the said attributes, they were held to be goods. 28. We have, however, a different problem at hand. The appellant admittedly is a service provider. When it provides for service, it is assessable to a tax known as service tax. Such tax is leviable by reason of a Parliamentary statute. In the matter of interpretation of a taxing statute, as also other statutes where the applicability of Article 246 of the Constitution of India, read with the Seventh Schedule thereof is in question, the Court may have to take recourse to various theories including “aspect theory”, as was noticed by this Court in Federation of Hotel & Restaurant Association of India v. Union of India. 29. If the submission of Mr. Hegde is accepted in its entirety, whereas on the one hand, the Central Government would be deprived of obtaining any tax whatsoever under the Finance Act, 1994, it is possible to arrive at a conclusion that no tax at all would be payable as the tax has been held to be an indivisible one. A distinction must be borne in mind between an indivisible contract and a composite contract. If in a contract, an element to provide service is contained, the purport and object for which the Constitution had to be amended and Clause (29-A) had to be inserted in Article 366, must be kept in mind. 30. We have noticed hereinbefore that a legal fiction is GSTR No. 01 of 2009 -16- created by reason of the said provision. Such a legal fiction as is well known, should be applied only to the extent for which it was enacted. It, although must be given its full effect but the same would not mean that it should be applied beyond a point which was not contemplated by the legislature or which would lead to an anomaly or absurdity. 31. XX XX XX 32. Payments of service tax as also VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract, irrespective of the element of service provided. The approach of the assessing authority, to us, thus, appears to be correct.” 7. In T.N. Kalyana Mandapam Assn. v. Union of India and others, (2004) 5 SCC 632, it was observed that the sales tax could be levied only if there was sale, concept of which could not be enlarged by the legislature to include transactions which were not sales. By including transactions of supply of goods being food and other articles for human consumption in the concept of deemed sale, supply of service could not be deemed to have been covered in definition of “sale and purchase of goods.” As against supply of service, only supply of GSTR No. 01 of 2009 -17- goods is covered by sale. Catering includes rendering of service as well as sale of goods and on the service element service tax could be levied and sales tax could not be levied. 8. In view of above legal position, it has to be held that entire turnover from catering contract cannot be held to be taxable as sale of goods under Section 2 (l)(v) of the Act. The sale tax can be levied on the turnover of sale, after excluding the turnover attributable to service. 9. We answer the question accordingly. (ADARSH KUMAR GOEL) JUDGE September 7, 2010 (AJAY KUMAR MITTAL) gbs JUDGE GSTR No. 01 of 2009 -18- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH GSTR No. 02 of 2009 Date of Decision: 7.9.2010 M/s CAP 'N' Chops Caterers ....Petitioner. Versus State of Haryana ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Avneesh Jhingan, Advocate and Mr. Khagesh Gautam, Advocate for the petitioner. Mr. Gagandeep Singh Wasu, Senior DAG, Haryana. ADARSH KUMAR GOEL, J. For orders, see GSTR No. 01 of 2009 (M/s CAP 'N' Chops Caterers v. State of Haryana). (ADARSH KUMAR GOEL) JUDGE September 7, 2010 (AJAY KUMAR MITTAL) gbs JUDGE