Case: State of H.P. &amp; Others Vs. M/s. Associated Hotels of India Ltd

1. The respondent-company carries on business as hotellers and conducts several hotels including the Cecil Hotel at Simla. Besides conducting hotels, it also carries on restaurant business. As part of its business as hoteliers, the company receives guests in its several hotels to whom, besides furnishing lodging, it also serves several other amenities, such as public and private rooms, bath with hot and cold running water, linen, meals during stated hours etc. The bill tendered to the guest is an all inclusive one, that is to say, a fixed amount for the stay in the hotel for each day and does not contain different items of each of the aforesaid amenities. That is, however, not the case in its restaurant business where a customer takes his meal consisting either of items of food of his choce or a fixed menu. The primary function of such a restaurant is to serve meals desired by a customer, although along with the food, the customer gets certain other amenities also, such as service, linen etc. The bill which the customer pays is for the various food items which he consumes or at a definite rate for the fixed menu, as the case may be, which presumably takes into account service and other related amenities.2. The respondent-company, as such hoteliers, has been registered as a dealer under the Punjab General Sales Tax Act, XLVI of 1948 and has been filing quarterly returns and paying sales tax under that Act.3. On September 2, 1958 the company applied for a declaration that it was not liable to pay sales tax in respect of meals served in the said Cecil Hotel to the guests coming there for stay. In support of its plea, the company raised the following contentions: (1) that the hotel receives guests primarily for the purpose of lodging, (2) that when so received the management provides him with a number of amenities incidental to such lodging and with a view to render his stay in the hotel comfortable including meals at fixed hours, (3) that the transaction between the company and such a guest is one for the latte rot stay and not one of the incidental amenities, (4) that the bill given by the company and paid by the guest is one and indivisible, that is, is fixed amount per day during his stay in the hotel and does not consist of separate items in respect of the several amenities furnished to him including meals served to him, and (5) that the transaction so entered into does not envisage any sale of food since the guest cannot demand a rebate or deduction if he were to miss a meal or meals, nor is he entitled to carry away or deal within any manner the food served at his table, if a part of it remains unconsumed. It is, on the other hand, the management which has the right to deal with such unconsumed remainder as it likes. Such a position, therefore, is inconsistent with a sale under which the property in the whole must pass to the purchaser, and who can deal with the remainder in any manner he likes.4. The Sales Tax Officer rejected the companys application on the ground that the transaction which takes place between the management and a resident guest takes in both lodging and boarding and the hotel charges include consideration for both. A revision under Section 21 of the Act by the company to the Commissioner met the same fate. The company then filed a writ petition for an order quashing the said decision as also the notices issued by the Sales Tax authorities under the Act. The grounds put forward in the writ petition were almost the same which the company had previously urged in its application for declaration.5. There was no dispute regarding the facts stated in the writ petition and particularly with regard to the fact that the transaction which a visiting resident enters into with the management is one and indivisible, that the bill charged on him is likewise one and indivisible, that the charges are for each day of stay, and that that being so, the bill was incapable of being split up into separate charges for each of the amenities furnished and availed of by such a visiting resident. The dispute was as to the nature of the transaction and whether such transaction included sale of food stuff supplied at various meals supplied to such a customer.

Reasoning:
A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel.Thus, in considering whether a transaction falls within the purview of sales tax, it becomes necessary at the threshold to determine the nature of the contract involved in such a transaction for the purpose of ascertaining whether it constitutes a contract of sale or a contract of work or service. If it is of the latter kind it obviously would not attract the tax. From the decisions earlier cited it clearly emerges that such determination depends in each case upon its facts and circumstances. Mere passing of property in an article or commodity during the course of the performance of the transaction in question does not render it a transaction of sale. For, even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case the Court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into a contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale.The transaction in question is essentially one and indivisible, namely, one of receiving a customer in the hotel to stay. Even if the transaction is to be disintegrated, there is no question of the supply of meals during such stay constituting a separate contract of sale, since no intention on the part of the parties to sell and purchase food stuff supplied during meal times can be realistically spelt out. No doubt, the customer, during his stay, consumes a number of food stuffs. It may be possible to say that the property in those food stuffs passes from the hotelier to the customer at least to the extent of the food stuffs consumed by him. Even if that be so, mere transfer of property, as aforesaid, is not conclusive and does not render the event of such supply and consumption a sale, since there is no intention to sell and purchase. The transaction essentially is one of service by the hotelier in the performance of which meals are served as part of and incidental to that service, such amenities being regarded as essential in all well conducted modern hotels. The bill prepared by the hotelier is one and indivisible, not being capable by approximation of being split up into one for residence and the other for meals. No doubt, such a bill would be prepared after consideration of the costs of meals, but that would be so for all the other amenities given to the customer. For example, when the customer uses a fan in the room allotted to him, there is surely no sale of electricity, nor a hire of the fan. Such amenities, including that of meals, are part and parcel of service which is in reality the transaction between the parties.In England, a hotel under the Hotel Proprietors Act, 1956 is an establishment held out by the proprietor as offering food, drink, and if so, required, sleeping accommodation, without special contract, to any traveller presenting himself and who appears able and willing to pay a reasonable sum for the services and facilities provided. This definition, which is also the definition of an inn, still excludes, as formerly, boarding houses, lodging houses and public houses which are merely alehouses and in none of which there is the obligation to receive and entertain guests. An innkeeper, that is to say, in the present days a hotel proprietor, in his capacity as an innkeeper is, on the other hand, bound by the common law or the custom of the realm to receive and lodge in his inn all comers who are travellers and to entertain them at reasonable prices without any special or previous contract unless he has some reasonable ground of refusal. (Halsburys Laws of England, 3rd Ed., Vol.21, 445-446). The rights and obligations of hotel proprietors are governed by statute which has more or less incorporated the common law. The contract between such a hotel proprietor and a traveller presenting himself to him for lodging is one which is essentially a contract of service and facilities provided at reasonable price.17. The transaction between a hotelier and a visitor to his hotel is thus one essentially of service in the performance of which and as part of the amenities incidental to that service, the hotelier serves meals at stated hours. The Revenue, therefore, was not entitled to split up the transaction into two parts, one of service and the other of sale of food stuffs and to split up also the bill charged by the hotelier as consisting of charges for lodging and charges for food stuffs served to him with a view to bring the latter under the Act.