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STATE OF KARNATAKA V. UDIPIKRISHNA BHAVAN (1981) 3 SCC 76

STATE OF KARNATAKA V. UDIPIKRISHNA BHAVAN (1981) 3 SCC 76 

FACTS

  • The appeals arise from two revision petitions dismissed by the Karnataka High Court, filed by the State of Karnataka under Section 8(4) of the Karnataka Appellate Tribunal (Amendment) Act, 1976, and Section 23 of the Karnataka Sales Tax Act, 1957.
  • The revision petitions were against a common order of the Karnataka Appellate Tribunal, which had allowed two appeals by the assessee regarding assessments for the years ending March 31, 1976, and March 31, 1977.
  • The Tribunal and subsequently the High Court had ruled in favour of the assessee, based on the precedent set by the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [(1979) 1 SCR 557], holding that the supply of refreshments by the respondent's hotels was "part of a social service and not a sale."

ISSUE

  • The central issue is whether the supply of refreshments by the respondent's hotels should be considered a sale subject to sales tax or regarded as part of a social service, based on the dominant object of the transaction.

JUDGEMENT

  • The Supreme Court set aside the order of the High Court and sent the case back to the Sales Tax Officer for a fresh assessment according to law, following the guidelines outlined in the Supreme Court's judgement disposing of the review petition in the Northern India Caterers case.

LEGAL ANALYSIS

  • The Court held that the mere finding that the assessee runs a hotel wherein food and drinks are served to visitors is not sufficient to justify the conclusion reached by the Tribunal and the High Court.
  • Referring to the judgement in the Northern India Caterers case, the Court emphasised that in cases where food is supplied in an eating-house or restaurant, the substance of the transaction, evidenced by its dominant object, determines whether it qualifies as a sale of food or a social service.
  • The Court reiterated that it is for the taxing authority to ascertain the facts and determine whether a sale of the food supplied is intended, based on the specific circumstances of each case.
  • Therefore, the Court ordered a fresh assessment according to law, directing the Sales Tax Officer to consider the guidelines provided in the Northern India Caterers case for determining the nature of the transaction and whether sales tax is demandable.