Northern India Caterers (India) Ltd. Vs.
Lt. Governor of Delhi  INSC 158 (7 September 1978)
CITATION: 1978 AIR 1591 1979 SCR (1) 557 1978
SCC (4) 36
RF 1981 SC1751 (1) C 1989 SC1371 (18)
Bengal Finance (Sales Tax) Act 1941 (as
extended to the Union Territory r of Delhi)-Service of meals to non- residents
in a restaurant in a Hotel-Sales Tax-If payable on price charged for meals.
The appellant runs a hotel in which meals are
served to non-residents also in the restaurant located in the hotel.
The sales tax authorities treated a portion
of the receipts as representing the price of foodstuffs served and levied tax.
The High Court affirmed the view of the sales tax authorities.
On the question whether the transaction
constituted sale of foodstuffs.
Allowing the appeals
HELD. 1. Service of meals to non-residents in
the restaurant of 'the appellant is not taxable under the Bengal Finance (Sales
Ta%) Act 1941, as extended to the Union Territory of Delhi. This is so whether
a charge is imposed for the meal as a whole or according to the dishes
separately ordered. [562 F;
2. In State of Punjab v. M/s. Associated
Hotels of India  2 SCR 937 this Court held that there was no sale when
food and drink were supplied to guests residing in the hotel. The Court pointed
out that the supply of meals was essentially in the nature of a service
provided to the guests and could not be identified as a transaction of sale.
This Court declined to accept the position
that the Revenue was entitled to split up the transaction into two parts, one
of service and the other of sale of foodstuffs. If that be true in respect of
hotels, a, similar approach seems to be called for on principle in the case of
restaurants. Like the hotelier, a restaurateur provides many services in
addition to the supply of food. He provides furniture and furnishings, linen,
crockery and cutlery, and he may add music, an area for floor dancing and in some
cases a floor show. The classical legal view being that a number of services
are concomitantly provided by way of hospitality, the supply of meals must be
regarded as ministering to a bodily want or to the satisfaction of a human
need. No reason has been shown for preferring any other view. [562 B, 560 F-G,
562 C] State of Punjab v. M/s. Associated Hotels of India Ltd.
 2 SCR 937 applied.
M/s. Associated Hotels of India Ltd., Simla
v. Excise and Taxation Officer Simla AIR 1961 Punjab 449 not approved.
Municipal Corporation of Delhi v. Laxmi
Narain Tandon and Another AIR 1970 Delhi 244 not approved.
Crisp v. Pratt  Cro. Car 549, Parker v.
Flint  12 Mod. 254 Newton v . Trigg 3 Mod. 327, Saunderson v. Rowles 4
Burr. 2065 Electa B.
558 Merrill v. James W. Hodson 1915-B L.R.A.
481, and Mary Nisky v. Child Company SO A.L.R. 227 referred. to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 1768- 1769/ 72.
Appeals by Special Leave from the Judgment
and order dated 15-7-1971 of the Delhi High Court in Sales Tax Reference No. 8
F. S. Nariman, (In CA 1768/72), V. S. Desai
(in C.A. 1769). M. C. Bhandare (C.A. 1768/72) and Mrs. S. Bhandare and Miss M.
Poduval for the Appellants.
P. A. Francis, R. N. Sachthey and Miss A.
Subhashini for the Respondent.
Y. S. Chitale, Vinay. Bhasin, A. K.
Srivastava and Vineet Kumar for the Interveners.
The Judgment of the Court was delivered by
PATHAK, J. This and the connected appeal are directed against the judgment of
the High Court of Delhi disposing of a reference made to it under section 21(3)
of the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union Territory
of Delhi on the following question:- "Whether the service of meals to
casual visitors in the Restaurant is taxable as a sale:
(i) when charges are lumpsum per meal or (ii)
when they are calculated per dish ?" The High Court has answered the
question in the affirmative.
The appellant runs a hotel in which lodging
and meals are provided on "inclusive terms" to residents. Meals are
served to non residents also in the restaurant located in the hotel. In the
assessment proceedings for the assessment years 1957-58 and 1958-59 under the
Bengal Finance (Sales Tax) Act, 1941, the appellant contended that the service
of meals to residents and non-residents could not be regarded as a sale and
therefore sales tax could not be levied in respect thereof. The contention was
rejected by the Sales Tax authorities, who treated a portion of the receipts
from the residents and nonresidents as representing the price of the foodstuffs
served. At the instance of the appellant, the High Court called for a statement
of the case on two questions. One was whether the supply of meals to residents,
who paid a single all-inclusive charge for all services in the 559 hotel,
including board, was exigible to sales tax. The second was the A question set
forth above. The High Court answered the first question in favour of the
appellant and the second against it. And now these appeals by special leave.
Tax is payable by a dealer under section 4 of
the Bengal Finance (Sales Tax) Act, 1941 on sales effected by him, and the
expression "sale' has been defined by section 2 (g) of the Act to mean
"any transfer of property in goods for cash or deferred payment or other
valuable consideration including a transfer of property in goods involved in
the execution of a contract.. ". The question is whether in the case of
non-residents the service of meals by the appellant in the restaurant
constitutes a sale of foodstuffs. It appears to us that after the view taken by
this Court in State of Punjab v. M/s Associated Hotels of India Ltd.,(1) the
approach to the question before us is clearly indicated.
This is a case where the origin and
historical development of an institution as profoundly influenced the nature
and incidents it possesses in law. In the case of an hotelier this Court
proceeded on the footing that his position in law was assimilable to that of an
inn keeper. At common law an innkeeper was a person who received travellers and
provided lodging and necessaries for them and their attendants and employed
servants for this purpose and for the protection of travellers lodging in his
inn and of their goods(2). It was hospitality that he offered, and the many
facilities that constituted the components of that hospitality determined the
legal character of the transactions flowing from them. Long ago, in Crisp v. Pratt(3)
it was pointed out that innkeepers do not get their living by buying and
selling and that although they buy provisions to be spent in their house, they
do not sell them but what they do is to "utter" them. "Their
gain", it was added, "is not only by uttering of their commodities,
but for the attendance of their servants, and for the furniture of their house,
rooms, lodgings, for their guests.. '`.
This test went to the root and we find it
repeated in Parker v. Flint.(4) In Newton v. Trigg(5) Holt, C.J., defined the
true status of an inn-keeper by reference to the services afforded by him? that
he was an "hospitator", and was "not paid upon the account of
the intrinsic value of his provisions, but for other reasons: the recompence he
receives, is for care and pains and for protection and security.......... but
the end of an inn-keeper in (1)  2 S. C. R. 937.
(2) Halsbury's Laws of England, 3rd Edn. Vol.
21 p. 442 paras 932.
(3)  Cro. Car. 549.
(4)  12 Mod 254.
(5) 3 Mod . 327.
2-549SCI/78 560 his buying, is not to sell,
but only a part of the accommodation he is bound to prepare for his
guests." And for the purpose of the question before us is would be
relevant to quote Professor Beale(1):
As an inn-keeper does not lease his rooms, so
he does not sell the food he supplies to the guest. It is his duty to supply
such food as the guest needs, and the corresponding right of the guest is to
consume the food he needs, and to take no more. Having finished his meal, he
has no right to take food from the table, even the uneaten portion of food
supplied to him, nor can he claim a certain portion of good as his own to be
handed over to another in case he chooses not to consume it himself. The title
to food never passes as a result of an ordinary transaction of supplying food
to a guest." Having proper regard to those particular considerations, it
is not surprising that the principle was extended in England to the service OF
food at eating places or restaurants. The keeper of an eating house, or
victualler, was regarded fundamentally as providing sustenance to those who
ordered food to eat in the premises.
That eminent and learned Judge, Lord
Mansfield, saw no distinction, in Saunderson v. Rowles(2), between an innkeeper
and a victualler. He observed:- '.
The analogy between the two cases of an inn-
keeper and a victualler is so strong that it cannot be got over. And we are all
clear that this man (victualler) is not within these laws; upon the authority
of a determined case of an inn keeper, and also upon the reason of the thing..
He buys only to spend in his house, and when he utters it again it is attended with
many circumstances additional to the mere selling price." Like the
hotelier, a restaurateur provides many services in addition to the supply of
food. He provides furniture and furnishings, linen, crockery and cutlery, and
in the eating places of today he may add music and a specially provided area
for floor dancing and in some cases a floor show. The view taken by the English
law found acceptance on American soil, and after some desultory dissent
initially in certain states it very soon became firmly established as the
general view of the law. The first edition of American Jurisprudence sets(3)
forth the statement of the law in that regard, but we may go to the case
itself, Electa B. Merrill v. James W.
Hodson(4), from which the (1) Innkeepers
& Hotels, para 169.
(2) 4 Burr. 2065.
(3) Vol. 46 p. 207 para 13.
(4) 1915-B L.R.A. 481.
561 statement has been derived. Holding that
the supply of food or drink A to customers did not partake-of the character of
a sale of goods, the Court commented:- "The essence of it is not an
agreement for the transfer of the general property of the food or drink placed
at the com command of the customer for the satisfaction of his desires, or
actually appropriated by him in the process of appeasing his appetite or thirst.
The customer does not become the owner of the food set before him, or of that
portion which is carved for his use, or of that which finds a place upon his
plate, or in side dishes set about it. No designated portion becomes his. He is
privileged to eat, and that is all. The uneaten food is not his. He cannot do
what he pleases with it. That which is set before him or placed at his command
is provided to enable him to satisfy his immediate wants, and for no other
He may satisfy those wants; but there he must
stop. He may not turn over unconsumed portions to others at his pleasure, or
carry away such portions. The true essence of the transaction is service in the
satisfaction of a human need or desire, ministry to a bodily want. A necessary
incident of this service or ministry is the consumption of the food required.
This consumption involves destruction, and nothing remains of what is consumed
to which the right of property can be said to attach. Before consumption title
does not pass; after consumption there remains nothing to become the subject of
title. What the customer pays for is a right to satisfy his appetite by the
process of destruction.
What he thus pays for includes more than the
price of the food as such. It includes all that enters into the conception of
service, and with it no small factor of direct personal service. It does not
contemplate the transfer of the general property in the food supplied as a
factor in the service rendered." Subsequent cases drew on these
observations, notably Mary Nisky v. Childs Company. (1) The position was
radically altered in the United States by the enactment of the Uniform
Commercial Code, which provides in effect that the serving for value of food or
drink to be consumed either on the premises or elsewhere constitutes a sale.
Nonetheless it is affirmed in the second edition of American Jurisprudence(2)
that where the Code does not operate, "in general the pre- Code
distinction between a contract for sale and one for the giving of services
should continue." (l) 5O A.L.R. 227. (2) Vol. 67 p. 142 para 33.
562 It has already been noticed that in
regard to hotels this Court has in M/s. Associated Hotels of India Limited
(supra) adopted the concept of the English law that there is no sale when food
and drink are supplied to guests residing in the hotel. The Court pointed out
that the supply of meals was essentially in the nature of a service provided to
them and could not be identified as a transaction of sale. The Court declined
to accept the proposition that the Revenue was entitled to split up the
transaction into two parts, one of service and the other of sale of foodstuffs.
If that be true in respect of hotels, a similar approach seems to be called for
on principle in the case of restaurants. No reason has been shown to us for
preferring any other. The classical legal view being that a number of services
are concomitantly provided by way of hospitality, the supply of meals must be
regarded as ministering to a bodily want or to the satisfaction of a human need.
What has been said in Electa B. Merrill (supra) appears to be as much
applicable to restaurants in India as it does elsewhere. It has not been proved
that any different view should be taken, either at common law, in usage or
It was urged for the respondent that in
Associated Hotels of India Ltd. (supra) this Court drew a distinction between
the case of meals supplied to a resident in a hotel and those served to a
customer in a restaurant. We are unable to find any proposition of law laid down
by the court there which could lead to that inference. We may point 13 out that
in the view which appeals to us we find ourselves unable to agree with the
observations to the contrary made by the Punjab High Court in M/s. Associated
Hotels of India Ltd., Simla v. Excise and Taxation officer, Simla(1) and by the
Delhi High Court in Municipal Corporation of Delhi v. Laxmi Narain Tandon and
another. (2), In the result, we hold that the service of meals to visitors in
the restaurant of the appellant is not taxable under the Bengal Finance (Sales
Tax) Act, 1941, as extended to the Union Territory of Delhi, and this is so
whether a charge is imposed for the meal as a whole or according to the dishes
In the circumstances of the case, we make no
order as to costs.
N.V.K. Appeals allowed (1) A. I. R. 1966 Punjab 449.
(2) A, I. R. 1970 Delhi 244.