Bareilly Club Ltd., Bareilly vs Commissioner of Trade Tax, U.P., Lucknow and Others

All the review petitions have been filed by the petitioners assailing the order passed by this Hon''ble Court on 30.08.2007.

Learned counsel for the petitioner submits that this Hon''ble Court vide its impugned order has observed as under:

�In our considered view if an incorporated members'' club supplies its property to it''s members at a fixed tariff, the transaction would readily be deemed to be one of sale, even if the transaction is on a noprofit basis such a transaction would be liable to sales tax. Our view is strengthen by the opinion expressed by the Madras High Court in Cosmopolitan Club v. The Tamil Nadu Taxation Special Tribunal [2002] 127 STC 475 (Mad) wherein it has been held that the club whether incorporated or unincorporated, whether proprietary or nonproprietary, the delivery or supply of refreshment to its member is a sale.�

Learned counsel for the petitioner submits that the Hon''ble Supreme Court has set aside the order passed in the Cosmopolitan Club (supra). He further submits that when the order has been passed, then the impugned order will have to be recalled.

On the other hand Sri H. P. Srivastava, learned Additional Chief Standing Counsel appearing on behalf of the opposite parties justified the impugned order. He submits that in the impugned order, this Court has already taken an independent decision that the delivery or supply of refreshment to its member in a club is a sale. He further submits that this view was strengthened by the opinion expressed in the case of Cosmopolitan Club. He also submits that the reference of Cosmopolitan Club was not the integral part of the judgment. It has merely strengthening the opinion already expressed by the Bench.

We have heard both the parties at length and gone through the material available on record.

It is true that this Hon''ble Court in its order dated 30.08.2007 independently observed that delivery or supply of refreshment to its member in a Club is a sale. In the said order, it was observed that �our view is strengthen by the opinion expressed by the Madras High Court in Cosmopolitan Club�, without the reference of the Cosmopolitan Club, this Hon''ble Court has decided the issue against the petitioner. If this part of the impugned order is deleted even then on merit, there will be no impact. On merit, the issue pertaining the delivery or supply of refreshment etc. was considered as sale.

However, the Hon''ble Supreme Court in the case of Cosmopolitan Club v. State of Tamil Nadu, 2009 VSTI 222 SC observed that :

�In the circumstances, we think it appropriate that the matter should go back to the Tribunal, who will decide, on the facts, as to the exact relationship between the parties in the matter of supply by the Club of the food and drinks to its members. In other words, the principle of mutuality and agency among the circumstances shall be gone into by the Tribunal before which the said appeal is pending.

At this stage, it may be noted that the Department is also relying upon Clause (vi) inserted to Section 2(n) of the 1959 Act. All these amendments have been brought on the statute book in view of the 46th Amendment to the Constitution. We grant liberty to both sides to add by way of amendment any ground open to them in law in the pending appeal before the Tribunal. All contentions that are available to both sides are expressly kept open and they may raise the same before the Tribunal. The Tribunal shall decide the said appeal without reference to the impugned judgment of the High Court which is under appeal.

We express no opinion on the merits of the matter. The judgment under appeal is set aside and the matter is remitted to the Tribunal to decide the pending appeal in accordance with law and in accordance with the directions given hereinabove.�[Cosmopolitan Club v. State of Tamilnadu and others VSTI 2009...B222 (Supreme Court). (emphasis added)

From the above, it is clear that no opinion on the merit was expressed by the Hon''ble Supreme Court and liberty was granted to both the parties to argue the matter in the light of 46th Amendment to the Constitution.

On the other hand, this Hon''ble Court in the case of M/s Mahomed Bagh Club Limited v. Commissioner of Trade Tax, U.P. Lucknow (assessee) writ petition No. 67 of 2003 (M/B) for the assessment year 20002001 along with other connected matters has taken the cognizance of 46th Amendment to the Constitution.

Finally, this Hon''ble Court observed that consumable items are brought or prepared for a price. There is a difference between the Club and a restaurant. Restaurant is run for profit to the owner and in the case of Club the profit earned is to be the income of the Club. So, the doctrine of mutuality is applicable regarding income/profit only. It will not apply to trade tax specially after Constitutional (46th)) Amendment.

The supply of food, drink or refreshments having been expressly dealt with in Article 366 subclause (f) of clause (29A) of the Constitution of India, whether or not incorporated, clubs can no longer take shelter under that decision of the Hon''ble Apex Court to avoid the payment of sales tax on the refreshments delivered or supplied by them to their members, for valuable consideration.

The doctrine of mutuality in the field of sales tax has been done away after the insertion of subclause (29A) in Article 366. That doctrine was applied initially to unincorporated bodies, members of which collectively obtained goods and thereafter released their rights in favour of each other in the goods supplied to each member. That doctrine was later expanded to cases where, in reality the transaction was mutual, but through a corporate entity which was owned and controlled only by the members clubs. Article 366 (29A) in sub clause (e) treats the supply of goods for valuable consideration to members by incorporated association as sale. This provisions read as under:

�Article 366 (29A)e): a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.�

Subclause (e) of article 366 (29A) having thus struck at the root of the doctrine of mutuality, that doctrine can no longer be invoked by any one or any entity whether or not incorporated in so far as levy of sales tax is concerned, in cases where appropriate legislation has been enacted.

It may be recalled that transactions involving the supply of refreshments to members in members'' club were made exigible to sales tax under the very first general sales tax legislated in India, in the year 1939. The statutory provision was rendered ineffective by judicial pronouncements of the High Courts commencing from 1951, culminating in the decision of the Apex Court in 1970 in the case of Young Men''s Indian Association [1970] 26 STC 241 (SC). The original legislative intent was restored by the 46th Amendment to the Constitution in 1982 and State legislation subsequently enacted in conformity with Article 366 (29A).

As observed in one of the judgments of this Court in the case of Commissioner of Sales Tax v. Ram Singh and Sons, (1983) UPTC 563 that the clubs are an imported concept and from 1939 and during the period prior to independence, supply of refreshments to members for valuable consideration in all clubs in this State was regarded as sale and tax was levied thereon. Shortly after independence, courts followed the English law of the period, prior to independence for holding that such supplies do not constitute a sale. Parliament had therefore to step in, and it did so by amending the Constitution and expanding the width of the definition of sale or purchase of goods.

After the enactment of corresponding amendment to the State Sales Tax Act, it is no longer open to any club, whether incorporated or unincorporated, whether proprietary or nonproprietary, to contend that the delivery or supply of food articles etc. to its members is not a sale and that tax is not leviable on such sales.

Even otherwise counsel for the applicant fails to point out any error on records specifically in the judgment and order dated 30.08.2007 and further Bombay High Court in the case of C.I.T. v. West Coast Paper Mill Ltd., (2009) 319 I.T.R. 390 observed �High Court has no power to review substantially its own decision in taxing matters.�

In the light of the above discussion and by considering the totality of the facts and circumstances of the case, we find no infirmity in the order passed by this Hon''ble Court dated 30.08.2007.

All the Review Petitions are devoid of merit. The same are accordingly rejected.

(Review Petition rejected)