Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi (1978) 4 SCC 36

Introduction

• This case deals with the distinction between sale and service.

Facts

• The appellant operated a hotel where accommodation and meals were offered to residents under “inclusive terms”.
• Additionally, the hotel's restaurant served meals to nonresidents.
• During the assessment proceedings for the assessment years 1957-58 and 1958-59 under the Bengal Finance (Sales Tax) Act, 1941, the appellant argued that providing meals to both residents and non-residents should not be considered a sale, and consequently, sales tax should not be imposed on it.
• However, the Sales Tax authorities rejected this contention.
• Subsequently, the appellant appealed to the High Court which affirmed the Sales tax authorities' view.
• Then the appellant filed an appeal before the Supreme Court against the decision of HC.

Issues Involved

• Whether the service of meals to residents or non-residents in the restaurant can be regarded as sale?
• Whether the meals eligible for tax?

Observations

• The SC examined the intricate nature of hospitality services, emphasizing the historical roots and development of the institution in question.
• Drawing parallels between a hotelier and an innkeeper, the Court underscored the duty of the latter to provide lodging, necessities, and protection for travelers and their belongings.
• Crucially, the Court delved into the distinction between a service and a sale in the context of providing meals to guests.
• Asserting that the supply of meals constitutes a service rather than a sale, the Court rejected the notion of splitting the transaction into service and sale components for taxation purposes.
• The essence of the ruling rested on the concept that a customer pays for the right to satisfy immediate needs through the consumption of food, emphasizing that before consumption, no title passes, and after consumption, nothing remains to be subject to ownership.

Conclusion

• The Court finally held that the service of meals to visitors in the restaurant of the appellant is not taxable under the Bengal Finance (Sales Tax) Act, 1941.