Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi(1978) 4 SCC 36 & (1980) 2 SCR 650

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R.S. 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 the charges are lump sum per meal or
(ii) when they are calculated per dish? The High Court has answered the question
in the affirmative.

2. 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 nonresidents 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 non-residents as representing the price of the foodstuff’s 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 hotel, including board was exigible to sales tax. The second was the
   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.
3. 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 foodstuff’s.
4. This is a case where the origin and historical development of an institution has 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 innkeeper. 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 [Halsbury’s Laws of England, 3rd
   Edn., Vol. 21, p. 442, para 932]. 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 [(1939) 79 ER 1072], it was pointed out that
   innkeepers do not get their living by buying and selling, and that although they buy provision;, 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, and lodgings, for their guests ….” In Newton v. Tries
[91 ER 100], Holt, C.J. defined the true status of an innkeeper 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 innkeeper in his buying, is not to sell, but
only a part of the accommodation he is bound to prepare for his guests.”

5. 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. 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 addition of American
   Jurisprudence, Vol. 46, p. 207, para 13, sets forth the statement of the law in that regard, but we
   may go to the case itself, Electa B. Merrill v. James W. Hodson [1915-B LRA 481], from which
   the statement has been derived. Holding that the supply of food or drink 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 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 purpose. 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
applied as a factor in the service rendered.
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.

6. It has already been noticed that in regard to hotels this Court has in M/s. Associated Hotels
   of India Ltd. 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 oilier of sale of foodstuff’s. 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 Elects B. Merrill 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 under statute.
7. It was urged for the respondent that in Associated Hotels of India Ltd., 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.
8. 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 separately ordered.