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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 21790  OF 2017 (Arising out of S.L.P. (C) No. 28685/2015)

FEDERATION OF HOTEL AND RESTAURANT  ASSOCIATIONS OF INDIA         Appellant

                               VERSUS

UNION OF INDIA AND ORS.    Respondents

WITH

CIVIL APPEAL NO. 21791 OF 2017 (Arising out of S.L.P. (C) No. 27629/2015)

J U D G M E N T

R.F. Nariman, J.    

1) Leave granted.

2) The  present  appeals  arise  out  of  Writ  Petition  (C)  No.

6517/2003  filed  by  the  Federation  of  Hotel  and  Restaurant

Associations  of  India  in  the  High  Court  of  Delhi,  seeking  a

declaration that  the provisions of  the Standards of  Weights and

Measures  Act,  1976,  the  Standards  of  Weights  and  Measures

(Enforcement)  Act,  1985  and  the  Standards  of  Weights  and

Measures (Packaged Commodities) Rules, 1977 are not applicable

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to services rendered in the premises of hotels/restaurants.

3) The  appellant's  main  concern  was  that  the  Controller  of

Weights and Measures was seeking to proceed against the hotels

and restaurants of the appellant-Association for charging a price

higher than the printed Maximum Retail Price (“MRP” in short) for

supply of packaged water bottles during services provided to their

customers  while  in  the  hotels  and  restaurants.   The  appellants

plead  in  the  Writ  Petition  that  the  transaction  consisting

predominantly of  a service,  and not of  a sale of  drinking water,

consisted of a composite charge which included incidental charges

for food, drinks etc.  The challenge in the Writ Petition resulted in a

judgment  by the  learned  Single  Judge  dated  05.03.2007.   The

judgment of the learned Single Judge referred to and relied upon

the decisions in The State of Punjab vs. M/s. Associated Hotels

of India Ltd. (1972) 1 SCC 472, Northern India Caterers (India)

Ltd. vs. Lt. Governor of Delhi, [1979] 1 SCR 557 and the review

judgment in the latter case reported in (1980) 2 SCC 167.  After

discussing  these  judgments  in  detail,  and  considering  the

statement of objects and reasons of the Standards of Weights and

Measures Act, the learned Single Judge finally held:

“16.   In  the  above  analysis  I  hold  that  charging  prices  for

mineral  water  in  excess  of  MRP printed  on  the  packaging,

during the service of customers in hotels and restaurants does

not violate any of the provisions of the SWM Act as this does

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not constitute a sale or transfer of these commodities by the

hotelier or Restaurateur to its customers.  The customer does

not enter a hotel or a restaurant to make a simple purchase of

these commodities.  It  may well  be that a client would order

nothing beyond a bottle of water or a beverage, but his direct

purpose  in  doing  so  would  clearly  travel  to  enjoying  the

ambience available therein and incidentally to the ordering of

any  article  for  consumption.   Can  there  by  any  justifiable

reason  for  the  Court  or  Commission  to  interdict  the  sale  of

bottled mineral water other than at a certain price, and ignore

the relatively exorbitant charge for a cup of tea or coffee.  The

response to this rhetorical query cannot but be in the negative.

Although the vires of Rule 23 have been assailed, I do not find

it  necessary  to  answer  that  challenge  since  the  provision

relates  to  sales between dealers and neither  the hotels  and

restaurants  of  the one part  and customers of  the other  falls

within this categorization.”

4) In a Letters Patent Appeal filed before the Delhi High Court, by

a judgment dated 11.02.2015, the Division Bench recorded that the

counsel for the writ petitioners was agreeable to disposing of the

appeals in a particular manner and accordingly, the appeals were

disposed of in such manner.  Paras 16 & 17 of this judgment are

set out herein below:

“16.  The  counsel  for  the  writ  petitioners  is  agreeable  to  our

disposing of these appeals with observations that the judgment

of the learned Single Judge shall not come in the way of the

appellant  enforcing  the  provisions  of  the  new  Act  even  if

identical  or  similar  to  the  old  Act  and  it  being  left  to  be

adjudicated in the proceedings if any initiated under the new Act

whether hotels/restaurants, are entitled to do so or not.

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17.   We  accordingly  dispose  of  these  appeals  in  following

terms:

A. Owing to the change in law, there is no need to set aside or

affirm the judgment of the learned Single Judge.

B.  However  the  question  of  law  adjudicated  by  the  learned

Single  Judge  is  left  open  for  adjudication  in  any  fresh

proceeding under the new law and the judgment of the learned

Single Judge shall not be a precedent in any such adjudication

even if the concerned provisions of the old and the new law are

identical/similar.

C. The appellant shall  however not be entitled to initiate any

proceeding/prosecution  for  violation  of  the  old  law  in  this

respect, even if notices of such violation were issued, as in our

opinion, considering the nature of offence, the long time which

has  elapsed  and  the  doubt  which  has  arisen  whether  such

prosecution will be within the prescribed time, it is not deemed

expedient  that  the  state  resources  in  this  regard,  which  are

already strained, be expended thereon.”

5) A  Review  Petition  was  then  filed  against  the  aforesaid

judgment  which  met  with  no  success,  in  that  the  review  was

dismissed by an order dated 15.05.2015, in which it was pointed

out that the practice of review being sought on a ground which is

not supported by the original advocate but by a different advocate

has been deprecated, and hence the review was dismissed.

6) Mr. K.V. Viswanathan, learned Senior Counsel, appearing on

behalf of the appellant before us, has argued that both the original

as well as the review order impact his clients in that the judgment

of  the  learned  Single  Judge,  which  is  a  detailed  and

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comprehensive judgment dealing with all  the law points at hand

has  been  brushed  aside,  and  the  result  is  that  any  de  novo

proceeding under the Legal Metrology Act, 2009, which has since

replaced the  two Acts  of  1976 and 1985,  would  transgress the

rights of the appellant's clients as this has to be gone into de novo.

According to the learned Senior Counsel, the concession that is

made  cannot  possibly  bind  the  appellant  as  not  only  is  it  a

concession  on  a  point  of  law  but  on  a  concession  made  on

jurisdiction, and according to the learned Senior Counsel once it is

conceded,  as  will  be  come  clear  from  a  reading  of  the  Legal

Metrology Act, that the position under the two statutes, namely, the

2009 Act as well as the repealed Acts is identical, then the Single

Judge's judgment, if it is otherwise good in law, would require to be

confirmed.   According  to  the  learned  Senior  Counsel,  having

regard to the judgments of this Court,  and having regard to the

changes made  by the  Constitution  (forty-sixth  Amendment)  Act,

contained in Article 366 (29-A), and further having regard to the

fact that despite such changes having been made, no such change

as was made by the Constitutional amendment has been made in

the definition of “sale” which continues to be the same under the

2009 Act as it was under the 1976 Act, the Division Bench ought to

have  affirmed  the  judgment  of  the  learned  Single  Judge  and

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dismissed the appeal.

7) Mr. Ajit Kumar Sinha, learned Senior Counsel, appearing on

behalf of the Union of India has argued before us that we should

not go into the jurisdictional question at all in view of the statement

of counsel made for the writ petitioner before the learned Division

Bench.  Alternatively, he argued that if for some reason we are to

go into the merits of the case, despite the fact that the 2009 Act

admittedly does not make any change in the earlier position so far

as  the  definition  of  “sale”  is  concerned,  yet  a  reading  of  the

definition of “pre-packaged commodity” contained in Section 2(l) of

the 2009 Act read with Rule 3 explanation (1) of the Rules made

thereunder  would  show that  hotels  such  as  the  appellant's  are

within the reach of the statute and the rules made thereunder.  He

also referred us to Section 57 of the 2009 Act, which repeals the

1976 Act, and submitted that transactions made under the old Act

would continue as a result.  The question that therefore arises in

the present case is: given the fact that the Legal Metrology Act,

2009 continues with the same definition of “sale” as was contained

in the 1976 Act, whether the judgment of the learned Single Judge

can be said to be correct in law and applicable qua the 2009 Act.

8) A consideration of the statement of objects and reasons of the

1976  Act  would  show  that  the  said  Act  is  concerned  with  a

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provision for consumer protection by which the proper indication

on the package of net quantity by weight etc. is contained therein

and the price of the package is also indicated.  Further, indication

of date of manufacture and date of expiry would also be marked for

appropriate products.  The relevant portion of the said statement of

objects and reasons is set out herein below:

“5. The Bill further provides for consumer protection in respect

of  packaged  commodities  by  providing,  in  pursuance  of  the

recommendations of the OIML, for the proper indication on the

package of net quantity by weight, measures or number, the

identity  of  the  commodity  contained  therein,  name  of  the

manufacturer,  and  what  is  very  important,  the  price  of  the

package.  It is also proposed that commodities commonly used

by people should be packed in rationalised standard quantities

by weight, measure or number, so as to facilitate the purchase

and comparison of price by the people.  Further, indication of

date of manufacture and date of expiry would also be marked

for appropriate products.

6. A further provision for consumer protection is the approved

models  of  weights,  measures  and  weighing  and  measuring

instruments,  which  is  recommended  by the  OIML,  draft  law.

The  scientific  evaluation  of  the  performance  accuracy  and

dependability  of  weights,  measures  etc.  would  enable  the

consumer  to  buy  his  requirements  with  greater  confidence

about accuracy and also give industries the facility to use more

accurate measuring instruments in their production control and

enable  the  scientists  to  measure  accurately  to  quantities

involved in their researches.  All these benefits will contribute to

national development.

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7. The main features of the Bill are, -

(a) establishment of the standards of weights and measures,

based  on  the  SI  units,  as  adopted  by  the  CGPM  and

recognised by the OIML;

(b) establishment of the standards of numeration, based on the

international form of Indian numerals;

(c) regulation of inter-State trade and commerce in weights and

measures  and  commodities  sold,  distributed  or  supplied  by

weight or measure;

(d) regulation  of  inter-State  trade  and  commerce  in

commodities sold, supplied or distributed in packaged form;

(e) control and regulation of export and import of weights and

measures and commodities in packaged form;

(f) approval (before manufacture) of models of weighing and

measuring instruments intended to be manufactured after the

commencement of the proposed legislation;

(g) establishment of an Indian Institute of Legal Metrology for

imparting  training  in  legal  metrology to  inspectors  and other

persons;

(h) surveys and collection of statistics for facilitating planning

and enforcement of the proposed legislation;

(i) punishment for offences against the proposed legislation.”

9) We are concerned primarily with the definition of “sale” that is

contained in the 1976 Act  as it  then stood.   Sale is  defined as

follows:

“2(v)  “sale”,  with  its  grammatical  variations  and  cognate

expressions,  means  transfer  of  property  in  any  weight,

measure or other goods by one person to another for cash or

for deferred payment or for any other valuable consideration,

and  includes  a  transfer  of  any  weight,  measure  or  other

goods on the hire-purchase system or any other system of

payment by instalments, but does not include a mortgage or

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hypothecation  of,  or  a  charge  or  pledge  on,  such  weight,

measure or other goods;”

It will be clear on a cursory reading of the said definition that “sale”

means transfer of property in goods by one person to another for

cash  or  for  deferred  payment  or  for  any  other  valuable

consideration.  It will be noticed that despite this Court's judgment

in  M/s.  Associated Hotels  of  India Ltd.  (supra),   which is  a

judgment of the year 1972, Parliament has chosen to adopt the

definition of sale which does not include or split up sales of goods

from  services  in  composite  contracts.   Also,  a  reading  of  the

various penal provisions that are contained in the Act, starting with

Section 50 would show that there is no penalty for selling above

MRP in hotels and/or restaurants.   

10) As  has  been  stated  in  the  trilogy  of  judgments  in  M/s.

Associated Hotels of India Ltd. (supra) and the two  Northern

India Caterers (India) Ltd. (supra), it is clear that when “sale” of

food  and drinks  takes  place  in  hotels  and  restaurants,  there  is

really one indivisible contract of service coupled incidentally with

sale  of  food  and drinks.   Since  it  is  not  possible  to  divide  the

“service element”, which is the dominant element, from the “sale

element”, it is clear that such composite contracts cannot be the

subject-matter  of  sales  tax  legislation,  as  was  held  in  those

judgments.  

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11) Bearing these judgments  in  mind,  Parliament  amended the

Constitution  and  introduced  the  Constitution  (forty-sixth

Amendment)  Act,  by  which  it  introduced  Article  366  (29-A).

Sub-clause  (f),  with  which  we  are  directly  concerned,  reads  as

follows:-

“366. (29A) (f) a tax on the supply, by way of or as part of any

service  or  in  any other  manner  whatsoever, of  goods,  being

food or any other article for human consumption or any drink

(whether or not intoxicating), where such supply or service, is

for cash, deferred payment or other valuable consideration,  

and  such  transfer,  delivery  or  supply  of  any goods  shall  be

deemed to be a sale of those goods by the person making the

transfer, delivery or supply and a purchase of those goods by

the person to whom such transfer, delivery or supply is made.”

A reading of  the constitutional amendment would show that

supply by way of or as part of any service of food or other article

for human consumption is now deemed to be a sale of goods by

the person making the transfer, delivery or supply.  

12) What  is  interesting to  note  is  that  despite  the fact  that  the

constitutional amendment was made way-back in the year 1982,

the 1976 Act was not amended so as to incorporate the definition

of  sale  contained  therein.   What  is  of  greater  importance  is  to

appreciate  that  when  the  2009 Act  has  replaced the  1976  Act,

again the definition of “sale” contained in the 2009 Act reads as

follows:

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“(r)  “sale”,  with  its  grammatical  variations  and  cognate

expressions, means transfer of property in any weight, measure

or  other  goods  by  one  person  to  another  for  cash  or  for

deferred payment or for any other valuable consideration and

includes a transfer of any weight, measure or other goods on

the hire-purchase system or any other system of payment by

instalments, but does not include a mortgage or hypothecation

of , or a charge or pledge on, such weight, measure or other

goods;

As is clear from the statement of objects and reasons for the 2009

Act, the object of the said Act was only to do away with the 1976

and  1985  Acts  so  as  to  combine  the  said  provisions  into  one

enactment so as to make the law simple,  ensure accountability,

and bring in transparency.  The statement of objects and reasons

for the 2009 Act reads as follows:-

“STATEMENT OF OBJECTS AND REASONS

In India, uniform standards of weights and measures based

on the metric system, were established in the year 1956, which

were revised in the year 1976 with a view to give effect to the

international  system of  units.  Apart  from it,  the  Standards of

Weights  and  Measures  Act,  1976  provides  for  establishing

Standards of Weights and Measures, regulation of inter-State

trade or commerce in weights and measures and other goods

which  are  sold  by weight,  measure  or  number.  In  the  year

1985, the Standards of Weights and Measures (Enforcement)

Act, 1985 was enacted for enforcement of standards of weights

and measures established by or under the 1976 Act.

2. The advancement of technology has necessitated the review

of  above  mentioned  enactments  to  make  them  simple,

eliminate obsolete regulations, ensure accountability and bring

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transparency.

3. It has become imperative to combine the provisions of the

existing  two  Acts  to  get  rid  of  anomalies  and  make  the

provisions simple.  It has also become necessary to keep the

regulation pragmatic  to  the extent  required for protecting the

interest of consumers and at the same time keep the industry

free from undue interference.  It has also become necessary to

recognise certain “Government approved Test Centres” which

will be empowered to verify prescribed weights or measure.

4. The Bill, inter alia, provides for,-

(a) regulation of weight or measure used in transaction or for

protection;

(b) approval of model or weight or measure;

(c) verification of prescribed weight or measure by Government

approved Test Centre;

(d)  prescribing  qualification  of  legal  metrology  officers

appointed by the Central Government or State Government;

(e) exempting regulation of weight or measure or other goods

meant for export;

(f) levy of fee for various services;

(g)  nomination  of  a  Director  by  a  company  who  will  be

responsible for complying with the provisions of the enactment;

(h) penalty for offences and compounding of offences;

(I) appeal against decision of various authorities; and

(j)  empowering  the  Central  Government  to  make  rules  for

enforcing the provisions of the enactment.”

13) On a reading of the said Act and the Rules made thereunder, it

is clear that the position  qua “sale” remains exactly the same as

that contained in the 1976 Act, which now stands repealed.  This

being the case, we are of the view that the learned Single Judge

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was  absolutely  correct  in  his  conclusion  that  despite  the

constitutional  amendment  having  been  passed,  the  definition  of

“sale”  contained both in  the 1976 Act and now in the 2009 Act

would go to show that composite indivisible agreements for supply

of services and food and drinks would not come within the purview

of either enactment, and that this is for the very good reason that

the object for both these enactments is something quite different -

the object being, as has been pointed out above, to standardize

weights and measures for defined goods so that quantities that are

supplied are thus mentioned on the package and that MRPs are

mentioned so that there is one uniform price at which such goods

are sold.

14) Mr.  Sinha,  learned  Senior  Counsel,  however,  has  argued

before us that given the fact that learned Senior Counsel on behalf

of the appellant had made a concession before the Division Bench,

we should not interfere with the said judgment.  It is settled law that

any such concession made on a question relating to jurisdiction to

proceed further, particularly  qua criminal  prosecutions,  does not

bind the party in question.  It is of utmost importance for all to know

exactly how they stand in such cases.  Also, Mr. Sinha's reliance

upon Section 2(l) of the 2009 Act read with Rule 3 of the Rules

does not take us very much further.  Section 2(l) of the 2009 Act

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reads as follows:-

“(l)  “pre-packaged  commodity”  means  a  commodity  which

without the purchaser being present is placed in a package of

whatever  nature,  whether  sealed or  not,  so  that  the  product

contained therein has a pre-determined quantity;”

15) A cursory reading of the aforesaid definition would show that it

refers only to the fact that a pre-packaged commodity should have

a pre-determined quantity as stated in the definition section.  It has

no bearing whatsoever on the issue before us.  Equally, reliance

upon Rule 3 of the 2011 Rules again does not lead us anywhere.

Rule 3 of the said Rules read as follows:-

“3. Applicability of the Chapter.- The provisions of this Chapter

shall not apply to,-

(a) packages of commodities containing quantity of more than

25 kg or 25 litre excluding cement and fertilizer sold in bags up

to 50 kg; and  

(b)  packaged commodities meant  for  industrial  consumers or

institutional consumers.

Explanation.- For the purpose of this rule,-

(i) “institutional consumer” means the institutional consumer like

transportation,  Airways,  Railways,  Hotels,  Hospitals  or  any

other  service  institutions  who  buy  packaged  commodities

directly from the manufacturer for use by that institution;

(ii)  “industrial  consumer”  means the industrial  consumer who

buy packaged commodities directly from the manufacturer for

use by that industry.”  

16) Mr. Sinha relied upon the definition of institutional consumer

contained  in  explanation  (i)  in  order  to  show  that  hotels,  in

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particular, would be under the coverage of the Act read with the

Rules.   First  and foremost,  a  reading of  the opening of  Rule  3

would show that the provisions of the Chapter would not apply to

packaged commodities meant for institutional consumers such as

hotels.  Also, the Rules cannot take us very much further when it

has already been held by us that the Act itself would not apply for

the reasons given herein above.  

17) We are, therefore, of the view that neither the Standards of

Weights and Measures Act, 1976 read with the enactment of 1985,

or the Legal Metrology Act, 2009, would apply so as to interdict the

sale of mineral water in hotels and restaurants at prices which are

above the MRP.   

18) The appeals are accordingly allowed and the judgments dated

11.02.2015 and 15.05.2015 of the High Court are set aside.

                                                               .…………………………J. (R.F. Nariman)

…………………………J. (Navin Sinha)

New Delhi; December 12, 2017