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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4184 OF 2009

State of West Bengal and Others     Appellant(s)

Versus

Calcutta Club Limited         Respondent(s)  

J U D G M E N T  

DIPAK MISRA, J.

The present appeal, by special leave, is directed

against  the  judgment  and  order  passed  by  the  Division

Bench of the High Court of Calcutta in W.P.T.T. No.652 of

2006, wherein it has affirmed the view expressed by the

West  Bengal  Taxation  Tribunal  (for  short,  'the  tribunal')

and  disposed  of  the  appeal  preferred by  the  respondent

along with other connected appeals holding, inter alia, that

the assessee, the Calcutta Club Limited, was not liable for

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payment of sales tax under the West Bengal Sales Tax Act,

1994 (for brevity, 'the Act').

2. The facts that are necessary to be stated are that

the Assistant Commissioner of Commercial Taxes issued a

notice to the respondent-Club assessee apprising it that it

had failed to make payment of sales tax on sale of food and

drinks  to  the  permanent  members  during  the  quarter

ending  30.6.2002.  After  the  receipt  of  the  notice,  the

respondent-Club  submitted  a  representation  and  the

assessing  authority  required  the  respondent-Club  to

appear  before  it  on  18.10.2002.   The  notice  and  the

communication sent for personal hearing was assailed by

the  respondent  before  the  tribunal  praying  for  a

declaration that it is not a dealer within the meaning of the

Act as there is no sale of any goods in the form of food,

refreshments,  drinks,  etc.  by  the  Club to  its  permanent

members and hence,  it is not liable to pay sales tax under

the Act.  A prayer was also made before the tribunal for

nullifying the action of the revenue threatening to levy tax

on the supply of food to the permanent members.

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3. It  was contended before  the tribunal  that  there

could  be  no  sale  by  the  respondent-Club  to  its  own

permanent members, for doctrine of mutuality would come

into play.  To elaborate, the respondent-Club treated itself

as the agent of  the permanent members in entirety and

advanced  the  stand  that  no  consideration  passed  for

supplies of food, drinks or beverages, etc. and there was

only reimbursement of  the amount by the members and

therefore, no sales tax could be levied.  

4. The  tribunal  referred  to  Article  366(29A)  of  the

Constitution of India, Section 2(30) of the Act, its earlier

decision  in  Hindustan  Club  Limited  v.  Additional

Commissioner  of  Commercial  Taxes  and  Others1,

distinguished the authority rendered in  The Automobile

Association of Eastern India v. State of West Bengal

and Others2  and, eventually, opined as follows:-

“Considering  the  relevant  fact  presented  before us and the different judgments of  the Supreme Court and the High Court we find that supplies of food, drinks and refreshments by the petitioner clubs  to  their  permanent  members  cannot  be treated as 'deemed sales' within the meaning of section 2(30) of the 1994 Act.  We find that the payments made by the permanent members are

1(1995) 98 STC 347 2(2002) 40 STA 154

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not considerations and in the case of Members' Clubs  the  suppliers  and  the  recipients (Permanent Members) are the same persons and there is no exchange of consideration.”

Being of this view, the tribunal accepted the contention

of the respondent-Club and opined that it is not exigible to

tax under the Act.

5. Being dissatisfied with the aforesaid order passed by

the tribunal, the revenue preferred a writ petition and the

High  Court  opined  that  the  decision  rendered  in

Automobile  Association of  Eastern India (supra),  was

not  a  precedent  and  came  to  hold  that  reading  of  the

Constitutional amendment, as well as the provisions of the

definition under the Act, it was clear that supply of food,

drinks and beverages had to be made upon payment of

consideration,  either  in  cash  or  otherwise,  to  make  the

same exigible to tax but in the case at hand, the drinks

and beverages were purchased from the market by the club

as agent of the members.  The High Court further ruled

that the members collectively was the real life and the club

was  a  superstructure  only  and,  therefore,  mere  fact  of

presentation  of  bills  and  non-payment  thereof

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consequently, striking off membership of the club, did not

bring the club within the net of sales tax.  The High Court

further  opined  that  in  the  obtaining  factual  matrix  the

element of mutuality was not obliterated.  The expression

of  the  aforesaid  view persuaded the  High Court  to  lend

concurrence to the opinion projected by the tribunal.

6. We  have  heard  Mr.  Kailash  Vasdev,  learned  senior

counsel along with Mr. Soumik Ghosal, learned counsel for

the  appellants  and  Mr.  Rana  Mukherjee,  learned  senior

counsel along with Mr. Arijit Prasad, learned counsel for

the respondent.

7. It is submitted Mr. Vasdev, learned senior counsel that

the reasoning of the tribunal as well as the High Court is

faulty  as  there  has  been  erroneous  appreciation  and

application  of  clause  (29A)  of  Article  366  of  the

Constitution of  India.   It  is  urged by him that  after  the

constitutional  amendment,  the concept  of  mutuality  and

the  pronouncements  made  in  that  context  have  no

applicability.   He has commended us to  the  decision in

Bharat Sanchar Nigam Ltd. and another v. Union of

India and others3. 3   (2006) 3 SCC 1

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8. Mr.  Mukherjee,  learned  senior  counsel  for  the

respondent,  in  his  turn,  would  contend  that  the  view

expressed by the High Court is  absolutely  flawless and

irreproachable inasmuch as the constitutional amendment

does not envision sale by one to himself or for that matter

by the agent to those who have engaged it as an agent.  It

is further argued that the aspect of mutuality still  holds

the field.  For the aforesaid purpose, inspiration has been

drawn  from  the  authorities  in  Fateh  Maidan  Club  v.

Commercial  Tax  Officer,  Hyderabad4 and

Cosmopolitan Club v. State of Tamil Nadu & Others5.

Learned counsel has further submitted that the concept of

deemed  sale  is  not  attracted  to  the  present  nature  of

transaction and supply.  

9. At the very outset, we may mention certain undisputed

facts.   It  is  beyond  cavil  that  the  respondent  is  an

incorporated entity under the Companies Act, 1956.  The

respondent-assessee charges and pays sales tax when it

sells  products  to  the  non-members  or  guests  who

accompany  the  permanent  members.   But  when  the

4   (2008) 12 VST 598 (SC) 5   (2009) 19 VST 456 (SC)

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invoices are raised in respect of supply made in favour of

the permanent members, no sales tax is collected.   

10. Section 2(30) of the Act defines ‘sale’ as follows:-

“(30)  “sale”  means  any  transfer  of  property  in goods  for  cash,  deferred  payment  or  other valuable consideration, and includes-  

(a) any transfer, otherwise than in pursuance of a contract,  of  property  in  any  goods  for  cash, deferred  payment  or  other  valuable consideration;

(b) any delivery of goods on hire-purchase or any system of payment by instalments;

(c) any transfer of the right to use any goods for any  purpose  (whether  or  not  for  a  specified period)  for  cash,  deferred  payment  or  other valuable consideration;

(d)  any  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;

(e)  any  supply  of  goods by  any  unincorporated association  or  body  of  persons  to  a  member thereof  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  or unincorporated  association  or  body  of  persons making  the  transfer,  delivery,  or  supply  and  a purchase of those goods by the person to whom such transfer,  delivery,  or  supply  is  made,  but does  not  include  a  mortgage,  hypothecation,

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charge or pledge.

Explanation: A sale shall be deemed to take place in  West  Bengal  if  the  goods  are  within  West Bengal –

(a) In the case of specific or ascertained goods, at the time of the contract of sale is made; and

(b) In the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller,  whether the assent of  the buyer  to  such  appropriation  is  prior  or subsequent to the appropriation:

PROVIDED that where there is a single contract of  sale  in  respect  of  goods  situated  in  West Bengal as well as in places outside West Bengal, provisions of  this  Explanation shall  apply  as if there were a separate contract of sale in respect of the goods situated in West Bengal;.”  

11. The  said  provision  has  been  introduced  after

incorporation  of  clause  (29A)  to  Article  366  of  the

Constitution vide 46th amendment, 1982, which reads as

follows:-

“(29A)  “tax  on  the  sale  or  purchase  of  goods” includes –  

(a)  a  tax  on  the  transfer,  otherwise  than  in pursuance of a contract, of property in any goods for  cash,  deferred  payment  or  other  valuable consideration;

(b)  a  tax  on  the  transfer  of  property  in  goods (whether as goods or in some other form) involved in the execution of a works contract;

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(c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;

(d) a tax on the transfer of the right to use any goods  for  any  purpose  (whether  or  not  for  a specified  period)  for  cash,  deferred  payment  or other valuable consideration;

(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;

(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;”

12. It  is  submitted  by  Mr.  Vasdev  that  statutory

provision  is  in  accord  with  the  Constitution  of  India.

Learned senior counsel would submit that clause (29A)(f)

clearly lays a postulate that when there is a supply by way

of or as a part of supply of food or any other article for

human  consumption  or  any  drink  whether  or  not

intoxicating  for  supply  or  service,  for  cash  or  deferred

payment  or  valuable  consideration  would  amount  to

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deemed sale. According to Mr. Vasdev, the earlier decisions

which related to the concept of mutuality have lost their

force.   

13. In  this  context,  he  has  referred  to  the  decision  in

Northern India Caterers (India) Ltd. v. Lt. Governor of

Delhi6, the three-Judge Bench  was dealing with the issue

whether in the case of non-residents the service of meals

by  the  appellant  in  the  restaurant  constitutes  a  sale  of

foodstuffs.  Answering the said issue, the Court held:-

“It has already been noticed that in regard to ho- tels this Court has in  Associated Hotels of India Ltd.7 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 transac- tion into two parts, one of service and the other of sale of foodstuffs. If that be true in respect of ho- tels, 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 satisfac- tion of a human need”.

6   (1978) 4 SCC 36 : AIR 1978 SC 1591 7   State of Punjab v. Associated Hotels of India Ltd., (1972)  1 SCC 472

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14. Earlier  the  Constitution  Bench  decision  in  Joint

Commercial  Tax  Officer  v.  Young  Men’s  Indian

Association8  dealing with the liability  of  a  club to pay

sales  tax  when  there  is  supply  of  refreshment  to  its

members, had Court concluded thus:-

“The essential  question,  in the present  case,  is whether the supply of  the various preparations by each club to its members involved a transac- tion  of  sale  within  the  meaning  of  the  Sale  of Goods  Act,  1930.  The  State  Legislature  being competent to legislate only under Entry 54, List II,  of  the Seventh Schedule  to  the  Constitution the  expression  “sale  of  goods”  bears  the  same meaning which it has in the aforesaid Act. Thus in spite of the definition contained in Section 2(n) read with Explanation I of the Act if there is no transfer of property from one to another there is no sale which would be exigible to tax. If the club even though a distinct legal entity is only acting as an agent for its members in matter of supply of various preparations to them no sale would be involved as the element of transfer would be com- pletely absent. This position has been rightly ac- cepted  even  in  the  previous  decision  of  this Court”.

15. In  Fateh Maidan Club (supra),  the  Court  was

considering the defensibility of the judgment and order of a

Division  Bench  of  the  High  Court  of  Andhra  Pradesh

whereby it has held that the assessee club was liable to

pay sales tax under the Andhra Pradesh General Sales Tax

8   (1970) 1 SCC 462

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Act,  1957  on  the  supplies  of  food  and  drink  to  their

members.  It was contended before the Court that when

the club supplies food or drink to its members, there is no

sale because a members’ club only acts as the agent of the

members.   The  Court  placed  heavy  reliance  on  Young

Men’s  Indian  Association (supra)  and  remanded  the

matters stating that:-

“In  some of  the  present  matters  the  appellants filed  writ  petitions  against  notices  seeking  to assess them to sales tax on the supply of  food and  beverages  to  their  members.   There  was, therefore,  no  determination  by  the  fact-finding authorities  of  the  relationship  between  the appellants  and their  members  in  the  matter  of supply  by  the  former  to  the  latter  of  food  and drink and such like; that is to say, was the club acting  as the  agent  of  the  members or  did the property in the food and drink pass from the club to the members?  In the other matters the High Court was approached after orders of assessment had been made and appeals filed but there was no inquiry into the said relationship.  We think it appropriate, therefore, that the matters should go back  to  the  assessing  authorities  who  will determine, on facts in regard to each appellant. What  was  the  said  relationship  and,  with  that finding  in  mind,  decide,  whether  or  not  the appellants are  liable to sales tax in this  behalf under  the  provisions  of  the  Andhra  Pradesh General Sales Tax Act, 1957.”  

16. In the  case  of  Cosmopolitan Club (supra),  the

controversy related to liability of the club to pay sales tax

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under  the  Tamil  Nadu General  Sales  Tax  Act,  1959 for

supply of food and drinks to its members.  Relying on the

earlier  judgment,  the  Court  remanded  the  matter  by

holding that:-

“…. it may be further stated that the said show cause notice was challenged in 1993 by the Club by filing a Writ Petition in the High Court which came to be later transferred to the Tribunal. The Tribunal  dismissed  the  matter  on  merits.  That decision of the Tribunal has been confirmed by the impugned judgment. Suffice it to state that in this case there was no determination by the fact finding  authorities  regarding  the  relationship between the Club and its members in the matter of supply of food and drinks; that is to say, was the Club acting as an agent of the members or did the property in food and drinks pass from the Club to the members?  

At this stage it may be mentioned that after the judgment of the High Court dismissing the Writ Petition,  the  Assessment  Order  was  passed against which the Club has preferred an appeal before  the  First  Appellate  Authority  which  has also dismissed this  appeal  and as of  today the matter,  being  T.A.No.  17  of  2000,  is  pending before the Tribunal.  

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

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17. The aforesaid decisions, thus, refer to principle of

mutuality and agency.  Submission of the learned counsel

for  the  appellant  is  that  after  the  amendment  the  said

principles cannot be made applicable.  For the aforesaid

purpose, he has commended us to the pronouncement in

Bharat  Sanchar  Nigam Ltd. (supra).   Learned  senior

counsel has drawn our attention to the views expressed by

Lakshmanan, J., which is to the following effect:-

“104. Parliament had to intervene as the power to levy  tax  on  goods  involved  in  works  contract should appropriately be vested in the State Legis- latures as was pointed out in Gannon Dunkerley & Co9.,  the passages quoted hereinabove. There were  five  transactions  in  which,  following  the principles laid down in  Gannon Dunkerley & Co. relating to works contract, this Court ruled that those transactions are  not  exigible  to  sales  tax under  various  State  enactments.  Parliament, therefore, in exercise of its constituent power, by the  Forty-sixth  Amendment,  introduced  Article 366(29-A). The Statement of Objects and Reasons has fully set out the circumstances under which the Forty-sixth Amendment was necessitated.

105. The amendment introduced fiction by which six  instances  of  transactions  were  treated  as deemed sale of goods and that the said definition as to deemed sales will have to be read in every provision of the Constitution wherever the phrase “tax on sale or purchase of goods” occurs. This definition changed the law declared in the ruling in  Gannon Dunkerley & Co. only with regard to

9   State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., AIR 1958 SC 560

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those transactions of deemed sales. In other re- spects,  law  declared  by  this  Court  is  not  neu- tralised.  Each one of  the sub-clauses of  Article 366(29-A) introduced by the Forty-sixth Amend- ment was a result of ruling of this Court which was sought to be neutralised or modified. Sub- clause (a) is the outcome of New India Sugar Mills Ltd. v.  CST10 and  Vishnu  Agencies  (P)  Ltd. v. CTO11.  Sub-clause  (b)  is  the  result  of  Gannon Dunkerley & Co. Sub-clause (c)  is  the result  of K.L.  Johar  and  Co. v.  CTO12.  Sub-clause  (d)  is consequent  to  A.V.  Meiyappan v.  CCT13.  Sub- clause (e) is the result of CTO v. Young Men’s In- dian Assn. (Regd.)14. Sub-clause (f) is the result of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi (supra) and State of Punjab v. Associated Hotels of India Ltd. (supra).”

18. In addition to the aforesaid paragraphs, learned

senior counsel appearing for the appellant has also heavily

relied on paragraphs 106 and 107 of  the said  judgment.

They read as follows:-

“106. In the background of the above, the history prevailing at the time of the Forty-sixth Amend- ment  and  pre-enacting  history  as  seen  in  the Statement  of  Objects  and  Reasons,  Article 366(29-A) has to be interpreted. Each fiction by which those six transactions which are not other- wise sales are deemed to be sales independently operates only in that sub-clause.

107. While the true scope of the amendment may be appreciated by overall reading of the entirety of Article 366(29-A), deemed sale under each par-

10   1963 Supp (2) SCR 459: (1963) 14 STC 316 11   (1978) 1 SCC 520 12   AIR 1965 SC 1082 13   (1967) 20 STC 115 (Mad) 14   (1970) 1 SCC 462

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ticular  sub-clause  has  to  be  determined  only within the parameters of  the provisions in that sub-clause. One sub-clause cannot be projected into another sub-clause and fiction upon fiction is not permissible. As to the interpretation of fic- tion, particularly in the sales tax legislation, the principle  has  been  authoritatively  laid  down in Bengal Immunity Co. Ltd. v. State of Bihar15, SCR at p. 647: “The operative provisions of the several parts of Article  286,  namely,  clause  (1)(a),  clause  (1)(b), clause (2) and clause (3) are manifestly intended to deal with different topics and, therefore,  one cannot be projected or read into another.” (S.R. Das, Actg. C.J.)”

19. Before  we  proceed  further,  it  is  necessary  to

appreciate the doctrine of mutuality in proper perspective.

The  said  doctrine  or  the  general  law  relating  to  mutual

concern  is  predicated  on  the  principle  enunciated  in

Styles v. New York Life Insurance Company16 by Lord

Watson in the following words:-

“When  a  number  of  individuals  agree  to contribute funds for a common purpose, such as the payment of annuities or of capital sums, to some or all of them, on the occurrence of events certain  or  uncertain,  and  stipulate  that  their contributions,  so  far  as  not  required  for  that purpose,  shall  be  repaid  to  them,  I  cannot conceive why they should be regarded as traders, or why contributions returned to them should be regarded as profits.”

15  (1955) 2 SCR 603 16  (1889) 2 TC 460, 471 (HL)

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20. This doctrine was subsequently explained in IR v.

Cornish Mutual  Assurance Co.  Ltd.17 and it  has  been

laid down that the mutual concern should be held to be

carrying on business or trade with its members, albeit the

surplus arising from such trade is not taxable as income or

profit.  However, the principle is not free from diversity or

contra  opinion  which  can  relate  to  issues  like  complete

identity  between  the  contributors  and  participators  or

whether such doctrine would equally apply to incorporate

company which is a juristic entity, and if so, under what

circumstances.  The principle of mutuality was examined

by this Court in  CIT v. Royal Western India Turf Club

Ltd.18 and then in CIT v. Bankipur Club Ltd.19, followed

by  Chelmsford Club v.  CIT20.   In  Bankipur Club Ltd.

(supra), it has been observed as under:-  

“... The gist of the various English decisions has been  succinctly  summarised  in  the  textbooks which  we  have  adverted  to  hereinabove  (Hals- bury’s  Laws  of  England,  Simon’s  Taxes, Wheatcroft etc.). Particular stress was laid on the decisions of the Supreme Court in  CIT v. Royal Western India Turf Club Ltd. (supra), CIT v. Kum- bakonam Mutual Benefit  Fund Ltd.21,  Fletcher v.

17  [1926] 12 TC 841 [HL] 18  AIR 1954 SC 85 19  (1997) 5 SCC 394 20  (2000) 3 SCC 214 21  1964 SCR 204 : AIR 1965 SC 96

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CIT22.  We  do  not  think  it  necessary  to  deal  at length with the above decisions except  to state the  principle  discernible  from them. We under- stand these decisions to lay down the broad pro- position — that, if the object of the assessee com- pany claiming to be a “mutual concern” or “club”, is to carry on a particular business and money is realised both from the members and from non- members,  for  the  same consideration by  giving the same or similar facilities to all alike in respect of the one and the same business carried on by it,  the  dealings  as  a  whole  disclose  the  same profit-earning motive and are alike tainted with commerciality. In other words, the activity carried on by the assessee in such cases, claiming to be a “mutual concern” or “members’ club” is a trade or an adventure in the nature of trade and the transactions  entered  into  with  the  members  or non-members alike is a trade/business/transac- tion and the resultant surplus is certainly profit — income liable to tax. We should also state, that “at what point, does the relationship of mutuality end and that of trading begin” is a difficult and vexed question. A host of factors may have to be considered to arrive at a conclusion. “Whether or not the persons dealing with each other, is a ‘mu- tual club’ or carrying on a trading activity or an adventure  in  the  nature  of  trade”,  is  largely  a question of fact. (Wilcock case23 Tax Cases at p. 132; KB at pp. 44 and 45).”   

21. Earlier in  Kumbakonam Mutual Benefit Fund

Ltd (supra) the Court had held that where an association

or  a  company  trades  with  its  members  only  and  the

surplus out of the common fund is distributable among the

22  (1971) 3 ALL ER 1185 : (1972) 2 WLR 14 (PC) 23  Wilcock (Inspector of Taxes) v. Pinto & Co., 9 TC 111 : (1925) 1 KB 30, CA

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members,  there  is  no  mutuality  and  the  surplus  is

assessable to tax as profit, for there is no complete identity

between the contributors and the participators. The reason

being  that  the  members,  who  have  not  contributed  to

surplus  as  customers,  are  nevertheless  entitled  to

participate  and receive  a  part  of  the surplus.   However,

where the surplus is distributed among the customers as

such,  there  would  be  complete  identity  between  the

contributors  and  the  participators,  for  only  customers

would be entitled to participate in the surplus.

22. In the light of the aforesaid position and the law

of mutual concerns, we have to ascertain the impact and

the effect of sub-clause (e) to clause (29A) to Article 366 of

the Constitution of India, as enacted vide 46th amendment

in 1982 and applicable and applied to Sales or VAT Tax.

The said  clause  refers  to  tax  on supply  of  goods by  an

unincorporated  association  or  body  of  persons.   The

question would be whether the expression ‘body of persons’

would  include  any  incorporated  company,  society,

association,  etc.  The  second  issue  is  what  would  be

included and can be classified as transactions relating to

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supply of goods by an unincorporated association or body

of  persons  to  its  members  by  way  of  cash,  deferred

payment or valuable consideration.  Such transactions are

treated and regarded as sales.  The decisions of the Court

in  Fateh Maidan Club (supra)  and  Cosmopolitan Club

(supra)  in that context have drawn a distinction when a

club  acts  as  an  agent  of  its  members  and  when  the

property in the goods is sold, i.e., the property in food and

drinks is passed to the members.  The said distinction, it is

apparent to us,  has been accepted by the two Benches.

However,  the  decisions  do  not  elucidate  and  clearly

expound,  when the club is  stated and could be held as

acting as an agent of the members and, therefore, would

not be construed as a party which had sold the goods.  The

agency precept necessarily and possibly refers to a third

party from whom the goods, i.e., the food and drinks had

been sourced and provided to  by  the  club acting  as  an

agent of  the members,  to the said members.   These are

significant and relevant facets which must be elucidated

and clarified so that there is no ambiguity in appreciating

and understanding  the  aforesaid  concepts  “acting  as  an

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agent of the members” or when property is transferred in

the goods sold to the members.  

23. At this stage, we would appropriately like to refer

to some of the arguments raised, to understand the scope

and width of the controversy.  Learned senior counsel for

the State has submitted that the revenue has treated it as

a sale under Section 2(30) and clause (29A) (e) and (f) to

Article 366 of the Constitution.  Mr. Rana, learned senior

counsel  appearing  for  the  respondent-assessee  would

submit that once a club is incorporated, it is beyond the

State to impose tax or its provision.  He would submit that

clause (29A)(f) would not apply and in any case when the

Club is acting as an agent for its members in supply of

various preparation, there cannot be any demand of any

sales tax as the concept of mutuality is still alive after the

amendment to the Constitution.  Mr. Vasdev has taken us

through the objects and reasons to the 46th amendment

and  stressed  how  various  decisions  of  this  Court  were

referred to in the objects and reasons to remove the base of

certain judgments.  Paragraph 8 of the objects and reasons

which  has  been  emphatically  placed  reliance  upon  is

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extracted below:-

“Besides  the  above  mentioned  matters,  a  new problem has arisen as a result of the decision of the  Supreme  Court  in  Northern  India  Caterers (India) Ltd. v. Lt. Governor of Delhi (supra).  States have  been  proceeding  on  the  basis  that  the Associates  Hotels  of  India  case  was  applicable only to supply of food or drink by a hotelier to a person  lodged  in  the  hotel  and  that  tax  was leviable on the sale of foodstuffs by a restaurant. But,  overruling  the  decision  of  the  Delhi  High Court, the Supreme Court has held in the above case that service of meals whether in a hotel or restaurant does not constitute a sale of food for the  purpose  of  levy  of  sales  tax  but  must  be regarded  as  the  rendering  of  a  service  in  the satisfaction of  a  human need or  ministering  to the bodily want of human beings.  It would not make  any  difference  whether  the  visitor  to  the restaurant is charged for the meal as a whole or according to each dish separately”.  

24. Learned  senior  counsel  for  the  State  would

contend that the objects and reasons throw immense light

how clause (29A) was added and what it intends to cover.

It is argued by him that the club has an independent entity

and  it  supplies  food  and  beverages  to  the  permanent

members and invoices are raised.  Money goes to the club

and, therefore,  there is  supply or service for value.  Mr.

Mukherjee would submit that the controversy is covered by

the decisions in Young Men’s Indian Association (supra)

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and  the  concept  of  mutuality  applies,  because  neither

clause  (e)  or  (f)  to  clause  (29A)  of  Article  366  of  the

Constitution  has  removed  the  concept  of  mutuality  or

agency.  It is urged by him that the club merely acts as an

agent for supply of goods and agent does not sell the goods

to the principal.  It only acts as a conduit to pass on the

goods  and  the  money  whether  it  is  in  cash  deferred

payment or by way of security.   

25.  Mr. Vasdev has submitted that whether mutuality

exists or not is a question of fact, for the contention of the

State is assuming the mutuality clause applies then also

the respondent assessee is liable to pay tax , for its supply

or sale to a member by the club which is  a dealer.   In

Bharat  Sanchar  Nigam  Ltd. (supra),  the  Court  has

opined that by virtue of the constitutional amendment, the

Parliament has neutralised the rulings of this Court.  In

Fateh  Maidan  Club  (supra),  the  three-Judge  Bench

remanded the matter as there was no determination by the

fact-finding authorities as regards the relationship between

the club and its members in the matter of supply by the

former to the latter of food and drinks and such like.  The

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Court has also observed the relationship would govern the

fate  of  imposition  of  sales  tax.   In  Cosmopolitan  Club

(supra),  the  Court  has  remarked  that  there  was  no

determination that the club was acting as an agent of the

members or for that matter its property in food and drink

has passed from the club to the members.  The matter was

remanded to the tribunal to decide on facts as regards the

relationship between the parties in the matter of supply of

food  and  drinks  to  its  members.   The  Court  clarified

whether  the  principle  of  mutuality  amongst  other

circumstances has to be gone into.  Thus, in a way, the

principle  of  mutuality  has been regarded as the base of

imposition  or  non-imposition  of  sales  tax.   It  is  also

noticeable  that  the  Court  has  not  addressed  the  issue

whether  the  facet  of  mutuality  survives  after  the

amendment to the Constitution.  There is observation in

the case of  Bharat Sanchar Nigam Ltd. (supra) that the

judgment  of  this  Court  has  been  neutralised.  Clause

(29A)(f), as Mr. Vasdev would submit has to be understood

independently and not in conjunction with Clause 29A(e).

It is put forth by him that the litmus test has to be that the

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transaction  has  to  be  determined  only  within  the

parameters  of  provisions  in  that  sub-clause.   Learned

senior counsel would submit that clause (29A)(e) relates to

a  different  field  altogether  and  clause  (29A)(f)  has  a

different field wherein it operates.  In any case, according

to him, the club does not act as an agent.  An attempt has

been  made  to  draw  a  distinction  between  doctrine  of

mutuality  and  principle  of  agency  and  also  between

“unincorporated association” or “body of persons”.

26. It is appropriate to state here what has transpired

in the course of hearing.  Learned senior counsel for both

sides, at one point of time, had submitted that this Court

following the decision in  Cosmopolitan Club  (supra) and

Fateh Maidan Club  (supra) can remand the matter.  In

the said cases, the Court had observed that the authorities

below had not recorded any finding with regard to exact

relationship or the mutuality facet.  The argument before

us is that even if the principle of mutuality or agency is in

existence  or  established,  still  it  would  be  a  sale  on the

basis  of  clause  (29A)(e)  or  (29A)(f).  Thus,  the  initial

suggestion by the  learned senior  counsel  for  the  parties

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was not pursued and we are disposed to think, rightly.  

27. In our considered opinion,  the  controversy  that

has arisen in this case has to be authoritatively decided by

a  larger  Bench  in  view  of  the  law  laid  down  in

Cosmopolitan  Club  (supra)  and  Fateh  Maidan  Club

(supra).   We  are  disposed  to  think  so  as  none  of  the

judgments really lay down that doctrine of mutuality would

apply or not but proceed on the said principle relying on

the  earlier  judgments.   It  is  desirable  that  the  position

should  be  clear.   For  the  aforesaid  purpose,  the  matter

should  be  referred  to  a  larger  Bench  and  for  the  said

purpose, we frame following three questions.

i. Whether  the doctrine of  mutuality  is  still applicable  to  incorporated  clubs  or  any  club after the 46th amendment to Article 366 (29A) of the Constitution of India?

ii. Whether  the  judgment  of  this  Court  in Young Men’s Indian Association (supra)  still holds the field even after the 46th amendment of the  Constitution  of  India;  and  whether  the decisions  in  Cosmopolitan  Club  (supra)  and Fateh Maidan Club (supra) which remitted the matter applying the doctrine of mutuality after the constitutional amendment can be treated to be stating the correct principle of law?

iii. Whether  the  46th amendment  to  the Constitution,  by  deeming  fiction  provides  that provision  of  food  and  beverages  by  the

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incorporated  clubs  to  its  permanent  members constitute sale thereby holding the same to be liable to sales tax?

28. Let the papers be placed before the Hon’ble Chief

Justice  of  India  for  constitution  of  appropriate  larger

Bench.  

       .........................J. (Dipak Misra)

..........................J.  (Shiva Kirti Singh)

New Delhi; May 04, 2016.