R. Jayasimha Babu, J.
1. The Madras General Sales Tax Act, 1939 is, perhaps, the first Indian statute on the subject of general sales tax. As noted by Hidayathullah, J. in his dissenting judgment in the case of New India Sugar Mills vs . C.T.O., : AIR1963SC1207 , though by the time the Government of India Act 1935 was passed some 30 countries had imposed this tax in different forms, almost all of those in the 20th century, India was not one of the countries which had imposed such a tax.
2. In the Madras General Sales Tax, 1939 (Act 9 of 1939) `dealer' was defined in Section 2 as meaning -- `any person who carries on the business of buying or selling goods'. Explanation (1) to the definition read thus :
'A Co-operative society, a club, a firm, or any association which sells goods to it's members is a dealer within the meaning of this clause.'
3. From 1939 onwards the clubs were paying sales tax on the supply of refreshments to their members and continued to do so till India became a Republic and thereafter till about 1951. The Cosmopolitan Club, Madras filed a writ petition in this Court in or about 1951, to forbear the State from levying and collecting sales-tax on the value of refreshments supplied to it's members. That was the case of Cosmopolitan Club vs. Deputy Commercial Tax Officer, (1952) 3 STC 77. Mack, J., who heard the matter, after noticing that the club had been paying sales-tax since 1939 which grew from a comparatively insignificant levy of a few rupees a year, to a considerable sum and that not only that club but also the other clubs had been paying tax without demur or objections, considered the question as to whether the supply of refreshments by the petitioning club to it's members charging a fixed rate, constitutes in law `sale'.
4. The learned Judge found that the Articles and Memorandum of Association of the Cosmopolitan Club was based on that of the Eccentric Club, London and that it was social or members club not conducted for gain or profit. The Court took judicial notice of `necessity to sustain and refresh members of the club indulging in generally wholesome social and recreative activities, by a supply of refreshments, both liquid and solid. The Court referred to English case of Inland Revenue Commissioner vs. Westleigh Estates Company Ltd., (1924) 1 K.B. 390 wherein it was held that Members Club not being a Proprietary Club, the club was not carrying on any `undertaking of a similar character to that of a trade or business' and was therefore not liable to corporation profit tax. The Court after referring to the case of Cole vs. Merton Park Wimbledon Golf club Ltd. (1927) 43 T.L.R. 400, held that a members club does not do any trade or business in purchasing from outside the requirement of members, and supplying it to them at a fixed charge, and that the supply does not result in a sale of the refreshments; and that sales-tax is not leviable on such sale of refreshments to it's members.
5. That judgment was affirmed in appeal by a Division Bench of the Court in Dy. Commercial Tax Officer vs. Cosmopolitan Club, (1955) 6 STC 1 but on different grounds. The Division Bench held that in the absence of profit motive, the supply of refreshments by a club to it's members would not be a `sale' as that word is defined in the Act. In the course of the judgment, the Court referred to the case of Graff vs. Evans (1882) 8 Q.B.D. 373, in which the Manager of a bona fide club was prosecuted for selling by retail, intoxicating liquors without a licence under the Licencing Act, 1872. The English court in that case held that there was no sale as, when such supply was made to it's members, there was no transfer, either of the general or absolute property in the goods but only a transfer of a special interest. The Bench also referred to the case of Trebanog Working Men's Club and Institute Ltd. vs. Macdonald, (1940) 1 K.B. 576, which also concerned the supply of intoxicating liquor to members without having first obtained a licence for that purpose. Lord Hewart, C.J., in that case had held that while dealing with the quasi-criminal case, the Court was required to look into substance of a transaction rather than the legal form in which it may be clothed, and viewed in that perspective, the real interest in the liquor being with the members of the club, it could not be said that there was a transfer of the property by way of sale to the member by the club. Certain passages from the 3rd edition of Halsbury's laws of England were also quoted by the Bench. One of the passages dealing with the `incorporated club' stated that where every member is a shareholder, and every shareholder a member, it would appear that no licence need be taken out if liquor is supplied only to members and that licence would be required only in case of an ordinary proprietary club where some of the shareholders are not members and vice versa.
6. After the decision of Mack, J. in the case of cosmopolitan club, similar rulings were given much later by other High Courts of Madhya Pradesh and Mysore with regard to taxability of sale of refreshments in the club in Bengal Nagpur Cotton Mills vs. S.T.O., Raipur, (1959) 8 STC 781 and Century Club vs. State of Mysore, (1965) 16 STC 38.
7. The Tamil Nadu General Sales-tax Act 1959 repealed the Act of 1939. Sale was defined in Section 2(n) of that Act in an expansive manner and included the transfer of property involved in the supply or distribution of goods. Thereafter, the Cosmopolitan Club was once again before this Court along with Young Men's Indian Association questioning the legality of the levy of tax on refreshments supplied to members.
8. In the case of Young Men Indians Association and Cosmopolitan Club vs. Joint Commercial Tax Officer, 1963 (14) STC 1030 the Court speaking through Ramachandra Iyer, C.J., observed that though in this country there have always existed literary, cultural and philosophical associations, men generally found relaxation in their families, and clubs are more or less a foreign concept, and therefore for a true understanding of the character of such an institution and it's relation to it's members it was necessary to consider it's features in the country of it's origin. The English Law in relation to clubs was thereafter surveyed, and after such survey, the Court concluded that a club may be juristic entity capable of holding property, but when it purchases articles for the consumption of it's members, and supplies the same to them against payment, no element of sale is involved in the transaction, as the club should be regarded only as holding the property for the benefit of it's members and releasing them when required to do so. In the case of incorporated clubs which exist only for the purpose of providing amenities to it's members, the supply of articles by them to a member, will tantamount to delivery by an agent or trustee to the principal or beneficiary. The Court referred to the case of New York Life Insurance Co. vs. Styles, (1881) 14 Appeal Cases 381, which had held that when a number of individuals agree to contribute funds for a common purpose, they could not be regarded as traders, and contributions returned to them were not to be regarded as profits, when the purpose of such contribution was for the purpose of return to them of those contributions on the occurrence of certain events. The Court also referred to the case of Trebanog Working Men's Club and Institute vs. Macdonald, (1940) 1 K.B. 576, to which Mack, J. also had referred, and held that the principle recognised in that case, would apply to all clubs incorporated or otherwise. The juristic personality of the club, the Bench concluded, was but an agency, to enable the members to obtain amenities to which they contribute, and in such a club there can be no sale of goods so as to attract the provision of the Sale of Goods Act.
9. That decision was carried in appeal to the Supreme Court. But before the appeal could be heard, that decision by a Bench of this Court came to be considered by a three Judge Bench of the apex Court in the case of Dy. CTO vs. Enfield India Ltd. Co-op. Canteen Ltd., (1968) 21 STC 317. The Court distinguished the English cases on which the High Court had relied, and held that the decision of the Court which was in appeal before them and which had followed the decision of the Division Bench in 14 STC 1030 was incorrect. The Court held that the property of the Society which ran the Co-operative canteen was the property of the society; that the society is a person; that the property in the refreshments supplied to it's members is vested in the society, and when refreshments are supplied for a price paid or promised, transfer of property in the refreshments results. The Court then expressed the view that in the case of an unincorporated society, club or a firm, or an association, ordinarily the supply and distribution bysuch a society, club, firm or an association, of goods belonging to it's members may not result in sale of the goods which are jointly held for the benefit of the members of the society, club, firm or association.
The Court then held -
'by providing that a transfer of property in goods from a Corporate body to it's members for a price is a sale, the legislature does not over-step the limits of it's authority, and it cannot on that account be held that the first Explanation to Section 2(n) is in its entirety, ultra vires the State Legislature'.
10. After that judgment was delivered, the appeal against the decision of the Madras High Court reported in 14 STC 1030, was heard by six Judges Bench of the apex Court in Jt. Commercial Tax Officer vs. Young Men's Indian Association, Madras (1970) 26 STC 241. Shah, J. who was a member of that Bench, and who had authored the judgment in the case of Enfield, 21 STC 317 wrote a separate opinion. The majority judgment referred to the case of Trebanog Working Men's Club and Institute Ltd. vs. Macdonald, (1940) 1 K.B. 576. The judgment noticed decisions of the Mysore High Court, in Century Club vs. The State of Mysore (1965) 16 STC 38, that of the Madhya Pradesh High Court, in the case of Bengal Nagpur Cotton Mills Club vs. STO, Raipur, (1957) 8 STC 781 as also the case of Enfield India Co-operative Canteen Ltd., (1968) 21 STC 317 and set out the question requiring consideration:
'The essential question, in the present case, is whether the supply of the various preparations by each club to it's members involved a transaction of sale within the meaning of the Sale of Goods Act, 1930.'
11. The clubs before the Court in that case were the Cosmopolitan Club, which had originally been formed as an unincorporated association, but was later registered as a company under Section 26 of the Indian Companies Act, 1913 in the year 1934; the Young Men's Indian Association which was a society registered under the Societies Registration Act, 1860, and the Lawley Institute in Ooty which had come into existence under a deed of Trust. The Court held that in respect of definition contained in Section 2(n) of the Madras Act (now Tamil Nadu Act) read with Explanation I therein, if there is no transfer of property from one to another, there is no sale which would be exigible to tax. The Court, also held that if the club, even though a distinct legal entity is only acting as an agent for it's members in the matter of supply of various preparations to them, no sale would be involved as the element of transfer would be completely absent. The Court concluded that 'as no transaction of sale was involved, there could be no levy of tax under the provisions of the Act on the supply of refreshments and preparations by each one of the clubs to it's members'.
12. In his concurring opinion, Shah, J. held that 'If an incorporateed 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 no-profit basis; such a transaction would be liable to sales-tax. Where, however, the club is merely acting on behalf of the members to make available to them refreshments, beverages and other articles the transaction will not be regarded as a sale, for the club is the agency through which the members have arranged that the refreshments, beverages and other articles should be made available.'
13. About twelve years after that judgment was delivered, the Constitution 46th Amendment Act introduced a new clause 29A in Article 366 of the Constitution. The statement of objects and reasons attached to that Amendment, inter alia, sets out that 'while sale by a registered club or other association of persons (the club or association of persons having corporate status) to it's members is taxable, sales by an unincorporated club or association of persons to it's members is not taxable, as such club or association, in law, has no separate existence from that of the members.' Clause 29-A of Article 366 has six sub clauses, of which sub clauses (e) and (f) are relevant here :
(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.'
14. The Tamil Nadu General Sales Tax Act 1959 which had repealed the Madras General Sales-tax Act of 1939, was thereafter amended. Sub clauses (a) to (f) of Clause 29-A of Article 366 were reproduced and incorporated as part of the definition of 'sale' in Section 2(n) as sub-clauses (i) to (vi) of Section 2(n) of the Tamil Nadu General Sales Tax Act. Sales tax is being levied on the sale of refreshments in clubs ever since that amendment was effected to the Tamil Nadu Act.
15. In these petitions the petitioner clubs impugn the correctness of the decision of the Tamil Nadu Special Taxation Tribunal which has rejected their challenge to the levy of sales-tax on refreshments supplied by incorporated and unincorporated clubs to their members. The premier clubs in the city of Madras - the Cosmopolitan Club, Madras Gymkhana Club, The Presidency Club, The Madras Boat Club, The Gandhinagar Club, as also the clubs in the Queen of Hill Stations, Udhagamandalam - Ootacamund Club, Ootacamund Gymkhana Club and Lawley Institute, as also the club in Coonoor, had petitioned the Tribunal inter alia, to declare that sales-tax is not leviable on the supply of refreshments to their members. Some of these clubs are incorporated while some others are not incorporated bodies.
16. Though several grounds had been raised before the Tribunal the only ground urged before us for the petitioners by their learned counsel led by Mr.M.L.Verma, whose submissions were adopted by other counsel, was that Article 366(29A) in sub clause (e) refers only to unincorporated associations or body of persons, and therefore sale of refreshments by incorporated members clubs to their members is not covered by that clause, and the law laid down by the apex Court in the case of Young Men's Indian Association, 26 STC 241 continues to hold the field.
17. The complete answer to that, as rightly submitted by the learned Additional Advocate General who argued for the State, is sub-clause (f) of clause (29A) of Article 366 and corresponding sub-clauses (vi) under Section 2(n) of the State Sales-tax Act. Those provisions expressly provide that the supply 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, the transfer, delivery or supply of such goods shall be deemed to be a sale of those goods by the person making transfer, delivery or supply to the person to whom such transfer, delivery or supply is made. These provisions make no distinction between incorporated bodies or unincorporated bodies. The provisions apply to all.
18. The distinction which the Courts in the past had drawn between the Members' Clubs and Proprietary Clubs is also no longer relevant in so far as constitutionality and legality of levy of sales-tax is concerned. The supply of refreshments by all clubs in the State, whether incorporated or unincorporated would be subject to tax by reason of sub-clause (vi) to Section 2(n) of the State Act which provision is fully in conformity with the sub-clause (f) of Clause (29A) in Article 366 of the Constitution.
19. Reliance placed by counsel on sub-clause(e) of (29A) is wholly misplaced. The reference to `unincorporated association in clause (e) does not imply that all goods supplied by incorporated associations or body of persons to their members and would not amount to sale. Much of the business and commerce in any part of the world is today carried on by incorporated bodies. To say that the supply of goods by incorporated bodies when made to the shareholders would not amount to sale, is to ignore a reality which stares one on the face. The need for introducing sub-clause (e) arose in the context of what the apex Court had laid down in the case of Jt. C.T.O. vs. YMIA, (1970) 26 STC 241, which had followed the English Law regarding the application of the doctrine of mutuality to members' clubs.
20. The question considered in the YMIA case was, as already stated, whether the supply of various preparations by each club to it's members involved a transaction of sale. The preparations referred to therein are refreshments food and drink both of which are expressly covered by sub-clause (f) clause (29A) of Article 366. The Court did not lay down in that judgment that the supply of goods by incorporated bodies were not sales. The Court only held that in the case of Members' Clubs, though incorporated where service or supply is only to members, and there are no shareholders who are not members, the supply of refreshments to such members would not amount to sale.
21. The supply of food, drink or refreshments having been expressly dealt with in sub-clause (f) of Clause (29A), whether or not incorporated, clubs can no longer, take shelter under that decision of the apex Court to avoid the payment of sales-tax on the refreshments delivered or supplied by them to their members, for valuable consideration.
22. The doctrine of mutuality in the field of sales tax has been done away with after the introduction of Clause 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-clauses (e) treats the supply of goods for valuable consideration to members by unincorporated association as sale. Sub-clause (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.
23. 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 Y.M.I.A. 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).
24. As observed in one of the judgments of this Court already referred to, 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.
25. 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 refreshments to it's members is not a sale and that tax is not leviable on such sales.
26. The writ petitions are, therefore, dismissed.