SC to take fresh look at tax on club food

New Delhi: Can a state government levy sales tax on food and drinks served to permanent members by a private club on its premises? After deliberating on this question for 10 years, the Supreme Court hit a grey area and referred it to a larger bench.

A bench of Justices Dipak Misra and S K Singh thought it fit to refer the question, which originated nearly 14 years ago, to a larger bench given the lack of clarity in SC's earlier decisions on imposition of sales tax on items served to members inside a private club.

The West Bengal commercial tax department asked Calcutta Club in June 2002 to show cause why it had not paid sales tax for the food and drinks it served to its members for previous years. The club said it was not a seller of the goods and was merely getting reimbursement for the food and drinks it had purchased from the market as an agent of the members. The state lost its case before the West Bengal Taxation Tribunal and then before the Calcutta HC, both of which ruled that the club was not liable to pay sales tax. Yet, the government remained firm on recovering the levy and challenged the HC decision in the SC in 2006.

For Calcutta Club, senior advocate Rana Mukherjee argued that the club acted as the agent of the permanent members in entirety and that no consideration passed for supplies of food, drinks and beverages. The HC had ruled that the members collectively were the real life and the club was only a superstructure.

Appearing for the state, senior advocate Kailash Vasdev said after the amendment to Article 366 to insert clause 29A, the concept of mutuality between members and their club could no longer be a ground to keep the clubs outside the purview of sales tax net.

Calcutta Club further clarified that it charged and paid sales tax when it sold products to non-members or guests who accompanied the permanent members.