Sales Tax Instructions

Sales Tax Instructions, 2009
losing its shape, taste and quality and supplies it to the customers in a congenial setting. All this is
done by use of a system of refrigeration.
4. Unless a customer wants to carry the food home (which is rare), the process of
supply of food culminates only when the customer has consumed it. This pattern of supply of
taxable goods is peculiar to the business of an eating house.
5. A somewhat similar treatment is adopted in the case of beverages.
The eating house a registered person pays sales tax on its various purchases and other
input like gas etc. Such payments make its input tax.
6. Under section 7 of the Sales Tax Act, 1990, the eating house is for the purpose
of determining its tax liability in respect of taxable supplies made by it is allowed to deduct its
input tax from the output tax which is due from him during the tax period.
This conversion is, however, by virtue of section 8 of the said Act, is curtailed to the input
tax in respect of those goods only, which are used for making the taxable supplies.
7. The requirements of both provisions of law are fulfilled in the case of the above
eating house. It pays sales tax on the electricity received by it for carrying on its business. This
electricity is one of the goods used by it for preparing and making its taxable supplies. It has to
employ electricity for the purpose of repairing, maintaining in vendible form and making the
taxable supplies. The term ―for the purpose of‖ appearing in section 7 of the Act is very wide term
and as held by the Indian Supreme Court in the case reported as Commissioner of Income Tax, W.
B. Birla Cotton Spinning Weaving Mills Limited.,(1971) 3 SCC 344, 346, 348 includes all kinds of
incidental and related actions.
Section 8 of the Act too, moves in the same vein. The refrigeration use by the above
eating house was for the purpose which both the above two sections contemplated. The use of
electricity in this manner was made for the purposes of preparing, maintaining the shape and
quality and supplying the taxable goods on which output tax was to be collected.
8. On the above facts, in respectful view, the output tax relating to use of electricity
for refrigeration of the food and the place where the food is served and consumed by the
customers is adjustable against the input tax paid on the electricity received by the eating house.
9. The CBR in its circular/letter No.3(17)STP/00(Pt.-III), dated 21 st October, 1999
(―Letter‖) apparently had in mind the wide amplitude of the term ―for the purpose of‖, when it
allowed the adjustment of the input tax on paints (a kind of building material) used for the
maintenance of machinery employed for making taxable supplies although the Federal
Government‘s Notification No.578(I)/98, dated 12 th June, 1998 had denied adjustment of input tax
paid on building material.
Very truly yours,