KRISHNA RAO, J. - The above two writ petitions have been filed with a prayer to issue a writ of mandamus or any other appropriate writ, order or direction directing the respondents, the State of Andhra Pradesh and the Commissioner, Commercial Taxes, Board of Revenue, Government of Andhra Pradesh, not to collect any sales tax on the turnover of the business of the writ petitioners after declaring that section 5(1) read with the first proviso of the Andhra Pradesh General Sales Tax Act of 1957 ultra vires and unconstitutional is so far as they relate to the turnover of the business of the petitioners. In writ Petition No. 4864 of 1973 as many as 83 petitioners joined claiming to be carrying on the hotel and restaurant business. In Writ Petition No. 2070 of 1973, the only petitioner is Sri Anand Bhavan Hotel, Secunderabad, represented by its managing partner.

The averments in both the writ petitions are substantially the same and may be set out. The petitioners are all owners of hotels or catering establishments in the twin cities of Hyderabad and Secunderabad. Some of the petitioners run boarding and lodging houses and some others run boarding-houses and restaurants exclusively. The customers who reside in the lodges are served with meals and refreshments and a comprehensive bill is issued for the total service rendered to them. In the case of restaurants and catering houses, the foodstuffs are served in the premises and consumed there. In a few cases the foodstuffs are taken by the customers outside the premises. For the purpose of making the foodstuffs, large quantities of raw materials of various types are used. The foodstuffs and the beverages are made by a large labour force like cooks, servers, etc. The premises provide decent and comfortable accommodation for the customers who enjoy the amenities provided for relaxation such as fans, etc., while consuming the foodstuffs. The bulk of the price paid by the customers goes towards the service charges. The charges for service constitute about 80 per cent of the price paid by the customer for the foodstuffs and the remaining 20 per cent goes only to the cost of the materials. The petitioners provide therefore essentially service to the customers. The business of the petitioners is in the nature of an agency for preparing foodstuffs and storing them to be served later to the customers who come there. The relationship between the petitioners and their customers is in the nature of a contract of service. Thus the entire transaction between the petitioners and their customers is not one of sale or purchase but is essentially one of service. Under entry 54 in List II of the Seventh Schedule of the Constitution of India, the State Legislature is empowered to levy a tax on sale or purchase of goods but cannot levy a tax on a mere contract of service. But the Andhra Pradesh Legislature, ignoring the important constitutional provisions, has provided for a levy of sales tax on hotel turnover. Perishable articles like fruits, vegetables, etc., which stand on a par with the foodstuffs sold in a hotel are completely exempt and therefore the first proviso to section 5(1) of the Act is discriminatory. The State Legislature is not invested with any power to levy tax on any contractual service such as the one which the petitioners are rendering because contractual service is the very essence of the petitioner's business. The definition of the words "goods", "business" and "sale" in the Act also support the petitioner's case. In the case of the petitioner in Writ Petition No. 2070 of 1973, it was stated that the 2nd respondent accepted the plea of the petitioner with regard to the sale of foodstuffs to the lodgers, but declined to treat the other sales as one of service and by his order dated 6th March, 1973, a demand of sales tax was made on the sales in the hotel premises of the petitioner.

The counter-affidavit filed on behalf of the respondents stated, inter alia, that there is no c