Research › Search › Judgment

Kerala High Court · body

2001 DIGILAW 465 (KER)

B. G. R. Enterprises v. State of Kerala

2001-08-22

S.MARIMUTHU, S.SANKARASUBBAN

body2001
Judgment :- S. SANKARASUBBAN, J. These two revisions are filed against the common order in T.A. Nos. 666 and 667 of 1998. They relate to the assessment years 1988-89 and 1989-90. Assessee is M/s. B.G.R. Enterprises. It is running a vegetarian hotel at Ernakulam. For the year 1988-89, the petitioner conceded a taxable turnover of Rs. 50, 55, 429, 90. The assessing authority rejected the accounts and issued a pre-assessment notice proposing to complete the assessment to the best of his judgment on a taxable turnover of Rs. 61, 62, 570 by adding 10 per cent of the conceded turnover. For the year 1989-90, the petitioner conceded a taxable turnover of Rs. 54, 30, 482.15. The accounts were rejected and the petitioner was assessed for a taxable turnover of Rs. 62, 44, 960 by adding 5 per cent to the conceded turnover. The reasons on the basis of which the accounts were rejected are as follows : "(1) Sales turnover conceded for 1988-89 is much less than that for the previous year even when there is increase in purchase of raw materials and stationery when compared to the purchase for 1987-88. No satisfactory explanation has been offered for the steep fall in turnover even when there is considerable increase in purchase of raw materials. (2) Monthly sales turnover returned has no nexus with the monthly purchase of rice. (3) No stock register is kept. The closing stock and opening stock conceded are devoid of quantitative details. The absence of stock register and stock inventory renders it impossible to ascertain the day today consumption of raw materials, (4) An amount of Rs. 2, 73, 768.25 is accounted towards 'Miscellaneous income'. This includes Rs. 1, 41, 189.80 being 'extra' charged at Rs. 1.50 per head for A.C. Restaurant. This amount forms part of turnover and is taxable at the rate of 10 per cent. (5) Purchase of pappadam for Rs. 27, 056.50 is not supported by bills. This attracts tax under section 5A. (6) Water charges paid Rs. 4, 972.30 forms part of turnover and hence attracts tax. (7) Hire charges received forms part of turnover taxable at 5 per cent. Hence, the amount received Rs. 16, 949.40 is proposed to be assessed to tax at 5 per cent. (8) Sales turnover of empties has not been conceded. This is proposed to be estimated at Rs. 4, 972.30 forms part of turnover and hence attracts tax. (7) Hire charges received forms part of turnover taxable at 5 per cent. Hence, the amount received Rs. 16, 949.40 is proposed to be assessed to tax at 5 per cent. (8) Sales turnover of empties has not been conceded. This is proposed to be estimated at Rs. 12, 000 and assessed to tax at 8 per cent". 2. When the petitioner received notice, it gave a reply, which is as follows : "1. The comparison between purchase in the previous year and the assessment year is made without taking into account the opening or closing stock. Moreover we are dealing in cooked food which is a perishable article and any unsold stock remaining at the end of the day cannot be preserved. The prices of commodities are increasing year by year and hence any increase in the amount of purchases cannot be an indication of the corresponding increases in the volume of business........ 2. The comparison of the quantity of rice purchased monthly with the turnover of the corresponding month is bound to be misleading. The rice purchased every month may not be completely used in the same month. Without considering the stock at the close of the every month the comparison is bound to be incorrect.......... 3. It is not practicable to maintain daily stock register in this line of business. We maintained inventories for the opening and closing stock and from the value shown under different items the quantity could be worked out.......... 4. We submit that the charges collected for taking food in the A/C restaurant cannot form part of the turnover. Sale as defined in the Act is transfer of property in goods by one person to another for cash or other valuable consideration.......... 5. Purchase of pappadam could be subjected to tax under section 5A only if frying of pappadam could be termed as manufacture.......... 6. Water charges are paid to the Corporation. The Corporation when it supplies water to the persons having water connection is not subjected to tax. After exempting the Corporation from paying from sales tax on the sale of water to the residents of the Corporation the purchase of such water by any person or institution cannot be subjected to tax.......... 7. Water charges are paid to the Corporation. The Corporation when it supplies water to the persons having water connection is not subjected to tax. After exempting the Corporation from paying from sales tax on the sale of water to the residents of the Corporation the purchase of such water by any person or institution cannot be subjected to tax.......... 7. The hire charges accounted by us represent the charges collected for using of furniture and other facilities during parties. These charges cannot be termed as charges for transfer of right to use goods within the meaning of Explanation (3B) of clause (xxi) of section 2......... 8. Empties are not sold by us, these are used for various purposes in the establishment". The assessing officer rejected these contentions. Against that appeals were filed. The appeals were heard together. The appellate authority held that in completing the assessment, the assessing authority has found that several reasons were given for the rejection of accounts. Against the above order, appeals were preferred before the Appellate Tribunal. 3. Before us, Sri. V.P. Sukumar appearing for the petitioner submitted that the hotel business is not an ordinary business. There are certain peculiarities in the business and strict accounting is difficult. He submitted that it may not be possible to maintain stock register so far as hotel business is concerned. It is further submitted that there is no allegation that there is no difference between the stock and the account and that the accounts are not supported by bills or vouchers. Learned counsel brought to our notice a division Bench decision of this Court reported in Arya Bhavan Hotel v. State of Kerala [1 9971 (104) STC 546 ; (1997) 5 KTR 98. Kamat, J. speaking for the Bench in that case held as follows : "We have to appreciate the situational peculiarities of hoteling activity to emphasize that very few items from the preparation could be understood to be away from perishable character in expecting rigorous maintenance of technicalities such as inventory of stocks, the situation is required to be appreciated on the basis of imagination of situational peculiarities. It is not uncommon that the purchase of recurring requirements in a day such as milk, vegetables and firewood, perfect requirements of maintenance of bills would not be possible and if the accounts are maintained in regard thereto exhibiting maintenance on day to day basis, the aspect cannot be appreciated as a justification for throwing away the accounts without sale chits cover transactions in regard thereto." Learned counsel further submitted that water is not used for the purpose of any manufacture. Water is used for the purpose of washing, cooking, etc. But when it is used for the purpose of cooking, there is no manufacturing process, learned counsel brought to our notice a decision of the Supreme Court reported in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Thomas Stephen and Co. Ltd. 1988 (69) STC 320, 1988 AIR(SC) 997, 1988 (34) ELT 412, 1988 UPTC 964, 1988 (2) SCC 264, 1988 (1) Scale 569B, 1988 (1) KLT 568, 1988 (3) SCR 248, 1988 (1) JT 631, 1988 SCC(Tax) 190. He further submitted that the hotel contains separate rooms for A/C and non-A/C. Those who want to dine in A/C room will have to pay additional charges. But the price of the commodities sold in both the A/C and non-A/C rooms are the same. Learned counsel submitted that so far as higher charges are concerned, there is no sale. Learned Government Pleader submitted that it is for the assessee to explain regarding difference in the price of rice and the turnover of cooked food. He submitted that it cannot be said that hoteliers are not be able to maintain a true account. 4. There is no contention for the Department that the petitioner had suppressed anything. According to us, the contention of the Revenue cannot be accepted. For example, the assessing officer as well as the authorities have made much of purpose of rice and the turnover of cooked food. As rightly pointed out by the division Bench of this Court referred to supra (Arya Bhavan Hotel v. State of Kerala 1997 (104) STC 546), the items involved in the hotel are perishable and merely because there has been some discrepancies between the purchase of rice and the turnover of cooked food, it cannot be presumed that there has been suppression in the sale. Further, it is not always necessary that only after exhausting the quantity already purchased the further quantity should be purchased. 5. The assessee admittedly is a very big hotel. So that always stocks of food are to be there, so that there may not be any deficiency when food is required. Hence, we are of the view that merely on the basis of the variation in the turnover of cooked food it cannot be said that there has been suppression. We are also of the view that so far as the charges for A/C room are concerned, that is charged separately. It is not the price of goods. Hence, higher charges for A/C cannot be included. So far as purchase of pappadam is concerned, the Tribunal rejected this on the ground that it was not supported by vouchers. Pappadam can be obtained from small entrepreneurs without issuing any bill or voucher. If the reasoning of the assessing authority is accepted, the receipts may be required even for purchase of plantain leaves. 6. Under section 5A of the Kerala General Sales Tax Act, 1963 every dealer who, in the course of his business, purchases from a registered dealer or from any other person any goods, the sale or purchase of which is liable to tax under this Act, in circumstances in which no tax is payable under sub-section (1), (2), (3), (4) or (5) of section 5 and either (a) consumes such goods in the manufacture of other goods for sale or otherwise ; or (b) disposes of such goods in any manner other than by way of sale in the State. Here is a case where water is purchased for the purpose of hotel. A similar question arose in the decision reported in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Thomas Stephen and Co. Ltd. 1988 (69) STC 320, 1988 AIR(SC) 997, 1988 (34) ELT 412, 1988 UPTC 964, 1988 (2) SCC 264, 1988 (1) Scale 569B, 1988 (1) KLT 568, 1988 (3) SCR 248, 1988 (1) JT 631, 1988 SCC(Tax) 190 (SC). There the meaning of "consumption" and "disposing of was discussed. Ltd. 1988 (69) STC 320, 1988 AIR(SC) 997, 1988 (34) ELT 412, 1988 UPTC 964, 1988 (2) SCC 264, 1988 (1) Scale 569B, 1988 (1) KLT 568, 1988 (3) SCR 248, 1988 (1) JT 631, 1988 SCC(Tax) 190 (SC). There the meaning of "consumption" and "disposing of was discussed. The court held as follows :"........since the cashew shells had been used only as fuel and did not get transformed into the end-product and were not used as raw material in the manufacture of other goods, they did not fall within section 5A(l)(a) of the Kerala General Sales Tax Act and did not attract the tax payable. The same was the position regarding the lime shells and the consumed stores which were only used in the maintenance of the kiln and the factory and were not used in the manufacture of the end-product". On the above reasoning, it cannot be possible to say that water is used as a raw material. 7. In the above view of the matter, we arc of the view that it was not proper on the part of the assessing authority to reject the accounts submitted by the petitioner. Hence, the orders passed by the assessing authority and the other authorities are set aside and the assessing authority is directed to make assessment as per the return filed by the assessee. Tax revision cases are disposed of as above. Order on C.M.P. No. 2202 of 2001 in T.R.C. No. 176 of 2001 dismissed. Order on C.M.P. No. 2199 of 2001 in T.R.C. No. 174 of 2001 dismissed. Petition disposed of accordingly.