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2023 DIGILAW 628 (KER)

Hotel Hillside v. Commercial Tax Officer

2023-08-09

SHOBA ANNAMMA EAPEN

body2023
JUDGMENT : The petitioner, a partnership firm, is a registered dealer under the Kerala General Sales Tax Act, 1963 (for short, “the KGST Act”) on the rolls of the first respondent and is running a three star hotel situated in the panchayat area in Kozhikode district. It started business on 11.02.2010 during the assessment year 2009-10. While so, as per the Finance Act, 2010, Section 7 of the KGST Act was amended by including a new provision for compounding by three star hotels. It was stipulated that three star bar attached hotels in the areas other than Municipal Corporations will have the option to pay turnover tax on foreign liquor instead of paying turnover tax under Section 5(2) of the KGST Act @ 170% of the purchase value of such liquor or at 125% of the highest turnover tax payable as conceded in the return or accounts or the turnover tax paid for any of the previous consecutive three years, whichever is higher. While so, as per Ext.P2 application dated 30.04.2010, the petitioner applied for permission to pay tax under Section 7 of the KGST Act; and accordingly, tax was being paid for all the months of the year; and monthly returns filed along with payment of compounded tax for each month were accepted by the first respondent. The total tax thus paid is Rs.22,65,716/-, which is reflected in Ext.P4 Trading Account along with Form 50-A. While so, as per Ext.P5 order dated 25.01.2014, the petitioner was asked to pay differential turnover tax on liquor. The petitioner, though objected to the same, paid the said amount. Thereafter, as per Ext.P6 notice, the first respondent proposed to revise the assessment already made under the compounding scheme, which was reaffirmed by Ext.P5. The petitioner filed Ext.P7 objection to Ext.P6 notice, objecting to the proposal and the method of calculation adopted by the first respondent, stating that it was totally against the provisions of law. However, as per Ext.P8 order, the first respondent confirmed the proposal to make assessment, taking the average and multiplying the same into 12 for fixing up the yearly compounded tax; and thus, the total demand was arrived at Rs.2,36,757/-along with interest amounting to Rs.92,335/-. However, as per Ext.P8 order, the first respondent confirmed the proposal to make assessment, taking the average and multiplying the same into 12 for fixing up the yearly compounded tax; and thus, the total demand was arrived at Rs.2,36,757/-along with interest amounting to Rs.92,335/-. On receipt of Ext.P8, when a representative of the petitioner approached the first respondent, informing that no compounding order was issued to the petitioner intimating the calculation duly made in regard to the payment of tax, the first respondent handed over Ext.P9 proceedings dated 14.05.2010 to the petitioner's representative on 25.07.2014. Thereafter, Ext.P10 revenue recovery notice was issued to the petitioner in respect of the differential amount demanded by the first respondent. Aggrieved by this, the petitioner has approached this Court with the above writ petition. 2. The first respondent filed a counter affidavit, contending that as per the amendments made to Section 7 of the KGST Act, bar attached hotels of three star and above are liable to pay turnover tax at 10% on 170% of the purchase turnover of Indian Made Foreign Liquor or 125% of the highest turnover tax payable as conceded in the return or accounts of the turnover tax paid for any of the previous consecutive three years, whichever is higher. According to the first respondent, there is no mistake in the provisions applied and the amount is legitimately due to be paid by the assessee. It is further contended that since the compounding order was served on the petitioner by hand, there is no acknowledgment for serving the same; and pre-assessment notice also had been issued to the dealer before finalizing the proceedings. Therefore, according to the first respondent, there is no violation of principles of natural justice in issuing Ext.P8 order. 3. I have heard Sri.Firoz K.M., learned counsel for the petitioner; and Sri.V.K.Shamsudheen, learned Senior Government Pleader. 4. The learned counsel for the petitioner submits that the petitioner started business on 11.02.2010 during the assessment year, 2009-10, and since an amendment was brought in, as per the Finance Act, 2010, in the KGST Act, the petitioner opted for compounding under Section 7 of the KGST Act for the assessment year, 2010-11. It is further submitted that the first respondent assessing authority had permitted the petitioner to pay tax under the compounded scheme and the petitioner was paying tax accordingly. It is further submitted that the first respondent assessing authority had permitted the petitioner to pay tax under the compounded scheme and the petitioner was paying tax accordingly. According to the learned counsel, the petitioner being three star hotel is liable to pay tax under Section 7(ii)(a) of the KGST Act, whereas, the first respondent has calculated the compounded tax and demanded the amount to be paid under Section 7(ii)(b) of the KGST Act, which is not applicable in the case of the petitioner since the petitioner started business in February, 2010. 5. The learned Government Pleader, per contra, submits that since the petitioner opted payment of tax under compounding scheme, the tax was calculated proportionately on the basis of the tax payable for the period, during which such dealer had transacted business; and since the petitioner though had done business only for two months, i.e., February and March of 2010, tax was calculated by proportionately taking the tax for the past 12 months and then, the average of tax payable for the year was worked out proportionately on the basis of the provisions contained in the Act. 6. In this context, it is relevant to refer to Section 7 of the KGST Act, which readsasfollows; “7. 6. In this context, it is relevant to refer to Section 7 of the KGST Act, which readsasfollows; “7. Payment of tax at compounded rates: – (1) Notwithstanding anything contained in sub-section (2) of section 5, any bar attached hotel, not being a star hotel of and above four star hotel, heritage hotel or club, may, at its option, instead of paying turnover tax on foreign liquor in accordance with the said subsection, pay turnover tax on the turnover of foreign liquor calculated at the rates in clause (a) or (b) of items (i) and (ii), respectively, whichever is higher,- (i) in respect of a bar attached hotel of and below two star, (a) at one hundred and forty per cent of the purchase value of such liquor, in the case of those situated within the area of a municipal corporation or a municipal council or a cantonment, and at one hundred and thirty five per cent of the purchase value of such liquor, in the case of those situated in any other place; or (b) at one hundred and fifteen per cent of the highest turnover tax payable by it as conceded in the return or accounts or the turn over tax paid for any of the previous consecutive three years, and (ii) in respect of a bar attached hotel of three stars, (a) at one hundred and eighty per cent of the purchase value of such liquor, in the case of those situated within the area of a municipal corporation or a municipal council or a cantonment, and at one hundred and seventy per cent of the purchase value of such liquor, in the case of those situated in any other place; or (b) at one hundred and twenty five per cent of the highest turnover tax payable by it as conceded in the return or accounts or the turn over tax paid for any of the previous consecutive three years. Provided that the rate of tax mentioned under clause (b) of item (i) above shall be one hundred and ten per cent of the tax paid for the previous year for those bar hotels who have paid compounded tax under this Act continuously for the last five years and one hundred and twelve per cent of the tax paid for the previous year for those who have paid compounded tax continuously for the last three years.” On a reading of Section 7 of the KGST Act, it is clear that the provision applicable to the petitioner is Section 7(ii) of the KGST Act since the petitioner is a three star bar attached hotel. However, insofar as the bar attached hotel is concerned, there is no provision in Section 7 of the KGST Act for proportionate calculation of tax as is done in respect of gold or silver ornaments. Section 7 of the KGST Act states that notwithstanding anything contained in subsection (2) of Section 5, any bar attached hotel, not being a star hotel of and above the four star hotel, heritage hotel or club, may at its option, instead of paying turnover tax on foreign liquor in accordance with the said subsection, pay turnover tax on the turnover of foreign liquor calculated at the rates in clause (a) or (b) of items (i) and (ii) respectively, whichever is higher. As far as the petitioner is concerned, the petitioner had conducted business only for two months in the year 2009-10. Hence, in order to apply the provisions under Section 7(ii)(b), the return or accounts or the turnover tax paid for the previous consecutive three years is not applicable in the case in hand and hence, calculation can only be done under Section 7(ii) (a) of the KGST Act. However, the assessing officer, while passing Ext.P8 order, has calculated turnover tax by working out the turnover tax for 12 months proportionately, which is not possible as per Section 7(ii)(a) or (b) of the KGST Act. Insofar as the petitioner is concerned, the assessing authority ought to have calculated tax payable under Section 7(ii)(a) of the KGST Act, which is the only possible method for calculation in the case in hand. 7. Insofar as the petitioner is concerned, the assessing authority ought to have calculated tax payable under Section 7(ii)(a) of the KGST Act, which is the only possible method for calculation in the case in hand. 7. Therefore, on a consideration of the entire facts and circumstances of the case, I am of the opinion that the method adopted by the first respondent in calculating turnover tax in Ext.P8 order is illegal and hence, Exts.P8, P9 and P10 are liable to be set aside. Therefore, the writ petition is disposed of, as follows; a) Exts.P8, P9 & P10 are set aside. b)The first respondent is directed to recalculate the payment to be made by the petitioner as discussed above within a period of one month with notice to the petitioner and after affording the petitioner an opportunity of being heard. The petitioner shall produce a certified copy of this judgment along with the writ petition before the first respondent for compliance.