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2024 DIGILAW 1474 (KER)

Hotel Sayooj v. Deputy Commissioner Of State Tax

2024-11-13

A.K.JAYASANKARAN NAMBIAR, K.V.JAYAKUMAR

body2024
JUDGMENT : A.K.Jayasankaran Nambiar, J. In this Writ Appeal, the appellant, who is an assessee under the Kerala General Sales Tax Act (hereinafter referred to as “the KGST Act”), and runs a Three Star Bar Attached Hotel, impugns the judgment dated 29.11.2023 of a learned Single Judge in WP(C). No.13264 of 2023. The brief facts necessary for the disposal of the Writ Appeal are as follows: 2. The appellant had filed an application for remitting turnover tax (TOT) on compounded basis for the financial year 2021-22. The application was submitted on 29.04.2021 under Section 7 of the KGST Act. Although there is no express provision under the KGST Act for accepting an application and granting permission to the dealer for payment of tax on compounded basis, since the compounding provision is permitted to be availed on an annual basis, one would expect that a decision on the application is taken by the authority concerned within the said period of one year. In the instant case, no decision was taken on the application till 04.01.2023, by which time the assessment year for which the appellant had sought permission to pay tax on compounded basis had long since expired. 3. It is significant that although the appellant had filed the application seeking permission for paying tax on compounded basis, he did not actually pay tax on compounded basis pending an acceptance of the application by the department. On the contrary, he paid tax as per the regular provisions of the KGST Act (Section 5) and not in terms of Section 7 of the KGST Act. However, taking note of the fact that while paying the tax under Section 5 of the Act, the appellant had used the form of return prescribed for those paying tax under Section 7 of the Act, the department, in 2023, passed a formal order accepting the application for compounding that was filed in 2021, and assessing the appellant to a differential tax (difference between the tax that was paid under S.5 and the tax that would have been payable under S.7 of the Act) through an assessment order passed on 15.03.2023. 4. 4. It is relevant to note at this stage that, with a view to help dealers tide over the difficulties that were faced during the Covid period, the State Government had through a notification reduced the rate of tax applicable to sales of liquor by bar attached hotels from 10% to 5%, and the appellant, who had paid tax under S.5 of the Act, filed an application for refund of the tax paid @10% in the year 2021-22. It was at that stage that Ext.P1 order was passed by the department on the compounding application dated 29.04.2021 preferred by the appellant. It was therefore that on receipt of Exts.P1 and P2 orders, belatedly accepting the compounding application of the appellant, and completing the assessment against him, that the appellant approached this Court through the Writ Petition impugning the said orders. 5. The learned Single Judge, who considered the matter found that inasmuch as the appellant had filed his returns in Form 10-DA, which was the return that had to be used by those opting to pay tax on compounded basis under Section 7 of the KGST Act, he could not deviate from his obligation to pay tax on compounded basis, and hence the assessment order that finalised the assessment and demanded a differential tax from the appellant did not require to be interfered with. In coming to the said conclusion, the learned Single Judge relied on a Division Bench Judgment of this Court in State of Kerala v. Kalyanaraman ]2009 (3) KLT SN 31 (C.No.34)]. 6. Before us, it is the submission of Sri.Premjit Nagendran, the learned counsel for the appellant that the learned Single Judge erred in placing reliance on the judgment of this Court in Kalyanaraman (Supra). It is in particular, pointed out that while it may be a fact that the appellant had applied on 29.04.2021 for payment of turnover tax on compounded basis for the assessment year 2021-22, in terms of Section 7 of the KGST Act, the said application seeking permission was not acted upon by the department till much later, and much after the expiry of the assessment year in question. At the same time, the appellant did not act in consonance with the application that he had filed seeking permission to pay tax on compounded basis. At the same time, the appellant did not act in consonance with the application that he had filed seeking permission to pay tax on compounded basis. On the contrary, the appellant had paid tax, albeit using the wrong form of return, in accordance with Section 5 of the KGST Act. In other words, while the appellant had initially applied for permission to pay tax on compounded basis, on finding that there was no response from the department, it had chosen to pay tax on regular basis and not on compounded basis. It is in the backdrop of the said facts that the appellant now says that when the State Government decided to grant a concession in the rate of tax payable by bar attached hotels from 10% to 5% , there was no justification in denying the said benefit of concessional rate of tax to the appellant merely because he had filed an application seeking permission to pay tax on compounded basis, more so when that application was never acted upon either by the appellant or accepted by the department. It is further pointed out, by reference to the judgment in Kalyanaraman (Supra) that the facts of the said case clearly indicate that the assessee therein had not only filed an application for paying tax on compounded basis, but had also acted in consonance therewith by filing monthly returns and paying tax on compounded basis in conformity with the request that he had put in before the department. Under those factual circumstances, the Division Bench of this Court held that once an assessee acted in pursuance of his application seeking permission to pay tax on compounded basis, by paying tax in accordance with the said provision, the mere fact that the department had not formally accepted the said application and granted him permission to pay tax on compounded basis could not be cited as a reason by the assessee for wriggling out of his obligation to pay tax on compounded basis. It is the submission of Sri.Premjith Nagendran, the learned counsel for the appellant that the factual situation in the instant case is wholly different and distinguishable from those that obtained in Kalyanaraman (Supra). 7. It is the submission of Sri.Premjith Nagendran, the learned counsel for the appellant that the factual situation in the instant case is wholly different and distinguishable from those that obtained in Kalyanaraman (Supra). 7. Per contra, it is the submission of V.K.Shamsudheen, the Senior Government Pleader that there is no provision under the statute, which mandates that the department must formally accept or reject an application for permission to pay tax on compounded basis within a particular time from its receipt. It is also pointed out that whenever there is a short payment of the compounded tax payable by an assessee, the department has a period of four years within which it can detect the short payment of tax, if any, occasioned by an assessee, and to take steps to demand the differential tax payable. On the facts of the instant case, he would submit that since the assessee had filed an application seeking permission to pay tax on compounded basis, and had paid tax at the regular rate through a return that was to be used by dealers seeking permission to pay tax on compounded basis, the assessee could not wriggle out of his obligation to pay tax on compounded basis and seek the benefit of the concessional rate of tax, which was made applicable only to those paying tax on regular basis. He would also submit that, at any rate, against Ext.P2 order that was passed by the assessing authority the appellant also had an effective alternate remedy by way of an appeal before the First Appellate Authority under the statute. 8. On a consideration of the rival submissions, we are of the view that the impugned judgment of the learned Single Judge cannot be legally sustained. The central issue that came up for consideration before the learned Single Judge was whether the appellant could indeed be treated as one who had been permitted to pay tax on compounded basis under Section 7 of the KGST Act? In the absence of any positive action by the State, on the application preferred by the appellant dealer, one has to go by the conduct of the parties in arriving at a finding as to whether or not there was a consensus between the assessee and the department on the method of payment of tax by the assessee. In the absence of any positive action by the State, on the application preferred by the appellant dealer, one has to go by the conduct of the parties in arriving at a finding as to whether or not there was a consensus between the assessee and the department on the method of payment of tax by the assessee. When we analyze the facts from the perspective of contract formation, we find that while there was an application preferred by the appellant seeking permission from the department to pay tax on compounded basis in accordance with Section 7 of the KGST Act, there was no permission expressly granted by the department within the period of one year for which the permission was sought by the appellant. In terms of offer and acceptance, the offer made by the appellant was never accepted by the department. Further, looking to the conduct of the appellant assessee during the said period, we find that even that does not support a finding that the assessee intended to pay tax on compounded basis since the assessee had admittedly paid the tax in accordance with the provisions of Section 5 of the KGST Act. This is borne out by the figures showing payment of tax, despite the fact that those figures were inserted in a return that was meant to be used by paying tax under Section 7 of the KGST Act. It is also not in dispute that during the relevant assessment year, there was no communication issued to the appellant assessee from the department indicating that it was paying tax on a wrong basis. Under the said circumstances, we are of the view that for the purposes of assessment year 2021-22, there was no consensus between the assessee and the department on the aspect of payment of tax on compounded basis. This being the case and the compounded basis of payment of tax being an alternate method to the regular method of payment of tax envisaged under Section 5 of the Act, in the absence of any express indication that would clearly point to the exercise of an option by the assessee to pay tax on compounded basis, we have to hold that the assessee had only decided to pay tax in accordance with the regular provisions in accordance with Section 5 of the KGST Act. The factual situation that obtained in Kalyanaraman (Supra) is thus clearly distinguishable. Once we find that the actual payment of tax by the assessee during the assessment year 2021-22 was in accordance with the provisions of Section 5 of the KGST Act and not in accordance with Section 7 of the KGST Act, the conclusion is inescapable that the benefit of concessional rate of tax, that was announced by the State Government in respect of tax paid by bar attached hotels, would enure to the appellant assessee as well. The department could not after the expiry of the assessment year in question have accepted an application for compounding, which was no longer relevant, and further completed an assessment based thereon against the assessee. We find, therefore, that Exts.P1 and P2 orders that were impugned in the Writ Petition cannot be legally sustained. The impugned judgment of the learned Single Judge that dismissed the Writ Petition impugning Exts.P1 and P2 orders is therefore set aside and the Writ Petition allowed by quashing Exts.P1 and P2 orders with consequential reliefs to the appellant assessee. The assessing authority shall formally complete the assessment in relation to the appellant assessee for the assessment year 2021-22 in accordance with Section 5 of the KGST Act.