Full Judgment
WP(C).8416/19 1
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT THE HONOURABLE MR.JUSTICE V.G.ARUN THURSDAY, THE 30TH DAY OF APRIL 2020 / 10TH VAISAKHA, 1942 WP(C).No.8416 OF 2019(B) PETITIONER/S: HOTEL VANI CHANGANACHERRY, PIN - 686 101, REPRESENTED BY PARTNER ANIL JACOB MATHEW BY ADVS. SRI.V.V.GEORGEKUTTY SRI.SANTHOSH P.ABRAHAM RESPONDENT/S: 1 ASSISTANT COMMISSIONER OF STATE TAX, SPECIAL CIRCLE, KOTTAYAM SPECIAL CIRCLE, KOTTAYAM - 686 001 2 INSPECTING ASSISTANT COMMISSIONER COMMERCIAL TAXES, KOTTAYAM - 686 001 R1-2 BY GOVERNMENT PLEADER OTHER PRESENT: C.K. GOVINDAN
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 1003-2020, THE COURT ON 30-04-2020 DELIVERED THE FOLLOWING: WP(C).8416/19 2
V.G.ARUN, J.
----------------------------------------------- W.P(C).No. 8416 of 2019 ----------------------------------------------- Dated this the 30th day of April, 2020
JUDGMENT
The petitioner is in the business of conducting a bar hotel and is an assessee on the rolls of the Assistant Commissioner of State Tax, Special Circle, Kottayam. For the Assessment years 2008-09, 2009-10 and 2010-11, the petitioner opted for payment of turnover tax for foreign liquor as per the compounding scheme provided under Section 7 of the KGST Act. The compounding option was accepted and the assessing authority issued necessary permission for remittance of compounded tax, as evident from Exts. P1, P1(a), P2, P2(a), P3 and P3(a). The petitioner acted in terms of the permission and paid the tax for the three years. Later, the assessment for the year 2007-08 was revised on the basis of suppression unearthed by the Intelligence Officer and the turnover for the year 2007-08 was refixed at Rs.1,28,54,310/- with a tax liability of Rs.12,85,431/-. The tax liability was thereafter revised as Rs.12,02,037/- in terms of the direction by the appellate authority. Based on the revision of assessment for the year 2007-08, the compounded assessment for the years 2008-09, 2009-10 and 2010-11 was also revised. Accordingly the liability for the WP(C).8416/19 3 years 2008-09, 2009-10 and 2010-11 was refixed at Rs.13,82,343/- as per Exts. P4 to P4(e). The revision of assessments was on the basis of the assessed tax for the year 2007-08, which, according to the petititioner, is against Section 7(b) of the KGST Act. Therefore, the petitioner filed Exts P6, P6(a) and P6(b) rectification applications under Section 43, placing reliance on the decision of this court in Sicilia Hotel Pvt. Ltd v. Commercial Tax Officer (2014 (4) KLT 831), wherein it was held that when an assessee opts to pay tax at compounded rates and such option is accepted, the Department cannot, at a later point of time, reopen those proceedings, save to the limited extent of rectifying any computational mistakes that have occasioned during the compounding proceedings. The rectification applications were dismissed under Exts. P8, P8(a) and P8(b) orders stating that the final assessment was done in compliance of the provisions of the KGST Act and that rectification has already been done as per order dated 10.3.2006. The prayer in the writ petition is to quash Exts. P4 to P4(e) revised assessments and to direct the first respondent to strictly follow the statutory provision under Section 7 of the KGST Act and the judicial pronouncements and not to adopt the assessed tax of the previous year as the basis for fixing the compounded liability.
2. Heard the learned counsel for the petitioner and the learned Senior Government Pleader. WP(C).8416/19 4
3. The singular contention urged by the learned counsel for the
petitioner is that the first respondent had committed a fundamental error in adopting the revised assessed tax of the year 2007-08 as the basis for revising the assessment and refixing the compounded tax liability for the years 2008-09, 2009-10 and 2010-11. In support of this contention, attention is drawn to Section 7(b) of the KGST Act and reliance is placed on the decisions in Sicilia Hotel Pvt. Ltd (Supra), and Kalyan Tourist Home v. State of Kerala (2017 (2) KLT 761).
4. Opposing the contentions, the learned Government Pleader
would submit that, the power for revising the assessment after payment of compounded tax under Section 7(b) cannot be limited to be based only on the tax payable as conceded in the return or accounts or the turnover tax paid for any of the previous consecutive three years. It is contended that there is no inhibition in Section 7 that revision of assessment cannot be on the basis of assessed tax. It is submitted that this position has been succinctly laid down by the Division Bench in Kalika Hotel and Bar, Amballur(M/s) v. State of Kerala (2012 (3) KHC 85) and The Commercial Tax Officer v. M/s Hotel Breezeland Ltd. (2019 (2) KLT 432).
5. As far as the precedents relied on by the learned Counsel for
the petitioner is concerned, the decision in Sicilia Hotel Pvt. Ltd V. Commercial Tax Officer (2014 (4) KLT 831) was the subject matter of appeal in The Commercial Tax Officer v. M/s Hotel Breezeland WP(C).8416/19 5 Ltd. (Supra), wherein the finding is against the legal position canvassed by the petitioner. In Kalyan Tourist Home (Supra), the principal contention canvassed was that the assessee, being a bar attached two star hotel, was bound to pay compounded tax under Section 7(a) and not Section 7(b) of the KGST Act. The ancillary contention urged was that the revenue having accepted the option to pay compounded tax and the tax having been remitted, there could not be a demand to pay futher tax on the basis of an audit conducted by the Accountant General. Repelling the contention the Division Bench held that the demand was for remittance of the differential amount of compounded tax payable and not on the basis of any assessment de novo. Hence, the decision in Kalyan Tourist Home (Supra) does not in any manner support the petitioner's contention.
6. The decision in M/s.Hotel Breezeland Ltd (Supra) was
rendered by the Division Bench after considering a batch of writ appeals and a writ petition. The writ petition was referred to the Bench, on a learned Single Judge finding that another Single Bench had rendered a judgment without considering certain Division Bench judgments on the issue. After elaborate consideration of the relevant provisions and the precedents, the Division Bench encapsulated its opinion in the following words;
“22. The modifications to the provisional compounded tax proposed, is only insofar as a revised computation being necessitated by any reason. The grounds include the tax WP(C).8416/19 6
payable on the basis of clause (a) being found higher than that under clause (b), based on the purchase value of liquor of the subject assessment year. It could also be due to revision of tax paid in any of the prior years, which becomes the highest in the three years referred under Clause (b). This results in enhancement of the compounded tax permitted to be paid; under an assessment under S.17 which has been upheld by the decisions afore cited. The restriction in withdrawing from the bilateral agreement, is only in the Department or the assessee claiming levy under any other mode other than compounding.
23. An assessment under S.17, which does not levy tax
under S.5, all the same is a valid procedure, even when it correctly computes the tax payable under S.7. This could be based on the returns filed in the subject year resulting in re- determination of purchase value under clause (a) or an enhancement of the tax paid in the prior years, under reference in clause (b). Though herein the notice is one issued under S.7, that provision does not contemplate such a procedure. The notice could only be under S.17 and the mere wrong quoting of a provision would not vitiate the proceeding. It merits mention; limitation for completion of assessment under S.17 is four years. Clause (b) of S.7 speaks of the tax paid in the immediately prior, three consecutive years. The proceedings in the prior year and in the subject years, were initiated within the limitation period.
24. We then notice the contention of the learned Senior
Counsel that S.43 is the only enabling provision by which the AO could rectify the mistakes. S.43 specifically speaks of an error apparent on the face of the record, which we are afraid is not a ground, to interfere with the computation arrived at in the commencement of an year, based on a compounding provision. Especially when the revision of provisional WP(C).8416/19 7
computation arises, on a subsequent assessment made, for a previous year, which enhances the tax liability of the assessee in any of the three prior years. Even under clause (a) of S.7, the closing stock has to be verified, which is available only at the close of the year. The learned Senior Counsel would insist that, if at all, a re-opening can be permitted, it can only be permitted in the context of the tax payable under clause (a) being in excess of that payable under clause (b). We cannot accept such a contention, since the tax paid under an assessment for a previous year, which forms the basis of the computation under clause (b) could be ascertained only when the assessment under S.17 is completed for that previous year, determining the taxable turnover and the liability under S.5 of the Act.
25. We cannot but observe that if a contrary
interpretation is given, it would only advance the cause of a dishonest dealer, who does not maintain proper books of accounts or file returns in accordance with the statute. The regular assessment and re-opening of assessment for bringing in escaped turnover are all provisions to ensure that the tax due from a dealer is correctly levied and collected by the State. There is also a provision for imposing penalty under S.45A of the K.G.S.T. Act on detection of any offence of suppression or omission. The crime files so initiated can also lead to additions for probable omissions and suppression, in an assessment on best judgment of the AO. The dealer who opts for payment of tax under S.7 cannot be said to have been absolved of the liability for all the consequences arising from such an assessment made for the previous three years which is the reference point for determining the tax payable in the relevant year under clause (b) of S.7.”
WP(C).8416/19 8
7. In the light of the authoritative pronouncement of the Division
Bench, to which I respectfully agree, the contention of the petitioner is only to be rejected. It was well within the authority of the 1 st respondent to have revised the assessment for the years 2008-09, 2009-10 and 2010-11, based on the revision of the assessment and tax component for the year 2007-08, resulting in a cascading effect on the assessment for the following three years. The fact that compounded tax was paid for those three years did not fetter the right to revise the assessment. In the result the challenge against Exts.P4 to P4(e) fails and the writ petition stands dismissed. No order as to costs. Sd/- V.G.ARUN, JUDGE vgs WP(C).8416/19 9 APPENDIX PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE PERMISSION FOR PAYMENT OF TAX U/S.7 FOR 2008-09 ISSUED BY THE 1ST RESPONDENT EXHIBIT P1 A TRUE COPY OF THE PERMISSION FOR PAYMENT OF TAX U/S.7 FOR 2009-10 ISSUED BY THE 1ST RESPONDENT EXHIBIT P2 TRUE COPY OF THE PROCEEDINGS DATED 30-05- 2008 ACCEPTING THE OPTION U/S.7 FOR 2008-09 BY THE 1ST RESPONDENT EXHIBIT P2 A TRUE COPY OF THE PROCEEDINGS DATED 22-08- 2009 ACCEPTING THE OPTION U/S.7 FOR 2009-10 BY THE 1ST RESPONDENT EXHIBIT P3 TRUE COPY OF THE REVISED ASSESSMENT FOR THE PREVIOUS YEAR 2007-08 DATED 01/03/2014 ISSUED BY THE 1ST RESPONDENT
EXHIBIT P3 A TRUE COPY OF THE MODIFIED ASSESSMENT ORDER
AFTER APPEAL FOR 2007 -08 DATED 19/02/2015 ISSUED BY THE 1ST RESPONDENT EXHIBIT P4 TRUE COPY OF THE REVISED ASSESSMENT U/S.7 FOR 2008-09 DATED 07/01/2015 ISSUED BY THE 1ST RESPONDENT EXHIBIT P4 A TRUE COPY OF THE REVISED ASSESSMENT U/S.7 FOR 2009-10 DATED 07/01/2015 ISSUED BY THE 1ST RESPONDENT EXHIBIT P4 B TRUE COPY OF THE REVISED ASSESSMENT U/S.7 FOR 2010-11 DATED 18/06/2016 ISSUED BY THE 1ST RESPONDENT
EXHIBIT P4 C TRUE COPY OF THE RECTIFIED ASSESSMENT ORDER
U/S. 7 FOR 2008-09 DATED 18/01/2016 ISSUED BY THE 1ST RESPONDENT
EXHIBIT P4 D TRUE COPY OF THE RECTIFIED ASSESSMENT ORDER
U/S. 7 FOR 2009-10 DATED 31/10/2016 ISSUED BY THE 1ST RESPONDENT
EXHIBIT P4 E TRUE COPY OF THE RECTIFIED ASSESSMENT ORDER
WP(C).8416/19 10 U/S. 7 FOR 2010-11 DATED 31/10/2016 ISSUED BY THE 1ST RESPONDENT EXHIBIT P5 COPY OF THE JUDGMENT REPORTED IN 2014(4) KLT831 EXHIBIT P6 COPY OF THE RECTIFICATION PETITION U/S.43 FOR 2008-09 DATED 21/04/2017 FILED BY THE PETITIONER EXHIBIT P6 A COPY OF THE RECTIFICATION PETITION U/S.43 FOR 2009-10 DATED 21/04/2017 FILED BY THE PETITIONER EXHIBIT P6 B COPY OF THE RECTIFICATION PETITION U/S.43 FOR 2010-11 DATED 21/04/2017 FILED BY THE PETITIONER EXHIBIT P7 COPY OF THE REMINDER LETTER DATED ASSESSMENT ORDER FILED BY THE PETITIONER EXHIBIT P7 A COPY OF THE REMINDER LETTER DATED ASSESSMENT ORDER FILED BY THE PETITIONER EXHIBIT P7 B COPY OF THE REMINDER LETTER DATED ASSESSMENT ORDER FILED BY THE PETITIONER EXHIBIT P8 COPY OF THE REJECTION ORDER FOR 2008 -09 DATED 10/01/2019 ISSUED BY THE 1ST RESPONDENT EXHIBIT P8 A COPY OF THE REJECTION ORDER FOR 2009 -10 DATED 10/01/2019 ISSUED BY THE 1ST RESPONDENT EXHIBIT P8 B COPY OF THE REJECTION ORDER FOR 2010-11 DATED 10/01/2019 ISSUED BY THE 1ST RESPONDENT