Hotel Surya Bar Attached Hotel, Iritty, Kannur v. State of Kerala

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU MONDAY, THE 30TH DAY OF MAY 2016/9TH JYAISHTA, 1938 ST.Rev..No. 9 of 2013 () ------------------------- AGAINST THE ORDER/JUDGMENT IN TA 26/2011 of SALES TAX APPELLATE TRIBUNAL, ADDL.BENCH,KOZHIKODE. DATED 24-07-2012 ## REVISION PETITIONER/APPELLANT/ASSESSEE: ----------------------------------------------------- HOTEL SURYA BAR ATTACHED HOTEL, IRITTY, KANNUR. BY ADVS.DR.K.B.MUHAMED KUTTY (SR.) SRI.K.M.FIROZ RESPONDENT(S)/RESPONDENT/REVENUE: ----------------------------------------------- THE STATE OF KERALA REPRESENTED BY THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-695 001. R BY SMT. SHOBA ANNAMMA EAPEN, GOVERNMENT PLEADER THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 30-05-2016, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ST.Rev..No. 9 of 2013 () : 2 : ## **APPENDIX** ## PETITIONER'S ANNEXURES: ANNEXURE A : TRUE COPY OF THE PENALTY ORDER DATED 25.01.2010 FOR THE YEAR 2009-2010. ANNEXURE B : TRUE COPY OF THE FIRST APPELLATE ORDER DATED 22.11.2010. ANNEXURE C : TRUE COPY OF THE APPELLATE TRIBUNAL ORDER DATED 24.07.2012. ## RESPONDENTS' ANNEXURES: NIL //TRUE COPY// P.A. TO JUDGE. rv ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. ------------------------------------------S.T. (Rev.) No. 9 of 2013 -----------------------------------------Dated this the 30[th] day of May, 2016. ## ORDER ## Antony Dominic,J. This is a revision filed by the assessee challenging the orders passed under Section 45A of the Kerala General Sales Tax Act, 1963 (for short 'the Act') levying penalty on the basis of addition of gross profit at the rate of 80%. In the first appeal filed before the statutory authority, though the penalty was sustained, addition of gross profit at 80% was modified and reduced to 50% on the purchase price. In the further appeal filed by the assessee before the Tribunal, the Tribunal passed Annexure C order dismissing the appeal. It is aggrieved by these orders, this revision has been filed. 2. We heard the learned Senior Counsel appearing for the revision petitioner and the learned Government Pleader appearing for the respondent. 3. The assessee conducts a bar attached hotel at Iritty in Kannur District. The place of business was inspected by the Intelligence Officer, Thalassery on 19.08.2009. On inspection, the S.T. (Rev.) No. 9/2013 -2- physical stock of goods found on actual counting and measurements were recorded. The accounts and other documents were called for for verification. However, the statement of accounts produced was not accepted as true and complete and one of the reasons stated is that no sale bill was seen issued from the place of incidence. It is also stated that day book, ledger, sale book etc., were not produced either at the time of inspection or at the time of verification of the books of accounts. On Verification of the statement of accounts, it was revealed that the gross profit reported was 41.32%. On verification of some of the bills recovered, it was disclosed that the average rate of gross profit was 80%. In such circumstances, after completing the procedural formalities, the Intelligence Officer added 80% towards the purchase price of the goods sold during the relevant period and on that basis the sales turnover was estimated. Accordingly, double the amount of turnover tax on the suppressed turnover of sales was imposed as penalty under Section 45A of the Act and the said proposal was confirmed by the impugned order. In appeal, the appellate authority reduced the gross profit to 50%. This was confirmed by the Tribunal also. S.T. (Rev.) No. 9/2013 -3- 4. The first contention raised by the learned Senior Counsel for the petitioner is that in a proceedings under Section 45A of the Act, the Officer did not have any power to fix taxable turnover. Though this contention, in principle, seems to be supported by the provisions of the Act and the decisions cited, on facts what we find is that the provisions or the judgments relied on have no relevance. As we have already stated, the reported gross profit was 41.32%. But, the verification of the recovered bills disclosed that the average rate of gross profit was 80%. On that finding, all that the Intelligence Officer has done is that he estimated the turnover by adding 80% of the purchase price to the declared purchase price of the goods sold during the assessment year. Thereafter, the sales turnover reported in the monthly returns was deducted and on the differential turnover, tax due was quantified. Accordingly, double the amount of turnover tax was imposed as penalty under Section 45A of the Act. This exercise cannot be said to be an usurpation of the power of estimation of turnover, which is within the purview of the Assessing Officer. 5. Further, if the contention now raised by the learned Senior S.T. (Rev.) No. 9/2013 -4- Counsel is accepted, that would render Section 45A itself otiose and ineffective. Therefore, we reject the first contention raised by the learned counsel. 6. The second contention raised was mainly with respect to the manner in which the gross profit was arrived at 80%. According to the learned counsel, this percentage was arrived at merely with reference to few bills that were recovered during inspection. It is his case that turnover for an assessment year cannot be quantified on the basis of some bills that are recovered and these bills alone cannot be the material, on the basis of which penalty cannot be levied. In this context, the learned counsel invited our attention to the judgment of the Madras High Court in State of Tamil Nadu v. Hotel Ashok Bhavan[1] wherein it is held that the estimation of turnover cannot be done on the basis of the sale for one day. Reference was also made to Hotel Vallalar v. The Registrar, Tamil Nadu Taxation Special Tribunal, Chennai and others[2] of Madras High Court. This judgment also takes the view similar to the judgment in Hotel Ashok Bhavan (supra). He also contended that the law does not expect the traders to earn > 1 [2013] 60 VST 79 (Mad) 2 [2008] 15 VST 516 (Mad) S.T. (Rev.) No. 9/2013 -5- maximum profit out of their transactions and that on the basis of mere assumptions and presumptions, addition cannot be made. In this connection, the learned counsel placed reliance on the judgment of a learned Division Bench of this Court in Classic Marbles v. State of Kerala[3] 7. Having considered the submissions made on behalf of the respondent Revenue, we are of the view that though the basis of the estimation of the gross profit is the profit as disclosed in the sale bills, when this proposal was conveyed to the assessee in the show cause notice and thereafter, the assessee had the opportunity to produce his books of accounts, including the sale bills. Despite the availability of such opportunities at no stage of the proceedings, the assesssee produced the documents or the sale bills. 8. On the other hand, the learned senior Counsel made an attempt to introduce a new case by making reference to a certificate purported to have been issued by the Village Officer to the effect that there was a flood in the area, which resulted in loss of documents. The resultant situation is that the assessee is unable to produce any document showing what exactly was his gross profit. On the other 3 (2008) 16 KTR 397 (Ker) S.T. (Rev.) No. 9/2013 -6- hand, admittedly in the inspection, certain bills were recovered, which disclosed the average gross profit of 80% and its genuineness is not disputed. In such a situation, we are not prepared to find fault with the Revenue in estimating the turnover tax by taking the gross profit as disclosed in the bills that were recovered. Further, the assessee cannot have any grievance, since the gross profit has now been reduced to 50% against the declared gross profit of 41.32%. In such circumstances, we do not find any illegality in the orders justifying interference. Accordingly, this revision is dismissed. ANTONY DOMINIC, JUDGE. DAMA SESHADRI NAIDU, JUDGE. _Rv_ S.T. (Rev.) No. 9/2013 -7-