M/S Elite Tourist Home, Near Specialist Hospital, M Paramara Road, Kochi-682018 v. The Intelligence Officer, Squad No. IV, Department of Commercial Taxes, Ernakulam; and Assistant Commissioner of Commercial Taxes, Special Circle-1, Department of Commercial Taxes, Ernakulam

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **FRIDAY, THE 23RD DAY OF OCTOBER 2020 / 1ST KARTHIKA, 1942** ## **WP(C).No.18834 OF 2020(D)** ## **PETITIONER/S:** **M/S. ELITE TOURIST HOME NEAR SPECIALIST HOSPITAL,M PARAMARA ROAD, KOCHI682018, REPRESENTED BY ITS PROPRIETOR SRI P.A. GEORGE.** **BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SRI.P.G.CHANDAPILLAI ABRAHAM SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA** ## **RESPONDENT/S:** **1 THE INTELLIGENCE OFFICER, SQUAD NO. IV, DEPARTMENT OF COMMERCIAL TAXES, ERNAKULAM. 2 ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, SPECIAL CIRCLE-1, DEPARTMENT OF COMMERCIAL TAXES, ERNAKULAM.** **R1 BY GOVERNMENT PLEADER** ## **OTHER PRESENT:** ## **SR GP SRI C K GOVIND** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 16-102020, THE COURT ON 23-10-2020 DELIVERED THE FOLLOWING:** **WP(C).No.18834 OF 2020(D)** **2** ## **JUDGMENT** ## **Dated this the 23rd day of October 2020** The petitioner is a proprietorship engaged in the hospitality business and is running a bar attached hotel under the name and style 'Hotel Luminara'. being a registered dealer under the Kerala General Sales Tax Act, 1963 with regard to the sales of liquor from the bars situated in said Hotel on the files of the 2nd Respondent ie., Assistant Commissioner of Commercial Taxes. The petitioner has two counters selling liquor, viz., 'Liquid State Counter' which sells mainly Premium priced brands and 'Higher Spirit Counter' whereby lower priced brands are being sold. 2. On 17.3.2020, Intelligence Officer, Squad No.IV conducted an inspection and found that there was no stock variation based on the bills issued with respect to the sales, but despite that issued a notice dated 28.7.2020 under Section 45A of the KSST Act for Assessment Year 2019-20 **WP(C).No.18834 OF 2020(D)** **3** proposing to estimate the turnover based on the combined average Gross Profit (CAGP) calculated at the rates at which different types of liquor was sold at the two counters. On this basis, an estimated Gross Profit of 194% was applied to the entire cost of goods sold by the petitioner, from 1.4.2019 to date of inspection to arrive at a huge estimated turnover. It was proposed to impose penalty under Section 45A for non-maintenance of true, correct and complete books of accounts for their business transactions for the year 2019-20 as prescribed under Section 27 of KGST Act 1963, Ext.P1. Petitioner filed objections Exts.P2 and P3. However, vide impugned order dated 25.8.2020, a penalty of Rs.11,33,886/- under Section 45A of the KGST Act 1963 has been imposed. 3. Learned counsel for the petitioner submits that no doubt the aforementioned order is appealable but order of the penalty on behalf of Intelligence Officer sans jurisdiction as he exceeded his jurisdiction by estimating turnover based on average of the combined gross profit per bottle sold at different counters on that day. Two counters **WP(C).No.18834 OF 2020(D)** **4** catter different types of customers by selling at different rates. The gross profit rate in the Higher Spirit Counter will be lower on account of the lower rates charged and the Gross Profit rate in the Liquid State Counter will be higher on account of the higher rates charged. The Intelligence Officer has not jurisdiction to undertake the task of estimation which is within the realm of Assessing Officer in the absence of any stock variation found at the time of inspection. Relied the dictum laid down by the Division Bench in **U.K Monu Timbers (M/s.) Vs. State of Kerala, (2012 (3) KHC 111),** wherein ,it was held that only the assessing authority has the power to make estimations and such exercise, as is mandated by the Statute, has to be regulated by the best judgment of the assessing officer with due notice and after affording a personal hearing. The Hon'ble Court in **Flipkart Internet Private Limited and Another v. State of Kerala and Others (2015(5)KHC 522)** has also deprecated the practice of the Intelligence Officer to impose penalty before first ascertaining whether the dealer is in fact liable to be assessed and has held that **WP(C).No.18834 OF 2020(D)** **5** in such cases, the Intelligence Officer ought to refer the matter to the jurisdictional Assessing Officer to complete the assessment proceedings in accordance with the provisions of the KGST Act. 4. On the other hand, learned Government Pleader opposed the aforementioned prayers and submits that though the judgment of Single Bench, is based upon the judgment of the Division Bench in U.K Monu Timbers (supra), this Court in an identical case in W.P.(C) No.16321 of 2014 ( **M/s Parur Tourist Home v. State of Kerala** ) did not entertain the petition based upon the judgment in **Hotel Surya v. State of Kerala (2017 105 VST 238** ) and relegated the petitioner to his remedy of appeal and urging this Court for dismissal of the writ petition. 5. I have heard the learned counsel for the parties and appraised the paper book. The Division Bench judgment of U.K Monu Timbers (supra) was in respect of the penalty proceedings initiated under the KVAT Act. It was held that an estimation of evaded tax was held to be impermissible under Section 67 of 2003 Act on the point **WP(C).No.18834 OF 2020(D)** **6** that what required to be determined was tax evaded or sought to be evaded. It was further held that penalty cannot be imposed on what officer thinks in the best of his judgment/estimation as Section 67 do not permit any estimation. But another Division Bench judgment in Hotel Surya v. State of Kerala (supra) in a case of Kerala General Sales Tax Act, 1963 pertains to the matter, in respect of the proceedings under Section 45A, whereby the assessment was done, by not accepting the gross profit of an assessee, which is to be 41.32 per cent, and was not held to be usurpation of the power of estimation of turnover, and the argument that it would be within the purview of the assessing officer was rejected. By applying the aforementioned judgment, in Parur Tourist Home (supra) single judge relied upon the judgment in Hotel Surya (supra) relegated the affected parties to avail the remedy of appeal. The instant case is of such kind where the Intelligence Officer found the gross profit to be different than what the petitioner had assessed. It would be in the fitness of things to extract relevant paragraphs of the **WP(C).No.18834 OF 2020(D)** **7** ## judgment in Hotel Surya (supra). "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. 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, **WP(C).No.18834 OF 2020(D)** **8** 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 assessee produced the documents or the sale bills. 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 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%." 6. The contention of the learned counsel for the **WP(C).No.18834 OF 2020(D)** **9** petitioner thus is liable to be rejected of not availing the remedy of appeal simply by raising an argument that, it would be wholly impermissible that Intelligence Officer had exceeded the jurisdiction in undertaking the task of the estimation on the basis of the inspection to be within the realm of Assessing Officer. The learned Single Judge by following the dictum in Hotel Surya (supra), in paragraph 4 of M/s Parur Tourist Home (supra) held as under: “4. Although a decision of this Court in U.K Monu Timbers (M/S.) v. State of Kerala [2012 (3) KHC 111] clearly holds that in penalty proceedings, the penalty imposed in terms of Section 45A cannot be based on an estimation of the turnover by the departmental authorities, I find that another Division Bench of this Court in Hotel Surya v. State of Kerala [2017 105 VST 238] has, in almost identical circumstances, found that when all that the Intelligence Officer has done is an estimation of the turnover by WP(C).No. 16321 of 2014 4 adding the average rate of gross profit revealed from a verification of a recovered bills to the declared purchase price of the goods sold during the assessment year, the exercise cannot be said to be in usurpation of the power of estimation of turnover, which is within the purview of the Assessing Officer. **WP(C).No.18834 OF 2020(D)** **10** Taking cue from the said judgment, and finding that the exercise done by the Intelligence Officer in the instant case is also similar to what was noticed by the Division Bench in Hotel Surya v. State of Kerala supra, I am of the view that the challenge to Ext.P4 penalty order and Ext.P5 demand notice in this Writ Petition under Article 226 of the Constitution of India cannot be legally sustained. Resultantly, I dismiss the writ petition in its challenge against Exts.P4 penalty order and Ext.P5 demand notice and relegate the petitioner to his alternate remedy of preferring an appeal against the said order before the appellate authority under the KGST Act.” I agree with the findings rendered by the Division Bench in Hotel Surya (supra) and followed by the decision of Single Bench of this Court in M/S. Parur Tourist Home (supra). With the aforementioned observations, I dismiss the writ petition and relegate the petitioner to avail alternative remedy by preferring an appeal against the penalty order Ext.P4 before the appellate authority under the KGST Act. ## **Sd/-** ## **AMIT RAWAL** sab **JUDGE** **WP(C).No.18834 OF 2020(D)** **11** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1** **TRUE COPY OF NOTICE UNDER SECTION 45A OF THE KGST ACT, 1963 ISSUED BY THE STATE TAX OFFICER (INTELLIGENCE), SQUAD NO. IV, SGST DEPARTMENT, ERNAKULAM.** **EXHIBIT P2** **TRUE COPY OF OBJECTIONS DATED 21/08/2020 FILED BY THE AUTHORIZED REPRESENTATIVE OF THE PETITIONER BEFORE THE STATE TAX OFFICER, ERNAKULAM.** **EXHIBIT P3** **TRUE COPY OF ADDITIONAL OBJECTIONS DATED 25/08/2020 FILED BY THE AUTHORISED REPRESENTATIVE OF THE PETITIONER BEFORE THE STATE TAX OFFICER, ERNAKULAM.** **EXHIBIT P4 TRUE COPY OF PROCEEDINGS DATED 25/08/2020 ISSUED BY THE STATE TAX OFFICER (INTELLIGENCE), SQUAD NO. IV, ERNAKULAM.**