M/S Kalika Hotel and Bar Amballur Thrissur represented by its partner Chacko.T.V. v. State of Kerala represented by its Finance Secretary

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **THURSDAY, THE 5TH DAY OF JULY 2012/14TH ASHADHA 1934** **ST.Rev..No. 59 of 2012 () ------------------------AGAINST THE ORDER IN TA.53/2011 of S.T.A.TRIBUNAL,ADDL.BENCH,PALAKKAD** **PETITIONER(S)/REVISION PETITIONER/APPELLANT/ASSESSEE:** **----------------------------------------------------** **M/S.KALIKA HOTEL AND BAR AMBALLUR THRISSUR REPRESENTED BY ITS PARTNER CHACKO.T.V.** **BY ADVS.SMT.S.K.DEVI SRI.SANTHOSH P.ABRAHAM** ## **RESPONDENT)/REVENUE:** **----------------------** **STATE OF KERALA REPRESENTEDBY ITS FINANCE SECRETARY, SECRETARIAT THIRUVANANTHAPURAM.** **BY GOVERNMENT PLEADER SRI BOBBY JOHN** **THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 05-07-2012, ALONG WITH STRV. 60/2012, STRV. 61/2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **ST.Rev..No. 59 of 2012 ()** ## **APPENDIX** ## **REVISION PETITIONER'S ANNEXURES:** **ANN. I : TRUE COPY OF THE COMPOUNDING ORDER NO.25161205/201011 DT.15.5.2010 ANN.II : TRUE COPY OF THE 1ST APPEAL ORDER NO. STA 343/2010 DT.2.5.2011 ANN.III : TRUE COY OF THE APPELLATE TRIBUNAL ORDER TA NO. 53/2011 DT. 17.2.2012** ## **RESPONDENTS' ANNEXURES: NIL** ## **//TRUE COPY//** ## **P.A. TO JUDGE** **jma** ## ***CR*** **Thottathil B Radhakrishnan & K. Vinod Chandran, JJ ---------------------------------------------------ST.Rev. Nos.59, 60 & 61 of 2012 ---------------------------------------------------Dated this the 5[th] day of July, 2012** ## **O R D E R** ## K. Vinod Chandran, J The assessee, a Bar hotel, in revision, challenges the assessments for the year 2008-09, 2009-10 and 2010-11. 2. In the years 2008-09(ST Rev.60/2012), best judgment assessment was made based on a penalty proceeding compounded by the assessee. The challenge is on the ground of the assessing authority not having independently considered the issue while making estimation of gross profit. In the two subsequent years, the assessee applied and was granted facility to pay tax at compounded rates as per Section 7 of the Kerala General Sales Tax Act, 1963. The challenge in the said revisions are against the determination of the tax payable under the compounding scheme on the basis of the best judgment assessment made for the year 2008-09. Since the issues are connected and related, we heard the matter together. ST.Rev.59, 60 & 61/2012 : 2 : 3. The first issue to be considered is with respect to the best judgment assessment made for the year 2008-09. The assessee having filed its returns and the books of accounts, the same were rejected for various reasons, one of which was the offence detected at an inspection and compounded by the assessee. It was alleged that on verification of the purchase bills and sales bills, at the time of inspection, it was found that the assessee had effected sale at an average Gross Profit of 61.32% while the conceded Gross Profit was only 45%. The assessee objected to the same pointing out that the high gross profit found on inspection was only an occasional instance and cannot warrant rejection of the gross profit conceded and estimation on the total turnover. The Assessing Officer considered the reply of the assessee in the following manner: 1. The Intelligence Officer has already considered all the above contentions regarding GP, peg sale etc while passing his order 2. The Books of Accounts and other data made available before me confirmed the ST.Rev.59, 60 & 61/2012 : 3 : inference arrived by the Intelligence Officer. 3. Moreover, the dealer himself had admitted the offences, and requested in writing the option to compound. 4. It is evident that the Assessing Officer has adopted the opinion of the Intelligence Officer. A mere statement that books of accounts and other data confirms the inference of the Intelligence Officer, is a laconic statement totally devoid of any reasoning. What weighed with the Assessing Officer was the compounding of the offence made by the assessee. It is legion that facts and materials found on inspection leading to penalty proceedings though relevant to assessment proceedings, the same cannot at all be conclusive; as held by a Division Bench of this Court in _**Velimparambil Hardwares**_ _**V. State of Kerala 1994(92) SCC 98**_ . The materials recovered on inspection and relied on by the Intelligence Officer necessarily can be and has to be considered in assessment proceedings. However, what is required is an independent application of mind to such materials and an ST.Rev.59, 60 & 61/2012 : 4 : occasional sale for a high gross profit, especially of a particular brand cannot lead to an estimation of the gross profit on the entire purchase turnover at the said rate. It is to be noticed that in the relevant year provision for compounding provided for 140% of the purchase value of liquor evidencing that the Government itself considered 40% to be reasonable gross profit in the business in the areas comprised in a Municipality or a cantonment. The GP conceded by the assessee at 45% is definitely above that provided for in the statute. We are of the opinion that the matter needs a second look by the Assessing Officer and that too a thorough evaluation of the books of accounts and the sales invoices. In such circumstances, we answer the questions of law in ST Rev.60 of 2012 in favour of the assessee and against the Revenue and hold that the assessee though having submitted itself to compounding of an offence, can necessarily in assessment proceedings produce materials before the Assessing Officer and contend against the reasoning of the Intelligence Officer being adopted in toto for the whole assessment year and the entire turnover. ST Rev. 60 of 2012 ST.Rev.59, 60 & 61/2012 : 5 : is allowed remanding the assessment for the year 2008-09 to the Assessing Officer, who shall carry out the proceedings within a period of three months from the date of receipt of a certified copy of this judgment after issuing notice to the assessee and affording him an opportunity of being heard. 5. The issue raised in the two other revisions for the two subsequent years is with respect to the computation of the amounts for the purpose of compounding under Section 7 of the KGST Act. The Assessing Officer while permitting the assessee to pay tax at compounded rates determined the highest turnover tax as provided in Section 7(b) by taking into account the best judgment assessment made in the year 200809. The learned counsel for the assessee would contend that this is palpably wrong. In so far as the section speaks about the highest turnover tax payable by an assessee as conceded in the return or accounts; it does not contemplate assessed tax is the contention raised by the assessee. The learned counsel for the assessee also relied on a judgment of a Division Bench of this Court in _**State of Kerala v. Malabar Ornaments(P)Ltd., (2011) 19 KTR 413(Ker)** ._ ST.Rev.59, 60 & 61/2012 : 6 : 6. For the purpose of considering the issue it would be useful to extract the relevant provisions which is the subject matter of the above revision as also the provision interpreted by the Division Bench in Malabar Ornaments case(Supra). ## The provision relevant for the instant case: _**“Section 7. Payment of tax at compounded rates:- Notwithstanding anything contained in sub-section (2) of section 5, any bar attached hotel, not being a star hotel of and above three star hotel, heritage hotel or club, may, at its option, instead of paying turnover tax on foreign liquor in accordance with the provisions of the said sub-section pay turnover tax on the turnover of foreign liquor calculated,-**_ _**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**_ ST.Rev.59, 60 & 61/2012 : 7 : ## _**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, whichever is higher.”**_ The provision interpreted in Malabar Ornaments Case(supra): _**“Section 8(f)(i): any dealer in ornaments or wares or articles of gold, silver or platinum group metals may, at his option, instead of paying tax in respect of such goods in accordance with the provisions of Section 6, pay tax at 200 percent of the highest tax payable by him as conceded in the return or accounts either under this Act or under the Kerala General Sales Tax Act, 1963(15 of 1963), for a period of twelve months during any of the three consecutive years preceding that to which such option relates.”**_ 7. What we notice is that the provision interpreted in Malabar Ornaments case(supra) more specifically Section 8(f) ST.Rev.59, 60 & 61/2012 : 8 : (i) of the Kerala Value Added Tax Act, 2003 uses the words “highest tax payable by him as conceded in the return or accounts”. Section 7 relevant to this revision has in addition the words “or the turnover tax paid”. The words “turnover tax paid” for any of the previous consecutive three years would definitely take in the assessed tax. The legislature could not have assumed that the assessment of the previous years would not be completed before grant of the facility in the subsequent year; to pay tax at compounded rates. This would definitely take in the assessed tax also. On completion of assessment the Act stipulates a two-tire appeal and a further revision before the High Court. The legal proceedings initiated on behalf of the assessee or the State may lead to the assessed tax being confirmed, modified, reduced or even set aside. In the event of confirmation of the assessment proceedings, where best judgment assessment was resorted to, the tax payable by the assessee includes the interest contemplated under Section 23 of the KGST Act, which is compensatory in nature. The assessments are to be completed on the close of an assessment year and any assessment concluded ST.Rev.59, 60 & 61/2012 : 9 : subsequently and modification or enhancement made would relate back to the date stipulated for payment of tax and filing of annual returns. Whenever such payment is made it would definitely be tax paid by the assessee for the particular assessment year. The decision of the Division Bench in _**Malabar Ornaments Case(Supra)**_ cannot be applied to the provision that has come up for consideration in the above revision. Both the facts and the law could be clearly distinguished. 8. On the strength of the above finding we hold that the tax paid would necessarily include the tax assessed and the payment of tax at compound rate in Section 7 applicable to the case of the assessee would definitely enable the Assessing officer to arrive the highest turnover tax payable for any of the previous three consecutive years; taking into account the assessed tax, as modified in appeal, revision or other proceedings. The question raised by the assessee in STRs 59 & 61 of 2012, has to be answered in favour of the Revenue and against the assessee. However, since the assessment of the earlier year 2008-09 is remanded, the determination of the ST.Rev.59, 60 & 61/2012 **==> picture [26 x 9] intentionally omitted <==** highest turnover tax for the purpose of granting facility of payment of tax at compound rates would also depend on such assessment proceedings directed to be de-novo completed. In the above circumstance, we answer the question of law in favour of the Revenue and against the assessee, but all the same remand the assessment to the Assessing Officer for _de novo_ consideration in accordance with law. The Sales Tax Revisions are ordered as above. ## **Thottathil B Radhakrishnan (Judge)** **K. Vinod Chandran (Judge)** jma