M/S KALYAN TOURIST HOME, Palakkad v. STATE OF KERALA

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR. JUSTICE DEVAN RAMACHANDRAN** **MONDAY, THE 23RD DAY OF JANUARY 2017/3RD MAGHA, 1938** **ST.Rev..No. 33 of 2014 () --------------------------** **AGAINST THE ORDER/JUDGMENT IN TA 4/2014 of S.T.A.TRIBUNAL,ADDL.BENCH,PALAKKAD DATED 28-10-2014** ## **REVISION PETITIONER(S)/APPELLANT/APPELLANT/ASSESSEE:** **------------------------------------------** **M/S.KALYAN TOURIST HOME, G B ROAD, PALAKKAD, REPRESENTED BY ITS MANAGING PARTNER AJAIKUMAR P.** **BY ADVS.SRI.THOMAS ABRAHAM DR.K.P.PRADEEP** ## **RESPONDENT(S)/RESPONDENT/RESPONDENT/REVENUE:** **---------------------------------** **STATE OF KERALA** ## **REPRESENTED BY ITS PRINCIPAL SECRETARY** **TO TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695 001.** **BY ADV.SRI.MOHAMMED RAFIQ, SR.GOVERNMENT PLEADER** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 23-01-2017, ALONG WITH STRV. 34/2014, STRV. 35/2014 AND STRV. 36/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **STREV.33/14** ## **APPENDIX** ## **REVISION PETITIONER'S ANNEXURES** **ANNEXURE A : COPY OF ASSESSMENT ORDER NO.32090616044/2009-10 DATED 20.02.2014 FOR THE YEAR 2009-10 ISSUED BY THE COMMERCIAL TAX OFFICER, 2ND CIRCLE, PALAKKAD.** **ANNEXURE-B : COPY OF COMMON ORDER IN APEPAL NO.STA 60/14, 61/14, 62/14 AND 63/14 DATED 10.04.2014 ISSUED BY THE DEPUTY COMMISSIONER (APPEALS), I, KOTTAYAM.** **ANNEXURE-C : COPY OF COMMON ORDER IN APPEALS TA NOS.4/14, 5/14, 6/14 AND 7/14 DATED 28.10.2014 OF THE SALES TAX APPELLATE TRIBUNAL AT PALAKKAD.** **//TRUE COPY//** **PA TO JUDGE.** jg-27/1 ## THOTTATHIL B.RADHAKRISHNAN & DEVAN RAMACHANDRAN, JJ. .................................................................... S.T.Rev.Nos.33, 34, 35 & 36 of 2014 .................................................................... Dated this the 23[rd] day of January, 2017. 'C.R.' ## O R D E R ## Thottathil B.Radhakrishnan, J. 1.These revisions are by an assessee who is eligible to pay tax at compounded rate under Section 7 of the Kerala General Sales Tax Act, 1963, 'Act', for short. It is also not in dispute that the assessee is one who has a bar attached hotel of and below two star. This means that if he opts under Section 7 for payment of tax at compounded rate, he would be governed by Section 7(1)(i), which provision has two Clauses - (a) and (b), which operate in alternative. Clause (a) or (b) would apply depending upon which would bring home to the Revenue through the compounded scheme, higher revenue as tax. 2.The assessee applied for payment of tax at compounded rate. That application was not rejected. Obviously therefore, the learned counsel for the assessee is justified in saying that the STRev.33,34,35&36/16 -2- compounding as was offered, was accepted. But, in the same breath, the assessee would contend through its learned counsel that what has been offered is not merely the option to pay tax at compounded rate, but to pay such compounded rate of tax dependent on Clause (a) and not Clause (b) of Section 7(1)(i) of the Act. This, in our view, is wholly misplaced. It is trite law as has been laid down through different decisions that the concept of option under Section 7 is to opt out of regular assessment, which is governed by Section 5 of the Act. Once the option is exercised and the assessee opts to pay tax at compounded rate, the payment of tax at compounded rate would be governed by the provisions of Section 7. There is no provision or opportunity to opt among the different limbs of Section 7. Therefore, if one were to pay tax at compounded rate under Section 7, everything depends upon the turnover or the total amount that would be generated as revenue through the taxes from the assessee for the relevant period to decide as to whether it is Clause (a) or (b) of Section 7(1)(i) that would apply. Decisions of the Honourable STRev.33,34,35&36/16 -3- Supreme Court of India in Bhima Jewellery (M/s.) v. Asstt. Commissioner (Assessment), Kerala and Another [2014 KHC 5346], Raju Jacob v. Sales Tax Officer [2006 KHC 246], Koothattukulam Liquors v. Deputy Commissioner of Sales Tax [(2015) 12 SCC 794] and Annie George, Proprietrix v. The State of Kerala [2006 KHC 1701] do not go away from the principle that we have stated herein to that effect. While Koothattukulam Liquors (supra) dealt with a case of payment of tax at compounded rate on the basis of excise duty component, other decisions, particularly Bhima Jewellery (supra), deal with the quality of the contract of compounding and specifically state that compounding option once exercised results in the crystallisation of a bilateral contract as between the assessee and the State, that tied down both of them to be regulated by compounding mechanism, the situation to which they get tied down by that process is that the assessee cannot be compelled by the State to submit itself to regular assessment under Section 5, and this is dependent upon the assessee's offer that he would pay tax at STRev.33,34,35&36/16 -4- compounded rate in terms of Section 7. The offer and acceptance as between the State and the assessee is to opt out of Section 5 which provides for regular assessment and falls under the canopy of payment of tax at compounded rate, which is governed by Section 7. This, and only this, is the contract between the State and the assessee on the basis of the compounding system. Once that event happens, the liability to pay tax at compounded rate will stand governed by the different provisions contained in Section 7 of the Act. In this view of the matter, no argument can be countenanced to say that rate of tax and the question whether the assessee would be able to opt as between Clauses (a) and (b) of Section 7(1)(i), is also within the bargain on which the compounding is accepted. So much so, the stand of the Revenue that the assessee/revision petitioner had to pay the particular amounts demanded by the assessing authority under Section 7 does not stand. 3.Be that as it may, we have also considered yet anther submission. STRev.33,34,35&36/16 -5- The plea of the assessee through its learned counsel is that the assessee had voluntarily made an option and the assessing authority had accepted tax from him. He, therefore, tries to build up a plea somewhere in the realm of what could be thought of, too remotely, as exchequer. We notice this to say that the crucial further argument is that the Accountant General's office had made an audit of the office, and in the course of the audit, the Accountant General's squad had pointed out that the assessee had not paid the entire amounts due under Section 7(1) of the Act. The learned counsel for the assessee says that the statutory assessing authority under the Act has acted on the promptings of the extraneous authority, namely, the Accountant General's office, and therefore, the whole action taken against the assessee is unfounded and without jurisdiction. We are unable to countenance this. Section 7 option once exercised, it becomes a statutory liability of the assessee to pay tax at compounded rate. It does not depend upon any further assessment order being issued under Section 7. Once the assessing authority comes STRev.33,34,35&36/16 -6- across the fact that either as a matter of mistake, or otherwise the entire amounts due under proper application of Section 7(1) has not been paid, it would be well within the authority of that agent of the State Revenue to make demand for payment of the balance. The Accountant General is a statutory authority. Accountant General's audit through audit squads is a regular feature in all institutions of governance, which deal with fiscal management of the State. In the course of such exercise, it is well within its fiscal management of the State Government and also through the controlling and regulatory power of the Accountant General's office to point out the statutory officers concerned, the deficit in payment of taxes. What has been done in the case in hand is that when the Accountant General's audit squad had pointed out the deficiency and deficit in the payment of taxes payable under Section 7(1) by the assessee, a notice was issued by the assessing authority calling upon the assessee to pay the balance amount. After such notice, a reply was delivered by the assessee. That was considered and thereafter, an order was issued apparently under STRev.33,34,35&36/16 -7- Section 7. Calling it as an assessment order or a notice demanding payment, in law and in fiscal jurisprudence, it makes no difference because all that has been asked for is requiring the payment of amounts which are due to be paid merely by operation of law and not on the basis of any assessment de novo or of the accounts of the assessee. We say this because, when Clause (b) of Section 7(1)(i) applies, the amount of tax is a predetermined amount. That is dependent upon the turnover of the three previous consecutive years. Therefore, even when assessee proceeds to seek payment of tax at compounded rate under Section 7(1) for a particular year, he would be guided by books of accounts which are in that person's possession itself. Hence, no fresh assessment as known to law is required. We do not find any jurisdictional error in either the assessing authority having required the assessee to pay the differential in terms of Section 7 or the Accountant General's office or the squad of that office having prompted the assessing authority to proceed to make demand for the remaining amount. STRev.33,34,35&36/16 -8- 4.Learned counsel for the assessee, ultimately, argued that the assessee was essentially falling into a trap of misrepresentation by the assessing authority. This is projected by saying that the assessing authority has accepted the option, and therefore, could not have done so without making a concession against any claim for further amounts. We state this argument only to be rejected because there is no question of any misrepresentation of any nature, since the payment of tax consequent on an option exercised by the assessee does not depend upon any representation of the assessing authority or any other statutory authority under the Act. What we say now is in tandem with what we have already said as to the automatic flow of the consequences of option. Further, there is no question of the assessee opting either for a particular rate of tax or for opting as between Clauses (a) and (b) of Section 7(1)(i) of the Act adverse to the interest of the Revenue. STRev.33,34,35&36/16 -9- 5.For the aforesaid reasons, we are of the view that the Tribunal cannot be criticised of having failed to decide or having left undecided any question of law which arises for decision in these cases. These revisions fail. In the result, these revisions are dismissed. (THOTTATHIL B.RADHAKRISHNAN, JUDGE) (DEVAN RAMACHANDRAN, JUDGE) jg-23/1