M/S Kangappadan Residency v. State of Kerala

## **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** ## **`PRESENT`** ``` THE HONOURABLE MR.JUSTICE ANIL K. NARENDRAN ``` ``` & ``` ``` THE HONOURABLE MR.JUSTICE P.G. AJITHKUMAR ``` ``` TUESDAY, THE 23[RD] DAY OF MAY 2023/2ND JYAISHTA, 1945 ``` ``` ST.REV. NO.9OF 2023 ``` ``` TO REVISE THE ORDER PASSED BY THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH KOZHIKODE IN T.A.No.22 OF 2022, DATED 03.11.2022 ``` ## **`REVISION PETITIONER/APPELLANT/ASSESSEE:`** ``` M/S.KANGAPPADAN RESIDENCY, AGED 60 YEARS, RAMAVARMAPURAM, THRISSUR-680631, REPRESENTED BY ITS PROPRIETOR, MR. K.P. KURIAN. ``` ``` BY ADVS. NINOJ P.L. S.AJITH (PALAKKAD) ``` ## **`RESPONDENT/RESPONDENT/REVENUE:`** ``` STATE OF KERALA, REPRESENTED BY LAW OFFICER, SGST DEPARTMENT, KOZHIKODE, 673006. ``` ``` BY ADV. SRI.MOHAMMED RAFIQ, SPL GOVERNMENT PLEADER (TAXES) ``` ``` THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 23.05.2023, ALONG WITH ST.REV. No.10 OF 2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` ST.Rev. Nos.9 and 10 of 2023 - 2 - ``` IN THE HIGH COURT OF KERALA AT ERNAKULAM ``` ``` PRESENT ``` ``` THE HONOURABLE MR.JUSTICE ANIL K. NARENDRAN ``` ``` & ``` ``` THE HONOURABLE MR.JUSTICE P.G. AJITHKUMAR ``` ``` TUESDAY, THE 23[RD] DAY OF MAY 2023/2ND JYAISHTA, 1945 ``` ``` ST.REV. NO.10 OF 2023 ``` ``` TO REVISE THE ORDER PASSED BY THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH KOZHIKODE IN T.A.No.23 OF 2022, DATED 03.11.2022 ``` ## **`REVISION PETITIONER/APPELLANT/ASSESSEE:`** ``` M/S.KANGAPPADAN RESIDENCY, RAMAVARMAPURAM, THRISSUR-680631, REPRESENTED BY ITS PROPRIETOR, MR. K.P. KURIAN. ``` ``` BY ADVS. NINOJ P.L. S.AJITH (PALAKKAD) ``` ## **`RESPONDENT/RESPONDENT/REVENUE:`** ``` STATE OF KERALA REPRESENTED BY LAW OFFICER, SGST DEPARTMENT, KOZHIKODE-673006. ``` ``` BY ADV.SRI.MOHAMMED RAFIQ, SPL GOVERNMENT PLEADER (TAXES) ``` ``` THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 23.05.2023, ALONG WITH ST.REV. No.9 OF 2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` ST.Rev. Nos.9 and 10 of 2023 - 3 - ## **ORDER** ## **Anil K. Narendran, J.** The petitioner is a dealer on the rolls of the Deputy Commissioner of Sales Tax, SGST Department, Special Circle, Thrissur, which is running a Bar attached hotel (beer, wine and liquor), within the area of Thrissur Municipal Corporation, with 3- star facilities. 2. ST.Rev.No.9 of 2023:- The books of accounts and trading accounts of the petitioner-assessee in respect of the sale of beer, wine and liquor, for the assessment year 2018-19, were called for by the assessing authority and a notice was issued. The assessee failed to produce the books of accounts. Hence, a preassessment notice dated 20.10.2021 was issued. The assessee failed to file any objection against the pre-assessment notice. In such circumstances, the assessing authority fixed gross profit (GP) at the rate of 80%, during the 3-star period, to complete the assessment for the year 2018-19 on the basis of ‘best judgment assessment’, as stated in Annexure-A assessment order dated 24.01.2022. 2.1. Challenging the order of assessment, the assessee filed an appeal before the Joint Commissioner (Appeals), Thrissur as ST.Rev. Nos.9 and 10 of 2023 - 4 - S.T.A.No.139 of 2022. According to the assessee, the documents contained in Annexure-B list were produced before the first appellate authority. By Annexure-C order dated 16.05.2022, the first appellate authority disposed of S.T.A.No.139 of 2022, by modifying the order of assessment adopting a gross profit of 70% on cost of goods sold (COGS) considering the fact that the assessee is conducting business at a distance of about 8 KM from town. 2.2. Based on Annexure-C order of the first appellate authority, the assessing authority issued Annexure-D modified assessment order dated 30.05.2022, for the year 2018-19. Challenging Annexure-C order dated 16.05.2022 of the first appellate authority, the assessee filed T.A.No.22 of 2022 before the Sales Tax Appellate Tribunal, Additional Bench, Kozhikode, which ended in dismissal by Annexure-E order dated 03.11.2022. 2.3. Feeling aggrieved, the assessee is before this Court in this S.T. Revision, invoking the provisions under Section 41(1) of the Kerala General Sales Tax Act, 1963. 3. S.T. Rev.No.10 of 2023:- The books of accounts and trading accounts of the petitioner-assessee in respect of the sale of beer, wine and liquor, for the assessment year 2017-18, were called for by the assessing authority and a notice was issued. The ST.Rev. Nos.9 and 10 of 2023 - 5 - assessee failed to produce the books of accounts. Hence, a preassessment notice dated 20.10.2021 was issued. The assessee failed to file any objection against the pre-assessment notice. In such circumstances, the assessing authority fixed gross profit at the rate of 80%, during the 3-star period, to complete the assessment for the year 2017-18 on the basis of ‘best judgment assessment’, as stated in Annexure-A assessment order dated 24.01.2022. 3.1. Challenging the order of assessment, the assessee filed an appeal before the Joint Commissioner (Appeals), Thrissur as S.T.A.No.130 of 2022. According to the assessee, the documents contained in Annexure-B list were produced before the first appellate authority. By Annexure-C order dated 16.05.2022, the first appellate authority disposed of S.T.A.No.130 of 2022, by modifying the order of assessment adopting a gross profit of 70% on cost of goods sold considering the fact that the assessee is conducting business at a distance of about 8 KM from town. 3.2. Based on Annexure-C order of the first appellate authority, the assessing authority issued Annexure-D modified assessment order dated 30.05.2022, for the year 2017-18. Challenging Annexure-C order dated 16.05.2022 of the first appellate authority, the assessee filed T.A.No.23 of 2022 before ST.Rev. Nos.9 and 10 of 2023 - 6 - the Sales Tax Appellate Tribunal, Additional Bench, Kozhikode, which ended in dismissal by Annexure-E order dated 03.11.2022. 3.3. Feeling aggrieved, the assessee is before this Court in this S.T. Revision, invoking the provisions under Section 41(1) of the Kerala General Sales Tax Act, 1963. 4. Heard the learned counsel for the revision petitionerassessee and also the learned Special Government Pleader (Taxes) for the respondent. 5. The learned counsel for the petitioner-assessee would contend that in the facts and circumstances of the case, the assessing authority was not justified in taking recourse to the best judgment assessment. The first appellate authority and the Appellate Tribunal went wrong in not accepting the documents produced by the assessee along with Annexure-B list. The first appellate authority was not justified in fixing the gross profit at 70% of the cost of the goods sold, in the absence of any materials, particularly when the gross profit on the cost of the goods sold was fixed by the assessing authority for the year 2015-16 and 201617 at 65%, in the assessment orders dated 11.03.2020 and 16.03.2020. 6. Per contra, the learned Special Government Pleader (Taxes) for the respondent would contend that the orders of the ST.Rev. Nos.9 and 10 of 2023 - 7 - authorities below in fixing the gross profit at 70% of the cost of the goods sold for the assessment years 2017-18 and 2018-19, in the absence of any materials, on the basis of best judgment assessment, are perfectly legal, which warrant no interference in these S.T. Revisions. The learned Special Government Pleader would place reliance on the decision of this Court **R.Prabhakaran v. State of Kerala [2008:KER:53173]** - S.T. Revision No.331 of 2008 dated 03.12.2008. 7. For the assessment years 2017-18 and 2018-19, the assessing authority called for the books of accounts and trading accounts of the petitioner-assessee, in respect of the sale of beer, wine and liquor. The assessee failed to produce the records. Hence, assessment notices were issued in respect of those assessment years. The assessee failed to file any objection against those assessment notices. In such circumstances, the assessing authority fixed the gross profit at the rate of 80% of the cost of the goods sold for the assessment years 2017-18 and 2018-19 to complete the assessment for the said years on the basis of best judgment assessment. The assessee challenged those assessment orders by filing appeals before the Joint Commissioner (Appeals), Thrissur. The first appellate authority, by the orders dated 16.05.2022 disposed of those appeals, modifying the order of ST.Rev. Nos.9 and 10 of 2023 - 8 - assessment by adopting a gross profit of 70% of the cost of the goods sold for the assessment years 2017-18 and 2018-19, instead of a gross profit of 80%. Such a modification was made by the first appellate authority considering the fact that the assessee is conducting business at a distance of 8 KM from the town. 8. The first appellate authority noticed that, in utter disregard to the statutory notice, the assessee has not produced the books of accounts pertaining to the relevant assessment years before the assessing authority. Though a reply was filed to Section 17(3) notice, the assessee did not venture to produce the books of accounts. Therefore, the assessing authority estimated the gross profit after taking into account various aspects such as the nature of business, prevailing trends in the line of business and the external expenses appurtenant to the running of a 3-star bar attached hotel. The assessee challenged the orders of the first appellate authority before the Sale Tax Appellate Tribunal, Additional Bench, Kozhikode, which ended in dismissal by the orders dated 03.11.2022. 9. The law relating to best judgment assessment is the same both in the case of ‘income tax assessment’ as well as ‘sales tax assessment’. The scope of best judgment assessment under the income tax law came up for consideration before the Judicial ST.Rev. Nos.9 and 10 of 2023 - 9 - Committee in **Commissioner of Income Tax, Central and U.P.** **v. Laxminarain Badridas [AIR 1937 PC 133 : 5 ITR 170]** , wherein Lord Russel of Killowen speaking for the Judicial Committee observed that the officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose, he must be able to take into consideration local knowledge and repute in regard to the assessee’s circumstances and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at fair and proper estimate; and though there must necessarily be guesswork in the matter it must be honest guesswork. ## 10. In **Commissioner of Sales Tax v. H.M. Esufali H.M.** **Abdulali [(1973) 2 SCC 137 : (1973) 32 STC 77]** the Apex Court noticed that the task of the assessing authority in finding out the escaped turnover is by no means easy. In estimating any escaped turnover, it is inevitable that there is some guesswork. In the said decision, the Apex Court held that the assessing authority, ST.Rev. Nos.9 and 10 of 2023 - 10 - while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. The assessing authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not anyone else's. The High Court cannot substitute its best judgment for that of the assessing authority. In the case of best judgment assessments, the courts will have to first see whether the accounts maintained by the assesses were rightly rejected as unreliable. If the courts come to the conclusion that they were rightly rejected the next question that arises for consideration is whether the basis adopted in estimating the turnover has a reasonable nexus with the estimate made. If the basis adopted is held to be a relevant basis, even though the courts may think that it is not the most appropriate basis, the estimate made by the assessing authority cannot be disturbed. 11. In **Kachwala Gems, Jaipur v. Joint Commissioner** **of Income Tax, Jaipur [(2007) 12 SCC 761]** the Apex Court held that in best judgment assessment there is always a certain degree of guesswork. No doubt the authorities concerned should ST.Rev. Nos.9 and 10 of 2023 - 11 - try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guesswork involved in best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. 12. In the instant case, the Appellate Tribunal found that the assessee was given the opportunity, both at the time of issuance of notice for the production of the books of accounts as well as at the time of issuance of proposal notice, to produce the books of accounts. However, the assessee did not avail of those opportunities. The Appellate Tribunal noticed that no audited statements in Form 50A and 50B were produced before the first appellate authority and no such audited statements were produced before the Tribunal as well. After considering the rival contentions, the Appellate Tribunal, by the order dated 03.11.2022, dismissed the appeals filed by the assessee. ## 13. In **R.Prabhakaran v. State of Kerala [2008:KER:** **53173]** - S.T. Revision No.331 of 2008 dated 03.12.2008 - a Division Bench of this Court held that, except in exceptional cases, the High Court, in the exercise of its powers under Section 41 of the Kerala General Sales Tax Act, is not expected to substitute its best judgment assessment to the best judgment assessment ST.Rev. Nos.9 and 10 of 2023 - 12 - ## already completed by the assessing authority and confirmed by the first appellate authority and the Tribunal. The law on the point is well settled by the decision of the Apex Court in the case of **Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali [(1973) 32 STC 77]** . 14. In the instant case, in Annexure-A assessment orders for the year 2017-18 and 2018-19, the assessing authority fixed gross profit at the rate of 80%, to complete the assessment for those years on the basis of ‘best judgment assessment’. In Annexure-C orders for the year 2017-18 and 2018-19, the first appellate authority modified Annexure-A assessment orders by adopting a gross profit of 70% of the cost of the goods sold for those assessment years, considering the fact that the assessee is conducting business at a distance of 8 kilometres from the town. It is an admitted fact that, for the years 2015-16 and 2016-17, the assessing authority adopted a gross profit of 65% of the cost of the goods sold, while completing the assessment of the assessee for those years on the basis of ‘best judgment assessment’, in the assessment orders dated 11.03.2020 and 16.03.2020. 15. In best judgment assessment there is always a certain degree of guesswork and it is the assessee himself who is to blame, ST.Rev. Nos.9 and 10 of 2023 - 13 - as he did not submit proper accounts. In the facts and circumstances of the case on hand, it cannot be said that the estimation of gross profit by the assessing authority at 70% of the cost of the goods sold for those assessment years is not bona fide or without a rational basis. 16. In that view of the matter, we find no reason to interfere with the orders of the authorities below, which are impugned in these S.T. Revisions. In the result, these S.T. Revisions fail, which are accordingly dismissed. Sd/- **ANIL K. NARENDRAN, JUDGE** Sd/- **P.G. AJITHKUMAR, JUDGE** ww ST.Rev. Nos.9 and 10 of 2023 - 14 - ## **`APPENDIX OF ST.REV.9/2023`** ## `PETITIONER'S ANNEXURES:` |`ANNEXURE A`|`TRUE COPY OF ORDER DATED 25.01.2022`| |---|---| ||`PASSED BY THE ASSESSING AUTHORITY.`| |`ANNEXURE B`|`TRUE COPY OF THE DOCUMENTS PRODUCED`| ||`BEFORE THE FIRST APPELLATE AUTHORITY`| ||`BY THE PETITIONER.`| |`ANNEXURE C`|`TRUE COPY OF ORDER PASSED BY THE FIRST`| ||`APPELLATE AUTHORITY IN STA 139/22,`| ||`DATED 16.05.2022.`| |`ANNEXURE D`|`TRUE COPY OF MODIFIED ORDER PASSED BY`| ||`THE`<br>`ASSESSING`<br>`AUTHORITY`<br>`DATED`| ||`30.05.2022.`| |`ANNEXURE E`|`CERTIFIED COPY OF THE ORDER DATED`| ||`03.11.2022 PASSED BY THE KERALA SALES`| ||`TAX APPELLATE TRIBUNAL, ADDITIONAL`| ||`BENCH KOZHIKODE IN T.A. NO.22/2022.`| ST.Rev. Nos.9 and 10 of 2023 - 15 - ## **`APPENDIX OF ST.REV. 10/2023`** ``` PETITIONER'S ANNEXURES: ``` ``` ANNEXURE A TRUE COPY OF ORDER DATED 24.01.2022 PASSED BY THE ASSESSING AUTHORITY. ``` ``` ANNEXURE B TRUE COPY OF THE DOCUMENTS PRODUCED BEFORE THE FIRST APPELLATE AUTHORITY BY THE PETITIONER. ``` ``` ANNEXURE C TRUE COPY OF ORDER PASSED BY THE FIRST APPELLATE AUTHORITY IN STA 130/22, DATED 16.05.2022. ``` ``` ANNEXURE D TRUE COPY OF MODIFIED ORDER PASSED BY THE ASSESSING AUTHORITY DATED 30.05.2022. ``` ``` ANNEXURE E CERTIFIED COPY OF THE ORDER DATED 03.11.2022 PASSED BY THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH KOZHIKODE IN T.A. NO. 23/2022. ```