M/S. Marvel Cruise, Vadakkekalam, Convent Square, Alappuzha v. State of Kerala, represented by the Secretary (Taxes), Government of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE ANTONY DOMINIC** **TUESDAY, THE 6TH DAY OF NOVEMBER 2012/15TH KARTHIKA 1934** ## **WP(C).No. 16693 of 2009 (F)** **---------------------------** **PETITIONER(S): ------------------** **M/S. MARVEL CRUISE, VADAKKEKALAM, CONVENT SQUARE, ALAPPUZHA REPRESENTED BY ITS PARTNER MR. KURIAN VADAKEKALAM.** **BY ADVS.SRI.JOSEPH KODIANTHARA SRI.TERRY V.JAMES SRI.B.J.JOHN PRAKASH** **RESPONDENT(S): -------------------** **STATE OF KERALA, REPRESENTED BY THE SECRETARY (TAXES), TRIVANDRUM.** **BY SPL. GOVERNMENT PLEADER SRI. SEBASTIAN CHEMBAPPILLY** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 06-11-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **WP(C).No. 16693 of 2009 (F)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **P1: TRUE COPY OF ASSESSMENT ORDER DATED 18.03.2008 ISSUED BY THE COMMERCIAL TAX OFFICER (WC & LT), ALAPPUZHA FOR ASSESSMENT YEAR 2005-06** - **P2: TRUE COPY OF THE APPELLATE ORDER DATED 09.01.2009 PASSED BY THE DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, KOLLAM IN STA NO. 1234/2008** - **P3: TRUE COPY OF SECOND APPEAL DATED 2.3.2009 FILED BY THE PETITIONER BEFORE THE TAX SALES APPELLATE TRIBUNAL, KOTTAYAM.** - **P4: TRUE COPY OF THE LETTER DATED 26.11.2006 SENT BY THE PETITIONER TO THE COMMERCIAL TAX OFFICER (WC & LT), ALAPPUZHA.** - **P5: TRUE COPY OF LETTER DATED 4.1.2007 SENT BY THE PETITIONER TO THE COMMERCIAL TAX OFFICER (WC & LT), ALAPPUZHA.** - **P6: TRUE COPY OF DETAILS OF TAX DUE FOR EACH MONTH WITH DETAILS OF BOATS FOR THEN YEAR 2006-07** - **P7: TRUE COPY OF CHALLAN DATED 30.03.2007** - **P8: TRUE COPY OF ANNUAL RETURN OF 2006-07 FILED BY THE PETITIONER ON 18.4.2007** - **P9: TRUE COPY OF ORDER DATED 14.1.2008 OF THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM.** - **P10: TRUE COPY OF ASSESSMENT ORDER DATED 18.3.2008 PASSED BY THE COMMERCIAL TAX OFFICER (WC & LT), ALAPPUZHA FOR ASSESSMENT FOR ASSESSMENT YEAR 2006-07** - **P11: TRUE COPY OF ORDER DATED 9.1.2009 PASSED BY THE DEPUTY COMMISSIONER (APPEALS), KOLLAM IN STA NO. 1235/2008** - **P12: TRUE COPY OF SECOND APPEAL DATED 2.3.2009 FILED BY THE PETITIONER BEFORE THE SALES TAX APPELLATE TRIBUNAL. KOTTAYAM.** - **P13: TRUE COPY OF APPELLATE ORDER DATED 25.5.2009 PASSED BY THE SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOTTAYAM IN APPEAL NOS.68 & 68/2009** ## **RESPONDENT'S EXHIBITS: NIL** **//TRUE COPY//** **P.A. TO JUDGE.** **dlk** ## **ANTONY DOMINIC, J. ================ W.P.(C) NO. 16693 OF 2009** **===================** ## **Dated this the 6[th] day of November, 2012** ## **J U D G M E N T** Heard the learned senior counsel for the petitioner and the learned Special Government Pleader appearing for the respondent. 2. Petitioner is a partnership firm operating house boats in the backwaters of Vembanad Lake. Luxury provided in house boats are taxable under the Kerala Tax on Luxuries Act, 1976 as amended by Finance Act, 2004 w.e.f. 01/4/2004. Accordingly petitioner's house boats are registered under the said Act on the file of the Commercial Tax Officer, Alappuzha. 3. In so far as this writ petition is concerned, the relevant assessment years are 2005-06 and 2006-07. In so far as the assessment year 2005-06 is concerned, Ext.P1 is the assessment order. In that assessment order, taking into account the fact that the petitioner has raised consolidated bills without any bifurcation for the various items of services rendered to its customers, they were levied tax allowing a deduction of 25% from their turnover towards charges for food, liquor etc. Luxury tax was also levied **WPC.No.16693/09** **:2 :** on the turn over of the petitioner towards the tour operating services. This order of assessment was confirmed by the appellate authority and the Tribunal as per Exts.P2 and P13 orders. 4. In so far as the above aspect of the matter is concerned, the petitioner's main grievance is that towards food and liquor, the reduction should not have been restricted to 25% and that a higher percentage of the turn over should have been deducted. However, the counter affidavit filed and the submission made by the learned Government Pleader show that in the absence of bifurcated accounts and invoices raised by the petitioner, the admissible exclusion could only be based on an estimation. It is stated that it was on account of the above, the assessing officer gave a deduction of 25% towards food and liquor. 5. Section 2(f) of the Kerala Tax on Luxuries Act, 1976 provides that, luxury provided in a house boat means accommodation for residence or use and other amenities and services provided in a house boat and from the rate of charges realised, charges of food and liquor are to be excluded. Section does not provide the extent to which such exclusion is **WPC.No.16693/09** **:3 :** permissible. Rule 3C which provides for standard deduction does not include house boats. In such a situation, it is for the assessing officer to allow a reasonable deduction while estimating the turn over for the purpose of luxury tax. It was in exercise of that power that a deduction of 25% has been allowed to the petitioner. On the material produced before this Court, I am unable to hold that the deduction of 25% allowed by the assessing officer is unreasonable or illegal justifying interference in a proceedings under Article 226 of the Constitution of India. Therefore, Exts.P1, P2 and P13 to the extent it concerns the assessment year 200506 deserves to be upheld and I do so. 6. In so far as the assessment year 2006-07 is concerned, the case of the petitioner is that by Section 5A of the Act, proprietors of the house boats were given option to apply to the assessing authority for permission to compound the tax payable under the Act at the rate as prescribed therein. This amendment was introduced by Finance Act, 2006 by notification dated 24/10/2006 and w.e.f. 01/4/2006. It is stated that immediately on the introduction of the section, they submitted Ext.P4 application dated 26/11/06 informing the assessing authority their intention **WPC.No.16693/09** **:4 :** to apply for payment of compounded tax. It is also their case that subsequently they submitted Ext.P5 application dated 04/1/2007 and requested that they be permitted to pay tax at the compounded rate. 7. Petitioner also says that thereafter by cheque dated 17/3/2006, they paid tax at compounded rates for the period from 01/04/2006 to February, 2007 together with interest due. It is stated that accordingly they paid a total amount of `82,588/which was accepted by the assessing officer. These details are evidenced by Ext.P6. It is also submitted that by Ext.P7 chalan, they paid the instalment of the tax at compounded rate for March, 2007. Despite the application made and the payments that were made by the petitioner, which was accepted, assessment was completed for the year 2006-07 as per Ext.P10. In the assessment order, the claim of the petitioner of having applied for compounding and paid tax has been negatived on the ground that the petitioner did not make an application before the assessing authority seeking permission for payment of tax at compounded rate. On that basis, tax due was assessed at `17,60,604/- and after giving credit to the payment made at compounded rates, **WPC.No.16693/09** **:5 :** the balance liability has been quantified at `16,75,608/-. Petitioner filed an appeal against this order. That was rejected by the first appellate authority as per Ext.P11. Further appeal filed before the Tribunal was also heard along with their appeal for the year 2005-06 and was rejected by Ext.P13 order. The reason stated in Exts.P10, P11 and P13 for denying the benefit of compounding is the absence of the prescribed application made by the petitioner. It is these orders which are challenged in this writ petition. 8. The contention raised by the learned senior counsel for the petitioner is that the petitioner made Ext.P5 application dated 4/1/2007. It is also stated that as is evident from Exts.P6 and P7, the petitioner paid the entire tax due for the year 2006-07 which was accepted by the assessing authority without any demur. Petitioner also points out that they were allowed compounding for the subsequent years also. It is stated that having applied and paid tax at compounded rates, the assessing authority could not have denied them the benefit of compounding and fastened them huge tax liability as per Ext.P10 order, which is now confirmed by Exts.P11 and P13. **WPC.No.16693/09** **:6 :** 9. On the other hand, learned Special Government Pleader appearing for the respondent contended that under Section 5A of the Act, assessee who desires to avail of the benefit of compounding should make an application. Thereafter the assessing officer is to pass an order allowing the application fixing the instalment due and only thereafter can payment of tax at compounded rates be made. It is stated that, in this case, no application was made by the petitioner and in such a situation, even if the petitioner voluntarily estimated and paid tax at compounded rates, petitioner cannot claim the benefit of compounding. On this basis, learned Government Pleader sought to sustain Exts.P10, P11 and P13 to the extent it concerns the assessment year 2006-07. 10. Section 5A, as already stated, was substituted by the Finance Act, 2006 and facility of compounding has been introduced in respect of house boats. Sub Section (2) provides that tax payable under Section 5A shall be payable in equal monthly instalments. As per Sub Section (3) any person who is liable to pay tax shall file an application and return to the assessing authority within ninety days of the commencement of **WPC.No.16693/09** **:7 :** the Act on or before 1[st] May of every year. Sub section (4) provides that on receipt of the application and return, and after satisfying that the particulars furnished therein are true and complete, the assessing authority may determine the tax payable and monthly instalments payable by the person. Under sub section (5) monthly instalments of tax determined by the assessing authority shall be paid in accordance with the provisions of the Act as provided therein and as per sub section (6), if the tax determined is not paid as specified in the section, it shall be recovered along with penalty. As per the Kerala Tax on Luxuries Act, various forms have been prescribed and Form No.VII is the prescribed form of application for permission for payment of tax under Section 5A. Although it is the only form prescribed under the Act for this purpose, this form does not contain any provision for houseboats. 11. Be that as it may, the case of the petitioner is that Ext.P5 is an application submitted by it. Admittedly, assessing authority has not determined the tax and the monthly instalments payable by the petitioner. It was inspite of it that the petitioner quantified the instalments by itself and volunteered to pay the **WPC.No.16693/09** **:8 :** same together with interest. In the counter affidavit filed or in Exts.P11 or P13 appellate orders, the respective appellate authorities have no case that the payment made by the petitioner is inadequate or is insufficient for the assessment year in question. Thus, even in the absence of any order under Section 5A, the petitioner paid the tax payable under Section 5A. In such a case, even if I accept the case of the respondent that there was no application made by the petitioner, the question to be considered is whether after having accepted the payments made, the respondent could have declined the benefit of compounding to the petitioner. 12. Although no case law is available on this aspect arising under the Kerala Tax on Luxuries Act, 1976, learned senior counsel for the petitioner brought to my notice judgments of this Court rendered in the context of the similar provisions contained in the Kerala General Sales Tax Act. Prakash Jewellery and another v. State of Kerala etc. {(2004) 12 KTR 543} is a Division Bench judgment rendered by this Court. In that case, after considering the provisions of the Kerala General Sales Tax Act, this Court held that where the assessee had offered to pay tax at **WPC.No.16693/09** **:9 :** compounded rate and officer has accepted the same, the assessee cannot back out from the offer made for compounding. Johnson & Johnson Ltd. v. Asst. Commissioner {(2009) 17 KTR 613} is a case where even though an application for compounding was not filed, the appellant therein has remitted tax at compounded rates. In that case, this Court held thus; _“2. We do not find anything wrong with the Commissioner's order because even without a formal application for compounding, the appellant adopted the scheme of compounding for payment of tax in respect of drugs and medicines which is at four per cent on MRP. Proviso (b) to Explanation to section 8(e) makes it clear that when tax is collected at the compounded rate on MRP by the seller, the purchasing dealer is entitled to exemption. Going by the collection of tax in the pharma division the appellant cannot deny that they have not opted for payment of tax at compounded rate under section 8(e) of the Act”._ 13. Again in the judgment in Zodiac Regency v. Commissioner of Commercial Taxes, Tvm and another (2011 (3) KHC 334), a Division Bench of this Court has held thus; “When a compounding application is submitted by the assessee and the assessee starts making payment of tax under the scheme of compounding which is not objected by the assessing Officer, the only presumption is that the officer accepted the offer. In factor, in the case of an assessee who has paid tax under the compounding scheme after making an application, assessment can be made only in terms of the compounding scheme. Payments made in such cases can be treated as payment of admitted tax over which **WPC.No.16693/09** **:10 :** later assessee cannot raise a dispute at all. It is also to be noted that an assessee who is otherwise liable to maintain all the records pertaining to business including sales turnover, after offering payment of tax at compounded rate based on purchase price and by disabling the department to verify sales turnover during the relevant year, cannot revert back to the position of a normal dealer liable to pay tax on the sales turnover. We are of the view that once compounding application is filed and tax is paid in terms of the same, the same binds both the assessee and the department unless assessee recalls application before starting payment of tax in terms of the compounding scheme. In this case the appellant not only applied for compounding, but paid tax in terms of the compounding application and even filed return based on the same. The appellant has, therefore, no right to withdraw from the compounding scheme or opt for regular assessment on the sales turnover”. 14. Thus the aforesaid three judgments rendered by this Court show that once an assessee had offered to pay tax at compounded rate, he cannot back out from such an offer, that even in the absence of an application for compounding, if tax was remitted at compounded rates, assessee is bound by such payment and that when compounding application is submitted by the assessee and the assessee starts making payment under the scheme of compounding, which is not objected by the compounding officer, the only presumption is that the officer has accepted the officer. 15. When on identical provisions of the KGST Act, this **:11 :** ## **WPC.No.16693/09** Court has held the aforesaid principles, I see no reason why the petitioner should be denied the benefit of compounding when the petitioner has paid the entire tax due under the scheme of compounding, which was accepted by the assessing officer. If that be so, I must uphold the petitioner's entitlement for the benefit of compounding for the year 2006-07 and the findings to the contrary contained in Exts.P10, P11 and P13 are to be set aside. Accordingly, I dispose of this writ petition upholding Exts.P1, P2 and P13 to the extent it concerns the assessment year 2005-06 and quashing Exts.P10, P11 and P13 to the extent it denies the benefit of compounding for the assessment year 2006-07. Writ petition is disposed of as above. ## **ANTONY DOMINIC, JUDGE** Rp