M/S Mayflower Hotel Pvt. Ltd. v. Intelligence Officer, Squad No. III, Office of Deputy Commissioner, Intelligence, Edappally; Kerala Sales Tax Appellate Tribunal; Commercial Tax Officer (WC & LT), Ernakulam; Assistant Commissioner (Assessment) Special Circle-I, Ernakulam; Commissioner of Commercial Taxes, Thiruvananthapuram; Deputy Commissioner (Appeals), Commercial Taxes, Ernakulam; State of Kerala, represented by the Secretary to Government, Taxes Department

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR** **WEDNESDAY, THE 14TH DAY OF JUNE 2017/24TH JYAISHTA, 1939** ## **WP(C).No. 11148 of 2011 (P)** **------------------------------------------** **PETITIONER(S) :** **-------------------------** **M/S.MAYFLOWER HOTEL PVT.LTD., HOTEL PRESIDENCY, ERNAKULAM, COCHIN-18, REPRESENTED BY ITS DIRECTOR, V.GOUTHAMAN.** **BY DR.K.B.MUHAMED KUTTY (SENIOR ADVOCATE) ADV. SRI.K.M.FIROZ** **RESPONDENT(S) :** - **----------------------------** **1. THE INTELLIGENCE OFFICER, SQUAD NO. III, O/O. DEPUTY COMMISSIONER, INTELLIGENCE, EDAPPALLY, ERNAKULAM-682 025.** **2. THE KERALA SALES TAX APPELLATE TRIBUNAL, SALES TAX COMPLEX, ERNAKULAM, REPRESENTED BY ITS SECRETARY-682 015.** **3. COMMERCIAL TAX OFFICER, (WC & LT), ERNAKULAM-682 015.** **4. THE ASSISTANT COMMISSIONER, (ASSESSMENT) SPECIAL CIRCLE-I, ERNAKULAM-682 015.** **5. THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM- 695 001.** **6. THE DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, ERNAKULAM- 682 015.** **7. THE STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-695 001.** **BY GOVERNMENT PLEADER SRI. C.K.GOVINDAN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 14-06-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** Msd. ## **WP(C).No. 11148 of 2011 (P)** ## **------------------------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS :** - **EXHIBIT P1: TRUE COPY OF THE PENALTY ORDER FOR THE YEAR 2007-2008 DATED 28.10.2009.** - **EXHIBIT P2: TRUE COPY OF THE PENALTY ORDER FOR THE YEAR 2008-2009 DATED 28.10.2009.** - **EXHIBIT P3: TRUE COPY OF THE APPEAL ORDER, DATED 19.02.2010.** - **EXHIBIT P4: TRUE COPY OF THE COMMON APPELLATE TRIBUNAL ORDER T.A.NO. 86 AND 87 OF 2010 DATED 30.09.2010.** - **EXHIBIT P5: TRUE COPY OF THE RETURNS UNDER THE KVAT ACT FILED FOR THE YEAR 2007-2008.** - **EXHIBIT P6: TRUE COPY OF THE RETURNS UNDER THE KVAT ACT FILED FOR THE YEAR 2008-2009.** - **EXHIBIT P7: TRUE COPY OF THE ANNUAL RETURN UNDER THE KVAT ACT FILED FOR THE YEAR 2007-2008.** - **EXHIBIT P8: TRUE COPY OF THE ANNUAL RETURNS UNDER THE LUXURIES TAX ACT FILED FOR THE YEAR 2008-2009.** - **EXHIBIT P9: TRUE COPY OF THE PHOTOGRAPHS OF THESE TWO RESTAURANTS.** **EXHIBIT P10: TRUE COPY OF THE SAMPLE BILLS OF THE TWO RESTAURANTS.** **EXHIBIT P11: TRUE COPY OF THE SAMPLE BILLS OF TWO RESTAURANTS.** **EXHIBIT P12: TRUE COPY OF THE CIRCULAR 31/2008 DATED 01.07.2008.** **RESPONDENT(S)' EXHIBITS :** ## **NIL** **//TRUE COPY//** **P.S.TO JUDGE.** Msd. ## **A.K.JAYASANKARAN NAMBIAR, J. ------------------------------W.P.(C).NO.11148 OF 2011 (P) ----------------------------------Dated this the 14[th] day of June, 2017** ## **J U D G M E N T** The petitioner, who owns a Hotel and does business in the hospitality sector, is an assessee under the Kerala Tax on Luxuries Act, 1976. In the writ petition, the petitioner impugns Exts.P1, P2, P3 and P4 orders passed by the respective authorities under the Kerala Tax on Luxuries Act, confirming a penalty that was imposed on him for alleged contravention of the provisions of the Kerala Tax on Luxuries Act and Rules. Exts.P1 and P2 are the penalty orders that were passed by the Intelligence Officer. In the penalty orders, the Intelligence Officer imposed a penalty of Rs.3,30,490/- and Rs.3,17,378/-, respectively, for the assessment years 2007-08 and 2008-09, on the finding that, insofar as the petitioner had not separately shown the charges collected towards Hall rent in the bill raised on the customers who had hired the same for functions, the provisions of Rule 3C of the Kerala Tax on Luxuries Rules, 1976 required that 25% of the total charges realised be treated as rent and other charges. The Intelligence Officer therefore took 25% of the **W.P.(C).No.11488/2011** **2** amounts realised by the petitioner from his customers, and subjected the said amount to luxury tax @ 15%. The penalty imposed was twice the tax figure arrived at on the basis of the said computation. Aggrieved by the said orders, the petitioner carried the same in appeals before the First Appellate authority, but the appeals were rejected by Ext.P3 order. In the second appeal preferred by the petitioner, the Appellate Tribunal, in Ext.P4 order, found that there was no willful disobedience or deliberate intention on the part of the petitioner, to suppress the turnover or to evade tax, but finding that the petitioner had nevertheless committed the offence of filing an incorrect or incomplete return, reduced the penalty imposed on the petitioner to half of what was imposed on him by the Intelligence Officer. In the writ petition, the petitioner is essentially aggrieved by Ext.P4 order of the Appellate Tribunal. The learned senior counsel appearing for the petitioner would submit that the Appellate Tribunal erred in confirming the penalty on the petitioner, even to the reduced extent indicated in Ext.P4, since, there was a positive finding that there was no willful disobedience or deliberate intention on the part of the assessee to suppress the **W.P.(C).No.11488/2011** **3** turnover or to evade tax. It is also pointed out by the learned senior counsel that, in the assessment proceedings for the years in question, the petitioner was subjected to assessment to luxury tax on 25% of the amounts that he had received from letting out of the hall for various functions, and this was despite the fact that on the entire amount received through the letting out of the hall, he had already discharged tax under the Kerala Value Added Tax Act [hereinafter referred to as the 'KVAT Act'], at the rate applicable to food and beverages. The learned senior counsel would specifically point out that, in the absence of any finding by the authority, that there was any amount collected over and in addition to what was declared in the returns under the KVAT Act, as obtained from the letting out of the halls in question, there was no justification on the part of the authorities under the Kerala Tax on Luxuries Act, to levy tax under the said Act @ 15% on a turnover representing 25% of what was collected by the petitioner through the letting out of the halls in question. The learned senior counsel would further point out that, at any rate, the petitioner paid not only the luxury tax assessed in respect of the two halls, but also an additional tax on amounts that had been estimated by the Assessing authority during the said years towards probable omissions **W.P.(C).No.11488/2011** **4** and suppressions. It is stated that in order to purchase peace with the department, the petitioner chose not to prefer appeals against the Appellate orders, although he never really accepted that the additional amounts collected from him by way of tax for the letting out of the halls in question were legally correct. 2. I have heard Sri. K.B. Mohammedkutty, the learned senior counsel for the petitioner as also Sri. Govindan C.K., the learned Government Pleader for the respondents. 3. On a consideration of the facts and circumstances of the case as also the submissions made across the bar, I find from a perusal of Exts.P1 and P2 penalty orders that the penalty has been imposed on the petitioner for the sole reason that the petitioner had not separately indicated, in the bills raised to persons who had availed the halls in question, the rental charges attributable for the halls. It is relevant to note that, the adjudicating authority does not have a case that the petitioner had received any consideration over and above what was subjected to tax under the KVAT Act, which he had not disclosed in the return filed for the purposes of the Kerala Tax on **W.P.(C).No.11488/2011** **5** Luxuries Act. In other words, what has been done is to mechanically adopt 25% of the total amount charged by the petitioner in respect of the halls in question, as the amount charged towards rent for the halls, and then, subject the same to luxury tax @ 15%, over and in addition to the tax amounts collected under the KVAT Act, on the total amount collected. In my view, the said quantification of 25% stems from an erroneous appreciation of the true purport of Rule 3C of the Kerala Tax on Luxuries Rules. The said Rule clearly indicates that the charging of 25% of the total charges realised, in respect of a hall, can only be in circumstances where the bills issued, or accounts maintained by the assessee, do not show the rent or other charges realised for the hall etc., separately, and the rent and other charges are merged with the charges realised for food. In the instant case, it is not in dispute that there was no additional charges collected by the assessee over and addition to what was already declared for the purposes of taxation under the KVAT Act. Under such circumstances, even if the provisions of Rule 3C were to be pressed into service, the Intelligence Officer ought to have segregated the total bill amount into a portion that represented the charges for food and beverages, and a portion that represented rental charges, and subjected only **W.P.(C).No.11488/2011** **6** such amount as represented rental charges, to Luxury tax. As regards the issue of suppression and attempted evasion of tax, the assessee could have been subjected to penalty only if the turnover representing the rental charges had not been disclosed in the return. The facts of the instant case clearly indicate that what was adopted for the purposes of taxation under the Kerala Tax on Luxuries Act, was only a portion of the amount which had already been declared by the assessee as turnover, and, hence, there cannot be an allegation of suppression in such circumstances. I, therefore, feel that while the Appellate Tribunal, in Ext.P4 order, had already found that there was no willful disobedience or deliberate intention to suppress turnover or evade tax, it should have also taken note of the said fact to cancel the penalty imposed on the petitioner by the Intelligence Officer. In the absence of any material to suggest that the petitioner had actually suppressed any part of the turnover, for the purposes of tax, the penalty cannot be legally sustained. I am fortified in my conclusion by the decisions of the Supreme Court in **E.I.D. Parry (India) Limited v. Assistant Commissioner of Commercial Taxes – [(2000) 117 STC 457 (SC)]** and **Hindustan Steel Ltd. v. State of Orissa – [(1972) 83 ITR 26]** . I therefore quash Exts.P1, P2, P3 and P4 orders, **W.P.(C).No.11488/2011** **7** to the extent, they impose penalties on the petitioner @ Rs.1,65,245/and Rs.1,58,689/-, and declare that the petitioner is not liable for any penalty, under the Kerala Tax on Luxuries Act, for the assessment years 2007-08 and 2008-09. The writ petition is thus allowed. ## **A.K.JAYASANKARAN NAMBIAR JUDGE** **prp/15/6/17**