High Court of KeralaSingle Judge2022-08-23Writ petition disposed; Exts. P4 & P7 set aside...

Polakulath's Sree Krishna Regency Guruvayoor v. Assistant Commissioner of State Tax (Assessment), State Goods and Service Tax Department, Special Circle, Thrissur; and Assistant Commissioner (Recovery), State Goods and Services Tax Department, Irinjalakuda, Thrissur District

Case / Petition Number:WP(C) No.16503/2019

Neutral Citation:/

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: Shoba Annamma Eapen
Judgment Date: 2022-08-23
Court Decision / Holding: Exts. P4 and P7 are set aside. The first respondent is directed to reconsider the matter de novo in accordance with law, taking into account the decision in M/s Sannidhan Bar & Restaurant v. State of Kerala (Ext. P2) and providing the petitioner an opportunity of hearing. The reassessment must be completed within two months from the receipt of a certified copy of the judgment.
Final Disposition: Writ petition disposed; Exts. P4 & P7 set aside; remand for de novo assessment with opportunity of hearing; consider Ext.P2 judgment.

Parties to the Case

Appellants / Petitioners

Polakulath's Sree Krishna Regency Guruvayoor

Respondents

Assistant Commissioner of State Tax (Assessment), State Goods and Service Tax Department, Special Circle, Thrissur-680001
Assistant Commissioner (Recovery), State Goods and Services Tax Department, Irinjalakuda, Thrissur District

Legal Representation & Advocates

Counsels for Petitioners

• K.N. Sreekumaran
• Sri P.J. Anilkumar (A-1768)
• Sri N. Santhoshkumar

Counsels for Respondents

• SMT. M.M. Jasmine

Case Synopsis & Summary

Polakulath's Sree Krishna Regency Guruvayoor, a bar-restaurant, challenged Ext. P4 assessment order under the Kerala General Sales Tax Act (KGST Act) and Ext. P7 rectification order in WP(C) 16503/2019 before the Kerala High Court. The petitioner had opted for the compounded tax regime under Section 7 (140% of purchase turnover) rather than the turnover tax under Section 5(2). For the 2015-16 year, the Department initiated best-judgment assessment under Section 17(3), proposing to fix the purchase value for 2015-16 by considering the closing stock of IMFL from 2014-15. The petitioner contended that the purchase price under Section 7 must reflect the liquor sold during the year, including opening stock but excluding closing stock, following this Court's decision in M/s Sannidhan Bar & Restaurant v. State of Kerala (2010 (2) KLT 887) (Ext. P2). The assessing authority, however, finalised the assessment incorporating the closing stock, leading to Ext. P4 and later, Ext. P7. The petitioner challenged these orders as illegal, sought rectification, and argued for de novo computation with deduction for closing stock, relying on the tribunal’s ruling in Ext. P2. The Court disposed of the matter by holding Exts. P4 and P7 illegal and remanding for de novo consideration in light of Ext. P2, with a direction to hear the petitioner.

Provisions of Law Cited

Section 5(2) of KGST ActSection 7 of KGST ActSection 17(3) of KGST ActSection 43 of KGST Act

Legal Doctrines & Maxims

Purchase price under Section 7 includes the purchase price of the entire liquor sold during the year, including opening stock; excludes closing stock (as settled in M/s Sannidhan Bar & Restaurant v. State of Kerala).

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioner contends that Exts. P4 (assessment) and Ext. P7 (order under Section 43) are illegal because the closing stock of the previous year (2014-15) has impermissibly influenced the purchase value for 2015-16, contrary to the settled law in M/s Sannidhan Bar & Restaurant v. State of Kerala (2010 (2) KLT 887). It relies on Ext. P2 (this Court’s decision) to assert that the purchase price under Section 7 should reflect the entire liquor sold in the year, including opening stock and excluding closing stock. It seeks de novo reassessment, allowing deduction for closing stock as claimed in Ext. P5, and requests an opportunity of hearing before finalization.

Contentions of Respondents

The respondents argue that the assessment was correctly computed by considering the closing stock given the petitioner’s status as a non-compounded dealer in the previous year (2014-15). They rely on procedural and statutory provisions guiding the valuation of turnover and tax liability, and the rectification/“U/S. 43” order. They contend that Exts. P4 and P7 are not vitiated per se and urge conformity with the year’s accounting framework, while acknowledging the need to consider relevant judgments (notably Ext. P2) during remand."

Cited Precedents (1)

Case Name	Citation	Treatment	Explanation
M/s Sannidhan Bar & Restaurant v. State of Kerala	2010 (2) KLT 887	Positive	The Court relies on this decision to hold that the purchase price under Section 7 must be the price of liquor sold during the year, including opening stock and excluding closing stock; thereby directing de novo reassessment consistent with that principle.

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Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MRS. JUSTICE SHOBA ANNAMMA EAPEN TUESDAY, THE 23[RD] DAY OF AUGUST 2022 / 1ST BHADRA, 1944 WP(C) NO. 16503 OF 2019** ## **PETITIONER/S:** POLAKULATH'S SREEKRISHNA REGENCY GURUVAYOOR, PIN-680101, REPRESENTED BY THE MANAGING PARTNER SRI.P.N. KRISHNADAS, BY ADVS. K.N.SREEKUMARAN SRI.P.J.ANILKUMAR (A-1768) SRI.N.SANTHOSHKUMAR ## **RESPONDENT/S:** 1 ASSISTANT COMMISSIONER OF STATE TAX (ASSESSMENT), STATE GOODS AND SERVICE TAX DEPARTMENT, SPECIAL CIRCLE, THRISSUR-680001. 2 ASSISTANT COMMISSIONER, (RECOVERY), STATE GOODS AND SERVICES TAX DEPARTMENT, IRINJALAKUDA, PIN-680121, THRISSUR DISTRICT. BY GOVERNMENT PLEADER SMT.M.M.JASMINE THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 23.08.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) No.16503/2019 ..2.. ## **JUDGMENT** Exts.P4 assessment order & P7 rectification order passed by the 1[st] respondent under the Kerala General Sales Tax Act (for short, “the KGST Act”) are under challenge in this writ petition. 2. The petitioner is a registered dealer on the rolls of the 1[st] respondent under the KGST Act, who is running a bar hotel. The petitioner, instead of paying turnover tax on the sales turnover under Section 5(2) of the KGST Act, opted to settle liability at the compounded rate as provided under Section 7 of the KGST Act, which is 140% of the purchase turnover of liquor. For the assessment year, 2015-16, the petitioner opted to remit tax on 140% of the purchase price of the liquor made during the year. Though the 1[st] respondent accepted the option for compounding and accepted the return WP(C) No.16503/2019 **==> picture [31 x 8] intentionally omitted <==** and payment of tax, best judgment assessment proceedings under Section 17(3) of the KGST Act was initiated by issuing Ext.P1 notice dated 18.01.2019. In the said notice, it was stated that the closing stock of the Indian Made Foreign liquor (IMFL) for the previous year, 2014-15, would be taken into consideration in fixing the purchase value for 2015-16 for the purpose of computing the tax liability. As per Ext.P3, the petitioner objected to Ext.P1 notice, stating that as per Ext.P2 judgment, this Court has held that the purchase price referred to in Section 7 of the KGST Act is the purchase price of the entire liquor sold during the relevant year, which includes the value of the opening stock of the liquor with the purchases made in the year after excluding the value of closing stock. However, the 1[st] respondent, without taking into consideration the objections raised in WP(C) No.16503/2019 ..4.. Ext.P3, finalized the assessment as per Ext.P4. Thereafter, the petitioner filed Ext.P5 rectification application for recomputing the turnover and tax liability after allowing deduction towards closing stock value. It was also pointed out by the petitioner that in another case of the sister concern of the petitioner, the assessment was made on the purchase turnover of liquor after deducting the closing stock. Ext.P5 rectification application was rejected as per Ext.P7 order, stating that there is no error apparent on the face of record. Aggrieved by the said orders, the petitioner has approached this Court with this writ petition. 3. The 1[st] respondent has filed a counter affidavit, contending that since the petitioner was a non compounded dealer for the previous assessment year, 2014-15, the closing stock of the previous year, 2014-15, has to be WP(C) No.16503/2019 **==> picture [31 x 8] intentionally omitted <==** considered in fixing purchase value of IMFL sold for the relevant assessment year, 2015-16. 4. Heard both sides. 5. The petitioner submits that the 1[st] respondent has finalized the proceedings as per Ext.P4 by including the closing stock for the previous year, 2014-15, which is against the settled position of law as declared by this Court in **M/s Sannidhan Bar & Restaurant v. State of** **Kerala** [2010 (2) KLT 887], which is produced as Ext.P2 judgment. 6. In **M/s Sannidhan Bar & Restaurant** 's case _(supra),_ this Court has categorically held as follows; “Therefore, purchase price referred to in the section above extracted is the purchase price of the entire liquor sold during the relevant year, that is 2005-06 which includes the value of the opening stock of liquor with the purchases made in the year after excluding the value of closing stock. In any case, the purchase price referred to in Section 7 is the purchase price of the entire liquor sold during the relevant year, which includes opening stock as well.” WP(C) No.16503/2019 ..6.. 7. In Ext.P4 assessment order, the 1[st] respondent has finalized the proceedings by including the closing stock for the year 2014-15. Though Ext.P5 rectification petition was filed by the petitioner before the 1[st] respondent for recomputing the turnover and tax liability after allowing deductions towards closing stock value, it was rejected as per Ext.P7 order. Ext.P4 order is _per se_ illegal on the basis of the settled position in **M/s Sannidhan** **Bar & Restaurant** 's case _(supra)_ . Hence, Exts.P4 and P7 orders are liable to be set aside and remanded back to the assessing authority for _de novo_ consideration. 8. In the result, this writ petition is disposed of, as follows; - (a) Exts.P4 & P7 orders are set aside. - (b) The 1[st] respondent assessing authority is directed to reconsider the matter in WP(C) No.16503/2019 **==> picture [31 x 8] intentionally omitted <==** accordance with law, taking into consideration Ext.P2 judgment, within a period of two months from the date of receipt of a certified copy of this judgment. - (c) Needless to say, the 1[st] respondent shall afford the petitioner an opportunity of being heard before finalization of the proceedings. The petitioner shall produce a certified copy of this judgment along with a copy of the writ petition before the 1[st] respondent for compliance. ## **Sd/-** ## **SHOBA ANNAMMA EAPEN** ## **JUDGE** bka/- WP(C) No.16503/2019 ..8.. ## **APPENDIX OF WP(C) 16503/2019** PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE SHOW CAUSE NOTICE DATED 18.01.2019 ISSUED BY THE 1ST RESPONDENT. - EXHIBIT P2 TRUE COPY OF THE ORDER OF THIS HON'BLE COURT DATED 23.03.2010 IN S.T.REV.NO.73/2010. EXHIBIT P3 TRUE COPY OF THE REPLY DATED 7.2.2019 FILED BEFORE THE 1ST RESPONDENT. EXHIBIT P4 TRUE COPY OF THE ASSESSMENT ORDER NO.25183358/2015-16 DATED 28.2.2019 ISSUED BY THE 1ST RESPONDENT. EXHIBIT P5 TRUE COPY OF THE RECTIFICATION PETITION DATED 18.3.2019 FILED BEFORE THE 1ST RESPONDENT. EXHIBIT P6 TRUE COPY OF THE ASSESSMENT ORDER DATED 30.10.2018 ISSUED BY THE ASSISTANT COMMISSIONER, MUVATTUPUZHA. EXHIBIT P7 TRUE COPY OF THE ORDER NO.25183358/2015-16 DATED 30.05.2019 U/S. 43 ISSUED BY THE 1ST RESPONDENT. WP(C) No.16503/2019 ..9..