State of Kerala (represented by the Deputy Commissioner of State Tax (Law), Department of Kerala State Goods and Service Tax, Ernakulam) v. Poomully Aram Thampuran Smaraka Trust, Peringode, Palakkad

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 11TH DAY OF JANUARY 2021 / 21TH POUSHA, 1942 ## OP (TAX).No.1 OF 2021 AGAINST THE ORDER/JUDGMENT IN TA 88/2018 OF AGRL.I.T.ADDITIONAL BENCH,KOZHIKODE ## PETITIONER/S: STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER OF STATE (LAW),DEPARTMENT OF KERALA STATE GOODS AND SERVICE TAX, ERNAKULAM ## BY SR. GOVERNMENT PLEADER MOHAMMED RAFIQ ## RESPONDENT/S: POOMULLY ARAM THAMPURAN SMARAKA TRUST PERINGODE P.O., VIA, KOOTTANADU, PALAKKAD-679 535 ## OTHER PRESENT: THIS OP TAX HAVING COME UP FOR ADMISSION ON 11.01.2021, ALONG WITH OP (TAX).2/2021, OP (TAX).3/2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **O.P.(Tax) Nos.1,2 & 3/2021** **-2-** IN THE HIGH COURT OF KERALA AT ERNAKULAM ## PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 11TH DAY OF JANUARY 2021 / 21TH POUSHA, 1942 ## OP (TAX).No.2 OF 2021 AGAINST THE ORDER/JUDGMENT IN TA 86/2018 DATED 29-06-2020 OF S.T.A.TRIBUNAL,ADDITIONAL BENCH,KZD. ## PETITIONER/S: STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER OF STATE TAX(LAW), DEPARTMENT OF KERALA STATE GOODS AND SERVICE TAX, ERNAKULAM. BY SR. GOVERNMENT PLEADER MOHAMMED RAFIQ ## RESPONDENT/S: POOMULLY ARAM THAMPURAN SMARAKA TRUST PERINGODE P.O., VIA KOOTTANADU, PALAKKAD-679 535. ## OTHER PRESENT: THIS OP TAX HAVING COME UP FOR ADMISSION ON 11.01.2021, ALONG WITH OP (TAX).1/2021, OP (TAX).3/2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **O.P.(Tax) Nos.1,2 & 3/2021** **-3-** IN THE HIGH COURT OF KERALA AT ERNAKULAM ## PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 11TH DAY OF JANUARY 2021 / 21TH POUSHA, 1942 ## OP (TAX).No.3 OF 2021 AGAINST THE ORDER/JUDGMENT IN TA 87/2018 OF AGRL.I.T.ADDITIONAL BENCH,KOZHIKODE ## PETITIONER/S: STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER OF STATE TAX (LAW), DEPARTMENT OF KERALA STATE GOODS AND SERVICE TAX, ERNAKULAM BY SR.GOVERNMENT PLEADER MOHAMMED RAFIQ ## RESPONDENT/S: POOMULLY ARAM THAMPURAN SMARAKA TRUST PERINGODE P.O., VIA KOOTTANADU, PALAKKAD-679535 ## OTHER PRESENT: THIS OP TAX HAVING COME UP FOR ADMISSION ON 11.01.2021, ALONG WITH OP (TAX).1/2021, OP (TAX).2/2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **O.P.(Tax) Nos.1,2 & 3/2021** **-4-** ## **J U D G M E N T** [ OP (TAX).1/2021, OP (TAX).2/2021, OP (TAX).3/2021 ] Dated this the 11th day of January 2021 ## S.V. Bhatti, J. Heard learned Sr. Government Pleader Mohammed Rafiq for petitioner. 2. The petitioner and the respondent are same in these three petitions. The petitioner assails the common order dated 29.06.2020 of Kerala Value Added Tax/Agrl. Income Tax and Sales Tax Appellate Tribunal, Additional Bench, Kozhikode in the instant petitions. 3. The issue arises under the Kerala Tax on Luxuries Act, 1976 (for short 'the Luxuries Act'). The respondent is an Ayurvedic treatment centre attached to M/s. Poomully Aram ## **O.P.(Tax) Nos.1,2 & 3/2021** **-5-** Thampuran Smaraka Trust, Peringode, Palakkad. The respondent provides ayurvedic therapy and treatment to individuals admitted at the said centre. On 07.01.2014 the Intelligence Officer, Squad No.VI, Commercial Taxes, Palakkad inspected the premises and verified the books of account of the respondent. The three petitions concern the penalty levied on the respondent for the years 2012-13, 2013-14, and 2014-15. In other words, the penalty proceedings are initiated under Section 17A of the Luxuries Act and are the subject matter of these petitions. The circumstances and the issues for decision are substantially similar, hence disposed of by this common judgment. 4. The assessing officer under the Luxuries Act had imposed the following penalty on the respondent by treating 70% of the treatment charges as representing luxury or service provided by the respondent. ## **O.P.(Tax) Nos.1,2 & 3/2021** **-6-** "(2012-13) - Rs.6,02,900/(2013-14) - Rs.7,38,714/(2014-15) - Rs.6,62,500/- ” The Deputy Commissioner (Appeals) on appeal by respondent treated 30% of treatment charges as charges towards amenities and services under Section 2(fb) of the Luxuries Act. The respondent filed Tax Appeal Nos.86, 87, and 88 of 2018 before the Tribunal. The Tribunal through the common order impugned in the petitions allowed the appeals filed by the respondent. Hence the petitions 5. The assessing officer noted that the respondent was providing service in five rooms, four double bed A/C rooms and one non A/C room. The respondent, for providing the accommodation in rooms to individuals, no separate tariff is fixed. The respondent, by way of reply, informed assessing officer that Rs.650/- is charged for A/C room per day and ## **O.P.(Tax) Nos.1,2 & 3/2021** **-7-** Rs.350/- per day for non A/C room towards rent. According to respondent, as the amount received by the respondent towards rent is less than Rs.1000/- the respondent is not obliged to collect luxury tax and pay luxury tax to the Department. The circumstances noted from the date of inspection, material brought on record, the conclusions recorded by the primary and first appellate authority are considered in detail by the Tribunal. For brevity, we are not proposing to refer to the circumstances in the common order, particularly having regard to the fact that the levy of penalty is interdicted by the Tribunal, as penalty is ordinarily levied on an assessee for contumacious conduct or for a deliberate violation of the provisions of the particular Statute. [See _**Pratibha Processors v. Union of India - AIR 1997 SC 138**_ ]. 6. Section 17A of Luxuries Act reads as follows: **-8-** ## **O.P.(Tax) Nos.1,2 & 3/2021** " **17A. Imposition of penalties by assessing authority** - if an assessing authority is satisfied that any person- - (a) liable to pay tax under this Act.- - (i) has failed to keep true and complete account or (ii) has failed to submit any return as required by the provisions of this Act or the rules made thereunder or has submitted an untrue or incorrect return; or (b) has failed to comply with all or any of the terms of any notice issued to him by or under the provisions of this Act or the rules made thereunder or; (c) has prevented or obstructed inspection, entry search or seizure by any officer, or (d) has acted in contravention of the provisions of this Act or any rules made thereunder, for the contravention of which no express provision or payment of penalty or punishment is made by this Act, such authority may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of luxury tax or other amount sought to be avoid where it is practicable to quantity such evasion, or, an amount not exceeding five thousand rupees in any other case. **Explanation** : The burden of proving that any person is not liable to the penalty under this section shall be on such person.” **-9-** ## **O.P.(Tax) Nos.1,2 & 3/2021** 7. The Tribunal has examined the legality of levy of penalty from two perspectives; the first perspective being whether the proceedings of assessing officer determined as a fact, the obligation of respondent to collect and pay tax under the Luxuries Act; for, the respondent, even if treated as a hospital, is under obligation to file return under the Luxuries Act only when the amount collected by the respondent per day per room exceeds Rs.1000/-. In the case on hand, the assertion of respondent is that the respondent is charging Rs.650/- and Rs.350/- respectively for A/C and non A/C rooms. The collection of rent at the said rates, it is not the case of the Department as well, would come within the purview of the Luxuries Act. The primary authority and the first appellate authority have broadly assumed or inferred what could be the therapy or treatment expenses and fees paid to the Ayurveda ## **O.P.(Tax) Nos.1,2 & 3/2021** **-10-** Doctors at the centre. Thereafter, on a notional basis, determined the tax payable by the respondent and demanding the penalty thereon. The respondent before the Tribunal relied on the judgment of this Court in _**U.K. Monu Timbers (M/s.) v. State of Kerala**_[1] for the proposition that notional determination of slab of charges from gross receipt and determination of luxury tax or penalty thereon is impermissible. The Division Bench of this Court referred to the judgment of the apex Court in _**State of Rajasthan v. Rajasthan Chemists Association**_[2] . The operative portion of the judgment reads thus: "The subject of tax being sale, it was held, the measure of tax for the purpose of quantification must retain the nexus with sale which is the subject of tax. Hence, the measure of tax cannot be determined on a notional basis and cannot at all be on a hypothetical value. Section 4A was held to be designed to bring the levy on a value which was divorced from the sale (first point sale) and subjecting such value to tax under the Act and hence was held to be beyond the legislative competence > 1 2012 (3) KHC 111 (DB) > 2 2006 (6) SCC 773 **-11-** ## **O.P.(Tax) Nos.1,2 & 3/2021** under Entry 54 of List II of the Seventh Schedule. The consequent notification to the extent it intended levy of tax on first point sale with reference to the price which could be charged in respect of a subsequent sale was also held to be unsustainable.” ## 8. In the above background let us excerpt the operative portion of the judgment under appeal to appreciate the challenge laid by the petitioner. “The specific contention taken by the appellant is that the ayurvedic treatment charges received by it cannot be taken as luxury charges and the same is to be treated as charges towards professional services like that of therapist and others. Absolutely no other luxury has been provided in the hospital. Though the appellant has shown the doctors consultation charges, food and medicine charges separately, the remaining receipts towards the treatment charges are shown as one head as Ayuvedic Treatment charges. Though the enquiry authority says that the appellant is providing telephone facility, internet facility and other luxury in the room, absolutely there is no materials available to show the same. It is true that the appellant has not furnished the item wise details regarding the Ayurvedic treatment charges received by it. As modified in 1[st] **-12-** ## **O.P.(Tax) Nos.1,2 & 3/2021** appeal, 30% of the ayurvedic treatment charges is taken as receipts towards luxury, but no basis is there for taking 30% even for the purpose of estimating the luxury tax. It is for the assessing authority concerned to verify each and every bills issued by the appellant to its customers and to ascertain whether the appellant has collected any amount other than professional charges and included the same under the head Ayuvedic treatment charges. It is settled by the decision of the Hon'ble High Court of Kerala in M/s.U.K Monu Timbers Vs. State of Kerala = (2012) (3) KHC 111 (DB) that the enquiry authority has no power to make an estimation of turnover for the purpose of determining the penalty. It is true that the said decision has been passed by the Hon'Ble High Court of Kerala while considering the powers of the enquiry authority u/s. 67 of KVAT Act 2003. However, the same principle can be applied in the case in hand as well. It has been held by the Hon' ble High Court in the said case that the estimation of the turnover, however, reasonable it may be, would be in the realm of the best judgment of the assessing authority concerned. Here, in the case in hand the appellant is collecting daily rent @ 650/and Rs.350/- respectively for A/c Rooms and non A/c. Rooms. Except the rough estimation by the authorities below, absolutely there is no material to show that the appellant has received gross amount of Rs.1,000/- per room excluding the **-13-** ## **O.P.(Tax) Nos.1,2 & 3/2021** charges of food, medicine and professional services. The decision relied on the by learned Addl. Law Officer in TA (ST) 09/2014 and connected cases of the Kerala AIT/ST Appellate Tribunal, Addl. Bench, Palakkad, dated 13.02.2015 was passed in the assessment proceedings. Hence, said decision cannot be applied in the case in hand. Reckoning the above aspects, we are of the considered view that available materials are insufficient to impose penalty on the appellant u/s.17A of the KTL Act. It is made clear that the assessing authority concerned is at liberty to initiate assessment proceedings in accordance with law, subject to the period of limitation, if there are sufficient materials for doing so. Therefore, we are inclined to interfere in the impugned orders of penalty passed by the authorities below. Thus, these appeals are to be allowed. Point answered accordingly.” 9. From the conclusion recorded by the Tribunal, this Court notices that the Tribunal has found fault with the assessing authority and the appellate authority for notionally determining and assuming that 30% of gross charges would represent the luxury provided by respondent under Section 2(fb) of the Luxuries Act and that there is no material even to ## **O.P.(Tax) Nos.1,2 & 3/2021** **-14-** come to the conclusion as to the rate at which the accommodation is provided by the respondent. In other words, the reasoning of its Tribunal rightly points out the mistakes of authority under the Act in levy penalty. 10. We find two substantial reasons for rejecting the prayer of petitioner; firstly, in the case on hand, no assessment determining the obligation/liability under the Luxuries Act is made, penalty proceedings are taken up, and by notionally calculating the amount the penalty is imposed. The Tribunal, in the portion excerpted above, has given liberty to department to first proceed to initiate assessment proceedings in accordance with law, subject to the period of limitation, if sufficient materials are available for doing so and consequently penalty proceedings could be contemplated. Having regard to the findings of fact recorded by the Tribunal, the valid reasons recorded, and that no perversity is pointed out or that a ## **O.P.(Tax) Nos.1,2 & 3/2021** **-15-** question of law within the frame of our judicial review under Article 226/227 is made out by the petitioner, we are of the view that the petitions must fail and accordingly dismissed. No order as to costs. Sd/S.V.BHATTI JUDGE Sd/BECHU KURIAN THOMAS JUDGE jjj **-16-** ## **O.P.(Tax) Nos.1,2 & 3/2021** ## APPENDIX OF OP (TAX) 1/2021 PETITIONER'S/S EXHIBITS: EXHIBIT P1 A TRUE COPY OF THE PENALTY ORDER DATED 30.05.2015 BY INTELLIGENCE OFFICER FOR THE YEAR 2014-15 EXHIBIT P2 A TRUE COPY OF THE ORDER PASSED BY THE DEPUTY COMMISSIONER (APPEALS) KOZHIKODE IN LTA NO.S 3,4 AND 5 OF 2015 DATED 15.07.2017 EXHIBIT P3 TRUE COPY OF THE ORDER PASSED BY THE KERALA VALUE ADDED TAX /AGRICULTURAL INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHIKODE IN T.A.NO.S 86 TO 88 OF 2018 DATED 29.06.2020 **-17-** ## **O.P.(Tax) Nos.1,2 & 3/2021** ## APPENDIX OF OP (TAX) 2/2021 PETITIONER'S/S EXHIBITS: EXHIBIT P1 A TRUE COPY OF THE PENALTY ORDER DATED 30.05.2015 BY INTELLIGENCE OFFICER FOR THE YEAR 2012-13. EXHIBIT P2 TRUE COPY OF THE ORDER PASSED BY THE DEPUTY COMMISSIONER (APPEALS), KOZHIKODE IN LTA NOS.3, 4 AND 5 OF 2015 DATED 15.07.2017. EXHIBIT P3 TRUE COPY OF THE ORDER PASSED BY THE KERALA VALUE ADDED TAX/AGRICULTURAL INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHICODE IN TA NOS.86 TO 88 OF 2018 DATED 29.06.2020. **-18-** ## **O.P.(Tax) Nos.1,2 & 3/2021** ## APPENDIX OF OP (TAX) 3/2021 PETITIONER'S/S EXHIBITS: EXHIBIT P1 A TRUE COPY OF THE PENALTY ORDER DATED 30.05.2015 BY INTELLIGENCE OFFICER FOR THE YEAR 2013-14 EXHIBIT P2 TRUE COPY OF THE ORDER PASSED BY THE DEPUTY COMMISSIONER (APPEALS) ,KOZHICODE IN LTA NO.3 ,4 AND 5 OF 2015 DATED 15.07.2017 EXHIBIT P3 TRUE COPY OF THE ORDER PASSED BY THE KERALA VALUE ADDED TAX/AGRICULTURAL INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHICODE IN T.A.NO.S 86 TO 88 OF 2018 DATED 29.06.2020