State of Kerala v. M/S Rani Matha Arcade (Yuvarani Residency)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 01ST DAY OF OCTOBER 2018 / 9TH ASWINA, 1940** ## **OT.Rev.No. 219 of 2014** **AGAINST THE ORDER/JUDGMENT IN OTHERS 205/2010 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM DATED 01-08-2014** ## **REVISION PETITIONER/S:** **STATE OF KERALA** **BY ADV. GOVERNMENT PLEADER** ## **RESPONDENT/S:** **M/S.RANI MATHA ARCADE (YUVARANI RESIDENCY), JOSE JUNCTION, M.G.ROAD, ERNAKULAM, PIN 682011.** **BY ADVS. SRI.K.V.VIMAL SRI.VIJAYAN. K.U.** **OTHER PRESENT:** **SR GP V.K.SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 01.10.2018, ALONG WITH OT.Rev.227/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** _OT Rev. 219 & 227 of 2014_ 2 **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 01ST DAY OF OCTOBER 2018 / 9TH ASWINA, 1940** **OT.Rev.No. 227 of 2014** **AGAINST THE ORDER/JUDGMENT IN TAVAT 206/2010 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM DATED 01-08-2014** **REVISION PETITIONER/S:** ## **STATE OF KERALA** **BY ADV. GOVERNMENT PLEADER** ## **RESPONDENT/S:** **M/S.RANI MATHA ARCADE (YUVARANI RESIDENCY), JOSE JUNCTION, M.G.ROAD, ERNAKULAM.** **BY ADV. SRI.VIJAYAN. K.U.** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 01.10.2018, ALONG WITH OT.Rev.219/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** _OT Rev. 219 & 227 of 2014_ 3 ## **[ OT.Rev 219/2014, OT.Rev.227/2014]** ## O R D E R ## Ashok Menon, J. The Revenue, petitioner in both the Revisions, challenge the concurrent finding of the First Appellate Authority and the Tribunal in favour of the assessee setting aside the assessment order of the Intelligence Officer (IB), Commercial Taxes, Ernakulam. The brief facts are thus: The assessee is conducting a hotel, by name Yuvarani Residency. For the assessment years 2007-08 and 2008-09, the Intelligence Officer (IB) verified the books of accounts of the assessee and found that the banquet bills issued by the assessee indicates that VAT at the rate of 12.5% was collected only on 60% of the amount covered by the banquet bills resulting in short levy of actual tax payable on cooked food to the tune of Rs.92,904/- and Rs.75,077/- respectively. After notices were issued affording a reasonable opportunity for explaining the default, as per the assessment orders at Annexures A, a penalty of Rs.1,85,808/- and Rs.1,50,154/- respectively _OT Rev. 219 & 227 of 2014_ 4 was imposed under Section 67(1) of the Kerala Value Added Tax Act, 2003 (for short “KVAT Act”) for intentionally evading payment of tax and for keeping incorrect accounts and filing untrue returns and demand notices were issued. The penalty imposed was at twice the amount of tax sought to be evaded; the maximum penalty. 2. Aggrieved by the penalty, the assessee preferred appeals before the Deputy Commissioner (Appeals), Commercial Taxes, Ernakulam and vide orders at Annexures B, the penalty imposed were set aside, mainly on the ground that under Section 6 of the KVAT Act, a dealer is liable to pay tax on sale of cooked food in the banquet hall and not on the total income received. It was observed that the rent collection by the very same bills was only a technical mistake and that there was no loss of revenue enabling the Intelligence Officer to impose the penalty. It was also observed that there is no escapement of tax, because 60% from the total amount was taxed as sale of cooked food and balance 40% is treated as turnover for purposes of levy of luxury tax. Moreover, the assessee having a valid legal argument, there is no _OT Rev. 219 & 227 of 2014_ 5 room for penalty was the finding. The Appellate Authority, however, found that the amount realised towards cooked food had to be calculated afresh and the propotionate tax paid under the Kerala Tax on Luxuries Act also has to be verified. For determining any loss of revenue occasioned and whether there could be imposition of penalty, the matters were remanded. ## 3. Aggrieved by the order of the First Appellate Authority, the Revenue preferred appeals before the Appellate Tribunal, Ernakulam. For the very same reason stated by the First Appellate Authority as also because there is a legal dispute between the parties, it was found that the assessee did not deserve to be penalised and in the result, the appeals were dismissed by the Tribunal. 4. The following question of law as re-framed by us arises for consideration:- _Whether the Appellate Authority and the Tribunal were correct in holding that the assessee was justified in bifurcating the total bill amount realised towards banquet charges as 60-40 towards cooked food and payment of rent and other amenities for the purpose of payment of KVAT and_ _OT Rev. 219 & 227 of 2014_ 6 _luxury tax and whether the segregation is sustainable for the purpose of taxation of cooked food ?_ 5. The assessee has segregated the total income from the banquet hall as 60% for sale of cooked food and beverages, and 40% for rent, which according to them includes amounts realised from the customers towards rent, and other amenities. It is submitted that the State has not suffered any revenue loss, and on the other hand benefited from realization of higher rate toward luxury tax. The question that arises for consideration is whether the KVAT Act permits such bifurcation of the value of cooked food and beverages from the rental and other amenities as is possible by application of Rule 3C of the Kerala Tax on Luxuries Rules, 1976. 6. A similar question had come up for consideration before the Division Bench of this Court in _**M Far Hotels Ltd. v. State of Kerala, 2014 (1) KHC 216**_ , and it was held thus: _“There is no dispute regarding taxable turn over and so also by fiction of law under KTL Act and the Rules, liability to pay luxury tax at 25% of the total turn over. There is no such similar provision provided under the KVAT Act to_ _OT Rev. 219 & 227 of 2014_ 7 _segregate 75% of the amount charged for the purpose of taxation towards food items, etc. When consciously appellant has collected entire amount towards supply of food and beverages, we fail to understand the logic of confining the taxable turn over only to an extent of 75% of the total bill. The dealer specifically admits that entire amount is charged towards supply of food and beverages, therefore, there is no justification on the part of the dealer to ask for segregation of the amount from this total turn over at 75% towards food items etc. The relief of set off claimed by the appellant dealer is not possible as it is not provided under KVAT Act. Segregation by operation of law is possible only for fixation of tax under KTL Act and not under KVAT Act.”_ It was observed by the Division Bench that the assessee cannot turn around now to contend that the actual food charges was less than that shown in the bills or given in figures. To contend that it included rent also is a concious departure from what the assessee intended at the time the bills were drawn up and that in doing so, the dealer was consciously intending to evade tax and therefore the exercise would clearly indicate _mens rea_ attracting the penal provisions under Section 67(1) of the KVAT Act. 7. The justification given by the First Appellate Authority and the Tribunal regarding the segregation of 40% from the turnover, which is levied the luxury tax, is _OT Rev. 219 & 227 of 2014_ 8 not sustainable. Under the KVAT Act, there is no segregation permissible and the tax would have to be levied on the entire amounts shown in the bills as the price of cooked food and beverages. However, the rent and charges for other amenities not being shown, a segregation would be permissible under the KLT Act and the assesee would be obliged to pay tax on that part of the total turnover, as permitted under the KLT Rules. But this will not absolve the liability to VAT under the KVAT Act, on the full amounts shown in the bills as price for sale of cooked food and beverages. We are not in agreement with the First Appellate Authority and the Tribunal, and we answer the question of law framed against the assessee and in favour of the revenue. Therefore, the concurrent findings of the First Appellate Authority and the Tribunal at Annexures B and C are set aside. However, since there is tax levied on a portion of the turnover under the KVAT Act and the KLT Act, though due to the action of the asseesee itself, we are of the opinion that the penalty can be reduced to actual tax evaded under the KVAT Act and the O.T.Revisions are _OT Rev. 219 & 227 of 2014_ 9 allowed in part reducing the quantum as directed herein above. No order as to costs. **Sd/-** **K.VINOD CHANDRAN JUDGE** **Sd/ASHOK MENON JUDGE** _OT Rev. 219 & 227 of 2014_ 10 ## **APPENDIX OF OT.Rev 219/2014** **PETITIONER'S/S ANNEXURES:** ## **ANNEXURE A** **A TRUE COPY OF THE ORDER DATED 29.7.2009 PASSED BY THE INTELLIGENCE OFFICER (IB), ERNAKULAM.** **ANNEXURE B A TRUE COPY OF THE ORDER DATED 5.2.2010 IN SALE TAX APPEAL NO.KVAT 2537/2009.** ## **ANNEXURE C** **A CERTIFIED COPY OF THE COMMON ORDER IN TA(VAT)NOS.205 & 206/2010 ON THE FILE OF THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM DATED 1.8.2014.** **ANNEXURE C A TRUE COPY OF ANNEXURE C.** ## **APPENDIX OF OT.Rev 227/2014** **PETITIONER'S/S EXHIBITS:** **ANNEXURE A A TRUE COPY OF THE ORDER DATED 29.7.2009 PASSED BY THE INTELLIGENCE OFFICER (IB), ERNAKULAM.** **ANNEXURE B A TRUE COPY OF THE ORDER DATED 25.2.2010 IN SALE TAX APPEAL NO.KVAT 2538/2009.** **ANNEXURE C A TRUE COPY OF THE COMMON ORDER IN TA(VAT)NOS.205 & 206/2010 ON THE FILE OF THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM DATED 1.8.2014.**