State of Kerala v. M/s Vivanta by Taj Malabar

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** ## **THE HONOURABLE MR.JUSTICE S.V.BHATTI** **&** ## **THE HONOURABLE MR.JUSTICE BASANT BALAJI** **WEDNESDAY, THE 4[TH] DAY OF JANUARY 2023 / 14TH POUSHA, 1944** ## **OP (TAX) NO. 6 OF 2019** **AGAINST THE ORDER IN TA 55/2017 OF KERALA AGRL. INCOME TAX AND SALES TAX, APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM PETITIONER:** STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER OF STATE TAX (LAW), STATE GST DEPARTMENT, ERNAKULAM BY GOVERNMENT PLEADER, M.M JASMIN ## **RESPONDENT:** M/S VIVANTA BY TAJ MALABAR, W. ISLAND, COCHIN-682 009 BY ADVS. SRI.M.GOPIKRISHNAN NAMBIAR SRI.K.JOHN MATHAI SRI.JOSON MANAVALAN SRI.KURYAN THOMAS SRI.PAULOSE C. ABRAHAM THIS OP TAX HAVING COME UP FOR ADMISSION ON 04.01.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: OP TAX 6/2019 -2- ## **JUDGMENT** ## S.V.Bhatti, J. State of Kerala/Department is the petitioner. M/s. Vivanta by Taj Malabar, Wellington Island, Cochin/dealer is the respondent. The issue arises under the Kerala Tax on Luxuries Act, 1979 (for short, ' the Act'). 2. The subject matter of the petition relates to the return filed by the dealer for the return period 2012-13. The objections on the return filed are taken up subsequent to the inspection carried out by the Intelligence Officer on 18.10.2012. The Intelligence Officer, while examining the books of accounts, noticed that the luxury tax payable on the rent received from Banquet Hall from the customers of the dealer needs to be properly accounted for. The reckoning of the taxable turnover ought to have been under Rule 3C of the Kerala Tax on Luxuries Rules, 1976 (for short, 'the Rule'). OP TAX 6/2019 -3- 3. The dealer, among other objections, resisted the penalty proceedings on the ground that the estimation of suppressed turnover is illegal. Rule 3C of the Rules does not have independent standing since Section 4(2B) of the Act stood omitted from 01.07.2006. The absence of Section 4(2B) on the statute books with effect from 01.07.2006 is an important implication for the return period, and the proposed levy of penalty is illegal and without jurisdiction. The Intelligence Officer rejected the reply and demanded Rs.5,73,810/- as penalty under Section 17A of the Act. The dealer filed an appeal before the Deputy Commissioner (Appeals), Ernakulam, and the Appellate Authority allowed the appeal by Ext.P3 order dated 10.03.2017. The Department filed an appeal before the Kerala Agricultural Income tax, and Sales Tax Appellate Tribunal, Ernakulam and the Tribunal dismissed the appeal filed by the Department. Hence the second appeal. OP TAX 6/2019 -4- ## 4. The Department prays for the following reliefs: 1. Issue an order or direction calling for the records leading up to Exhibit P5 and quash the same and to restore Exhibit P1 order, 2. Render such other orders as this Hon’ble Court may deem fit and proper in the circumstances of the case. 5. The learned Government Pleader contends that the absence of Section 4(2B) does not, in any way, affect the method and mode of calculation provided for under Rule 3C of the Rules. There is no dispute that the facts on the details furnished by the Department in the order of assessment. Hence, there is suppression of the turnover warranting a levy of penalty. The first and second Appellate Authorities fell in serious in accepting the legal objections raised by the dealer. 6. _Per contra_ , Mr Kurian, as part of his arguments, invites our attention to the reasoning and conclusion arrived at by the first and second Appellate Authorities. Adverting to the estimation of the turnover alleged to have been suppressed; he OP TAX 6/2019 -5- argues that the difference between reassessment where estimation is possible and levying penalty for the commissions and omissions noted by the Officer are considered by the judgment of this Court in _U.K. Monu timbers v. State of Kerala._ There is no reason to take a different view in the case on hand than taken by the Tribunal. In the absence of the Section, which is connected to the Rule, the findings recorded by both the first and second Appellate Authorities that the Rule cannot be implemented are tenable. 7. The above consideration necessarily takes us to refer to the order of the Tribunal. Excerpts are as under: 12. The first appellate authority has relied on an earlier order of this Tribunal in an appeal filed by the respondent herein, where the same question was raised. In the said appeals (M/s. Vivanta by Taj Malabar v. State of Kerala [TA.70/2014 & 71/2014 dated 11.03.2016]), it was held that the Intelligence Officer is not justified in imposing penalty on the respondent u/s. 17A of the Act. The relevant portion of the order is as under: "Therefore, the penalty imposed on the appellant /dealer by the Intelligence Officer is unsustainable OP TAX 6/2019 -6- in law because we are of the considered view that Rule 3C of the KTL Rules was not having any independent existence at the relevant time of imposition of the penalty, because of the omission of Section 4(2B) of the Act by the Kerala Finance Act, 2006 with effect from 01.07.2006. When considering the legality of the order of the authorities below we hold that the issue regarding interpretation of Rule 3C of the KTL Rules, 1976 was the legal issue involved in these cases and as per the well settled position of law while interpreting the provisions of the statute if two views are possible one favouring the assessee must be adopted. This view is supported by the decision held in EID Parry (1) Ltd. Vs. Asst. Commissioner Commercial Taxes (SC) (2000) 117 STC 457 wherein 2007 (7) STC 491 it was held by the Apex Court that while interpreting the provisions of the statute if two views are possible one favouring the assessee must be adopted. It appears from the records that in the case on hand with regard to the applicability of Rule 3C of KTL Rules,. 1976 there are two views possible and when we are adopting the view while interpreting Rule 3C of the Act in favour of the assessee/dealer no doubt it can be said that the view beneficial to the assessee alone will prevail as such the imposition of the penalty will not lie in this case. This aspect was not seen properly evaluated by the first appellate authority in its correct legal propensity. 13. On going through the order of the penalty of the Intelligence Officer it is strange to see that the appellant /dealer has provided bill-wise details of the package amount and the amount representing supply of liquor, beverages etc. At any rate it will not form part of the package amount charged by the appellant on its customers. Moreover while imposing the penalty on the appellant /dealer the OP TAX 6/2019 -7- Intelligence Officer has included the turnover of liquor and beverages separately shown in the bills, which do not form part of the package offered to the customers. This aspect was not seen properly evaluated by the first appellate authority while disposing the appeal. In such a circumstance we are constrained to fully agree with the contention of the appellant /dealer that the Intelligence Officer has no authority to include the amount representing the sale of food and beverages by applying Rule 3C of the KTL Rules, because they are not exigible to tax as such it cannot be assessed under the provisions of the Act. The fact being so, we hold that the appeals are liable to be allowed." 14. The next contention of the respondent is that the inclusion of bills issued for liquor, beverages, food etc. in the turnover is not sustainable. The Intelligence Officer had rejected the said contention stating that the turnover on banquet hall was fixed on the basis of the details available in the accounts and it was not an estimation. We do not know how the Intelligence Officer had determined the amount received as banquet hall charges. The case against the respondent is that the respondent had not collected/shown the banquet hall charges separately, but collected/shown the consolidated amount received on package basis, which includes the rent for food, beverages, liquor etc. 15. It is seen that the respondent had taken an alternative plea before the first appellate authority and challenged the estimation made by the Intelligence Officer. The learned counsel for the respondent has relied on the decision of our Hon'ble High Court in U.K.Monu Timbers v. State of Kerala [2012(3) KHC 111(DB)] and contented that imposition of penalty without determining the taxability through an assessment proceedings and quantifying the tax liability, no penalty can be thrust on the appellant and OP TAX 6/2019 -8- that estimation of tax liability and consequent imposition of penalty by an Intelligence Officer is impermissible under section 17A of the Act. (See: Ground No.C, page 2 of the order of the first appellat authority). In the above said case, it was held that imposition of penalty by Intelligence Officer, without an order of assessment determining the valuation for the purpose of levy of tax is not sustainable. 16. In State of Kerala v. Sri Joemon Rajan (OT.Rev.No.124/2014 dtd.06.09.2018), the Hon'ble High Court has deprecated the practice of the Intelligence Officers estimating the turnover for the purpose of imposing penalty and held: "13. An Intelligence Officer invoking his power under Section 45A of the KGST Act or Section 67 of the KVAT Act (in pari materia provisions) has been held to have no power to carry out an estimation. Estimation is a reasonable and rational reckoning of taxable turnover; which necessarily is a guess work based on various factors, aspects and activities of the concerned dealer, arriving at a probabilistic approximate determination of the taxable turnover; on the best of judgment of the taxation officer, as has been found in Commissioner of Sales Tax, M.P Vs. H.M. Eusafali 1973 (2) SCC 137; by the Hon'ble Supreme Court. There could be no estimation carried out in penalty proceedings and the evasion attempted has to be based on the clear materials or particulars, revealed at an inspection or offence detected otherwise. If the taxable turnover sought to be evaded cannot be clearly determined and quantified going by the provision, there can be only an imposition of penalty of 10,000/-. However, that would not preclude the Assessing Officer from proceeding for best judgment assessment based on any of these factors relevant to the activity of the dealer; on their being no production of books of OP TAX 6/2019 -9- accounts or even when there is production; by rejection of the same. In that event, the Assessing Officer | could make an estimation which is the power and authority conferred by the statute for best judgment." In view of these decisions, we cannot justify the order of the Intelligence Officer in estimating the turnover on the banquet hall which was not shown separately in the accounts and imposing penalty on the respondent. 17. Further, it is to be noted that the Intelligence Officer could not point out any suppression or any other mistakes in the accounts. The definite case of the respondent from the inception is that the mistake was due to the misinterpretation of the relevant provisions of the statute. In the absence of any other irregularities in the accounts, we are forced to accept the said submission made by the counsel that it was only an inadvertent mistake occurred, while interpreting the relevant provisions of law. In this situation, we cannot say that there was a deliberate attempt on the part of the respondent to evade tax and for that purpose the respondent was maintaining incorrect accounts. We do not find any reason to interfere with the order of the first appellate authority. These points are found accordingly. 8. The question is whether the findings recorded by the Tribunal attract a ground now canvassed before this Court or not. To clarify, it can be concluded that the grounds raised are general and routine. _Per contra,_ the findings recorded are by referring to the provisions applicable in this behalf, and it OP TAX 6/2019 -10- estimates on the point. Since we are in full agreement with the view expressed by the Tribunal, in all fours, the findings do not warrant interference. Further, we notice that the grounds raised before us are substantially same to the grounds urged before the Tribunal. In the absence of an error noted or established by the petitioner, this Court expresses its agreement with the view of the Tribunal. The original petition fails, dismissed. Sd/- **S.V.BHATTI JUDGE** Sd/- **BASANT BALAJI JUDGE** _JS_ OP TAX 6/2019 -11- ## **APPENDIX OF OP (TAX) 6/2019** PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE ORDER DATED 29.7.2015 EXHIBIT P2 TRUE COPY OF THE APPEAL MEMORANDUM FILED BY THE ASSESSEE BEFORE THE DEPUTY COMMISSIONER (APPEALS) EXHIBIT P3 TRUE COPY OF ORDER DATED 10.3.2017 OF THE DEPUTY COMMISSIONER (APPEALS) EXHIBIT P4 TRUE COPY OF TA NO 55/2017 FILED BY THE STATE BEFORE THE APPELLATE TRIBUNAL EXHIBIT P5 TRUE COPY OF ORDER IN IA NO 55/2017 DATED 30.11.2018