1992 (6) TMI 174 - HC - VAT and Sales Tax

Issues Involved:
1. Inclusion of turnover relating to the supply of food and drinks in the assessment.
2. Validity and applicability of the penalty under Section 13(2) of the Karnataka Sales Tax Act, 1957.
3. Impact of the Supreme Court's judgments and the Constitution (Forty-sixth Amendment) Act, 1982.
4. Interpretation and applicability of Circular No. MSA. CR. 284/82-83, dated 2nd March, 1983.
5. Competence of the Commissioner under Section 22-A of the Karnataka Sales Tax Act.

Issue-wise Detailed Analysis:

1. Inclusion of Turnover Relating to the Supply of Food and Drinks in the Assessment
The appellant, a restaurant owner, was assessed for the period from 1st April, 1976 to 31st March, 1977, which included the turnover relating to the supply of food and drinks. The assessment order was made on 30th September, 1977, and a demand notice was served on 20th March, 1978. The Supreme Court had earlier held that the turnover relating to the supply of food and drinks by a "composite hotel" was not liable to sales tax. This principle was extended to restaurants in the Northern India Caterers' case on 7th September, 1978. However, the Constitution (Forty-sixth Amendment) Act, 1982, which came into force on 2nd February, 1983, validated the tax levied or collected in respect of the turnover relating to the supply of food and drinks.

2. Validity and Applicability of the Penalty under Section 13(2) of the Karnataka Sales Tax Act, 1957
The appellant had paid a part of the amount demanded under the earlier assessment order but had not paid a small portion. On 17th August, 1984, a notice was issued by the Revenue demanding arrears of tax and penalty under Section 13(2) of the Karnataka Sales Tax Act, 1957. The appellant was aggrieved by the penalty levied, amounting to Rs. 5,418.20. The Deputy Commissioner of Commercial Taxes (Appeals) accepted the appellant's appeal, holding that the assessing authority had not issued a simple notice to intimate the appellant regarding the tax due, as required by Circular No. MSA. CR. 284/82-83.

3. Impact of the Supreme Court's Judgments and the Constitution (Forty-sixth Amendment) Act, 1982
The Supreme Court's judgments had declared the levy of sales tax on the supply of food and drinks by composite hotels and restaurants as unconstitutional. The Constitution (Forty-sixth Amendment) Act, 1982, retrospectively validated these levies. The period between 4th January, 1972, and 1st February, 1983, was relevant regarding the levy of sales tax on the supply of food/drink by composite hotels and restaurants. The 46th Amendment revived earlier assessment orders and statutory consequences, including the automatic attraction of the statutory liability to pay the penalty.

4. Interpretation and Applicability of Circular No. MSA. CR. 284/82-83, dated 2nd March, 1983
Clause 13 of the Circular required assessing officers to intimate hoteliers/restaurateurs regarding the tax due by issuing simple notices and calling upon them to make payment within 21 days. If the tax remained unpaid after 21 days, action for recovery of arrears together with penalty under Section 13(2) was to be taken. The Court held that this Circular should cover all assessees entitled to take benefits of the Supreme Court's declarations. A simple notice was necessary to remind assessees of the constitutional amendment and the revived liability.

5. Competence of the Commissioner under Section 22-A of the Karnataka Sales Tax Act
The Commissioner opined that the appellate authority's order was erroneous and prejudicial to the Revenue. After affording the appellant an opportunity, the Commissioner revised the order of the appellate authority. The Court held that the instructions issued by the Commissioner, even if opposed to the statutory provision, were binding on subordinate authorities. The Circular's fair procedure should apply to all assessees who relied on the Supreme Court's declarations.

Conclusion:
The appeal was allowed, and the order of the Joint Commissioner under Section 22-A of the Karnataka Sales Tax Act was set aside. The Court clarified that this order would not prevent the Revenue from taking action under clause 13 of the Circular, as interpreted. The appeal was allowed, and the appellant was relieved from the penalty levied.

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