2010 (11) TMI 897 - HC - VAT and Sales Tax

Estimation of turnover - Whether the assessing authority arbitrarily bifurcated the total turnover into two parts one for taxation purpose giving benefit of composition of tax under sub-section (4) of section 17 of the Act and the other one under sub-clause (a) of clause (3) of section 5 of the Act as contested by assessee? Held that - The hotel and the restaurant business of the petitioner will not be changed by mere fact it also provides to its guests in the banquet hall. Therefore, the authorities were wrong in bifurcating the receipts of the petitioner and categorising them for a portion under section 17(4) of the Act and other portion to a tax at the rate of 10 per cent. under section 6 of the Act. So far as the total turnover tax of this revision petitioner is concerned, we again have to see what is the total turnover of this dealer. So far as the case of the present petitioner, it attracts sub-clause (b) of clause (1) of rule 6 of the KST Rules and the total amount paid or payable to the dealer as the consideration for the sale, supply or distribution of any goods other than those coming under clause (a) where such sale, supply or distribution has taken place inside the State would be the total turnover and the authorities ought to have taken such total amounts as the turnover upon which the composition of tax as contemplated under section 17(4) of the Act had to be levied. Revision petition allowed

Summary

Issues:
Assessment of taxable turnover for the year 2001-02, application of composition of tax under section 17(4) of the Karnataka Sales Tax Act, 1957, classification of banquet receipts for taxation purposes.

Analysis:

The petitioner, engaged in the hotel business, initially declared a taxable turnover for the year 2001-02. The respondents proposed an enhancement of turnover, leading to a revised return showing a slightly lower taxable turnover. The assessing authority then increased the turnover, subjecting banquet receipts to a higher tax rate under section 5 of the Act. The appellate authority upheld this decision, prompting the petitioner to file a challenge. The Tribunal partially allowed the appeal, remanding the matter back to the second respondent for further assessment, which led to the current revision petition.

The key contention revolved around whether banquet receipts should be taxed under the composition scheme for hoteliers and restaurateurs. The petitioner argued that since food was prepared in the same kitchen and supplied to the banquet hall without separate charges for hall utilization, it should qualify for composition tax benefits. The Department, however, argued that catering in a banquet hall differed from regular food supply, thus not eligible for composition tax benefits.

The legal interpretation of "hotelier," "restaurateur," and "caterer" was crucial. The definitions from Chambers Twenty First Dictionary highlighted distinctions between these terms, emphasizing that a caterer is a professional provider of food. The petitioner's business nature, as indicated in the registration certificate, was boarding and restaurant services. The judgment emphasized that banquet receipts, where food and accommodation were provided without separate charges for hall usage, fell within the purview of hotel and restaurant operations, making them eligible for composition tax benefits.

The judgment clarified that even if a woman caterer was mentioned in the relevant provision, the focus was on the main business activity of the dealer. In this case, the petitioner's hotel and restaurant business, including banquet services, did not alter the eligibility for composition tax benefits. The authorities were deemed incorrect in splitting the petitioner's receipts and applying different tax rates.

Regarding the total turnover tax, the judgment directed the authorities to calculate the tax payable by the petitioner based on the observations made. Ultimately, the revision petition was allowed, emphasizing the petitioner's entitlement to composition tax benefits under section 17(4) of the Act.