2011 (6) TMI 719 - HC - VAT and Sales Tax

Assessment of turnover tax on the sale of liquor in the appellant s bar hotel at the compounded rate provided under section 7(1)(a) of the Kerala General Sales Tax Act, 1963 Held that - The compounding application submitted by the appellant and accepted by the officer and payment of tax made by the appellant are perfectly in terms of the statutory provisions. Once compounding application is filed and tax is paid in terms of the same, the same binds both the assessee and the Department unless assessee recalls application before starring payment of tax in terms of the compounding scheme. In this case the appellant not only applied for compounding, but paid tax in terms of the compounding application and even filed return based on the same. The appellant has, therefore, no right to withdraw from the compounding scheme or opt for regular assessment on the sales turnover.

Summary

Issues:
Challenge against assessment of turnover tax on sale of liquor at compounded rate under Kerala General Sales Tax Act, 1963.

Analysis:
The appellant, a bar attached hotel, sought to pay turnover tax at a compounded rate under section 7(1)(a) of the Act instead of the liability for tax under section 5(2). The appellant's request was allowed, and tax was remitted at the compounded rate for the assessment year 2006-07. However, when the assessment was proposed in 2011, the appellant requested to withdraw from the compounding scheme and revert to payment of tax based on actual turnover. The assessing officer completed the assessment based on the compounding application initially filed by the appellant. The Government Pleader argued that once tax is remitted under compounding, the appellant cannot revert to regular assessment based on sales turnover. The key question was whether the assessment based on the statutory provision should be interfered with based on a letter issued by the Commissioner contrary to the statute.

The court analyzed section 7 of the Act, which provides for compounding, as an option for hoteliers to pay tax at a higher rate for their benefit without the need for sales accounts or turnover production. The court clarified that the condition of three years' business preceding the assessment year is not mandatory for compounding under section 7(1)(a). The appellant, being in the first year of business, was entitled to apply for compounding under this section. The court held that the appellant's compounding application and tax payment were in line with statutory provisions.

Regarding the challenge based on exhibit P2 issued by the Commissioner, the court noted that if general instructions are more beneficial to the assessee, they can be followed. However, the letter issued by the Commissioner in this case was deemed misleading as it was issued after the relevant assessment year. The court emphasized that once an assessee applies for compounding and pays tax accordingly, the assessment must be made in line with the compounding scheme. The appellant, having applied for compounding, paid tax, and filed returns based on it, was not allowed to withdraw from the scheme or opt for regular assessment based on sales turnover. The court dismissed the appeal, stating that the appellant was not entitled to the benefit of exhibit P2, which was issued years after the relevant year, and confirmed the judgment of the single judge.