2015 (10) TMI 853 - HC - VAT and Sales Tax

Demand of turnover tax - Compounded rate of tax - assessee sought withdrawal of permission to pay tax at compounded rate - Tribunal held that the assessee is not liable to pay tax at compounded rate in view of the fact that there was no purchase or sales during the months in question and granted relief - Held that - legislative intention is that if the compounding is allowed, the tax will be paid on the basis of the amount arrived at in clause (a) or (b) of Section 7 whichever is higher. As far as clause (a) is concerned, it is fixed with reference to the purchase turnover. Undoubtedly, clause (a) applies in this case in the sense that there was purchase turnover for the months up to August 2010 and perhaps the tax was being collected on the said basis, provided it was higher than the sum arrived at on the basis of applying clause (b). Assessee does not have a case that he did not have any turnover and that the amount of tax could not be arrived at on the basis of the operation of clause (b). Therefore even proceeding on the basis that the tax which should be arrived at on the basis of applying clause (a) is nil, the amount of tax which should be arrived at on the basis of clause (b) would have to be arrived at and since if that tax is by any account higher than the amount which is arrived at under clause (a), the assessee would be liable to pay the said amount. In this regard, we must notice that it is not a case of a regular assessment under section 5. This is a case where the assessee on his own volition opted for compounding. The assessee must be taken to have ventured to accept liability to pay tax at compounded rates, with all the perils and benefits which accompanied such a decision and having accepted the same, it is not open to the assesse to turn around and extricate himself from the liability which stares at him by virtue of the unambiguous provisions contained in section 7 of the Act. - Decided in favour of Revenue.

Summary

Issues:
Interpretation of section 7 of the Kerala General Sales Tax Act, 1963 regarding payment of tax at compounded rates for a bar attached hotel.

Analysis:
The judgment by the Kerala High Court involved two connected Sales Tax revisions filed by the State Government against a bar attached hotel located in a Panchayath area. The hotel had opted for payment of tax at a compounded rate under section 7(1) of the Act for the year 2010-11. However, the hotel later sought withdrawal of permission to pay tax at the compounded rate due to the cancellation of its license by the Excise Commissioner, resulting in no purchase or sales during the period from September to December 2010. The assessing officer demanded turnover tax for those months at the compounded rate, which was confirmed by the first appellate authority but overturned by the Tribunal. The State Government, aggrieved by the Tribunal's decision, filed the revisions.

The main issue revolved around the interpretation of section 7 of the Act, specifically regarding the payment of tax at compounded rates by the bar attached hotel. The Tribunal's decision was based on the absence of purchase or sales during the relevant months, leading to the conclusion that the hotel should not be liable to pay tax at the compounded rate for that period. However, the High Court analyzed the relevant provisions of section 7, emphasizing that the legislative intention was for tax to be paid based on the higher amount calculated under either clause (a) or (b). While clause (a) was linked to purchase turnover, the absence of purchases during the months in question did not absolve the hotel from tax liability. The Court highlighted that even if clause (a) resulted in no tax payable, the calculation under clause (b) based on turnover from previous years would determine the tax liability.

The Court rejected the hotel's argument that the absence of purchases during the relevant months exempted it from tax liability, emphasizing that the hotel had voluntarily opted for compounding and must adhere to the provisions of section 7. The Court concluded that the hotel could not evade its tax liability by attempting to withdraw from the compounded rate agreement. Therefore, the revisions were allowed in favor of the State Government, setting aside the Tribunal's decision and directing assessments to be completed based on the provisions of section 7 for the relevant months.