2022 (4) TMI 1437 - HC - VAT and Sales Tax

Turnover Tax - determination of compounded rate of tax - comparable parameters - Indian made foreign liquor served in the Bar - Section 7 of the KGST Act - Whether for determining the tax at the compound rate under Section 7(b) of the Act, what are the comparable parameters, viz. the turnover tax payable as considered in the return or the turnover tax paid for any of the previous consecutive 3 years? HELD THAT - In Alakananda 2018 (1) TMI 1434 - KERALA HIGH COURT , the Division Bench answered the question that Section 7(a) and Section 7(b) of the Act do not operate in different spheres, and it is in respect of the same sphere that facilitates identifying the proper figures. i.e., the highest one of the figures worked out separately under Sections 7(a) and 7(b). For the purpose of determining the rate of compounded tax at 115% viz; the highest rate of tax payable on the turnover conceded in the return/account or the tax paid in the previous three consecutive years - HELD THAT - There is hardly any scope for ambiguity in the language of Section 7(b) of the Act. We would apply the golden rule of construction and the principle of noscitur-a-sociis for arriving at the meaning and scope of Section 7(b). The golden rule of interpretation is nothing, but literal construction where the words of a statute are, first, understood in their natural, ordinary or popular sense and phrases and sentences are construed, according to their grammatical meaning, unless that leads to some absurdity or unless there is something in the context, or in the object of the statute to suggest the contrary . Noscitur-a-sociis as explained by Lord Macmillan, means, the meaning of a word is to be judged by the company it keeps . For the purpose of explaining these two groups of constructions, we would not burden our order with precedents. Payment of tax at compounded rates is an alternate method of payment of tax. The legislature in lieu of collection of turnover tax at applicable or specified percentage gives an option to the dealer who is eligible for such option to opt for payment of tax at compounded rates. An application specifying the nature of business, in the case on hand a bar attached to a hotel is made. The basis for payment of tax at compounded rates would be in terms of Section 7. The tax is calculated at the higher rate specified in Sec.7(a) or (b) - Tax attracted or applicable is decided between Section 7(a) and 7(b), whichever is higher. Section 7(b) deals with three verifiable details viz. turnover conceded in the (a) returns or (b) accounts or (c) the turnover tax paid. The word highest is a superlative degree attracts the highest from the three verifiable figures. Otherwise, the use of highest for two comparable situations would be incorrect and grammatically unacceptable. By applying the rule of Noscitur-a-sociis, it is held that for the purpose of Section 7(b) the turnover tax payable by the dealer as conceded either in the return or accounts or the turnover tax paid for the previous consecutive three years is the deciding factor. So interpreted, it is held that the construction adopted by the Tribunal which reads as follows is the correct and literal construction available in the circumstances of the case. The State contends that TOT payable as per accounts is to be taken for calculating TOT. Respondents contention is that it is to be done on the basis of return. On a perusal of relevant provision, it is very clear that the clause applicable to this assessee is clause (b) of Sec.7. In clause (b) itself, 3 situations arise. 1. Highest turnover tax payable by assessee as conceded in return for any of the previous consecutive three years or 2. Highest turnover tax payable by assessee as conceded in accounts for any of the previous consecutive three years or 3. Highest turnover tax paid by assessee for any of the previous consecutive three years. The Registry is directed to place the S.T.Revision before the Division Bench.

Summary

Issues Involved:
1. Interpretation of Section 7(b) of the Kerala General Sales Tax Act, 1963 regarding the payment of tax at compounded rates.
2. Determination of the highest turnover tax payable or paid for the purpose of calculating compounded tax.
3. Applicability of judgments and precedents in interpreting Section 7(b).

Detailed Analysis:

1. Interpretation of Section 7(b) of the Kerala General Sales Tax Act, 1963:
The petitioner, a hotel with a bar, opted for payment of tax at a compounded rate under Section 7 of the KGST Act. The core issue revolves around the interpretation of Section 7(b), which states that the tax should be calculated at 115% of the highest turnover tax payable by the dealer as conceded in the return or accounts or the turnover tax paid for any of the previous consecutive three years. The petitioner argued that the turnover tax should be based on the highest tax paid, while the respondent contended it should be based on the highest tax payable as per the return or accounts.

2. Determination of the Highest Turnover Tax:
The petitioner calculated the tax for the assessment year 2009-2010 based on 115% of the highest tax paid in the previous three years, arriving at Rs.13,56,912/-. However, the Assessing Officer fixed the tax at Rs.15,27,007/-, based on the highest tax payable as per the return or accounts. The Tribunal upheld the Assessing Officer's calculation, emphasizing that the highest turnover tax payable as conceded in the return or accounts or the turnover tax paid for any of the previous consecutive three years should be considered.

3. Applicability of Judgments and Precedents:
The court referred to several judgments, including Hotel Alakananda v. The Commercial Tax Officer, State of Kerala v. P.P. Alphonsa, and Utsav Oil Traders v. State of U.P., to interpret Section 7(b). The Division Bench in Hotel Alakananda clarified that Section 7(a) and Section 7(b) do not operate in different spheres and that the highest turnover tax payable as conceded in the return or accounts or the turnover tax paid for any of the previous consecutive three years should be considered.

Judgment:
The court concluded that the highest turnover tax payable as conceded in the return or accounts or the turnover tax paid for any of the previous consecutive three years should be the basis for calculating the compounded tax. The interpretation by the Tribunal, which considered all three situations—return, accounts, and tax paid—was upheld. The court applied the principles of literal construction and noscitur-a-sociis to interpret Section 7(b), emphasizing that the word "highest" refers to the highest among the three verifiable figures.

The court directed that the S.T. Revision be placed before the Division Bench for further proceedings, based on the interpretation provided.