2016 (9) TMI 970 - HC - VAT and Sales Tax

Imposition of penalties - Luxuries Act, 1976 - bifurcation of luxury tax - Banquet Hall - Poolside area for serving food as well as conducting other services - Rule 3 C of Kerala Tax on Luxuries Rules, 1976 - 25% of the total charges treated as eligible for luxury tax - services rendered while serving food, drink and other services in a hotel, hall, auditorium and other similar places - payment of VAT on entire amount without bifurcation of the Luxury Tax Component - whether there was any necessity to impose penalty on the petitioner for not having bifurcated the assessment to tax with reference to VAT and luxury tax for the years 2005-06, 2006-07 and 2007-08? - Held that - As far as the assessment year 2005-06 is concerned, there is no dispute about the fact that the amendment to the Rules had come into effect only on 28.07.2006. Under such circumstances, there was no necessity to initiate any penalty proceedings against the petitioner for having not complied with the bifurcation so contemplated during the said assessment year - Tribunal not justified in imposing penalty on the petitioner as far as assessment year 2005-06 is concerned. There is deficiency on the part of the assessee in bifurcating the luxury tax as well as VAT, even after the Rule had been amended. However, it is to be noticed that when the entire VAT amount has been paid for the total amount received which includes the rent for Banquet Hall or the Poolside, there is no deliberate attempt to evade payment of VAT or luxury tax. There is no suppression of facts. It is apparently a mistake being committed by the assessee while imposing tax and insofar as no loss has been caused to the Government - imposition of penalty not justified. If at all there is any deficit in the collection of tax, the same can be recovered by assessment proceedings. As far as the charging of luxury tax on the Poolside area is concerned, the Deputy Commissioner (Appeals) had come to a finding that the luxury tax is not leviable as far as the Poolside is concerned. - penalty not imposed. Petitions disposed off - decided against Revenue.

Summary

Issues:
1. Imposition of penalty on the petitioner for not bifurcating luxury tax and VAT for assessment years 2005-06, 2006-07, and 2007-08.
2. Validity of penalty orders for Banquet Hall and Poolside area.
3. Dispute over the necessity of penalty imposition based on the tax bifurcation issue.
4. Consideration of loss to the Government due to tax bifurcation.
5. Assessment of penalty in relation to the tax regulations and amendments.

Analysis:
The judgment involves writ petitions challenging a common order regarding penalty imposition by the Kerala Value Added Tax Appellate Tribunal. The issue pertains to the bifurcation of luxury tax and VAT for services provided in a hotel, specifically the usage of Banquet Hall and Poolside area. An amendment in 2006 introduced Rule 3 C, requiring 25% of total charges to be treated as eligible for luxury tax. The petitioner had not bifurcated the luxury tax component for assessment years 2005-06, 2006-07, and 2007-08. The court previously directed assessment proceedings to verify any additional amounts due. The current challenge is against the penalty imposed for non-compliance.

Regarding the penalty imposition, the court found no necessity to penalize the petitioner for non-bifurcation in 2005-06 as the relevant rule came into effect later. For 2006-07 and 2007-08, the petitioner argued no loss to the government due to charging 12.5% VAT for the total amount, including Banquet Hall services. The court noted the petitioner's correction of the issue and compliance with statutory requirements post-initiation of proceedings. The government contended for penalty on the Poolside area as well.

The court analyzed the petitioner's compliance, noting the absence of deliberate tax evasion and the payment of VAT on the total amount collected. Referring to previous judgments, the court emphasized the lack of loss to the government and the absence of suppression in the petitioner's actions. It concluded that any tax deficit could be addressed through assessment proceedings without the need for penalty imposition. Consequently, the court allowed the writ petitions, setting aside the penalty orders for the assessment years in question.

In conclusion, the court dismissed the imposition of penalties on the petitioner for not bifurcating luxury tax and VAT, emphasizing compliance with tax regulations and the absence of intentional evasion or loss to the government. The judgment highlights the importance of correct tax assessment and the ability to rectify errors through proper procedures without punitive measures unless necessary.