2020 (5) TMI 501 - HC - VAT and Sales Tax

Reopening of assessment - Escapement of turnover - whether the restaurant of the petitioner was part of its One Star service and whether separate registration in 2011 for the running a Bar will have any bearing on the assessment made in the impugned orders? - HELD THAT - The registration granted to the petitioner by the Ministry of Tourism, Department of Tourism on 12.11.2009 was subject to petitioner complying with all the regulatory conditions for classification/to classification of hotels and other terms and conditions to be introduced by the Department from time to time - There is no clarity as to whether separate kitchen and dining area existed for provision of One Star Hotel Service by the petitioner independent of the restaurant with the kitchen for which the petitioner had obtained registration earlier on 19.05.2008 vide TIN No.3382242419. If the petitioner had shown the kitchen meant for the restaurant for obtaining One Star registration/classification order on 12.11.2009, certainly the petitioner would be liable to pay tax in terms of section 7(1)(a) even if the petitioner did not actually intend to treat it as a part of its One Star Hotel business/service - if the petitioner had a separate kitchen and a separate dinning area for serving food to the guest staying in the rooms based for which the aforesaid One Star classification was obtained on 12.11.2009, the respondent would not be justified in clubbing the turnovers to demand tax under section 7(1)(a) of the Act. The finding of the respondent in the impugned orders that the services in the restaurant and the bar were interlinked with each other remains unsubstantiated - there are sufficient indications to the effect that after 2011, the Commercial Tax Department also wanted to treat the service provided by the petitioner to its guest staying in its hotel rooms/visiting the bar under One Star service and the food served in the restaurant differently from 2011. However, in absence of proper discussion on facts in the impugned order and adequate materials, any categorical finding on the same could not be delivered. Impugned orders are set aside and the cases are remitted back to the respondent to pass fresh orders for the respective assessment year within a period of 6 months from date of receipt of this order - Petition allowed by way of remand.

Issues:
1. Validity of the impugned assessment orders dated 27/06/2016 for the assessment years 2009-10 to 2014-15.
2. Applicability of tax rates under Section 7(1)(a) vs. Section 7(1)(b) of the Tamil Nadu VAT Act, 2006.
3. Legitimacy of the recovery notice dated 10/09/2014.
4. Classification and registration of the petitioner’s hotel and restaurant services.
5. Compliance with the Tamil Nadu Value Added Tax Rules, 2007 regarding branch registration.

Issue-wise Detailed Analysis:

1. Validity of the Impugned Assessment Orders:
The petitioner challenged six different assessment orders dated 27/06/2016, which confirmed a tax demand at 12.5% for the assessment years 2009-2012 and at 14.5% for the years 2012-2015 under Section 7(1)(a) of the Tamil Nadu VAT Act, 2006. The court noted that earlier re-assessment orders dated 02/07/2014 had accepted the tax paid under Section 7(1)(b). However, these were followed by a recovery notice dated 10/09/2014, which was later quashed by the court due to procedural lapses. The court found that the impugned orders lacked clarity on whether the restaurant was part of the One Star hotel service and whether separate registration for the bar in 2011 had any bearing on the assessments.

2. Applicability of Tax Rates under Section 7(1)(a) vs. Section 7(1)(b):
The petitioner argued that the restaurant and bar were separate verticals with no intermingling of turnovers, and thus, the lower tax rates under Section 7(1)(b) should apply. The respondent, however, treated the restaurant as part of the One Star hotel service, demanding higher tax rates under Section 7(1)(a). The court observed that if the petitioner had shown the restaurant’s kitchen for obtaining One Star classification, they would be liable to pay tax under Section 7(1)(a). Conversely, if separate kitchens and dining areas existed, the respondent's demand would be unjustified.

3. Legitimacy of the Recovery Notice:
The recovery notice dated 10/09/2014 was served before the communication of the re-assessment orders dated 02/07/2014, leading to its quashing by the court in W.P.No. 26298 of 2014. The court allowed the petitioner to challenge the assessment orders in the manner known to law, resulting in fresh notices and the impugned orders.

4. Classification and Registration of Hotel and Restaurant Services:
The petitioner obtained a registration for the restaurant in 2008 and separate registrations for lodging and bar services in subsequent years. The court highlighted the necessity to determine whether the One Star classification obtained in 2009 was based on the restaurant's kitchen. The court directed the respondent to obtain information from the Department of Tourism to clarify this aspect before passing fresh orders.

5. Compliance with Tamil Nadu VAT Rules on Branch Registration:
The court noted that the petitioner had obtained separate registrations for different services, indicating tacit acceptance by the Commercial Tax Department of the separate nature of these services. However, the petitioner was required to possess only one registration under the TN VAT Act, 2006.

Conclusion:
The court set aside the impugned orders and remitted the case back to the respondent for fresh orders within six months. The respondent was instructed to obtain necessary information from the Department of Tourism and provide it to the petitioner. The petitioner was also allowed to furnish relevant information to substantiate its defense. The court emphasized the need for a hearing, possibly through video conferencing, due to the Covid-19 pandemic. The writ petitions were disposed of with these observations, and connected miscellaneous applications were closed without costs.

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