2021 (3) TMI 592 - HC - Indian Laws

Levy of penalty under Section 17A of the Luxuries Act - Tribunal deleted the penalty as no assessment was done - treatment charges as charges towards amenities and services under Section 2(fb) of the Luxuries Act - HELD THAT - This Court notices that the Tribunal has found fault with the assessing authority and the appellate authority for notionally determining and assuming that 30% of gross charges would represent the luxury provided by respondent under Section 2(fb) of the Luxuries Act and that there is no material even to come to the conclusion as to the rate at which the accommodation is provided by the respondent. In other words the reasoning of its Tribunal rightly points out the mistakes of authority under the Act in levy penalty. Petition is rejected on the ground that in the case on hand no assessment determining the obligation/liability under the Luxuries Act is made penalty proceedings are taken up and by notionally calculating the amount the penalty is imposed. The Tribunal has given liberty to department to first proceed to initiate assessment proceedings in accordance with law subject to the period of limitation if sufficient materials are available for doing so and consequently penalty proceedings could be contemplated. Petition dismissed.

Summary

Issues:
1. Challenge to penalty imposed under the Kerala Tax on Luxuries Act, 1976.
2. Determination of luxury charges and penalty under Section 17A of the Luxuries Act.
3. Assessment of treatment charges by the assessing authority.
4. Legal interpretation of notional determination of charges and penalty imposition.
5. Judicial review of penalty proceedings and assessment under the Luxuries Act.

Analysis:
The judgment by the Kerala High Court addressed the challenge to penalties imposed under the Kerala Tax on Luxuries Act, 1976. The respondent, an Ayurvedic treatment center, was penalized for the years 2012-13, 2013-14, and 2014-15 under Section 17A of the Luxuries Act. The assessing officer had initially imposed penalties based on a percentage of treatment charges as representing luxury or services provided by the respondent. However, the Deputy Commissioner (Appeals) later reduced the percentage considered as charges towards amenities and services. The Tribunal, through a common order, allowed the appeals filed by the respondent, leading to the petitions challenging the penalties.

The Tribunal examined the legality of the penalty levy from the perspective of determining the respondent's obligation to collect and pay tax under the Luxuries Act. It was noted that the respondent's charges for accommodation did not exceed the threshold for luxury tax under the Act. The Tribunal highlighted the impermissibility of notionally determining charges and penalties, citing relevant legal precedents. The judgment under appeal emphasized that the assessing authority had not adequately verified the treatment charges collected by the respondent, leading to an incorrect estimation of luxury charges. The Tribunal's decision pointed out the flaws in the authority's approach to levy penalties under the Luxuries Act.

The High Court rejected the petitioner's prayer by emphasizing that no proper assessment determining the liability under the Luxuries Act was conducted before initiating penalty proceedings. The Court upheld the Tribunal's decision, which allowed the department to first initiate proper assessment proceedings based on sufficient evidence before contemplating penalty imposition. The judgment concluded that there was no legal basis for challenging the Tribunal's findings, and no question of law necessitated judicial intervention. Consequently, the petitions challenging the penalties were dismissed, with no order as to costs.