2021 (4) TMI 510 - HC - VAT and Sales Tax

Levy of higher rate of Tax on Restaurant as applicable on Hotels - Period for determination of interest liability - Bondafide belief - Violation of principles of natural justice - assessing officer pointed out that after issuing pre-revision notices, the objections of the assessee were received - HELD THAT - Personal hearing was held on 18.12.2015. On the said date the petitioner's representative appeared and his statement was also recorded in writing by the assessing officer. Only thereafter the impugned orders were passed on 06.01.2016. Thus, the principles of natural justice were complied with in the instant case. Whether the respondent erred in applying Section 7(1)(a) of the Act? - HELD THAT - Since Rainbow Restaurant is carrying on its business in the very same premises, the assessing authority rightly held that it is a restaurant attached to a star hotel and therefore, Section 7(1)(a) of the Act will apply. Section 7(1)(a) of the Act states that the higher rate of tax will be levied not only on the star hotel recognized by the Government but also on the restaurant attached to such star hotel. The expression attach has been defined in Black's Law Dictionary as to annex, bind or fasten. If something is part of another, it is said to be attached (Oxford Advanced Learner's Dictionary, New 9th Edition). Attached to connotes something different from mere ownership - If the petitioner has been carrying on its business at a place distinct from that of the Star Hotel, then, Section 7(1)(a) of the Act cannot be invoked at all. But the petitioner restaurant is in the very same building owned by the Star Hotel, namely, Rathna Residency. Therefore, the assessing authority was justified in holding that the petitioner is a restaurant attached to a Star Hotel and therefore would fall within the sweep of Section 7(1)(a) of the Act. The respondent is not justified in levying interest from the original assessment year - the star hotel itself was selling the items mentioned in Section 7(1)(a) of the Act. But in the case on hand, Rathna Residency is not the petitioner before this Court. It is only Rainbow Restaurant that is the petitioner before this Court. Rainbow Restaurant is contending that it cannot be considered as a restaurant attached to a star hotel . Thus the petitioner was under a bonefide impression that they are not liable to pay tax at a higher rate. Therefore, as per Section 42 of the Act, only from the date on which the petitioner's liability is quantified, the question of paying tax would arise. Petition allowed.

Summary

Issues Involved:
1. Wrong classification of the petitioner under Section 7(1)(a) of the Tamil Nadu Value Added Tax Act, 2006.
2. Incorrect application of higher tax rate on the entire turnover.
3. Alleged lack of independent decision-making by the respondent.
4. Incorrect levying of interest from the original assessment year.

Issue-wise Detailed Analysis:

1. Wrong Classification under Section 7(1)(a):
The petitioner, a restaurant, was classified under Section 7(1)(a) of the Tamil Nadu Value Added Tax Act, 2006, which applies to star hotels and restaurants attached to such hotels. The petitioner argued that it was not a star restaurant and should not be classified under this section. The respondent contended that since the petitioner operated in the same premises as Rathna Residency, a recognized star hotel, it should be considered a restaurant attached to a star hotel. The Court upheld the respondent's classification, noting that the petitioner operated within the same premises as the star hotel, thus falling under Section 7(1)(a).

2. Incorrect Application of Higher Tax Rate:
The petitioner argued that the higher tax rate under Section 7(1)(a) should only apply to specific items mentioned in the section, not the entire turnover. The Court agreed, stating that the higher tax rate should only be applied to the items listed in Section 7(1)(a) and not the entire turnover. The respondent's application of the higher tax rate to the entire turnover was deemed incorrect and a result of non-application of mind.

3. Alleged Lack of Independent Decision-Making:
The petitioner contended that the respondent, a quasi-judicial authority, failed to independently decide the issue and instead relied on the findings of the Enforcement Wing Officials. The Court agreed, emphasizing that the respondent should have independently evaluated the objections and evidence rather than merely adopting the Enforcement Wing's findings. The Court cited a precedent where the assessing officer's reliance on enforcement officials' reports without independent assessment was deemed improper.

4. Incorrect Levying of Interest:
The petitioner argued that interest should only be levied from the date of demand, not from the original assessment year. The Court concurred, stating that the petitioner was under a bona fide impression that it was not liable to pay the higher tax rate. Therefore, interest should only be levied from the date the liability was quantified, not from the original assessment year.

Conclusion:
The Court found that while the respondent correctly classified the petitioner under Section 7(1)(a), the application of the higher tax rate to the entire turnover was incorrect. Additionally, the respondent failed to independently assess the case and improperly levied interest from the original assessment year. Consequently, the impugned orders were quashed, and the matters were remitted to the respondent for fresh consideration, ensuring compliance with the principles of natural justice and the Court's clarifications. The writ petitions were allowed without costs, and connected miscellaneous petitions were closed.