2024 (12) TMI 463 - HC - VAT / Sales Tax

Imposition of luxury tax - Liability of the petitioner to tax for the medical bed facility under the Kerala Tax on Luxuries Act, 1976 - imposition of penalty under Section 17A of the Act - justification for completion of assessment by estimating the receipts for the purpose of assessment. Is the petitioner liable to tax with reference to the medical bed facility provided by it, under the statute? - HELD THAT - Ultimately, what is to be looked into is as to whether the facility provided is a necessary requirement of an average member of the society. There cannot be any dispute that even without the aid of the medical bed provided by the petitioner, an expecting mother can give birth. This Court also notices the judgment of a Division Bench of this court in RAJAH HEALTHY ACRES (P) LTD. VERSUS STATE OF KERALA, THE SECRETARY (TAXES) , GOVERNMENT OF KERALA, THE COMMISSIONER, COMMERCIAL TAXES, INSPECTING ASSISTANT COMMISSIONER (INVESTIGATION BRANCH) , INTELLIGENCE OFFICER (IB) 2017 (1) TMI 581 - KERALA HIGH COURT wherein the challenge against the provisions of the Act providing for levy of tax on receipts in hospitals was considered. The Division Bench of this Court held ' the word 'luxury' has been defined in the Act itself and, therefore, that definition would prevail and it is competent on the part of the legislature to give it a wide meaning so as to take in all such experience which ministers comfort or pleasure. This is completely and wholly within the competence of the Legislature to enact upon under Entry 62 of the VII Schedule of the Constitution, the matter being intrinsically and irreparably related to 'luxuries' as obtaining in the said Entry.' Thus, ultimately what is taxed under the statute is the experience of luxury as regards the accommodation/ amenities in the hospital. There cannot be any challenge against an assessment with reference to the afore activity - the petitioner is liable to tax on the charges collected as against the medical beds provided by it. If the answer to the above question is in the affirmative, is the imposition of penalty under Section 17A of the Act justified? - HELD THAT - On a perusal of the impugned orders of penalty, it is seen that the petitioner was proceeding on the bona fide belief with reference to its non-liability as against the receipts for the use of the medical beds. The fact that what is being imposed is a penalty shows that unless and until mens rea is established, no penalty can be levied. There cannot be any contumacious conduct on account of the non-inclusion of the afore amounts in the return - the imposition of penalty, which is the subject matter of challenge in W.P.(C) No. 36848 of 2017 can only be declared as illegal. Is the completion of assessment by estimating the receipts for the purpose of assessment, justified? - HELD THAT - The amount of the alleged suppression as regards the receipts for the medical beds, already quantified in the penalty orders, was the basis for the finalisation of the assessment. Further additions on account of the afore receipts while finalising the assessments cannot be sustained since the actual receipts, which were not included in the returns, have already been quantified. When that be so, the further additions towards omissions and suppressions in Ext. P8 to P10 orders cannot be sustained. The petitions are disposed off.

Summary

Issues Involved:
1. Liability of the petitioner to tax for the medical bed facility under the Kerala Tax on Luxuries Act, 1976.
2. Justification of the imposition of penalty under Section 17A of the Act.
3. Justification of the assessment completion by estimating the receipts.

Detailed Analysis:

1. Liability to Tax for Medical Bed Facility:

The primary issue was whether the petitioner, a private limited company providing maternity-related healthcare services, was liable to pay luxury tax on charges collected for the use of sophisticated medical beds. The petitioner argued that these beds were essential for professional services and thus exempt from tax under the Kerala Tax on Luxuries Act, 1976. The statute mandates luxury tax on "charges of accommodation for residence for use of amenities and services" in hospitals when charges exceed Rs. 1000 per day, excluding food, medicine, and professional services. The court determined that the receipts for the medical beds did not fall under these exclusions, as they were not charges for professional services but for using a specialized furniture item. The court referenced the Apex Court's definition of "luxury" as activities beyond the necessary requirements of an average society member. It concluded that the medical beds, while providing additional facilities, were not essential for childbirth and thus constituted a luxury under the statute.

2. Justification of Penalty Imposition:

The second issue concerned the imposition of penalties under Section 17A for non-declaration of receipts from medical beds. The statute allows penalties for submitting "untrue or incorrect returns." The petitioner had filed returns excluding medical bed receipts, believing they were non-taxable. The court noted that penalties require establishing mens rea, or a guilty mind, which was absent in this case. The petitioner acted under a bona fide belief of non-liability. Citing the Supreme Court's judgment in Hindustan Steel Ltd. v. State of Orissa, the court emphasized that penalties should not be imposed for technical or venial breaches or where there is a bona fide belief of non-liability. Consequently, the court declared the penalty imposition as illegal.

3. Justification of Assessment Completion:

The final issue addressed the additions made by the assessing authority in the assessments for 2012-13 to 2014-15, based on alleged suppression of receipts for medical beds. The court found that the actual receipts had already been quantified in the penalty orders. Therefore, further additions for omissions and suppressions in the assessment orders were unsustainable. The court ordered the deletion of these additional amounts in the fresh assessment.

Conclusion:

The writ petitions were disposed of with the following outcomes:
- The petitioner is liable to pay luxury tax on receipts for medical beds.
- The penalty orders were set aside as they were deemed illegal.
- The assessing authority was directed to pass fresh assessment orders, removing additions for "probable omissions and suppressions."