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TMI Blog2017 (5) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... mmodation; which is the luxury as per the definition. The charge is also on any luxury provided in a hotel, meaning the accommodation provided for residence and the rate varies with the charges for such an accommodation. What comes out from the above is that the assessee itself has been treating the membership, resulting in an obligation, continued over the years in which the timeshare arrangement or membership remains valid. The promise to be fulfilled by and the obligation of, the assessee is to provide accommodation to the member who books his holiday in any one of the resorts of the assessee. There can be no confusion in finding the measure. It is also pertinent that the assessee has not offered details of the amounts received from each of the members, to compute the charges for accommodation for the period in which they enjoyed the stay within the State of Kerala. In such circumstances, there can be no fault found in adopting the fixed room rent or tariff per day for the purpose of levying the tax. In this context, it is also to be noticed that the tax applied under the LT Act is one on the person who enjoys the accommodation and the assessee could collect such tax from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .P.(C) No.20674 of 2015 is filed by MHR with respect to their resort at Poovar, Thiruvananthapuram; which was issued with Exhibits P4 and P5 notices, for the years 2013-14 and 2014-15, under Section 17A of the LT Act. W.P(C) No.32579 of 2015 is against two Resorts of MHR at Kumarakom and Ashtamudi, Chavara, wherein Exhibit P12 is an assessment order for the year 2012-13 and Exhibits P21 and P23 penalty orders under the LT Act for the years 2013-14 and 2014-15; all with respect to the resort at Kumarakom. Exhibit P25 is the notice for the year 2013-14 against the Resort at Ashtamudi, Chavara. W.P. (C) No.13553 of 2016 is again against the Resort of MHR at Ashtamudi, Chavara; the challenge being to Exhibit P1 penalty order for the year 2013-14. In W.P.(C) No.13062, MHR challenge the penalty orders issued for the years 2013-14 (Exhibit P6) and 2014-15 (Exhibit P8) against their Resort at Poovar, Thiruvananthapuram. W.P.(C) Nos.25032 of 2016, 25033 of 2016 and 19615 of 2015 respectively challenge the penalty orders issued for the years 2012-13 (Exhibit P4), 2014-15 (Exhibit P6) and 2013-14 (Exhibit P6) against the Terrace Green Munnar Resort of SHR. W.P.(C) No. 34100 of 2016 impugn a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apartment type with the option of studio, one bedroom or two bedroom apartment. The membership is said to be a combination of preferred season and type of accommodation, opted for by the member for the specified period of 33/25/10 years available for specified days (a week) once in a year. The said membership given is not a privilege for accommodation alone; but entails a bundle of rights, like exchange and splitting up of holidays, carrying forward, pre-poning and post-poning the utilisation, transfer, bequeath and succession of memberships, gifting of holidays and also provision for stay at international destinations. There are also restrictions on these rights as per the terms of membership and there is no guarantee for accommodation, unless booked and confirmed by the individual Resort. There would also be provision for alternate accommodation if a preferred location is not available and there could also be restrictions on the stay at the same place for more than once. These rights together make a membership and it cannot be equated to a simplicitor stay in a hotel. The timeshare arrangement is asserted to be a more complex arrangement going beyond a mere 'per-day charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of the measure employed, which is asserted to be on an artificial basis. The Assessing Officer and the Intelligence Officer have taken the room charges applicable for non-members to determine the charges for accommodation for members. There being no such machinery provision available in the LT Act, such computation would be illegal, is the argument. There are no charges for accommodation collected from the members, who stay at the Resorts free of charges, by virtue of their memberships. The classic decision in Govind Saran Ganga Saran v. CST [1985 Supp SCC 205] is relied upon to reiterate the components entering into the concept of taxation, being taxable event, the person on whom the levy is imposed, the rate at which the tax is imposed, the measure or value to which the rate would be applied for computing the tax liability. There is no measure available in the LT Act to apply the rates, in a time share arrangement is the compelling argument put forth. It is also contended that the Department has resorted to artificial computation of charges for accommodation, leading to estimation which is not permissible in penalty proceedings as found in U.K.Monu Timbers v. St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re removal of anomalies. The States of Goa and Himachal Pradesh probably intended, as an abundant caution, to efface any such presumed anomaly; while the State of Kerala asserts that there is no anomaly in the provisions as available in its LT Act and the timeshare arrangement given in Resorts would come under the definition of Hotels . The facilities enjoyed would be luxury provided in a Hotel attracting the levy under the charging section ie: Section 4. As early as in 1989, in Express Hotels Pvt. Ltd. v. State of Gujarat [(1989( 3 SCC 677], it was found that tax on luxuries includes levy on services, which fall within the concept of luxuries . The State also relied on ( 2012) 54 VST 437 (Ker.) and (2012) 54 VST 442 (Ker.) ; both with citation Trivandrum Club v. STO (Luxury Tax). 13. The following definitions and the charging section are relevant for consideration: Sec.2 (e) hotel means a building or part of a building where residential accommodation is by way of business provided for a monetary consideration and includes a lodging house. Explanation.- A guest house run by the Government or a company or a corporation established by or under any law or any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges, for accommodation for residence (rent) and other amenities and services provided, excluding charges for food and liquor, are above a specified amount or more, per day. 15. The petitioners are having Resorts where residential accommodation is by way of a business and renting out of rooms is for monetary consideration. The Resorts maintained by the assessee within the State of Kerala, hence, comes within the definition of Hotel . Luxury is defined as a commodity or service that ministers comfort or pleasure and that provided in a hotel is accommodation for residence or use and other amenities and services provided in a hotel. The right to enjoy a holiday, the members of a timeshare arrangement, by their membership is entitled to, is crystallized in the fundamental facility provided of accommodation in the various Resorts. The enjoyment is relative and what a member gets assured, is the facility of accommodation; which is the luxury as per the definition. The charge is also on any luxury provided in a hotel, meaning the accommodation provided for residence and the rate varies with the charges for such an accommodation. 16. Going by Govind Saran Ganga Saran , there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beit feeble, was made to argue that the transfer is akin to that of a transfer of a right in an immovable property. The members however cannot stay in one particular Resort repeatedly and there is a restriction in staying at a Resort for more than one time. There can, hence, be found no transfer of right in any immovable property, since there is no specification of the rights with respect to availing of holidays with reference to a particular property. The other rights which have been highlighted, being of exchange, bequeath, succession and so on and so forth, are with reference to that right to stay in a specified category of accommodation at a specified time, in an year for specified days, of not more than 7days. The timeshare arrangement does not provide for any other facility; but of accommodation in a Resort at a vacation site. There can also be no transfer of property found. 19. Membership Rules are seen from Exhibit P1 in W.P. (C) No.32579 of 2015. The membership fee includes a non-refundable admission fee and an entitlement fee towards provision of entitlements to a member; divided in the proportion of 60 to 40. [The significance of this ratio, as dealt with later, is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e member and is dependent upon the season opted, the type of room and the period for which the subscription is taken; which factors decide the membership fees as in the decision of fixation of room tariffs in any hotel at any place. The annual subscription fees [Clause 5] is for the purpose of overall maintenance of all the Resorts, is charged irrespective of whether in a given year the facility was actually availed or not. This again takes in the cost of maintenance of the resorts, to keep them in readiness for the members. The components of membership fees and annual subscription fees cannot be taken as a whole, to provide a measure to tax since the levy of tax on luxury would arise only on the enjoyment of luxury; and not on mere provision of a facility which could be termed a luxury. A mere grant of membership into the 'Vacation Ownership' will not sanction the levy. The enjoyment of luxury is occasioned when a person avails the accommodation in a Resort (read Hotel as defined in the Act) and the measure can only be, the per-day charges of accommodation for such residence. This was the component which was assessed and penalised, in the instances impugned. 22. The res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount at an earlier point of time is identical to that enjoyed by a member inducted newly to the arrangement. But the liquidated damages paid will be at the applicable rate/tariff for that type of accommodation for that season at that location; which is the per-day charges taken as measure for applying the rates of tax prescribed under the LT Act by the Department; which is with authority flowing from the statute and cannot be faulted. 24. There could be a measure adopted on the basis of a split up of the total of the membership fees and the annual subscription fees, which would vary from person to person even when they enjoy the very same privilege of season and type of room; but the details have to come from the assessee. The assessee admittedly paid no heed to the notice to furnish the details of the members who enjoyed the provision of luxury ie: accommodation for residence, in the Resorts within the State. The Officers hence took the tariff/rent collected from non-members who were provided the very same accommodation based on the fixed tariff/rates for each of the resorts referable also to the different seasons and type of rooms. The in-house accommodation of the employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as income in the subsequent years. The Tribunal accepted the assessee's contention that there is a continuing liability on the part of the assessee to provide accommodation and other incidental services attached to the accommodation (para 27). It was also held that the sale of timeshare unit is not as tangible as sale of goods and becomes tangible when the assessee fulfills its promise. It was found that recognising the entire receipt as income in the year of receipt can lead to distortion and that it was not justifiable to tax the entire income in a single year. 26. What comes out from the above is that the assessee itself has been treating the membership, resulting in an obligation, continued over the years in which the timeshare arrangement or membership remains valid. The promise to be fulfilled by and the obligation of, the assessee is to provide accommodation to the member who books his holiday in any one of the resorts of the assessee. The splitting up of income in the various years is on the premise that the membership charges are for the purpose of providing accommodation in the years in which the membership is valid and the income accrues only in the years in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x as collected from the non-members who are residing in their facility and for any facility other than accommodation enjoyed by the members too. The definition also, as seen above, takes in all residential accommodation by way of business provided for a consideration. The definition itself would amply include the petitioner. As to the luxury provided in a hotel, it is the accommodation for residence or use and the other amenities and services. It has been found that the timeshare arrangement fundamentally and essentially provides for the residence of the members for specified days, on specified seasons, in specified types of rooms. The rates are also clear from Section 4, which depend upon the charges for accommodation and has to be applied on such charges for accommodation on a per-day basis. 29. The members when they book a holiday in a facility which has fixed rent or tariff, subject to availability are allowed the accommodation by virtue of the membership which has been obtained by passing of monetary consideration. The provision for using the accommodation for residence, can only be within the period of validity of the agreement between the parties, i.e., the holiday provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself, as contended before the IT Appellate Tribunal, splits up the membership fees to the subsequent years to cover the obligation of providing for an accommodation for residence or use. U.K.Monu Timbers has no application, since it only dealt with the question of best judgment assessment that could be made in a penalty proceeding. There is no estimation made in the present case and the penalty is imposed on the actual occupation of the rooms, and the per-day charges of such rooms; as supplied by the assessee. 32. The observations in the penalty order that there is no legislation prevailing in India governing and regulating vacation ownership of timeshare and that the activities are ultra vires the LT Act are not correct; but the final conclusion arrived does not rest on such observations. The Intelligence Officer, in the impugned order in W.P.(C) No.20728 of 2015, has specifically referred to the contention of the assessee that payment for availing the entire benefits of the scheme is paid by a customer, that too many years back, irrespective of the fact that he makes use of the privileges extended in Kerala or in any other place (page 12 of of Exhibit P3 in W.P.(C) No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he measure as the room tariff/rent, would not also lead to any violation of the terms of the agreement between the assessee and the member. The impugned order in W.P. (C) 34100 of 2016 also refers to the web-site of that assessee; wherein a caution is provided as to the liability of members to taxes. Even without such caution the statutory liability could be levied and collected by the assessee, to be paid over to the State. It is also admitted by the assessee that only room rent/tariff is not collected from the members at the time of residence and all other privileges which a member enjoys have a price and luxury tax too is collected. The measure employed by the assessee in determining liquidated damages to a member, in the event of cancellation after confirmation is also the present rate/tariff as fixed by the assessee in a particular resort and that is the charges on which tax is to be collected if the residence is enjoyed. 35. Having considered and negatived the contentions of the petitioners aimed at absolving their liability under LT Act, the question now to be considered is on the penalty imposed. There are two cases in which assessment itself has been completed and chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 SCC 321] and Sree Krishna Electricals v. State of Tamil Nadu and Another [(2009) 11 SCC 687] to find that no penalty proceedings can be initiated in the said case on the basis of a mere dispute in classification; which, according to the assessee, the Assessing Officer and Intelligence Officer fall under three different entries. A debatable issue of that nature could not lead to a presumption of any contumacious conduct on the part of the assessee or a finding of attempt to evade tax. This was specifically based on Section 67 of the Kerala Value Added Tax Act, 2003 [for brevity KVAT Act ]. 37. The learned Senior Counsel appearing for the State would specifically refer to imposition of penalties under section 17A of the LT Act to contend that it could be imposed even if there is a failure to keep true and complete accounts and submission of untrue and incorrect returns and, hence, the mere submission of untrue or incorrect return could invite imposition of penalty. It has to be noticed that Section 67 of the KVAT Act also contains the above provisions in clauses (b) and (d) of sub-section (1). The Hon'ble Supreme Court in Cement Marketing Co. of India Ltd. held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a contumacious conduct, warranting imposition of penalty. 39. This Court has answered the issue of coverage under the L T Act against the assessee; but on the imposition of penalty it is answered against the Department. Two writ petitions impugn assessments in W.P.(C) No.32579 of 2015 [Exhibit P12] and W.P.(C) No.34100 of 2016 [Exhibit P1]. Accordingly, W.P.(C) No.32579 of 2015 would be partly allowed, setting aside Exhibits P21 and P23 penalty orders and Exhibits P22 and P24 demands. The notices issued under Section 17A, being Exhibits P20 and P25, will also not be proceeded with, since there is no warrant for penalty under Section 17A. Exhibits P12 and P13 are respectively the assessment order and demand notice for the year 2012-13 of Kumarakom Resort. Exhibits P12 and P13 would stand sustained. W.P.(C) Nos.20728 of 2015, 19615 of 2015, 20674 of 2015, 13553 of 2016, 13062 of 2016, 25032 of 2016 and 25033 of 2016 would stand allowed, setting aside the penalty orders on the solitary ground as stated above, of there being no contumacious deliberate attempt warranting imposition of penalty. The Department could proceed with the assessment. W.P.(C) No. 34100 of 2016, challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X
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