Kerala High Court
Sree Narayana Dharma Samajam vs Commercial Tax Office (Luxuty Tax & ...
Author: P.R. Ramachandra Menon
Bench: P.R.Ramachandra Menon
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON
WEDNESDAY, THE 4TH DAY OF APRIL 2012/15TH CHAITHRA 1934
WP(C).No. 16857 of 2009 (B)
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PETITIONER:
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SREE NARAYANA DHARMA SAMAJAM, AYYAPPANKAVU,
KOCHI 18, REPRESENTED BY ITS SECRETARY, K.R.SIDHARTHAN.
BY ADVS.DR.K.B.MUHAMED KUTTY (SR.)
SRI.K.M.FIROZ
RESPONDENT(S):
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1. COMMERCIAL TAX OFFICE (LUXUTY TAX & WORKS CONTRACT),
OFFICE OF THE DEPUTY COMMISSIONER, COMMERCIAL TAXES,
ERNAKULAM-4.
2. THE INTELLIENCE OFFICER (IB),
DEPARTMENT OF COMMERCIAL TAXES, EDAPPALLY, KOCHI-24.
3. THE COMMISIONER OF COMMECIAL TAXES, THIRUVANANTHAPURAM.
4. THE STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT,
TAXES DEPARTMENT, SECRTARIAT, THIRUVANANTHAPURAM.
BY GOVERNMENT PLEADER SMT.K.T.LILLY
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD
ON 20.3.2012, THE COURT ON 4.4.2012 DELIVERED THE FOLLOWING:
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WP(C).No. 16857 of 2009 (B)
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APPENDIX
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PETITIONER'S EXHIBITS
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EXT.P1. COPY OF THE NOTICE DATED 7.6.08 FOR THE YEARS 2005-06
TO 2008-09
EXT.P2. COPY OF THE SAMPLE BILLS OF AUDITORIUM
EXT.P3. COPY OF THE REPLY DATED 18.6.2008 SUBMITTED BY THE PETITIONER.
EXT.P4. COPY OF THE NOTICE DATED 24.6.2008 ISSUED BY THE FIRST
RESPONDENT TO THE PETITIONER.
EXT.P5. COPY OF THE REPLY OF THE PETITIONER DATED 10.7.2008 TO THE
FIRST RESPONDENT.
EXT.P6. COPY OF NOTICE OF THE FIRST RESPONDENT DATED 17.10.2008 TO THE
PETITIONER REQUIRING PRODUCTION OF ACCOUNTS.
EXT.P7. COPY OF THE REPLY DATED 11.11.2008 SUBMITTED BY THE
PETITIONER.
EXT.P8. COPY OF THE NOTICE ISSUED BY THE FIRST RESPONDENT FOR THE YEAR
2005-06, PROPOSING PENALTY UNDER SECTION 17A OF HE ACT.
EXT.P9. COPY OF THE NOTICE ISSUED BY THE FIRST RESPONDENT FOR THE YEAR
2006-07, PROPOSING PENALTY UNDER SECTION 17A OF THE ACT.
EXT.P10 COPY OF THE NOTICE ISSUED BY THE FIRST RESPONDENT FOR THE YEAR
2007-08, PROPOSING PENALTY UNDER SECTION 17A OF THE ACT.
EXT.P11. COPY OF THE OBJECTION DATED 4.4.2009 FIELD BY THE PETITIONER
BEFORE THE FIRST RESPONDENT.
EXTP12. COPY OF THE PENALTY ORDER DATED 30.4.2009 FOR THE YEAR 2005-06
ISSUED BY THE FIRST RESPONDENT.
EXT.P13. COPY OF THE PENALTY ORDER DATED 30.4.2009 FOR THE YEAR 2006-07
ISSUED BY THE FIRST RESPONDENT.
EXT.P14. COPY OF THE PENALTY ORDER DATED 30.4.2009 FOR THE YEAR 2007-08
ISSUED BY THE FIRST RESPONDENT.
EXT.P15. COPY OF THE DEMAND NOTICE DATED 15.5.2009 FOR THE YEAR 2005-06
ISSUED BY THE FIRST RESPONDENT
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WP(C).No. 16857 of 2009 (B)
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EXT.P16. COPY OF THE DEMAND NOTICE DATED 15.5.2009 FOR THE YEAR 2006-07
ISSUED BY THE FIRST RESPONDENT.
EXT.P17. COPY OF THE DEMAND NOTICE DATED 15.5.2009 FOR THE YEAR 2007-08
ISSUED BY THE FIRST RESPONDENT.
EXT.P18. COPY OF THE CIRCULAR NO.31/2008 DATED 11.7.2008 ISSUED BY THE
THIRD RESPONDENT COMMISSIONER.
EXT.P19. COPY OF STAY ORDER DATED 25.3.2009 IN WPC NO.9634 OF 2009 OF
THIS HON'BLE HIGH COURT
EXT.P19(A). COPY OF STAY ORDER DATED 15.6.2009 IN W.P.(C) N0.9634 OF
2009 OF THIS HON'BLE HIGH COURT.
EXT.P20. COPY OF NOTICE ISSUED BY THE FIRST RESPONDENT DATED 19.5.2009
DIRECTING THE PETITIONER TO PRODUCE ALL BOOKS OF ACCOUNTS AND BILL
BOOKS.
RESPONDENT'S EXHIBITS : NIL
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/ TRUE COPY /
P.A. TO JUDGE
VK
P.R. RAMACHANDRA MENON, J.
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W.P.(C) NO.16857 of 2009
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Dated this the 4th April, 2012
J U D G M E N T
Penalty imposed under Section 17A of the Kerala Tax on Luxuries Act, 1976 (hereinafter referred to as the 'Act'), in respect of the assessment years 2005-06 to 2007-08 as per Exts.P12 to P14 orders, followed by Exts. P15 to 17 demand notices, are under challenge in this writ petition. That apart, the petitioner also seeks to declare Section 4(2)(c)(i) of the Act and Ext. P18 Circular as ultravires to the Constitution. The petitioner has got a further case that the petitioner is entitled for the benefit of the proviso to Section 4(1) of the above Act.
2. The petitioner is stated as a charitable institution registered under the Travancore Cochin Literary Scientific and Charitable Societies Registration Act, 1955. The petitioner is managing and administering Ayyappankavu Temple and runs a W.P.(C) No.16857 OF 2009 2 Higher Secondary School , another English Medium School and is also having an 'Auditorium', which according to the petitioner is functioning within the premises of the Temple. As per Section 4 (1) of the Act, Luxury tax is leviable in respect of any luxury provided in a hotel, house boat, hall, auditorium or kalyanamandapam or places of like nature, which are rented for accommodation for residence or used for conducting functions whether public or private exhibition. However, there is a proviso, which says that the above sub section shall not apply to halls and 'auditorium' located within the premises of places of worship owned by such religious institutions.
3. The main case of the petitioner is that the auditorium owned by the petitioner is within the premises of the place of worship and hence there cannot be any instance of luxury tax, in view of the proviso to Section 4(1). But without any regard to the said provision, notices were issued to the petitioner proposing penalty for non-registration and payment of tax as prescribed, finally leading to the penalty orders and demand notices, which in turn are under challenge.
W.P.(C) No.16857 OF 2009 3
4. On receipt of Ext. P1 notice, asking the petitioner to produce the accounts to determine the liability towards Luxury Tax for the different assessment years from 2005-06 to 2008- 09, the petitioner filed Ext.P3 reply, pointing out among other things that, by virtue of the proviso to Section 4(1), Auditorium owned by the petitioner within the premises of place of worship stands exempted from any levy. It is also stated that the rent being collected is well within the statutory limit and only sparingly did it exceed the limit of Rs.3000/-.
5. Inspite of explaining the position, as per Ext. P3 reply dated 18.06.2008, the first respondent issued Ext.P4 notice dated 12.06.2008 directing the petitioner to take out registration under the Act from 01.04.2008. The petitioner reiterated the stand as per Ext. P5 reply, when the first respondent served Ext. P6 notice dated 17.10.2008 requiring to produce the accounts. On receipt of Ext.P6, the petitioner submitted Ext. P7 explanation, seeking to sustain the stand that no tax is attracted by virtue of the exemption provided under Section 4(1). It is stated that site plan of the premises was also produced to prove W.P.(C) No.16857 OF 2009 4 that the Auditorium was situated within the premises of the temple. According to the petitioner, as explained in paragraph 10 of the writ petition, the Temple is on the western side of the Chittur road, while the Auditorium is situated on the eastern side of the road. It is contended that the entire property was lying as continuous and contiguous block, which belonged to the petitioner and the general public was making use of the right of way across the property . On surrendering the necessary extent, the road was formed as Chittur Road, which however cannot deface the identity of the premises and the buildings situated thereon.
6. It is however conceded in paragraph 11 that, since the first respondent insisted registration and payment of tax from 2005 onwards, while Ext. P4 notice insisted registration only from 01.04.2008. The petitioner in fact took registration for the years 2005-06 to 2008-09, by paying registration fee and compounding fee for late payment, at the rate of R.2000/- per year. It was thereafter, that the first respondent issued Exts.P8 to P10 notices proposing penalty under Section 17A of the Kerala W.P.(C) No.16857 OF 2009 5 Tax on Luxuries Act, which were replied by submitting Ext.P11 objection dated 04.04.2009 for the year 2005-06 and similar objection in respect of the other two assessment years as well. It was further pointed out that the Auditorium was situated just 100 metres away from the Temple and road in between. 'Ezhunnullippu' and other Temple functions are being performed in the Temple ground and Auditorium situated adjacent to the Temple. The Temple feast or 'Annadanam' is being performed in the Auditorium and that the Auditorium is inseparably connected with the Temple activities.
7. However, without any regard to the objection preferred by the petitioner, penalty was imposed by the first respondent for the years 2005-06 to 2007-08 as per Exts.P12 to P14, which was sought to be realised as per Exts.P15 to P17 demand notices. The petitioner also challenges Exts. P18 Circular (Circular No.31/2008 dated 11.07.2008) issued by the third respondent, stipulating that the assessing authority invariably shall levy the penalty in all non-compliance cases. The petitioner has got a further case that the first respondent lacks jurisdiction W.P.(C) No.16857 OF 2009 6 to pass the impugned orders for want of notification under Section 3 of the Act, contending that the earlier Notification SRO 1077/95 is no longer in existence, as the KGST Act under which the said notification was issued stands repealed by Section.98 of the KVAT Act. The petitioner also contends that the charges collected towards rent on letting out the Auditorium is not a luxury and that a guilty intention must be established as to the motive or intention to evade tax, for sustaining imposition of penalty. The learned Counsel places reliance on the judgment rendered by this Court in W.A.No.812 OF 2009 to contend that the proviso to Section 4 refers to the same place where the Temple is also located, so as to avail the benefit therefrom, i.e. in and around the temple.
8. Respondents 1 and 2 have filed a counter affidavit stating that the Investigation Branch, Commercial Tax Department, Ernakulam attached to the office of the Deputy Commissioner (Intelligence) noticed that the petitioner was letting out the Auditorium owned by it on daily rent, which led to issuance of notice to produce the books of accounts. The enquiry W.P.(C) No.16857 OF 2009 7 conducted by the Department revealed that the petitioner was collecting a daily rent of Rs.8500/- for the Auditorium, excluding the dining hall, which , if to be attached, was to be paid a sum of Rs.6000/- as well. It is asserted in paragraph '5' of the counter affidavit that the petitioner has not produced any bills before the second respondent at any point of time, though notice was issued in this regard to produce the bills and book of accounts. Reference is also made to the term 'luxury' as given under section 2(ee) of the Act to the effect that it means a commodity or service that ministers comfort or pleasure. The respondents have asserted in paragraph '7' and elsewhere of the the counter affidavit that the Auditorium in the instant case is not located within the premises of 'place of worship' and it is situated far away from the Temple premises. The Auditorium is actually situated on the northern side of Ayyappankavu East Extension Road, which branches off from the Chittur Road, towards the eastern side. Referring to the relevant entry in the State List and also placing reliance on the decision rendered by the Apex Court in East India Hotels Ltd. and another v. W.P.(C) No.16857 OF 2009 8 State of Jammu & Kashmir and another [(1995) 3 KTR 37] and Express Hotels Pvt. Ltd. v. State of Gujarat [(1989)74 STC 157], it is stated that the concept of 'luxury' in the legislative entry takes within everything that can fairly and reasonably be said to be comprehended in it. The respondents point out that the High Court of Karnataka has already upheld the validity of Karnataka Taxes on Luxuries Act, 1979 containing similar provision. The legislation has been upheld in Sri. Rama Seva Mandiram Trust . and others Asst. Commissioner of Commercial Taxes and another [(2003) 133 STC 174] and in Magagi Mhavarsa Kamakshi Bai vs. Asst. Commissioner of Commercial Taxes, District Circle I, Mysore and another [(2006)146 STC 473] holding that marriage halls or mandapams are leviable to luxury Tax .
9. Reference is made to the decision of the Apex Court in Tamil Nadu Kalyanamandapam Association vs. Union of India ( AIR 2004 SC 3757 ) holding that tax on luxury and service tax do not overlap each other, asserting that the challenge against Section 4(2)(c)(i) of the Kerala Tax on W.P.(C) No.16857 OF 2009 9 Luxuries Act has no legal basis at all. With reference to Ext. P8 Circular bearing No.31/2008, the respondents have stated in paragraph 12 of the counter affidavit that the direction issued to the assessing authorities to take proceedings in all suitable cases will not affect the discretion vested with the authorities.
10. Coming to the constitutional validity of the relevant provisions, it has to be considered and analysed with specific reference to the prayer in the writ petition, especially prayer No.(ii) which reads as follows:
"ii) to declare that Section 4(2) )(i) of the Kerala Taxes on Luxuries Act 1976 is ultra vires to the Constitution of India"
Section 4(2) ) of the above Act reads as follows:
"(c) In respect of a convention centre, hall, Kalyanamandapam, auditorium including those attached to hotels, clubs or places of the like nature, for the charges for accommodation, amenities and services provided excluding food and beverages
(i) at the rate of ten per cent where the gross charges of accommodation and other amenities and services provided is above W.P.(C) No.16857 OF 2009 10 rupees three thousand per day;
(ii) at the rate of fifteen per cent where the gross charges of accommodation and other amenities and services provided is above rupees ten thousand and upto rupees twenty thousand per day;
(iii) at the rate of twenty per cent where the gross charges of accommodation and other amenities and services provided is above rupees twenty thousand per day.
11. Two grounds are mainly raised by the petitioner in this regard. The first one is, only nominal rent is being charged for the Auditorium in question, which in fact is made use of by the people belonging to the poor strata of the Society and hence it can never be regarded as 'luxury' as defined under Section 2 (ee) of the Act, but it is a matter of necessity. The other contention is that the Tax on Luxuries Act has been enacted with reference to Entry 62 of the State List (List II of the 7th Schedule), which becomes an alien field for the State by virtue of introduction of Entry No.92C in the Union List (List I of the 7th Schedule).
W.P.(C) No.16857 OF 2009 11
12. Mr. Mohammedkutty, the learned Sr. Counsel for the petitioner submits that, this is not a case where the power is vested both on the Union of Government and State Government as to the power of legislation in respect of a subject enlisted in List III (Concurrent List) so as to have it analysed with reference to Article 254 of the Constitution of India and on the other hand, it has to be considered with reference to infringement of Article 246 of the Constitution of India. This being the position, only the Union Government has power to legislate on this subject and hence the law is sought to be declared as unconstitutional. This Court finds it difficult to accept the said proposition for more than one reason.
13. Entry 62 of List II (7th Schedule) and Entry 92C of List I (7th Schedule) read as follows:
"62. Taxes on luxuries, including taxes on entertainment, amusement, betting and gambling."
"92C. Taxes on services."
The 'Act' in question was enacted by the legislature of the State W.P.(C) No.16857 OF 2009 12 with reference to the source of power under Entry 62 of List II as early as in the year 1976. Entry 92C was introduced in List I only as per 88th amendment of the Constitution in the year 2003. In other words, there is no case for the petitioner that there was a transgression of power by the State encroaching into the List I - Union List, while bringing about the Statute. In other words, at the time of enactment of the Kerala Tax on Luxuries Act in the year 1976, there was no barrier at all in bringing about such a legislation. Merely for the reason that something akin to or referable to an entry in the State List has been introduced much later in the Union List, it cannot be said that a legislation brought about by the State in a valid and effective manner and was in force throughout, is liable to be invalidated declaring it as ultravires to the Constitution. The challenge fails on the threshold itself.
14. Another aspect to be considered is that, Entry 92C of List I refers to taxes on services; whereas Entry 62 of List (State List) refers to taxes on luxuries, including taxes on entertainments, amusements, betting and gambling. The W.P.(C) No.16857 OF 2009 13 above two entries govern two different situations and are not synonymous, nor could it be regarded as one is substituted for the other and as the very word indicates, Entry 92C of the Union List intends to tax on 'services', whereas Entry 62 of the State List is in respect of tax on 'luxuries'.
15. While Entry 92C intends to tax on 'services', Entry 62 of the State List is restricted to 'luxuries' alone, giving an inclusive definition, so as to take in entertainments, amusements, betting and gambling. To put it more clear, all services need not be luxuries and only when the instance turns to be a luxury as defined under Section 2(ee) of the Kerala Tax on Luxuries Act or such other types of luxuries in the specified circumstances as separately defined under Section 2(f) or 2(fb) or 2(fc) or 2(fd) alone will it attract tax liability under the State enactment.
16. Referring to the decision rendered by the Apex Court in Godfrey Phillips India Ltd. v. State of U.P. [(2005) 13 KTR
89), the learned Sr. Counsel for the petitioner submits that the words coming after the general term 'luxuries' are crucial to W.P.(C) No.16857 OF 2009 14 understand the actual meaning of the term 'luxury' as contemplated in the constitutional entry, which relates to some activity. It is contended that there is no activity leading to any luxury in letting out the Auditorium to the public. The crux of the decision in Godfrey's case is to the effect that the commodity cannot be taxed, as it does not mean any luxury, which has to be otherwise dealt with and that the taxable event can only be in respect of the comfort/amenity. The activity in relation to letting out an Auditorium does not obviously relate to any manufacturing activity or such other activity involving goods or such other articles.
17. The very concept of 'luxury' is a relative one. Something ordinary for a particular class or person may be a matter of luxury for some others. It is with this distinction in mind, that the legislature clearly stipulated that, in respect of the luxury in Auditorium, the value of the comfort/pleasure, which could be quantified up to Rs.3000/- per day, by way of rent payable to the Auditorium alone is brought within the tax net. In other words, such types/classes of Auditorium, which do not fetch any W.P.(C) No.16857 OF 2009 15 rental value of not more than Rs. 3000/-per day have been consciously left out from the purview of luxury/comfort and only such other Auditorium/Halls having more rental value, have alone been reckoned as of rendering any comfort or luxury, the grade of which has been sub divided into three different groups as (i), (ii) and (iii), stipulating different rate of taxes payable, depending upon the gross charges for accommodation and other amenities provided. This being the position, there is nothing violative of constitutional mandate, nor is there any infringement of any right of the petitioner, much less any fundamental right.
18. The petitioner has admitted that the Auditorium has fetched per day rental value of Rs.4000/- as revealed from Ext. P2 receipts bearing No.10146 dated 18.04.2005 and 11167 dated 14.03.2006. As it stands so, the liability to satisfy tax cannot be sought to be eschewed under any circumstance. That apart, there is a specific averment in paragraph '4' of the counter affidavit filed by the first and second respondents that the second respondent conducted an enquiry on 20.11.2008 by contacting the person in charge of the Auditorium, under the W.P.(C) No.16857 OF 2009 16 guise of advance booking of the Auditorium, when it was let known that the daily rent of the Auditorium was Rs.8500/- per day, excluding the dining hall and if the dining hall was also required, it was being separately charged for Rs.6000/- per day, thus making a total of Rs.14,500/- to be remitted in advance for booking the hall and that the Intelligence Bureau had forwarded the file along with the enquiry report to the first respondent for taking necessary steps for the assessment proceedings under the Act. It is added in paragraph '5' of the counter affidavit that the petitioner has not produced any bills for verification before the second respondent at any point of time even though notice was issued to produce all the documents as part of the enquiry. The above specific averments have not been rebutted by the petitioner by filing any reply affidavit.
19. In the above circumstance, this Court finds that the case projected by the petitioner that the petitioner is not liable to effect any tax under the Kerala Tax on Luxuries Act,1976 and that Sec.4(2)(c)(i) of the Act is ultravires to the Constitution, is devoid of any merit and is turned down.
W.P.(C) No.16857 OF 2009 17
20. The next question is whether the petitioner is entitled to have the benefit of the proviso to Sec.4(1), which says that the instance of levy under sub section (1) of Section (4) shall not apply to halls and Auditorium located within the premises of 'place of worship' owned by religious institutions. The contention of the petitioner is that the Auditorium is within the premises of the place of worship. The materials on record including the impugned proceedings and also the sketch produced by the petitioner as part of Ext.P7 reveal that the actual place of worship, i.e, the Ayyappankavu Temple is situated immediately on the western side of the Chittur road lying north to south . On the northern side of the said premises also, there is a road which cuts across the Chittur Road and proceeds further eastwards as 'Ayyappankavu East Extension Road', touching and crossing another road lying north to south. It is at the said extremity of the Ayyappankavu East Extension Road, that the auditorium/alleged Devaswom dining hall is situated in Sy.No.43/4 of Ernakulam village. The premises where the Ayyappankavu Temple is situated, as mentioned above, is in W.P.(C) No.16857 OF 2009 18 Sy.No.206/2-4 of Ernakulam Village. In the said premises, admittedly guarded by compound walls, apart from Ayyappankavu Temple and Siva temple, the other structures available are only the Gurudeva mandapam, Devaswom counter and Santhimadam . The 'sketch' produced by the petitioner shows that the concerned Auditorium is situated far away from the place of worship, that too in two different survey numbers.
21. The petitioner has got a case that the property was lying as a continuous and contiguous block earlier and that the Chittur road cutting through the property was surrendered by the petitioner, which made the 'Temple premises' on one side of the road and the 'Temple ground' on the other side. True, Devaswom office and store are situated on the eastern side of the road in the Temple ground, comprised in Sy.No.43/4 and 44/7 of the Ernakulam Village. The Auditorium is situated towards the north-eastern direction of the said ground, that too, on the other side of 'Ayyappankavu East Extension Road', lying in between. Even the petitioner himself has conceded in paragraph '13' of the writ petition that the Auditorium is not in any way far away from W.P.(C) No.16857 OF 2009 19 the temple, but is only hundred metres away from the temple. This by itself shows that the Auditorium is not situated within the premises of the place of worship owned by the Institution and the fact that the Temple feast or 'Annadanam' is being performed in the Auditorium, admittedly situated atleast 100 metres away or that the entire income from the Auditorium is being utilised for the temple management cannot bring it back to be situated as within the place of worship. This is for the obvious reason that exemption provided under the proviso to Section 4(1) is only in respect of such halls and Auditorium within the premises of the place of worship owned by such institutions and in no other cases. It is settled law that fiscal Statutes have to be construed strictly, more so when the benefit sought for is with reference to 'exemption'. Unless and until a given case comes squarely within the four walls of the terms of exemption, it cannot be taken outside the liability which otherwise is cast under the statute. The factual position as revealed from the records also does not come to the rescue of the petitioner and the claim for benefit of the proviso to Sec. 4(1) of the Act is thoroughly wrong and W.P.(C) No.16857 OF 2009 20 misconceived.
22. The petitioner has made an attempt to find support from the judgment dated 02.04.2009 rendered by a Division Bench of this Court in W.A.No.812 of 2009, stating that the issue is covered by the said decision. This Court finds it difficult to accept the said version.
23. In the said case, reference was made to Ext.P8 statement filed by the petitioner /Devaswom, as per which, all the buildings were shown as situated within the premises of the petitioner Devaswom itself, which was the very same place where the Temple was also located. The Bench observed that both the ingredients under the proviso, i.e, 'the ownership of the building by the Devaswom' and the location of the building 'within the premises of the place of worship' stood answered and that the department had no case that the buildings were located at any place away from the Temple. It was accordingly, that the writ appeal was allowed, quashing the impugned demand notice, enabling the Department to conduct an enquiry to ascertain whether the building was located at any place other than the W.P.(C) No.16857 OF 2009 21 premises of the Temple i.e., in and around the Temple, which does not mean that any building situated outside the compound wall of the place of worship was also intended to be given the benefit of exemption. This becomes very clear from the last sentence, where it is observed that, if the buildings were located at any station outside the place of location of the Temple, the second respondent was free to identify such buildings, issue notice and assess and recover the tax. This Court finds that the reliance sought to be placed on the said decision has no basis at all.
24. The petitioner contends that the impugned orders imposing penalty have been passed in a quite mechanical manner and that the same is by virtue of the direction given by the third respondent/Commissioner to all concerned vide Ext. P18 Circular No.31/2008 dated 11.07.2008. The said Circular was issued to ensure fool-proof realisation of Luxury Tax, on coming across lack of adequate system and procedure for proper assessment and collection, by way of internal control system, which in turn was sought to be strengthened, apart from alerting W.P.(C) No.16857 OF 2009 22 the assessing authorities to ensure that the provisional returns are filed along with tax due on or before 10th of every month and completion of assessments on time; that each business place of the dealer is assessed separately; that interest for default of payment of tax or any other amount should be collected etc. It was also instructed that the assessing authorities should invariably levy penalty in all non-compliance cases.
25. Referring to the term 'invariably' as a dictation to impose penalty, the learned Sr. Counsel submits that there is no application of mind in Exts. P12 to P17 orders imposing penalty. As mentioned already, the purpose/issuance of said Circular was in a different context, mainly with intent to strengthen the procedure for assessment and collection of tax. It was in the said circumstance, that violation/non-compliance was required to be dealt with seriously, by imposing penalty. Imposition of penalty is not an alien concept and it is well within the statutory prescription, which may vary from case to case, depending upon the facts and circumstances. The stipulation in Ext.P18 Circular is only to the effect that the assessing authority W.P.(C) No.16857 OF 2009 23 should take appropriate measures where they come across any instance of violation of law and nothing more. This has been explained in categoric terms in paragraph 12 of the counter affidavit filed by the respondents 1 and 2 and in paragraph '5' of the counter affidavit filed by the other respondents, making it clear that the direction issued to the assessing authority to take proceedings in all suitable cases will not affect the discretion vested with the said authority. That apart, no reference is made to the said Circular anywhere in the impugned orders(Exts.P12 to P17) and as such, it cannot be held that the concerned orders have been passed by the first respondent in a mechanical manner, but with reference to the actual facts and figures and with proper application of mind.
26. There is yet another case for the petitioner that the first respondent is not vested with any power to impose penalty, as he has not been authorised under Section 3 of the Act by Notification, so as to act as an authority under the Act. It is stated that the authorisation provided earlier under the KGST Act ceased to exist, when the KVAT Act came into force from W.P.(C) No.16857 OF 2009 24 01.04.2005 and that Section 98 of the KVAT Act provides only limited application to the KGST Act, in respect of goods and proceedings.
27. The said contention has been specifically rebutted by the respondents in their counter affidavits. It is stated in paragraph '6' of the counter affidavit filed by the respondents 3 and 4 that SRO 1077/95 dated 07.08.1995 was issued under the authority of Section 3(1) of the Kerala Tax on Luxuries Act authorising the different categories of officers appointed under Section 3(2) of the KGST Act, to function as the assessing authorities under different provisions of the Kerala Tax on Luxuries Act, 1976. It is stated that the idea of the petitioner that SRO 1077/95 stands repealed by virtue of Section 98 of the KVAT Act, is not correct. Section 98 of the KVAT Act just restricts the application of provisions of the KGST Act to certain goods like Indian Made Foreign Liquor, petrol, diesel etc. That apart, the authorities who have been administering the different functions under the KGST Act have been appointed as the respective authorities under Section 3 of the KVAT Act, vide SRO W.P.(C) No.16857 OF 2009 25 318/05 dated 31.03.2005 issued by the Government. It is further pointed out that, pursuant to the Notification No.1/05 dated 01.04.2005, the officers including the assessing authority in the present case are granted functional jurisdiction to carry out all the functions of an assessing authority under the KVAT Act, in addition to the existing functions under various other Acts, which includes the Kerala Tax on Luxuries Act, 1976 as well. As such, the challenge raised in this regard has necessarily to fail.
28. As admitted by the petitioner in the writ petition, they themselves have subsequently taken registration and paid the tax for the period from 2005-06 to 2007-08, as per the demand, on completion of assessment. There cannot be any dispute with regard to the factual aspect that the petitioner was collecting rent of more than Rs.3000/-per day in respect of the Auditorium, as discernible from Ext.P2 series receipts bearing Nos.No.10146 dated 18.04.2005 and 11167 dated 14.03.2006. The case of the petitioner is that no tax was leviable for the Auditorium, as it was within the place of worship and even the registration was unwarranted, while it is contended in paragraph '7' of Ext.P11 W.P.(C) No.16857 OF 2009 26 statement of objections filed in response to Exts.P8 to P10 notices proposing penalty, that there was no wilful omission or deliberate attempt to evade tax. The petitioner adds in the last paragraph of the Statement of Objections that there was no guilty intention and that the Devaswom believed and acted upon the legal advice received.
29. The sequence of events is revealed from the impugned orders and the conscious act on the part of the petitioner, raising some or other contentions without getting registration and satisfying the liability, is discernible from the course and events, particularly the proceedings of the respondents, passing Exts.P12 to P17 orders imposing penalty. Obviously, the proposal notices, Exts. P8 to P10, were issued to the petitioner with reference to the liability to take registration and satisfy the tax in respect of the years 2005-06 to 2007-08. The date of hearing was scheduled on 18.03.2009. Even before the issuance of the said notices, the petitioner remitted the registration fee with compounding fee as prescribed, obtaining registration and a copy of the challan was produced before the concerned authority. W.P.(C) No.16857 OF 2009 27
30. There is a reference in Exts. P8 to P10 notices, in respect of another notice dated 17.10.2008. But it is relevant to note that even in the earlier notice, as borne by Ext. P4 dated 12.06.2008 (alerting the petitioner as to the necessity to take registration under the Act and to satisfy the tax liability), it was stated that the petitioner was liable to take registration and to pay the tax only w.e.f. 01.04.2008 and action was proposed, if registration was not taken w.e.f. 01.04.2008 and the tax was not paid with interest within seven days. The petitioner has later obtained registration and satisfied the tax. The question is whether the course pursued by the petitioner could be regarded as a conscious act to evade the tax, to be mulcted with penalty under Section 17A and even if it be so, whether the quantum of punishment, at the double the rate of tax sought to be evaded, is correct or not.
31. Referring to the verdict passed by the Apex Court in East India Hotels Ltd. and another vs. State of Jammu and Kashmir and another [(1995) 3 KTR 37 ], it has been pointed out in paragraph 10 of the counter affidavit that the W.P.(C) No.16857 OF 2009 28 Apex Court has observed that the Tax on Luxuries Act falls under Entry 62 , List II of the 7th Schedule of the Constitution and hence is within the competence of the State Legislature and that it is not the tax on income, but the tax on amenities and services. Similarly, it was held in Express Hotel Pvt. Ltd. vs. State of Gujarath and another [(1989) 74 STC 157] by the Apex Court that levy of luxury tax on the services for lodge provided at hotel is within the scope of Entry 62 of List and that the concept of 'luxuries' in the legislative entry takes within everything that can fairly and reasonably be said to be comprehended in it.
32. The respondents have also sought to place reliance on the decision rendered by the High Court of Karnataka while considering the validity of Karnataka Taxes on Luxuries Act, 1979. As per the decisions rendered in Sri Rama Seva Mandiram Trust(R) and others vs. Asst. Commissioner of Commercial Taxes and another [(2003) 133 STC 174) and in Magaji Mhavarsa Kamakshi Bai. vs. Asst. Commissioner of Commercial Taxes. District Circle I, Mysore, [(2006)146 W.P.(C) No.16857 OF 2009 29 STC 473], the validity of the statute has been upheld and it has been held that Marriage halls or Manadapams are exigible to luxury tax . That apart, in Tamil Nadu Kalyanamandapam Association vs. Union of India (AIR 2004 SC 3757 ), it has been made clear by the Apex Court that the Tax on luxury and service tax govern two different fields and are not overlapping each other. This being the position, the challenge raised by the petitioner against Sec. 4(2)(c)(i) of the Act is devoid of any merit or bonafides.
33. Coming to the question of imposition of penalty under Section 17A of the Act for the offences committed in the case of tax under the Statute, some element of 'mensrea' is also insisted, to see whether there was any conscious effort on the part of the assessee to defraud the Revenue, so as to sustain the penalty. Even in a case where penalty is justifiable, the quantum is still open to controversy. To put it short, penalty is not something mandatory under the Statute, but is a consequence, where some discretion is vested with the authorities concerned, who 'may' impose appropriate penalty, on proven attempt of W.P.(C) No.16857 OF 2009 30 evasion.
34. Coming to the case in hand, the penalty is sought to be imposed by issuing Exts. P8 to P10 notices in respect of the assessment years 2005-06 to 2007-08. As per the said notices , hearing was scheduled on 18.03.2009, on receipt of which, the petitioner submitted detailed statement of objections, as borne by Ext. P11. As per Ext.P11, it was asserted that there was no wilful omission or deliberate attempt to evade the tax, nor was there any failure to keep the accounts properly. There was no suppression or omission and even as per Ext. P4 notice dated 12.06.2008, the petitioner was required to take registration and to pay the tax only w.e.f. 01.04.2008. It is also asserted that the petitioner was under the bonafide impression that the petitioner was entitled to have exemption by virtue of the 'proviso' to Section 4 of the Act, as the Auditorium is mainly intended for the Temple rituals such as 'Annadanam' and was located in the premises of the worship, though there was a road in between, which portion was surrendered by the Temple devaswom in larger public interest. Receipt of the said W.P.(C) No.16857 OF 2009 31 statement of objections stands admitted, the crux of which has been extracted in the impugned orders.
35. After referring to the said reply/statement of objections, the first respondent held that the Auditorium, of course, came within the purview of the Act and hence the petitioner was liable to take out registration and remit tax due for the years 2005-06 to 2008-09, for the reasons stated therein, under clauses(i) to (iv). It is observed as follows:
"From the above, Sree Narayana Auditorium is not entitled to get exemption envisaged under Section 4 of the Kerala Tax on Luxuries Act,1976 and thereby the contentions raised in the reply for getting exemption filed by you is rejected.
As such contentions raised by the Secretary, Sree Narayana Dharma Samajam, Ayyappankvu, Cochin-682 018 do not carry any merit and are laible to take out registration and pay luxury tax under the act, violation of which warrant s penal action under Section 17A of the Act for the circumstance, the following orders W.P.(C) No.16857 OF 2009 32 are passed.
Order No.LTWC.11/08-09/05- 06/dated 30.04.2009 In exercise of the powers conferred on me under Section 17A of the Act, penalty of Rs.15,400/- (Rupees Fifteen thousand four hundred only) is imposed on M/s. Sree Narayana Auditorium owned by Sree Narayana Dharma Samajam, Ayyappankavu, Cochin -682 018 for the year 2005-06. "
Going by the contents of the above order, it cannot but be found that there is absolutely no discussion as to why, the penalty as proposed in Exts.P8 to P10 notices was liable to be imposed or as to why the 'explanation' given in Ext.P11 was not acceptable to the concerned authority. Though the finding as to the liability to take out registration and to satisfy the tax is beyond challenge, the penalty can be justified only on the basis of a 'finding' as to the violation/evasion, which is conspicuously absent.
36. What should be the quantum of penalty and how the W.P.(C) No.16857 OF 2009 33 figure is obtained, is also not discernible. Reference is made by the petitioner to Ext.P4 notice, which shows the necessity to have registration and to satisfy the tax liability only w.e.f. 01.04.2008. Though the registration taken by the petitioner in the said circumstance and satisfaction of the tax liability in this regard was sought to be explained by the petitioner in Ext. P11 reply, it has not been discussed before imposing the penalty. In other words, the orders imposing the penalty have been passed rather as a matter of course, without arriving at a finding as to the conscious act on the part of the petitioner to defraud the Revenue, as mentioned above. The contention raised by the petitioner and the submissions made by the learned Sr. Counsel appearing for the petitioner, referring to clause 5 of Ext.P18 Circular specifying that, 'invariably' the assessing authority should levy penalty in all non-compliance cases, assumes much significance in the said circumstance.
37. In the above facts and circumstances, this Court finds that the question of penalty requires to be re-considered by the first respondent in the light of the above observations, as to W.P.(C) No.16857 OF 2009 34 whether any conscious act was there on the part of the petitioner to defraud the Revenue, so as to attract penalty under Section 17A and if so, what should be the quantum.
38. In the result, the challenge raised against Sec.4(2(c)(i) of the Kerala Tax on Luxuries Act, 1976 fails. The petitioner is not entitled to have the benefit of the 'proviso' to Sec.4 of the Act. Limited interference is made only on the question of penalty under Section 17A. Exts.P12 to P14 orders imposing penalty and the consequential demand notices vide Exts.P15 to P17 are set aside. The first respondent is directed to pass fresh orders, on the question of penalty, after hearing the petitioner in accordance with law, as expeditiously as possible, at any rate within three months from the date of receipt of a copy of the judgment.
The writ petition is allowed in part. No cost.
P.R. RAMACHANDRA MENON, JUDGE.
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