Karnataka High Court
M/S Oriental Cuisines Pvt Ltd vs The Deputy Commissioner on 2 April, 2018
Author: S.Sujatha
Bench: S.Sujatha
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 2ND DAY OF APRIL, 2018
BEFORE
THE HON'BLE MRS.JUSTICE S.SUJATHA
W.P.Nos.57182-57193/2016 (T - RES)
BETWEEN :
M/s. ORIENTAL CUISINES PVT. LTD.,
No.1, CLARK ROAD
RICHARDS TOWN
BANGALORE-560005
TIN: 29120705136
REP. BY ITS CHIEF OPERATIVE OFFICER. ...PETITIONER
(BY SMT.RADHIKA SHRIRANJINI.M.D, ADV.)
AND :
THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES
(AUDIT - 5.5), D.V.O-5, V.T.K.-2
5TH FLOOR, KORAMANGALA
BANGALORE-560047. ...RESPONDENT
(BY SRI VEDAMURTHY, AGA)
THESE WPs ARE FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
REASSESSMENT ORDER DATED 04.10.2016 ANNEXURE-G AND
THE DEMAND NOTICE DATED 04.10.2016 ISSUED DEMANDING
PAYMENTS OF RS.2,17,29,085/- FOR THE YEAR 2014-15
ANNEXURE-H PASSED BY THE DEPUTY COMMISSIONER OF
COMMERCIAL TAXES, (AUDIT-5.5) KORAMANGALA,
BANGALORE FOR THE YEAR 2014-15 IS BEING CONTRARY TO
SECTION 15(1) OF THE KARNATAKA VALUE ADDED TAX ACT,
2003 AND ETC.
THESE PETITIONS HAVING BEEN HEARD AND
RESERVED ON 20.03.2018, COMING ON FOR
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PRONOUNCEMENT OF ORDER THIS DAY, S.SUJATHA J.,
PASSED THE FOLLOWING:
ORDER
The petitioner has challenged the Re-assessment order as well as demand notices dated 04.10.2016 issued by the prescribed Authority - respondent relating to the tax periods April 2014- March 2015.
2. The petitioner is a company incorporated under the Companies Act, 1956 and a registered dealer under the Karnataka Value Added Tax Act, 2003 ('KVAT Act' for short) and Central Sales Tax Act, 1956 ('CST Act' for short). The petitioner is engaged in the business of hotel industry and running a chain of restaurants specialized in different cuisines operating in various States. Each restaurant is running in a specific brand name. In the outlet, run under the brand, 'The French Loaf', the petitioner sales bakery products whereas in the outlet run under the brand name 'Wangs Kitchen', it is stated that they cater only to Chinese Cuisine. It is -3- the contention of the petitioner that in both these outlets, no liquor is served to the customers. In the other two outlets i.e., 'Benjarong' which caters to Thai cuisine and 'Entekeralam' which caters to Kerala cuisine and 'Teppan' which caters to Japanese cuisine, alcohol is served.
3. It is the contention of the petitioner that the petitioner has opted for Composition Scheme in terms of Section 15(1) of the KVAT Act relating to only two types of outlets, namely 'The French Loaf' & 'Wangs Kitchen'. Registration certificate is said to have been issued to the said effect. The petitioner has been duly paying VAT at 14% and regularly filed monthly returns in Form VAT 120 in respect of these two outlets through the Department enabled e-portal filing option. The said Composition facility (COT) which was granted by the department was cancelled by the Assistant Commissioner of Commercial Taxes, L.V.O.-55 on -4- 22.07.2015 on the ground that the petitioner is dealing in liquor either at the principal place of business or branches. Therefore the petitioner is not entitled to avail or opt for Composition Scheme in terms of Section 15(1)(c) of the KVAT Act.
4. The petitioner's place of business was inspected by the Enforcement Wing on 16.12.2015 and it was noticed that the petitioner has been filing returns under the COT Scheme. However, engaged in inter-state purchase of capital goods against 'e-Sugam' and 'C' forms and also purchased raw materials and capital goods on stock transfer basis on the strength of e- Sugam and Form 'F' and have also effected purchase and sales of liquor against excise license CL-9. Based on the inspection report, Re-assessment proceedings were initiated and were concluded disallowing the input tax credit and enhancing the tax liability with penalty and interest. Being aggrieved by the Re-assessment order -5- passed under Section 39(1) of the KVAT Act and the demand notices issued, these petitions are filed.
5. Learned counsel for the petitioner mainly submitted that the re-assessment order is illegal and void as the composition scheme opted by the petitioner was cancelled with effect from 22.07.2015; as long as the certificate of composite issued by the authorities is in operation, no re-assessment can be made under the VAT Scheme unless the composite certificate is cancelled. It was argued that the respondent has made a general observation without looking into the details and submissions to the effect that the petitioner is not serving liquor in the restaurant for which composition scheme has been opted and the stock transfer items have not been used in these restaurants. The petitioner acted on good faith based on the permission granted by the respondent and dispatched its obligation under the law/KVAT Act. It was further submitted that when -6- KVAT Act and Rules do not provide any restriction on the part of any registered dealer to opt for payment of tax under the COT Scheme in some of the branches and non-availment of option of COT scheme to certain other branches, the re-assessment proceedings concluded by the Authorities for the tax periods 2014-2015, revoking the permission with effect from 22.07.2015 is wholly unreasonable. The petitioner cannot collect the tax from the customers at this length of time which would cause hardship and irreparable loss to the petitioner. Thus, it was submitted that the approach of the Authorities in concluding the Re-assessment and enhancing the tax liability assessing the entire turnover of the assessee in VAT scheme irrespective of the branches without canceling the composition certificate during the relevant period calls for interference by this Court.
6. Learned Additional Government Advocate appearing for the respondent placing reliance on the -7- Division Bench judgment of this Court in the case of M/S. ASWATI INNS PRIVATE LIMITED V/S. THE STATE OF KARNATAKA AND ANOTHER, in S.T.A.NO.28/2009 (D.D 15.07.2010), submitted that the assessee having opted to pay tax under the scheme of composition under Section 15 of the KVAT Act, has effected inter-state purchases of raw material on the strength of 'C' Form. Further, the assessee has effected purchase and sale of liquor under the excise license CL-
9. The Composition Scheme under Section 15 of the KVAT Act read with Rules 135 to 141 of the KVAT Rules prescribes the condition of composite scheme whereby inter-state purchase and selling of liquor is totally prohibited. Different outlets of the assessee would not qualify for the composition, despite the admission of sale of liquor and the inter-state purchases. Composition Scheme is for the registration of the assessee with one TIN number as long as registration is one, carrying on business for convenience in different -8- outlets would not be termed as separate entities for the purpose of KVAT Act. Thus, cancellation of the Composition Scheme pursuant to the notice issued under Section 15(1)(c) of the KVAT Act pursuant to the information received from the inspection wing is justifiable. In view of the cancellation of the composition scheme opted by the petitioner, reassessments are concluded under the Regular VAT Scheme. It was submitted that by inadvertence cancellation order was passed with immediate effect from 22.07.2015 which would not invalidate the re-assessment proceedings.
7. Having heard the learned counsel appearing for the parties and perusing the material on record, the question that arises for consideration in these writ petitions is:
"Whether the respondent-authorities can re- assess the assessee under VAT Scheme for the tax periods 2014-15, the composition scheme being cancelled with effect from -9- 22.07.2015, directing the assessee to submit returns in VAT 100 with effect from 01.08.2015?"
8. To answer this question, it is beneficial to refer to Section 15 (1) to 15 (4) of the KVAT Act which reads thus:
"15. Composition of tax (1) Subject to such conditions and in such circumstances as may be prescribed, any dealer other than a dealer who purchases or obtains goods from outside the State or from outside the territory of India, liable to pay tax as specified in Section 4 and. -
(a) whose total turnover [in a year] does not exceed an amount as may be notified by the State Government which shall not exceed fifty lakhs rupees, and who is not a dealer falling under clause (b) or (c) or (d) below;]
(b) who is a dealer executing works contracts; or
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(c) who is a hotelier, restaurateur, caterer [or dealer running a sweetmeat stall or an ice cream parlour] [or bakery or any other class of dealers as may be notified by the Government]; or
(d) who is a mechanized crushing unit producing [granite or any other metals];
May elect to pay in lieu of the net amount of tax payable by him under this Act by way of composition, an amount at such rate not exceeding five per cent on his total turnover or on the total consideration for the works contracts executed or not exceeding two lakh rupees for each crushing machine [per annum as may be notified by the Government].
(2) xxxxxxxxx (3) Any dealer eligible for composition of tax under sub-section (1) may report, to the prescribed authority, the exercise of his option and he shall pay such amount due and furnish a return in such manner as may be prescribed.
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(4) Any dealer opting for composition of tax [under this section] shall not be permitted to claim any input tax on any purchases made by him."
9. Form VAT 7 under the Rule 9(1) of the KVAT Act was issued to the petitioner permitting the petitioner to opt for payment of tax under the composition scheme under Section 15 under the category Hotelier / Restaurateur / Caterer / Sweet meat stall / Bakery/Ice- cream Parlour. The amendment certificate issued on 30.03.2014 is valid from 01.04.2014. In addition to the address No.11/1, Nandidurga Road, Bengaluru, shown in the VAT Form &, additional place(s) of business are noted as here under:
Trader's Name Address
ORIENTAL CUISINES No.5M-408, 5TH MAIN, HRBR LAYOUT,
PVT. LTD. 2ND BLOCK, BANGALORE
{15/04/2011}
ORIENTAL CUISINES No.46, 9TH MAIN, 80 FT ROAD, HAL
PVT. LTD. 3RD STAGE, BANGALORE
{11/08/2011}
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ORIENTAL CUISINES No.764/44, 37TH D CROSS, 4TH T-
BLOCK, JAYANAGAR, BANGALORE
PVT. LTD.
{30/11/2011}
ORIENTAL CUISINES No.19/4, GROUND & FIRST FLOOR,
PVT. LTD. CUNNINGHAM ROAD, BANGALORE
{04/09/2012}
ORIENTAL CUISINES No.2M/319C, EAST OF NGEF
PVT. LTD. LAYOUT, KASTURI NAGAR,
BANGALORE {01/04/2013}
ORIENTAL CUISINES No.21/376, ANAND ARCADE,
PVT. LTD. ANANDNAGAR, CHINNAPPANA HALLI
EXTN., MARATHHALLI, BANGALORE
{01/04/2013}
ORIENTAL CUISINES No.4, 2ND STAGE, 1ST PHASE, BTM
PVT. LTD. LAYOUT, BANGALORE {01/04/2013}
ORIENTAL CUISINES No.305, ANAND ONYX, 15TH CROSS,
PVT. LTD. 5TH PHASE EXTN., SARAKKI,
BANGALORE {01/08/2013}
ORIENTAL CUISINES No.1, NEW BEL ROAD, OPP. RAMAIAH
PVT. LTD. HOSPITAL, BANGALORE
{25/11/2013}
ORIENTAL CUISINES No.75/11, 2ND MAIN ROAD,
PVT. LTD. VYALIKAVAL, SADASHIV NAGAR,
BANGALORE {25/11/2013}
ORIENTAL CUISINES No.2317, 27TH MAIN ROAD, H.S.R.
PVT. LTD. LAYOUT, 1ST SECTOR, SARJAPUR
ROAD EXTENSION, HOSUR ROAD,
BANGALORE {20/11/2010}
ORIENTAL CUISINES No.1/3, OLD No.12, ULSOOR ROAD
PVT. LTD. BANGALORE {15/09/2008}
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ORIENTAL CUISINES No.754, 80 FEET ROAD, 4TH BLOCK,
PVT. LTD. KORAMANGALA, BANGALORE
{23/04/2010}
10. Pursuant to the inspection conducted by the enforcement wing on 16.12.2015, whereby it was noticed that the assessee was filing the returns under the composition scheme and has effected inter-state purchase of raw-material, capital goods on the strength of "e-Sugam" and 'C' Form and has also dispatched the manufactured goods to other states and the assessee has effected the purchase and sale of liquor under the excise license CL-9, Re-assessment proceedings under Section 39(1) of the KVAT Act were initiated and concluded, reassessing the dealer under the VAT Scheme for the tax period 2014-15. Notice dated 22.06.2015 issued under Section 15(1)(c) of the KVAT Act indicates that the proposal was to cancel COT facility with immediate effect. Similarly order of cancellation dated 22.07.2015 indicates COT facility
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granted is cancelled and assessee is enabled to file VAT 100 returns with effect from 01.08.2015.
11. The respondent-Authority has not cancelled the composition scheme certificate retrospectively with effect from 01.04.2014, if the petitioner has contravened the conditions specified under Section 15 and Rule 135 or from the date of contravention whichever is applicable. The notice dated 22.06.2015 issued by the Assistant Commissioner of Commercial Taxes reads thus:
"NOTICE FOR CANCELLATION OF COMPOSITION SCHEME FACILITY GRANTED UNDER SECTION 15(1)(C) OF KVAT ACT 2003.
Sub: Cancellation of composition scheme facility.
Ref: Circular No.2/2015-16 dated 25/05/2015 of the Commissioner of Commercial Taxes, Bengaluru.
*****
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Referred to the above, you being a registered dealer as Hotelier business opted both VAT and COT tax payment schemes. Since, you are a PVT. Ltd. Company, dealing in liquor in either at the principle place of business or at one or more branches, you are not eligible to opt for payment of tax under composition scheme under Section 15(1)(c) of KVAT Act-2003.
Therefore, it is proposed to cancel COT facility with immediate effect. You are hereby called upon to file objection if any within THREE DAYS".
[Emphasis supplied]
12. The order of cancellation dated 22.07.2015 passed by the Assistant Commissioner of Commercial Taxes runs thus:
"ORDER OF CANCELLATION OF COMPOSITION SCHEME FACILITY GRANTED UNDER SECTION 15(1)(C) OF KVAT ACT 2003.
Sub: Cancellation of composition scheme facility.
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Ref: 1. Circular No.2/2015-16 dated 25/05/2015 of the Commissioner of Comml.
Taxes, Bengaluru.
2. This office notice T.No.276/2015-16 dated 22/06/2015.
***** M/s Oriented Cuisines Pvt. Ltd., TIN 29120705136, Bengaluru-05, being a registered dealer as Hotelier, opted both VAT & COT tax payment scheme. Since the dealer is a Pvt. Ltd. Company dealing in Liquor in either at the principle place of business or at one or more branches, not eligible to opt for payment of tax under composition scheme as per Section 15(1)(c) of KVAT Act. Accordingly this office notice dated 22-06-2015 served upon the dealer proposing to cancel COT facility with immediate effect and also called upon to file objections if any. Till date objections not filed.
In view of the above facts the COT facility granted is hereby cancelled and VAT option is enabled to file VAT-100 returns with effect from 01-08-2015."
[Emphasis supplied]
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13. The proposition notice issued under Section 39[1] of the KVAT Act was issued on 7.9.2016 to which detailed reply was filed by the Assessee. On consideration of the objections and rejecting the same, reassessment proceedings were concluded, assessing the petitioner under VAT Scheme for the tax period 1.4.2014 to 31.3.2015 subjecting the taxable turnover to levy of tax at 14.5% rejecting the composition scheme.
14. At this juncture, it is beneficial to refer to the Division Bench Judgment of this Court in the case of 'M/s. IDEAL TRADERS CREAM PARLOUR PVT. LTD., v. THE ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES' in STA Nos.6 & 28/2011 and connected matters dated 4.10.2012, whereby this Court has held thus:
"In view of coming into force of KVAT Act w.e.f. 1.4.2005, the appellants are registered
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under the KVAT Act and opted for Composition Tax Registration Certificate. The said certificate has not been cancelled by the competent authority. So long as the Composition Tax Registration Certificate stands in the name of the appellants, the revenue cannot levy tax under Section 4[1][b] of the Act."
15. Similarly, in the case of 'ASSISTANT COMMISSIONER OF COMMERCIAL TAXES [AUDIT], KARKALA, UDUPI DISTRICT AND OTHERS v. ABIDHEEP INTERLOCK PAVERS PVT. LTD.,' reported in (2016) 94 VST 186 [Karn], the Division Bench of this Court has held thus:
"As in the present case, the other contingencies for the eligibility are not to be considered, they need not be discussed, but in the present case, the status claimed by the respondent was as a works contractor, the tax at the rate of 5% was to be paid on the total consideration of the works contract.
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Rule 135 of the KVAT Rules, 2005 provides for the conditions of the scheme and Rule 136 would be relevant in the present case as the certificate has already been issued. Rule 137 reads as under:-
"137. Issuing certificates:-- The jurisdictional Local VAT officer or VAT sub- officer shall within a period of fifteen days from the date of receipt of Form VAT 1.--
(1) if he considers that the Form VAT 1 submitted under Rule 136 is incorrect or incomplete or the dealer is ineligible for any other reason, after giving him the opportunity of showing cause in writing against rejection, issue a notice in 1Form VAT 9 informing the dealer that the Form VAT 1 is rejected and, where appropriate, demand any tax due;
(2) if he is satisfied that the Form VAT 1 submitted under Rule 136 is correct and complete and within
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the time prescribed, issue a
certificate in 2Form VAT 8 to the
dealer; and
(3) issue a further certified copy of the certificate where a certificate issued under clause (2) is lost or destroyed."
The aforesaid shows that after submitting the application within the
prescribed period, the jurisdictional local VAT Officer or the VAT Sub-Officer, if he is satisfied that the form of VAT submitted under Rule 136 is correct and complete, then within the time prescribed, he shall issue certificate in Form VAT-8 to the dealer.
In the present case, such certificate has been issued and therefore, it would presuppose that the VAT Officer at the relevant point of time when the certificate was issued was satisfied about the correct and complete details submitted in the form under Rule 136.
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10. Rule 145 of the Rules, which is relevant for the present case reads as under:-
"145. Cancellation of certificate:- The jurisdictional Local VAT officer or VAT sub- officer shall, on receipt of a final return filed by the dealer under Rule 143 and in the case of a dealer falling under Rule 142 or 144 on receipt of the dealer's final return or on his own motion, cancel such dealer's certificate and inform the dealer in Form VAT
11."
The aforesaid shows that the jurisdictional Local VAT Officer or Vat Sub- Officer upon receipt of reply of the dealers, finally return or on his own motion may cancel such dealer's certificate and may inform to the dealer in Form VAT-11. As such, it can hardly be disputed that the cancellation of the certificate would result into civil consequence on the taxable liability on the assessee because as per Section 15 of the
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Rules, the composition offered to the assessee at the rate of 5% on the turnover or total consideration is in lieu of all taxes. The moment the cancellation of the certificate is made, the consequence may arise for filing of regular return and payment of tax as per the respective entries of the schedule. Further, it may also attract the question of reassessment if the assessment is already made or otherwise. Under these circumstances, the power so provided for cancellation of certificate under Rule 145 has to be read with the observance of principles of natural justice inasmuch as it would be obligatory for the jurisdictional Local VAT Officer or the VAT Sub-Officer, to state the grounds and to call upon the assessee, who is holding certificate, as to why such certificate should not be cancelled. After the show-cause notice is issued and the opportunity is given to the dealer/assessee, the certificate may be cancelled, if such a case is made out. It is only thereafter, the intimation may be required to be given to the dealer in Form VAT-11.
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In view of the above observations and discussions, the following directions are given:
"(1) As the certificate issued under rule 137 has not been cancelled, the dealer-respondent herein would be entitled to continue with the benefit under section 15 of the Act on composition of tax.
(2) It is only after the certificate is cancelled by exercise of the power under rule 145 read with the observations made by us hereinabove, the assessment or reassessment can be made in respect of the dealer, who has opted for composition of tax. Hence, the order for reassessment and ultimate direction given for quashment of such reassessment shall remain but with the observation that if a case is made out, it would be open to the appellate authority to initiate the proceedings for cancellation of the certificate already issued under Rule 137 and if such an action is initiated, rights and contentions of both sides shall remain open as may be available in law."
[Emphasis supplied]
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16. In the case of M/S. ASWATI INNS PRIVATE LIMITED supra, the Division Bench while considering the challenge made to a notice purported to be under Section 38(6) of the KVAT Act to initiate suo motu revision proceedings informing the assessee that the permission granted was illegal and hence the proposal was made to withdraw the same and also to impose the tax as if there was no permission granted under Section 38(6) of the KVAT Act, held that on an application filed by the assessee exercising the powers under Section 38(6) of the KVAT Act, permission was granted to treat each of the places of business as a separate unit for the purpose of levy assessment and collection of tax and thereupon all the provisions of the Act regarding registration, filing of returns, assessment and collection of tax was made applicable. However, aforesaid provisions made it very clear that where a dealer is a body corporate and has more than one place of
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business and if it so desires, the Commissioner may on an application from it and on being satisfied that the provisions are likely to cause hardship, by a special order, grant such permission subject to the condition as may be prescribed by him in terms of the Act and its Rules. In the said case, in the principal place of business where the appellant was carrying on business of food items, he was also selling liquor, it was thus held that the assessee did not want to carry his business with liquor in other places, he made a request for a separate registration so that he can have the benefit of scheme of composition. In that context, it was held that the assessee is entitled to said benefit only when he satisfies the requirement of Rule 47(1) of the KVAT Rules. The said judgment would not lend any assistance to the Revenue to levy tax under the VAT Scheme during the subsistence of the composition certificate issued under Section 137 of the Rules.
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17. In the light of these Judgments, it is clear that unless the certificate issued under Rule 137 [Composition Certificate] has not been cancelled, the Dealer-Petitioner herein would be entitled to continue with the benefit under Section 15 of the KVAT Act on composition scheme. Indisputably, as narrated above, order of cancellation of composition scheme facility has been passed on 22.07.2015 with immediate effect. It is also made clear that VAT option is enabled to file VAT- 100 returns with effect from 1.8.2015. Even in the notice, for cancellation of composition scheme, it was proposed to cancel the COT facility with immediate effect. The same coming into effect from 22.07.2015, the Prescribed Authority has no power to assess the petitioner-dealer under VAT Scheme for the period when the composition certificate issued under Rule 137 of the Rules was in existence. Rule 137 provides for issuance of certificates. The certificate issued under Rule 137 entitles the petitioner to make payment in terms of
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composition scheme at 4% unless the same is cancelled in terms of Rule 145 of the Rules. Indisputably, the certificate issued under Rule 137 was not cancelled during the tax period April 2014 to March 2015.
18. Hence, for the period in question, no reassessment can be made under Section 39[1] of the VAT Act subjecting the petitioner to tax under VAT Scheme. It is not in dispute that the petitioner is filing VAT 100 returns and paying the tax under the VAT Scheme subsequent to cancellation of the composition certificate with effect from 22.07.2015. Hence, on this count alone, the reassessment order impugned herein deserves to be quashed without adverting to the other arguments canvassed. Hence, the following:
ORDER
1. Writ petitions are allowed.
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2. Re-assessment order dated 04.10.2016 relating to the tax periods April 2014 to March 2015 marked at Annexure-G as well as the demand notice dated 04.10.2016 at Annexure-H are quashed.
3. No order as to costs.
Sd/-
JUDGE NC, ln., AN/-