Kerala High Court
M/S.Hotel Aida vs State Of Kerala on 6 April, 2022
Author: S.V.Bhatti
Bench: S.V.Bhatti, Bechu Kurian Thomas
ST.Rev. No.21/2014 1 / 20
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
Wednesday, the 6th day of April 2022 / 16th Chaithra, 1944
ST.REV. NO. 21 OF 2014
TA(VAT) 38/2011 OF STAT ADDITIONAL BENCH, KOTTAYAM, KOTTAYAM
PETITIONER:
M/S.HOTEL AIDA,
M.C.ROAD,KOTTAYAM,
REPRESENTED BY ITS MANAGING PARTNER,MOHAN JACOB.
BY ADVS.SRI.HARISANKAR V. MENON,SMT.MEERA V.MENON,SRI.MAHESH V.MENON,
RESPONDENT:
STATE OF KERALA
REPRESENTED BY ITS SECRETARY,TAXES DEPT.
THIRUVANANTHAPURAM-695001.
BY GOVERNMENT PLEADER
This Sales tax revision having come up for orders on 06.04.2022, the
court on the same day passed the following:
ORDER
ST.Rev. No.21/2014 2 / 20 S.V.BHATTI, BECHU KURIAN THOMAS & BASANT BALAJI,JJJ
-----------------------------
S.T.Rev.No.21 of 2014
------------------------------
Dated this the 6th day of April 2022 ORDER S.V.BHATTI, J.
Heard Mr Harisankar V.Menon, learned counsel for the petitioner and Mr Mohammed Rafiq, learned Special Government Pleader for the respondent.
2. Hotel Aida is the petitioner. The petitioner herein runs a hotel attached with a Bar and is an assessee under the Kerala General Sales Tax Act, 1963 (for short 'the Act') in respect of Indian made foreign liquor served in the Bar. The petitioner opted for payment of tax at the compounded rate under Section 7 of the KGST Act. The petitioner satisfied the turnover tax on IMFL for the years 2006-2007 to 2008-09 as follows:
2006-07 Rs.6,67,722.83
2007-08 Rs.10,26,024.00
2008-09 Rs.11,79,924.00
3. The petitioner applied for payment of tax at compounded rate for the assessment year 2009-2010. The petitioner reckoned tax ST.Rev. No.21/2014 3 / 20 S.T.Rev. No.21 of 2014 2 at compounded rate payable at 115% under Section 7(b), on Rs.11,79,924/- and arrived at Rs.13,56,912/-. The petitioner claims to have satisfied compounded rate tax. The Assessing Officer, on 14.01.2010, fixed the tax at the compounded rate payable by the petitioner at Rs.15,27,007/-. The calculation made by the Assessing Officer helps us in understanding the issue in law between the petitioner and the respondent arising under Section 7(b) of the Act.
"a) 10% of 140% or 135% on purchase turnover of liquor.
b) 115% of the highest tax paid or payable as conceded in the return or accounts for the last three years proceedings 09-10.
In the case section (b) worked out as follows.
Sl.No. Year Tax paid or payable Highest tax 115% Monthly return
1. 06-07 Rs.990206.00
2. 07-08 Rs.1154636.00 (as per annual return)
3. 08-09 Rs.1327832.00
4. 09-10 Rs.1327832 Rs.1527007 Rs.127251.00"
4. The petitioner filed an appeal against the assessment order dated 29.05.2010, and the appeal was allowed, and the assessment order was modified directing the assessing authority to verify returns ST.Rev. No.21/2014 4 / 20 S.T.Rev. No.21 of 2014 3 for the last three years and re-determine the turnover tax liability as indicated in the order in Annexure-B.
5. The respondent filed T.A.No.38 of 2011 before the Kerala Agricultural Income Tax & Sales Tax Appellate Tribunal, Kottayam. The petitioner filed cross-objections. The Tribunal, by order dated 23.9.2013, allowed the appeal filed by the respondent and dismissed the Cross Objections. Hence the S.T Revision at the instance of the petitioner.
6. The revision petitioner contends that Section 7 deals with the payment of tax at compounded rates. The first step in the matter is that a dealer opting for tax at compounded rates shall pay tax on foreign liquor calculated at the rates in clause (a) or clause (b) whichever is higher. The case on hand does not come under clause
(a), therefore reference to Section 7(a) is omitted. The higher rate of tax between 7(a) and 7(b) is applicable. Therefore, the calculation by the party was made under Section 7(b) of the KGST Act.ST.Rev. No.21/2014 5 / 20 S.T.Rev. No.21 of 2014 4
Section 7 reads thus:
"Payment of tax at compounded rates: - Notwithstanding anything contained in sub-section (2) of section 5, any bar attached hotel, not being a star hotel of land above three star hotel, heritage hotel or club, may, at its option, instead of paying turnover tax on foreign liquor in accordance with the provisions of the said sub-section pay turnover tax on the turnover of foreign liquor calculated at the rates in clause (a) or (b) whichever is higher:
(a) at one hundred and forty per cent of the purchase value of such liquor, in the case of those situated within the area of a municipal corporation or a municipal council or a cantonment, and at one hundred and thirty five per cent of the purchase value of such liquor, in the case of those situated in any other place, or
(b) at one hundred and fifteen per cent of the highest turnover tax payable by it as conceded in the return or accounts or the turnover tax paid for any of the previous consecutive three years."
7. Referring to the syntax, place of words viz. payable and paid employed in Section 7(b), it is argued that the dealer shall pay turnover tax on the turnover of foreign liquor at 115% of the highest turnover tax paid for, in any of the previous three consecutive years. To understand the petitioner, it may be stated that for the period 2006- 2007 to 2008-09, the petitioner opted and paid tax at compounded ST.Rev. No.21/2014 6 / 20 S.T.Rev. No.21 of 2014 5 rates, based on the highest turnover tax paid for any of the previous consecutive 3 years. The turnover tax payable as conceded in the return or account is not attracted for turnover tax paid at compounded rate is available and shall form the basis for calculation. On the other hand, the case of the respondent is that 115% of the highest turnover tax payable by the dealer on the turnover conceded in the return/accounts or the turnover tax paid for any of the previous consecutive three years constitutes the basis. The interpretation of the petitioner would substantially restrict the expression in Section 7(b) of the KGST Act. The controversy for the decision is whether for the purpose of Section 7(b), the basis is on turnover tax payable as per the turnover conceded in the return/accounts or turnover tax paid. The parties relied on the judgments reported in Hotel Alakananda v The Commercial Tax Officer1, State of Kerala v P.P.Alphonsa2, Utsav Oil Traders v State of U.P.3 A Division Bench of this Court, by the 1 (2019) 27 KTR 359 (Ker.) 2 (2011) 41 VST 492 (Ker.) 3 (2012) 54 VST 461 (All.) ST.Rev. No.21/2014 7 / 20 S.T.Rev. No.21 of 2014 6 reference order dated 30.11.2019, noted as follows and referred the matter to Division Bench:
6. The learned Government Pleader had pointed out yet another judgment of a Division Bench in W.A No.121 of 2015 and connected cases, dated 24 January 2019 (Commercial Tax Officer vs. M/s Hotel Breezeland Ltd..). By referring to the decision of this Court in Kalika Hotel and Bar Amballur (M/s.) v.
State of Kerala (2012 (3) KHC 85) it was found that, the term 'turnover tax paid' as available in the returns or the Books of Accounts can be the tax payable as carried out in an assessment or a reassessment and therefore making computation of the actual tax payable based on the final assessment of the previous year referred under clause (b) of Section 7 has to be upheld.
7. Under the above mentioned circumstances, we noticed that there exists difference of opinion with respect to Interpretation of the provisions contained in section 7(b) of the KGST Act, as it stood amended from 1.4.2007. The interpretation differs from the decision in Hotel Alakananda (Supra) as held in RP Alphonsa (Supra) and M/s.Hotel Breezeland Ltd. (Supra). Judicial propriety demands that an authoritative pronouncement on the point is required from a larger Bench.
8. Adv.Harishankar V.Menon argues that the question whether Section 7(a) or 7(b) of 1963 Act operates in different spheres is, no ST.Rev. No.21/2014 8 / 20 S.T.Rev. No.21 of 2014 7 doubt, no more res integra, in view of the judgment of this Court in Hotel Alakananda (supra). The Division Bench, while considering the scope and ambit of the manner of calculation under Section 7(b), has taken note of the calculation of tax at the compounded rate only by referring to turnover tax paid by the dealer in the previous consecutive three years. In other words, the argument is that by taking the example of the case on hand for the year 2009-2010, the previous consecutive three years are 2006-2007 to 2008-2009 and the compounded rate of tax paid for the year 2008-2009 since is the highest, 115% tax at compounded rate is payable. Stated briefly, the turnover conceded in the return or accounts by the dealer is immaterial or tax payable on such turnover. It is argued that Alphonsa case considered the unamended Section 7. The principle in Alphonsa does not have persuasive force before the Full Bench in view of the amendment to Section 7 of the KGST Act. Referring to the decision in Commercial Tax Officer v Hotel Breezeland Ltd. (2019(2) KLT 432), it is argued that Breezeland has not interpreted Section 7(b) in the right perspective and the ratio of the said case for the very same reason is ST.Rev. No.21/2014 9 / 20 S.T.Rev. No.21 of 2014 8 inapplicable. It is argued that since the Full Bench ceased the matter, the question viz. whether for the purpose of paying tax at compounded rate as provided under sub section (b) of Section 7, the turnover conceded in the returns/accounts or tax paid whichever is the highest is examined and view stated.
9. Hotel Breezeland is a judgment for the proposition that the dealer who opts for payment of tax under section 7 cannot be said to have been absolved of the liability for all the consequences arising from such an assessment made for the previous three consecutive years which is the reference point for determining the tax payable in the relevant year under clause (b) of section 7.
10. Adv.Mohammed Rafiq prefaces his argument that Section 7 is an option available in law for the payment of tax under Section 7, and is an alternative method of payment of tax, otherwise payable under Section 5 of the Act. Therefore, the legislature introduced what is known as compounded rate scheme, for a few categories of trades. In view of the principle laid down in Hotel Alakananda(supra), as a first step, the highest tax payable under clauses (a) & (b) is determined. For ST.Rev. No.21/2014 10 / 20 S.T.Rev. No.21 of 2014 9 the said purpose, the calculation under sub section (b) of Section 7 on the highest turnover tax payable by the dealer,
a) as considered in the return
b) as considered in the account
c) the turnover tax paid
d) For any of the previous consecutive three years.
11. The words "the return, accounts, the turnover tax paid" are applicable to each one of the accounting years and inter se whichever is highest, is to be adopted for determining 115% tax on compounded rates. The argument of the petitioner if accepted, then, through interpretation, this Court would be rendering the clear expression of the legislature ineffective. Therefore, it is commended that the question for decision is whether for subsequent years, reference is made to the tax payable as per books of accounts or confined to the turnover tax paid by the dealer.
12. Let us refer to the judgments considered in the order of reference.
ST.Rev. No.21/2014 11 / 20S.T.Rev. No.21 of 2014 10
In Hotel Alakananda (supra) the Division Bench noted the contentions on Section 7, clauses (a) &(b) and held thus:
" 12. The main contention raised on behalf of the appellants/petitioners is that the assessees had opted for compounding, based on the provision as it was existing on the first day of the commencement of the assessment year, ie on 01.04.2006, which was accepted by the Department As it stands so, the subsequent amendment brought about wef 01.07.2006 cannot in any manner be applied to the case of the assessees for the year 2006-07. It is further contended that Clause (b) of Section 7 operates in a different sphere, than the field governed by Clause (a) of Section 7 and as such, there cannot be any instance to compare the tax to be worked out under Section 7(a) and the quantum payable under Section 7(b), it is pointed out that, to work out the figures under Clause (b) of Section 7, accounts have to be maintained, which is totally alien to the concept of compounding as the purpose of the compounding itself is to relieve the assessee from the duty to maintain the accounts. It is contended that no machinery to work out the tax under Clause 7(b) is provided by the Legislature, which in fact has been contributed only by the Commissioner as per Ext. P2 Circular, which cannot be a substitute to the legal provision. It is also pointed out that, interpretation of a provision in a taxing statute is to be strict and there is no room for any equity principle or that the lacuna, if any, cannot be filled up either by the Executive or by the Court. If there is any doubt or confusion, the benefit has to go to the assessee, ST.Rev. No.21/2014 12 / 20 S.T.Rev. No.21 of 2014 11 submits the learned Counsel Reliance is sought to be placed on the verdict passed by a Constitution Bench of the Apex Court in Commissioner of Sales tax, U.P. vs. Modi Sugar Mills Ltd. AIR 1961 SC 1047 (paragraphs 11 and 13).
*** ** * ***
34. As per Section 7(b), the amount has to be worked out at 115% of the highest turnover Tax payable by the assessee, as conceded in the returns OR accounts OR the turnover tax paid for any of the previous consecutive three years, whichever is higher. Going by the above provision there cannot be any doubt that 115 % has to be worked out with reference to the highest turnover tax, in respect of any of the preceding consecutive three years It could be the turnover tax as conceded in the return or accounts. It could be the turnover tax paid by the assessees as well. It has to be borne in mind that, when the term 'payable' is used in the first limb, the Legislature was conscious enough to specify that such turnover Tax payable was not the turnover Tax as to be assessed by the Department, but as conceded in the return or the accounts of the assessee. In other words, what is admitted/conceded by the assessee in the return/accounts alone was to be reckoned. Similarly, it was possible to work out 115% with reference to the turnover tax paid by the assessees for any of the previous three consecutive years. There also, no intention of the State to reckon the tax with reference to the turnover tax to be ST.Rev. No.21/2014 13 / 20 S.T.Rev. No.21 of 2014 12 determined by the Department is expressed and what is shown by the assessee in the return/accounts or the turnover Tax paid by him during any of the previous three consecutive years will be reckoned and the highest turnover Tax shown in such return/accounts or the higher Turn Over Tax paid for any of the previous consecutive three years will be taken for effecting the calculation, Le to work out and that is all. This being the position, the apprehension expressed that the pro has no clarity or that it creates confusion or further that the accounts have maintained and regular assessment process will have to be preceded for working out the figures is without any pith or substance.
35. it is relevant to note that the legal position is not as if the dealer/assessee is not supposed to maintain any books of accounts, if he opts for satisfaction of tax by way of alternate method, ie by compounding. Even if the dealer/assessee seeks to satisfy the tax under the compounding system, he is bound to maintain the accounts and file proper returns on time, also satisfying the tax as worked out in terms of relevant provisions under the Act and supported by the rules prescribed.
36.*** *** ***
37. This being the position, the term whichever is higher used in Section 7(b) is not in respect of the three instances of the tax shown payable in the return, shown in the accounts or the tax paid in respect of the previous three consecutive years, but something else, which has to be dealt with more meticulously it is in this context that the expression used the highest turnover in the very ST.Rev. No.21/2014 14 / 20 S.T.Rev. No.21 of 2014 13 same provision requires consideration. Even going by the grammatical peculiarities and interpretations, super relative degree is used in the first limb of the provision, qualifying the same with the word "the". In English language, 'comparative degree' is used only to compare between two instances, whereas super relative degree is to be used when there are more instances than two. For the very same reason, usage of the expression 'the highest Turn Over Tax payable' as conceded by the assessees in the return or the accounts or the turnover tax paid, definitely refers to more than two instances and as such it, evidently is in respect of the three previous consecutive years, i.e., the amount which is the highest in respect of three different consecutive years has to be reckoned for working out the quantum of 115%. The expression whichever is higher is only an instance using 'comparative degree'. It cannot be with reference to the three different instances of the tax conceded in the return or accounts or turnover tax paid (as contended by the assesses) and it is definitely in respect of something else, as noted above."
13. We have heard the learned counsel and the judgments relied on are taken note of. The question of law for consideration of the Full Bench in the above circumstances is stated thus: ST.Rev. No.21/2014 15 / 20 S.T.Rev. No.21 of 2014 14
"Whether for determining the tax at the compound rate under Section 7(b) of the Act, what are the comparable parameters, viz. the turnover tax payable as considered in the return or the turnover tax paid for any of the previous consecutive 3 years."
14. In Alakananda, the Division Bench answered the 2nd question that Section 7(a) and Section 7(b) of the Act do not operate in different spheres, and it is in respect of the same sphere that facilitates identifying the proper figures. i.e., the highest one of the figures worked out separately under Sections 7(a) and 7(b). The next question for consideration is for the purpose of determining the rate of compounded tax at 115% viz; the highest rate of tax payable on the turnover conceded in the return/account or the tax paid in the previous three consecutive years. The three separate situations, viz.
1) return 2) accounts 3) turnover tax paid is referred to in Section 7(b). Mr Harisankar argues that the determining factor is tax paid, but not payable on conceded turnover in return/accounts. In our considered view there is hardly any scope for ambiguity in the language of Section 7(b) of the Act. We would apply the golden rule ST.Rev. No.21/2014 16 / 20 S.T.Rev. No.21 of 2014 15 of construction and the principle of noscitur-a-sociis for arriving at the meaning and scope of Section 7(b). The golden rule of interpretation is nothing, but literal construction where the "words of a statute are, first, understood in their natural, ordinary or popular sense and phrases and sentences are construed, according to their grammatical meaning, unless that leads to some absurdity or unless there is something in the context, or in the object of the statute to suggest the contrary". Noscitur-a-sociis as explained by Lord Macmillan, means, "the meaning of a word is to be judged by the company it keeps". For the purpose of explaining these two groups of constructions, we would not burden our order with precedents.
15. Payment of tax at compounded rates is an alternate method of payment of tax. The legislature in lieu of collection of turnover tax at applicable or specified percentage gives an option to the dealer who is eligible for such option to opt for payment of tax at compounded rates. An application specifying the nature of business, in the case on hand a bar attached to a hotel is made. The basis for ST.Rev. No.21/2014 17 / 20 S.T.Rev. No.21 of 2014 16 payment of tax at compounded rates would be in terms of Section
7. The tax is calculated at the higher rate specified in Sec.7(a) or (b). Tax attracted or applicable is decided between Section 7(a) and 7(b), whichever is higher. Section 7(b) deals with three verifiable details viz. turnover conceded in the (a) returns or (b) accounts or (c) the turnover tax paid. The word 'highest' is a superlative degree attracts the highest from the three verifiable figures. Otherwise, the use of highest for two comparable situations would be incorrect and grammatically unacceptable. The turnover tax paid is referable to tax paid at compounded rates. The argument of Mr Harisankar V.Menon is that the turnover tax payable as per the return or account cannot be treated for any purpose as it refers to 'payable' while turnover tax paid is definite in sense, is untenable.
16. We are afraid the said argument omits to take note of the factors on which the highest turnover tax is determinable. Construed literally, the word highest is comparing all the three situations. The word 'paid' is in the company of words " turnover tax" which means the tax permitted to be paid in the previous year ST.Rev. No.21/2014 18 / 20 S.T.Rev. No.21 of 2014 17 at a compounded rate. The authority verifies the highest tax payable as conceded in the returns or accounts on one hand and turnover tax paid on the other hand whichever is the highest among the three, the applicable percentage viz. 115% is applied and compounded rate for the subsequent year is accepted. The construction as commended to the Court by Mr Harisankar, we are afraid, will efface the clear expression in Section 7(b), viz. highest turnover tax payable as conceded in the return/accounts. 'Payable' is understood in the company of the return or accounts and 'paid' is understood in the company of the turnover tax. By applying the rule of Noscitur-a-sociis, we hold that for the purpose of Section 7(b) the turnover tax payable by the dealer as conceded either in the return or accounts or the turnover tax paid for the previous consecutive three years is the deciding factor. So interpreted, we hold that the construction adopted by the Tribunal which reads as follows is the correct and literal construction available in the circumstances of the case.
ST.Rev. No.21/2014 19 / 20S.T.Rev. No.21 of 2014 18
"The State contends that TOT payable as per accounts is to be taken for calculating TOT. Respondents contention is that it is to be done on the basis of return. On a perusal of relevant provision, it is very clear that the clause applicable to this assessee is clause (b) of Sec.7. In clause (b) itself, 3 situations arise.
1. Highest turnover tax payable by assessee as conceded in return for any of the previous consecutive three years or
2. Highest turnover tax payable by assessee as conceded in accounts for any of the previous consecutive three years or
3. Highest turnover tax paid by assessee for any of the previous consecutive three years."
The question is answered as indicated above. The Registry is directed to place the S.T.Revision before the Division Bench.
Sd/- S.V.BHATTI, Judge Sd/- BECHU KURIAN THOMAS, Judge Sd/- BASANT BALAJI, Judge css/ 06-04-2022 /True Copy/ Assistant Registrar ST.Rev. No.21/2014 20 / 20 APPENDIX OF ST.REV. 21/2014 ANNEXURE-A COPY OF ORDER ISSUED BY THE COMMERCIAL TAX OFFICER, KOTTAYAM ANNEXURE-B COPY OF THE APPELLATE ORDER OF THE DEPUTY COMMISSIONER (APPEALS) KOTTAYAM ANNEXURE C COPY OF ORDER ISSUED BY THE AGRICULTURAL INCOME TAX & SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOTTAYAM.