Karnataka High Court
M/S Ideal Traders Cream Parlour Pvt Ltd vs The Additional Commissioner Of on 4 October, 2012
Bench: K.Sreedhar Rao, B.Manohar
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 4TH DAY OF OCTOBER 2012
PRESENT
THE HON'BLE MR. JUSTICE K.SREEDHAR RAO
AND
THE HON'BLE MR. JUSTICE B.MANOHAR
STA NOS.6 & 28/2011 C/W.STA.NOS.7 & 27/2011
STA.NOS.6 & 28/2011
BETWEEN :
M/S IDEAL TRADERS CREAM
PARLOUR PVT LTD.,
NO.13-4-520, MARKET ROAD,
MANGALOE - 575 001
THROUGH MR S PRABHAKR KAMATH
MANAGING DIRECTOR. ...APPELLANT
(BY SRI.KAMATH & KAMATH, ADVS)
AND:
THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES ZONE-I,
VANIJYA TERIGE KARYALAYA,
GANDHINGAR,
BANGALORE. ...RESPONDENT
(BY SMT.S.SUJATHA, AGA)
STA FILED U/S 24(1) OF THE KST ACT, AGAINST THE
REVISION ORDER DATED: 16.11.2010 PASSED IN NO.ZAC-
1/MNG/SMR.4/10-11, T.NO.966/10-11, ON THE FILE OF THE
COMMISSIONER OF COMMERCIAL TAXES, BANGALORE,
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REMANDING THE RE-ASSESSING AUTHORITY AND
ACCORDINGLY CONCLUDING THE REVISION
PROCEEDINGS.
STA NOS.7 & 27/2011
BETWEEN
M/S IDEAL CREAM PARLOUR PVT LTD
NO.13-4-542, GHS ROAD,
MANGALOE
THROUGH MR S PRABHAKAR KAMATH
MANAGING DIRECTOR. ..APPELLANT
(BY SRI. KAMATH & KAMATH, ADVS)
AND
THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAX ZONE-I
VANIJYA TERIGE KARYALAYA,
GANDHINGAR,
BANGALORE. ... RESPONDENT
(BY SMT.S.SUJATHA, AGA)
STA FILED U/S 66(1) OF THE KVAT ACT, AGAINST THE
REVISION ORDER DATED: 15.11.2010 PASSED IN NO.ZAC-
1/MNG/SMR-3/2010-11 T.NO.950/10-11 ON THE FILE OF THE
ADDL. COMMISSIONER OF COMMERCIAL TAXES, ZONE-II,
BANGALORE, ORDER THAT LEVY OF PENALTY U/SEC.72(3)
STANDS REMANDED TO THE RE-ASSESSING AUTHORITY
FOR DECISION.
THESE APPEALS ARE HAVING BEEN HEARD AND
RESERVED AND COMING ON FOR PRONOUNCEMENT OF
JUDGMENT THIS DAY, B.MANOHAR.J DELIVERED THE
FOLLOWING:
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JUDGEMENT
The appellants are the assessees, being aggrieved by the order dated 15-11-2010 in ZAC-I/MNG/SMR-3/2010-11 and the order dated 16-11-2010 in ZAC-I/MNG/SMR-4/2010-11 passed by the Additional Commissioner for Commercial Taxes, Zone-I, Bangalore setting aside the order passed by the Joint Commissioner of Commercial Taxes, (hereinafter referred to as 'the First Appellate Authority') have filed these appeals.
2. Since the common question of law and facts are involved in these appeals, all these appeals are disposed of by this common order.
3. The appellants are the Private Limited Companies incorporated under the Companies Act, 1956 and carrying on business in the name and style as M/s. Ideal Cream Parlour at GHS Road, Mangalore and M/s. Ideal Traders Cream Parlour Pvt.Ltd. at Market Road, Mangalore. They sell ice creams, fruit salad, fruit juice etc. 4
4. In view of coming into force of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as 'KVAT Act') w.e.f. 1-4-2005, the appellants applied for registration in Form No.1 and they opted for payment of tax under the Scheme of Composition as envisaged under Section 15(1)(c) of the KVAT Act, 2003. In the meanwhile, the appellants also commenced Hotel business in addition to the business being carried on as Ice Cream Parlour. The appellants made an application before the Mangalore City Corporation to obtain trade license to run the hotel, restaurant, Ice Cream Parlour and for catering. Thereafter, they obtained a certificate from the Dakshina Kannada Hotel and Restaurants Association, Mangalore and also given an advertisement in Udayavani newspaper stating that, apart from the ice cream they are also selling coffee, tea and other eatables. The appellants also got Composition Tax Registration Certificate as well as obtained permission to pay tax under the scheme of composition under Section 15(1)(c) of the KVAT Act. For the month of April and May, the appellants had filed monthly returns declaring the total taxable turnover and tax liability of compounded rate of tax at 4% in terms of Government Notification No.FD 55 CSL 2005(7) dated 23-3-2005 issued under Section 15(1) of the KVAT Act. The 5 Assessing Authority accepted the returns filed by the appellants since the appellants are also doing the hotel business as well as ice cream parlour w.e.f. 1-4-2005. However, the Deputy Commissioner of Commercial Taxes, Audit-I, inspected the business premises of the appellants on 16-3-2006 and verified the books of accounts maintained and copies of the returns filed and also noticed that though there are two kitchens in the premises, only coffee, tea and snacks are being manufactured and sold, but, Cutlets, Carrot Halwa, Badam Milk, Chocolate Dad are purchased from the local registered dealers and in one kitchen, only coffee, tea and badam milk are prepared besides ice creams, milkshakes and juice. The turnover of the ice creams, milkshakes and juices is about Rs.23,93,168/- out of total turnover of Rs.24,82,370/- and the sale of coffee, tea and snacks is only 4%. Though the appellants-firms are registered under Section 15(1) of the Act, the sale of snacks with coffee and tea was found to be incidental to the main business of ice cream parlour. Accordingly, a proposition notice was issued on 22-3-2006 under Section 39(1) of the KVAT Act calling upon the appellants to file their objections. The appellants filed detailed objections to the show cause notice contending that earlier they are running ice cream parlour and from 1-4-2005, apart from the ice cream parlour they 6 have started a hotel and catering business after obtaining necessary trade license from the competent authority. An advertisement was also given in the newspapers, since the hotel was newly started. Percentage of business in tea, coffee and snacks compared to ice cream business was less. Since the appellants opted the composite scheme, they are entitled to pay tax under Section 15(1)(c) of the KVAT Act and sought for dropping the proceedings under Section 39(1) of the Act.
5. The Assessing Authority after considering the objections filed by the appellants levied tax in respect of sale of coffee, tea and eatables at the rate of 4% and levied tax at 12.5% under Section 4(1)
(b) insofar as the ice cream parlour turnover is concerned vide Assessment Order dated 8-5-2006 and imposed penalty under Section 72(2), 72(3) and interest under Section 36 of the Act. The appellants being aggrieved by the order passed by the Assessing Authority preferred appeals before the Joint Commissioner of Commercial Taxes (Appeals), Mangalore in KVAT/AP/28-31/2006 and KVAT/AP/32-35/2006. The First Appellate Authority by its order dated 30-11-2006 allowed the appeals and set aside the order passed by the Assessing Authority holding that for the month of 7 April and May, the appellants have to be classified under composite tax benefit thereby, the turnover declared by the assessees is liable to be taxed at 4% and in view of amendment to Section 15(1)(c) to the Act w.e.f 7-6-2005 in Act No.27/2005 and also set aside the penalty and interest for the month of April and May, 2005. The Additional Commissioner of Commercial Taxes, on reassessment found that the order passed by the First Appellate Authority is erroneous in law and prejudice to the interest of the revenue, accordingly issued notice to the appellants on 6-7-2010 proposing to revise the order passed by the First Appellate Authority.
6. The appellants filed detailed statement of objections opposing for proposition notice issued under Section 64(1) of the Act. The Revisional Authority by its orders dated 15-11-2010 and 16-11-2010 allowed both the revision petitions and set aside the order passed by the First Appellate Authority as well as the Assessing Authority passed under Section 39(1) of the Act and held that the appellants are liable to pay the tax under Section 4(1)(b) of the Act at the rate of 12.5%. The Revisional Authority found that predominant business of the assessees is the ice cream parlour and the sale of snacks with coffee and tea was found to be incidental to the main business of ice 8 cream parlour. Hence, the assessees have to be levied tax under Section 4(1)(b) of the Act. The assessees being aggrieved by the orders dated 15 & 16-11-2010 filed these appeals.
7. Sri.K.J.Kamath, learned counsel appearing for the appellants in these appeals contended that the orders passed by the Revisional Authority is contrary to law and error apparent on the face of the record. In view of coming into force of KVAT Act, they got registered as dealers and opted to remit the tax by way of composition. Accordingly, Composition Tax Registration Certificate was obtained which is valid from 1-4-2005 and it will be in operation till it is cancelled by the authorities concerned. Prior to 1-4-2005, the appellants were running the ice cream parlour. In view of the request made by the public, they wanted to start the restaurant along with ice cream parlour. Accordingly, they made an application to the Mangalore City Corporation and obtained a trade license to run the hotel, restaurant, ice cream parlour and catering. Accordingly, an advertisement was given in Udayavani Newspaper to the general public stating that from 1-4-2005, they are selling coffee, tea and other snacks in their hotel. Accordingly, the monthly returns for the month of April and May 2005 have been filed 9 declaring the turnover tax and paid the same. The Assessing Authority accepted the same. However the Deputy Commissioner for Commercial Taxes, Audit-I issued notice under Section 39(1) of the Act for reassessment on the ground that he has inspected the business premises of the appellants on 16-3-2006. On that day, they were preparing only coffee, tea and Badam Milk. Cutlets and Carrot Halwa and other snacks were not being manufactured and they were purchased from the registered dealers from outside. Hence, they are not entitled to avail the benefit of the scheme of Composite Tax. The order passed by the Assessing Authority is contrary to law. Against which an appeal was filed before the First Appellate Authority. The First Appellate Authority after considering the matter in detail allowed the appeals and set aside the order passed by the Assessing Authority under Section 39(1) of the Act. The Additional Commissioner initiated suo-motu revision without taking into consideration the contentions raised by the appellants and set aside the order passed by the First Appellate Authority as well as the Assessing Authority and directed the Assessing Authority to levy tax at the rate of 12.5% which is contrary to law and sought for setting aside the same. Some of the benefits given by the Assessing Authority were taken away by the Revisional Authority which is 10 contrary to law. Further the Composition Tax Registration Certificate has not been withdrawn, so long as the said Certificate is in existence, the Revisional Authority cannot levy tax under Section 4(1)(b) of the Act and sought for setting aside the order passed by the Revisional Authority.
6. On the other hand, T.K.Vedamurthy, learned HCGP argued in support of the order passed by the Revisional Authority and also contended that 96% of the business turnover is by sale of ice creams and related products and only 4% is from the sale of coffee, tea and snacks. Hence, the appellants are not entitled to take the benefit of the composition tax and sought for dismissal of the appeals.
7. These appeals are admitted to consider the following substantial question of law:
"Whether the finding of the revisional authority is perverse and arbitrary as the registration certificate issued by the competent authority was in force during the relevant period?"11
8. We have heard the arguments addressed by the learned counsel for the parties and gone through the orders passed by the Revisional Authority, First Appellate Authority as well as the Assessing Authority.
9. It is not in dispute that prior to registration of the appellants- firms under KVAT Act, they were running ice cream parlour. In view of the request made by the general public, they wanted to start a hotel in the same premises along with the ice cream parlour. Accordingly, they obtained a trade license from the Competent Authority and started a hotel along with the ice cream parlour w.e.f 1-4-2005. The advertisement given in Udayavani newspaper clearly disclose that the appellants have started a hotel from 1-4-2005. In view of the registration under the KVAT Act and obtaining the Composition Tax Registration Certificate, the authorities had to assess under Section 15(1)(c) of the Act. Since the Hotel business was newly started, there is less transaction in respect of coffee, tea and snacks are concerned for the month of April and May. For the last so many years, the appellants are running the business only in ice creams. Apart from that, the appellants have obtained the trade license from the competent authority and started hotel business along 12 with the ice cream parlour. The Assessing Authority doubted the running of hotel by the appellants and levied tax at different rates. For the turnover of snacks, coffee and tea, the tax was levied at the rate of 4% and insofar as ice cream business is concerned, the tax was levied at the rate of 12.5%. Being aggrieved by the said order, the appellants preferred appeals before the First Appellate Authority and the First Appellate Authority set aside the order passed by the Assessing Authority under Section 39(1) of the Act and held that the appellants had to pay the composite tax only at the rate of 4%. The Revisional Authority set aside the said order only on the ground that the turnover in ice cream is at 96% and coffee, tea and snacks is at 4% and held that main business of the dealer is the ice cream parlour and sale of snacks, coffee and tea is incidental to the main business of ice cream though they have obtained trade license to run the Hotel from the Mangalore City Corporation w.e.f.1-4-2005. The reasoning of the Revisional Authority is contrary to law. In view of coming into force of KVAT Act w.e.f. 1.4.2005 the appellants are registered 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 13 levy tax under Section 4(1)(b) of the Act. The order of the Revisional Authority setting aside both the orders passed by the Assessing Authority as well as the First Appellate Authority is contrary to law. Apart from that w.e.f. 7-6-2005, the authorities have amended Section 15(1)(c) and brought the ice cream parlour and Sweet Meat Stall under the purview of Section 16(1)(c) of the KVAT Act. Hence, for the month of April and May, the revenue cannot levy tax at the rate of 12.5%. Hence, the order passed by the revisional authority cannot be sustained. The substantial question of law framed in these appeals is held in favour of the appellants.
10. Accordingly, the appeals are allowed while setting aside the order passed by the revisional authority made in ZAC-1/MNG/SMR- 3/2010-11 and ZAC-1/MNG/SMR-4/2010-11 dated 15th and 16th November 2011.
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JUDGE Sd/-
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