Allowed

Hotel Royal Inn v. the Commissioner of Excise in Karnataka

Karnataka HC22 Mar 2024WP/48800/2018

Case brief

AI extract

What is this about?

The High Court of Karnataka allowed this writ petition challenging a licence fee demand notice. Relying on a co-ordinate bench's precedent, the Court held that reconstitution involving less than 50% stake divestment does not constitute a transfer of licence attracting the applicable transfer fee under Rule 17-B of the Karnataka Excise Rules, 1967. The impugned communication was quashed.

What did the court decide?

The writ petition is allowed and the impugned communication dated 07.08.2018 calling for payment of licence fee difference and cess is quashed.

Hotel Royal Inn Vs the Commissioner of Excise in… — Property and Title | Karnataka HC (2024)

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- 1 - NC: 2024:KHC:11951 WP No. 48800 of 2018

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 22^ND DAY OF MARCH, 2024

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BEFORE

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THE HON'BLE MR. JUSTICE HEMANT CHANDANGOUDAR

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WRIT PETITION No. 48800 OF 2018 (EXCISE)

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BETWEEN:

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HOTEL ROYAL INN, A PARTNERSHIP FIRM, CL-7 LICENCEE, No.565, HEBBAL INDUSTRIAL AREA, METAGALLI, MYSURU-570001. REPRESENTED BY ITS MANAGING PARTNER, M. A. SUDHIR KUMAR, S/O LATE M. S. ANANTHARAJAIAH, AGED ABOUT 59 YEARS.

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…PETITIONER

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(BY SRI. MOHAN BHAT, ADVOCATE)

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AND:

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Digitally signed by B K MAHENDRAKUMAR Location: High Court of Karnataka

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THE COMMISSIONER OF EXCISE IN KARNATAKA, 2^ND FLOOR, BMTC SATELLITE BUILDING, SHANTHINAGAR, BENGALURU-560027.

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THE DEPUTY COMMISSIONER, MYSURU DISTRICT, MYSURU.

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THE DEPUTY COMMISSIONER OF EXCISE, MYSURU DISTRICT, MYSURU.

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…RESPONDENTS

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(BY SRI S.R. KHAMROZ KHAN, AGA FOR R1 TO R3)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE

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2 - NC: 2024:KHC:11951 WP No. 48800 of 2018

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IMPUGNED INTIMATION LETTER BY WAY OF ORDER PASSED BY THE R-2 DATED 07.08.2018 IN No. EXE/MYS/Va-25/CL-7/51/2017-18 CALLING UPON THE PETITIONER TO PAY THE DIFFERENCE OF LICENSE FEE IN A SUM OF Rs.5,80,000/- TOWARDS THE LICENSE FEE AND Rs.87,000/- TOWARDS THE CESS VIDE ANNEXURE-K ETC.

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THIS PETITION COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP THIS DAY, THE COURT MADE THE FOLLOWING:

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ORDER

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The communication issued by 2^nd respondent, by which, the petitioner is called upon to pay the difference of licence fee in a sum of Rs.5,80,000/- and Rs.87,000/- towards cess, is impugned in this petition.

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The petitioner is a registered partnership firm, and was granted CL-7 licence for the excise year 2007-2008, and the partnership firm was reconstituted on 1^st April, 2010, by which one Devaprasad was inducted as partner with 10% share in the profit and loss of the partnership firm. Upon death of one of the partner namely B.V.Venkatesh, who had 11.25% share, the partnership firm was reconstituted, and the share left behind by B.V.Venkatesh was transferred to the wife, who was one of the partner namely B.V.Kusuma, who had already 10% share in the profit and loss of the partnership firm. The impugned communication was issued stating that there was transfer of licence and therefore, the petitioner is liable to pay the transfer fee including cess as contemplated under Rule 17-B of the Karnataka Excise (General Condition of Licence) Rules, 1967, (for short 'Rules, 1967'). Whether reconstitution of the firm resulting in transfer of share to the newly inducted partners or the existing partners amounts to transfer of licence as contemplated under Rule 17-B of the Rules, 1967, was

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3 - NC: 2024:KHC:11951 WP No. 48800 of 2018

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examined by the Co-ordinate Bench of this Court in Writ Petition No.30590/2014.

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This Court vide order dated 27.08.2017 at paragraph No.18 ruled that, so long as the existing partners do not divest themselves to 50% or more of the stake in the partnership firm which holds the licence in question, the transfer fee applicable under Rule 17-B of the Rules will not be attracted or will not be payable. But the moment, the change is effected by one or more of the partnership deeds subsequently executed to divest the existing partners divesting of 50% or more and such 50% or more is the stake given to the incoming partner, it will attract the transfer fee under Rule 17-B of Rules, 1967 irrespective of their relationship with the existing partners.

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In the instant case, the newly inducted partner namely Devaprasad was vested with 10% share, and upon death of the partner namely B.V. Venkatesh, the share to an extent of 11.25% was transferred to wife who is already a partner and therefore there is no divesting of 50% or more stake in the partnership firm.

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