Allowed

The Hotel Elegance v. State of Kerala

Kerala HC2 Mar 2021ST.Rev./6/2020

Case brief

AI extract

What is this about?

The High Court of Kerala held that the Appellate Tribunal erred in upholding the Assessing Officer's calculation of compounded sales tax using the previous year's turnover of all foreign liquor. The Tribunal failed to consider restrictions imposed by the Government's liquor policy and amendments under the Kerala Finance Act, 2019. The appeal was allowed, and the matter was remanded to the Tribunal

What did the court decide?

The appeal was allowed and the Appellate Tribunal order dated 16.09.2019 was set aside; the matter was remanded to the Tribunal for fresh consideration on merits within three months.

The Hotel Elegance Vs State of Kerala — GST and Indirect Tax | Kerala HC (2021)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE S.V.BHATTI

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THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS

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TUESDAY, THE 02ND DAY OF MARCH 2021 / 11TH PHALGUNA, 1942

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ST.Rev..No.6 OF 2020

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AGAINST THE ORDER IN TA 37/2017 OF KERALA AGRICULTURAL INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM

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REVISION PETITIONER/ APPELLANT/ APPELLANT/ ASSESSEE :

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THE HOTEL ELEGANCE, KARUKUTTY P.O, ANGAMALY, RPERESENTED BY ASHAMMA BINOY, MANAGING PARTNER.

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BY ADVS.

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SRI.P.S.SOMAN SMT.T.RADHAMONY SHRI.PRAKASH P.B.

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RESPONDENTS/ RESPONDENTS/ REVENUE :

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STATE OF KERALA, REPRESENTED BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM – 695 001

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BY SR.GP. SRI.MOHAMMED RAFIQ

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THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 02.03.2021, THE COURT ON THE SAME DAY PASSED THE FOLLOWING :

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ORDER

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Dated this the 2nd day of March 2021

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Bechu Kurian Thomas, J.

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Assessee was a dealer in foreign liquor, who held an FL-3 licence up to 31.03.2015. On account of the change of policy of the Government of Kerala, assessee's FL-3 licence was cancelled on 31.03.2015. A fresh licence was issued to him as FL-11 from 01.04.2015. As per the new licence, the assessee was entitled to sell only beer and wine in contradistinction to an FL-3 licence which permitted sale of all types of alcohol including beer and wine. For the year 2015-16, the assessee volunteered to pay tax under Section 7 of the Kerala General Sales Tax Act, 1963 (for short, 'the KGST Act') as compounded tax. The Assessing Officer while allowing the application for payment of tax at compounded rate fixed the value as per Section 7(1)(ii)(b) of the KGST Act at 125% of the previous years' (2014-15) turnover tax on the turnover of foreign liquor.

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The assessee preferred an appeal and the Appellate Authority held that the order permitting compounding required

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modification and accordingly directed the assessing officer to modify the compounding order, by taking the highest turnover tax conceded by the assessee for the sale of beer and wine of the previous three consecutive years and fixed the compounding rate @125% of the said amount. Option was also given to the assessing authority to permit tax to be paid under Section 5(ii)(c) of the KGST Act also. The Department went up in appeal. The Appellate Tribunal set aside the order of the First Appellate Authority and affirmed the order of the assessing authority.

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The main question of law raised for consideration is as

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below :-

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“ Has not the Appellate Tribunal erred in holding that since the compounding provision has not been changed in tune with the change in the liquor policy of the government, the petitioner is liable to pay compounded tax as calculated by the assessing authority by reckoning the compounded tax paid in the previous year for all types of foreign liquor even though the petitioner has sold beer and wine alone in the subsequent year due to change in the liquor policy?”

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It may be appropriate to mention at this juncture that after coming into force of the Kerala Value Added Tax Act, 2003, (for short, 'the KVAT Act), the KGST Act, 1963 has only a limited application as mentioned in Section 98 of the KVAT Act. The said

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Section provides that after coming into force of the KVAT Act, the KGST Act shall have application only in respect of the goods that are specified in the IVth Schedule to the Act. The IVth Schedule deals with goods that are outside the purview of the KVAT Act and includes three main types of products, of which foreign liquor is one. The entry 'foreign liquor' in the IVth Schedule includes beer and wine as the first category and the 2^nd category as 'other than beer and wine'.

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We have heard Adv.P.S.Soman Pulladan for the revision petitioner/ assessee as well as the learned Senior Govt. Pleader Sri.Mohammed Rafiq for the respondent.

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The main contention raised by the learned counsel for the assessee is that the Tribunal failed to take into reckoning that, what was issued as a licence from 01.04.2015 was a fresh licence in the form of FL-11 which, as per the abkari policy, permitted sale of only beer and wine. Taking into reckoning the entire turnover tax paid for sale of foreign liquor for the purpose of fixing the compounded rate of tax was irregular, since such a strict application of the provision of law would render great injustice. It was further contended that since it was a new licence, the assessee ought not to have been treated as a continuing dealer and in the case of fixing the compounded rates, the turnover tax paid for the year 2014-15 or other years for beer and

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wine alone could have atleast been treated as the basis.

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The learned Senior Govt. Pleader, on the other hand, contended that though an amendment was brought in by the Kerala

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Finance Act, 2019, the same was not applicable to the year in question.

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We have considered the rival contentions and have

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perused the order of the assessing authority, the Appellate Authority as well as that of the Tribunal.

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Finance Act 2019 incorporated the following amendments to the KGST Act, 1963 :-

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“7. Amendment of Act 15 of 1963.- In the Kerala General Sales Tax,1963 (15 of 1963),-

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(1) in section 5, in sub-section (2), after sub-clause (ii), the following proviso shall be inserted, namely :-

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“Provided that no turnover tax shall be leviable on the turnover of foreign liquor transferred or disposed by a dealer in foreign liquor as per the orders of the Excise Department pursuant to the Abkari policy of the Government for the year 2014-2015.”;

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(2) in section 7, the following proviso shall be inserted, namely :-

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“Provided that the calculation under sub-clause (b) of clause (ii) shall not be applicable in case of bar attached hotels

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whose FL-3 licences issued under the Abkari Act,1077 (1 of 1077) was cancelled and was converted to FL-11 licences in pursuance of the Abkari Policy of the Government for the year 2014-2015 and such FL-11 licencees had conducted business under such licence for a full financial year.”;

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The Tribunal in arriving at the conclusion that the compounding order passed by the assessing authority is correct did not enter into any discussion or consideration. Except for observing that the 'compounding order' is rightly in order, the Tribunal had failed to give any specific reason. Of course, it is seen observed as a passing sentence that since there is no specific provision for compounding of beer and wine only, the order of the First Appellate Authority was contradictory.

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We are afraid that we are unable to accept the conclusion of the Tribunal. Various contentions had been raised by the assessee and the same were not considered at all. Neither the policy of the Government nor the prejudice that would occasion to the assessee were borne in mind and the Appellate Authority had specifically noticed that for the year in question, there was no sales of foreign liquor due to the Government policy and that taking the turnover tax of the entire liquor sales of the previous year for fixing the compounded rate of tax for sales pursuant to licence permitting

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beer and wine alone is arbitrary both on facts as well as law. The Tribunal in its conclusion has not considered the effect of the amendment brought in by the Kerala Finance Act, 2019 nor the other questions that arose for consideration.

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In the above circumstances, we are of the view that the impugned order of the Tribunal cannot stand the test of law and is liable to be set aside. While we set aside the order dated 16.09.2019 in TA (VAT) No.37/2019 on the files of the Kerala Agricultural Income Tax and Sales Tax Appellate Tribunal, Ernakulam, we deem it fit to remand the matter for a fresh consideration to the Appellate Tribunal. While remanding the matter for consideration by the Tribunal, we leave all questions open and direct the Tribunal to complete the hearing and dispose of the appeal on merits within a period of three months from the date of receipt of a copy of this judgment.

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The appeal is allowed as above.

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Sd/- S.V.BHATTI, JUDGE

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Sd/- BECHU KURIAN THOMAS, JUDGE

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RKM

The Hotel Elegance v. State of Kerala

Case brief

What is this about?

What did the court decide?

The Hotel Elegance v. State of Kerala

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

Statutes considered

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