This court dismissed revisions challenging best judgment assessments for two consecutive years. The court upheld the first appellate authority's modification of gross profit to 70%, finding no arbitrary or vindictive basis for the estimation despite the assessee failing to produce books of accounts.
The Sales Tax Revisions were dismissed.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE ANIL K. NARENDRAN
&
THE HONOURABLE MR.JUSTICE P.G. AJITHKUMAR
TUESDAY, THE 23RD DAY OF MAY 2023/2ND JYAISHTA, 1945
ST.REV. NO.9OF 2023
TO REVISE THE ORDER PASSED BY THE KERALA SALES TAX APPELLATE
TRIBUNAL, ADDITIONAL BENCH KOZHIKODE IN T.A.No.22 OF 2022,
DATED 03.11.2022
REVISION PETITIONER/APPELLANT/ASSESSEE:
M/S.KANGAPPADAN RESIDENCY, AGED 60 YEARS,
RAMAVARMAPURAM, THRISSUR-680631,
REPRESENTED BY ITS PROPRIETOR, MR. K.P. KURIAN.
BY ADVS.
NINOJ P.L.
S.AJITH (PALAKKAD)
RESPONDENT/RESPONDENT/REVENUE:
STATE OF KERALA,
REPRESENTED BY LAW OFFICER, SGST DEPARTMENT,
KOZHIKODE, 673006.
BY ADV. SRI.MOHAMMED RAFIQ,
SPL GOVERNMENT PLEADER (TAXES)
THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON
23.05.2023, ALONG WITH ST.REV. No.10 OF 2023, THE COURT ON THE
SAME DAY DELIVERED THE FOLLOWING:
ST.Rev. Nos.9 and 10 of 2023
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE ANIL K. NARENDRAN
&
THE HONOURABLE MR.JUSTICE P.G. AJITHKUMAR
TUESDAY, THE 23RD DAY OF MAY 2023/2ND JYAISHTA, 1945
ST.REV. NO.10 OF 2023
TO REVISE THE ORDER PASSED BY THE KERALA SALES TAX APPELLATE
TRIBUNAL, ADDITIONAL BENCH KOZHIKODE IN T.A.No.23 OF 2022,
DATED 03.11.2022
REVISION PETITIONER/APPELLANT/ASSESSEE:
M/S.KANGAPPADAN RESIDENCY,
RAMAVARMAPURAM, THRISSUR-680631,
REPRESENTED BY ITS PROPRIETOR, MR. K.P. KURIAN.
BY ADVS.
NINOJ P.L.
S.AJITH (PALAKKAD)
RESPONDENT/RESPONDENT/REVENUE:
STATE OF KERALA REPRESENTED BY LAW OFFICER,
SGST DEPARTMENT, KOZHIKODE-673006.
BY ADV.SRI.MOHAMMED RAFIQ,
SPL GOVERNMENT PLEADER (TAXES)
THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON
23.05.2023, ALONG WITH ST.REV. No.9 OF 2023, THE COURT ON THE
SAME DAY DELIVERED THE FOLLOWING:
ST.Rev. Nos.9 and 10 of 2023
ORDER
Anil K. Narendran, J.
The petitioner is a dealer on the rolls of the Deputy Commissioner of Sales Tax, SGST Department, Special Circle, Thrissur, which is running a Bar attached hotel (beer, wine and liquor), within the area of Thrissur Municipal Corporation, with 3- star facilities.
2.1. Challenging the order of assessment, the assessee filed
an appeal before the Joint Commissioner (Appeals), Thrissur as
ST.Rev. Nos.9 and 10 of 2023
S.T.A.No.139 of 2022. According to the assessee, the documents
contained in Annexure-B list were produced before the first appellate authority. By Annexure-C order dated 16.05.2022, the first appellate authority disposed of S.T.A.No.139 of 2022, by modifying the order of assessment adopting a gross profit of 70% on cost of goods sold (COGS) considering the fact that the assessee is conducting business at a distance of about 8 KM from town.
2.2. Based on Annexure-C order of the first appellate
authority, the assessing authority issued Annexure-D modified assessment order dated 30.05.2022, for the year 2018-19. Challenging Annexure-C order dated 16.05.2022 of the first appellate authority, the assessee filed T.A.No.22 of 2022 before the Sales Tax Appellate Tribunal, Additional Bench, Kozhikode, which ended in dismissal by Annexure-E order dated 03.11.2022.
2.3. Feeling aggrieved, the assessee is before this Court in this S.T. Revision, invoking the provisions under Section 41(1) of the Kerala General Sales Tax Act, 1963.
trading accounts of the petitioner-assessee in respect of the sale of beer, wine and liquor, for the assessment year 2017-18, were called for by the assessing authority and a notice was issued. The
ST.Rev. Nos.9 and 10 of 2023
assessee failed to produce the books of accounts. Hence, a preassessment notice dated 20.10.2021 was issued. The assessee failed to file any objection against the pre-assessment notice. In such circumstances, the assessing authority fixed gross profit at the rate of 80%, during the 3-star period, to complete the assessment for the year 2017-18 on the basis of ‘best judgment assessment’, as stated in Annexure-A assessment order dated 24.01.2022.
3.1. Challenging the order of assessment, the assessee filed
an appeal before the Joint Commissioner (Appeals), Thrissur as S.T.A.No.130 of 2022. According to the assessee, the documents
contained in Annexure-B list were produced before the first appellate authority. By Annexure-C order dated 16.05.2022, the first appellate authority disposed of S.T.A.No.130 of 2022, by modifying the order of assessment adopting a gross profit of 70% on cost of goods sold considering the fact that the assessee is conducting business at a distance of about 8 KM from town.
3.2. Based on Annexure-C order of the first appellate authority, the assessing authority issued Annexure-D modified assessment order dated 30.05.2022, for the year 2017-18. Challenging Annexure-C order dated 16.05.2022 of the first appellate authority, the assessee filed T.A.No.23 of 2022 before
ST.Rev. Nos.9 and 10 of 2023
the Sales Tax Appellate Tribunal, Additional Bench, Kozhikode, which ended in dismissal by Annexure-E order dated 03.11.2022.
3.3. Feeling aggrieved, the assessee is before this Court in this S.T. Revision, invoking the provisions under Section 41(1) of the Kerala General Sales Tax Act, 1963.
ST.Rev. Nos.9 and 10 of 2023
authorities below in fixing the gross profit at 70% of the cost of the goods sold for the assessment years 2017-18 and 2018-19, in the absence of any materials, on the basis of best judgment assessment, are perfectly legal, which warrant no interference in these S.T. Revisions. The learned Special Government Pleader would place reliance on the decision of this Court in R.Prabhakaran v. State of Kerala [2008:KER:53173] - S.T. Revision No.331 of 2008 dated 03.12.2008.
ST.Rev. Nos.9 and 10 of 2023
assessment by adopting a gross profit of 70% of the cost of the goods sold for the assessment years 2017-18 and 2018-19, instead of a gross profit of 80%. Such a modification was made by the first appellate authority considering the fact that the assessee is conducting business at a distance of 8 KM from the town.
ST.Rev. Nos.9 and 10 of 2023
Committee in Commissioner of Income Tax, Central and U.P.
v. Laxminarain Badridas [AIR 1937 PC 133 : 5 ITR 170] ,
wherein Lord Russel of Killowen speaking for the Judicial Committee observed that the officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose, he must be able to take into consideration local knowledge and repute in regard to the assessee’s circumstances and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at fair and proper estimate; and though there must necessarily be guesswork in the matter it must be honest guesswork.
ST.Rev. Nos.9 and 10 of 2023
while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. The assessing authority should not be vindictive or capricious. If
the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not anyone else's. The High Court cannot substitute its best judgment for that of the assessing authority. In the case of best judgment assessments, the courts will have to first see whether the accounts maintained by the assesses were
rightly rejected as unreliable. If the courts come to the conclusion
that they were rightly rejected the next question that arises for consideration is whether the basis adopted in estimating the turnover has a reasonable nexus with the estimate made. If the basis adopted is held to be a relevant basis, even though the courts may think that it is not the most appropriate basis, the estimate made by the assessing authority cannot be disturbed.
ST.Rev. Nos.9 and 10 of 2023
try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guesswork involved in best judgment assessment, and it is the assessee himself who is
to blame as he did not submit proper accounts.
ST.Rev. Nos.9 and 10 of 2023
already completed by the assessing authority and confirmed by
the first appellate authority and the Tribunal. The law on the point is well settled by the decision of the Apex Court in the case of
Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali [(1973) 32 STC 77] .
ST.Rev. Nos.9 and 10 of 2023
as he did not submit proper accounts. In the facts and
circumstances of the case on hand, it cannot be said that the estimation of gross profit by the assessing authority at 70% of the cost of the goods sold for those assessment years is not bona fide
or without a rational basis.
these S.T. Revisions.
In the result, these S.T. Revisions fail, which are accordingly dismissed.
Sd/-
ANIL K. NARENDRAN, JUDGE
Sd/-
P.G. AJITHKUMAR, JUDGE
ww
ST.Rev. Nos.9 and 10 of 2023
APPENDIX OF ST.REV.9/2023
PETITIONER'S ANNEXURES:
ANNEXURE A TRUE COPY OF ORDER DATED 25.01.2022
PASSED BY THE ASSESSING AUTHORITY.
ANNEXURE B TRUE COPY OF THE DOCUMENTS PRODUCED
BEFORE THE FIRST APPELLATE AUTHORITY
BY THE PETITIONER.
ANNEXURE C TRUE COPY OF ORDER PASSED BY THE FIRST
APPELLATE AUTHORITY IN STA 139/22,
DATED 16.05.2022.
ANNEXURE D TRUE COPY OF MODIFIED ORDER PASSED BY
THE ASSESSING AUTHORITY DATED
30.05.2022.
ANNEXURE E CERTIFIED COPY OF THE ORDER DATED
03.11.2022 PASSED BY THE KERALA SALES
TAX APPELLATE TRIBUNAL, ADDITIONAL
BENCH KOZHIKODE IN T.A. NO.22/2022.
ST.Rev. Nos.9 and 10 of 2023
APPENDIX OF ST.REV. 10/2023
PETITIONER'S ANNEXURES:
ANNEXURE A TRUE COPY OF ORDER DATED 24.01.2022
PASSED BY THE ASSESSING AUTHORITY.
ANNEXURE B TRUE COPY OF THE DOCUMENTS PRODUCED
BEFORE THE FIRST APPELLATE AUTHORITY BY
THE PETITIONER.
ANNEXURE C TRUE COPY OF ORDER PASSED BY THE FIRST
APPELLATE AUTHORITY IN STA 130/22, DATED
16.05.2022.
ANNEXURE D TRUE COPY OF MODIFIED ORDER PASSED BY THE
ASSESSING AUTHORITY DATED 30.05.2022.
ANNEXURE E CERTIFIED COPY OF THE ORDER DATED
03.11.2022 PASSED BY THE KERALA SALES TAX
APPELLATE TRIBUNAL, ADDITIONAL BENCH
KOZHIKODE IN T.A. NO. 23/2022.
2 issues framed by the court
Whether the High Court can interfere with the best judgment assessment regarding gross profit rates fixed by the assessing authority.
Whether the estimation of gross profit at 70% of cost of goods sold is bona fide and has a reasonable nexus with the facts.
Colour shows how this judgement treated each authority
Commissioner of Income Tax, Central and U.P. v. Laxminarain BadridasExplained¶78
Commissioner of Income Tax, Central and U.P. v. Laxminarain Badridas [AIR 1937 PC 133 : 5 ITR 170] · Who else cites this
Commissioner of Sales Tax v. H.M. Esufali H.M. AbdulaliRelied on¶79
Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali [(1973) 2 SCC 137 : (1973) 32 STC 77] · Who else cites this
Kachwala Gems, Jaipur v. Joint Commissioner of Income Tax, JaipurRelied on¶86
Kachwala Gems, Jaipur v. Joint Commissioner of Income Tax, Jaipur [(2007) 12 SCC 761] · Who else cites this
R.Prabhakaran v. State of KeralaRelied on¶92
R.Prabhakaran v. State of Kerala [2008:KER:53173] - S.T. Revision No.331 of 2008
1 provisions across 1 enactments
M/s.KangAPPadan Residency
State of Kerala
Anil K. Narendran
P.G. Ajithkumar
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court