Hotel turnover assessment cannot rest on purchase-sales mismatches alone; A/C room charges and operational water use were excluded from taxable turnover.

Rejection of a hotel assessee's accounts was held unjustified where the alleged discrepancies between rice purchases and cooked-food turnover, the absence of a stock register, and missing vouchers for pappadam purchases did not by themselves prove suppression. The Court held that practical accounting limits in hotel business, especially with perishable goods, meant such variations could not alone justify best judgment enhancement. Separate charges for dining in an A/C room were not part of the price of goods sold and were excluded from turnover. Water used for cooking and washing in hotel operations was not treated as raw material consumed in manufacture under section 5A of the Kerala General Sales Tax Act, 1963. Assessment had to proceed on the returns filed.

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Issues: Whether the rejection of the hotel assessee's accounts and the best judgment enhancement of turnover were justified, including the treatment of A/C room charges and water purchases under the sales tax law.

Analysis: The assessment was founded mainly on alleged discrepancies between rice purchases and cooked-food turnover, absence of a stock register, and inclusion of certain receipts as taxable turnover. The Court held that hotel business involves perishable goods and practical accounting limitations, so variations between raw-material purchases and sales turnover do not, by themselves, establish suppression. The separate charges for dining in an A/C room were not the price of goods sold and therefore could not be included in turnover. As to water, section 5A of the Kerala General Sales Tax Act, 1963 applies where purchased goods are consumed in manufacture or otherwise disposed of in a taxable manner, but water used in hotel operations for cooking and washing is not raw material consumed in manufacture. The Court also found that the mere absence of vouchers for pappadam purchases was not a sound basis to disbelieve the accounts.

Conclusion: The rejection of accounts and the consequential assessment were unjustified, and the assessment had to be made on the basis of the returns filed by the assessee.

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