2014 (2) TMI 962 - HC - VAT and Sales Tax

Court upholds assessment of turn over tax for Bar Hotel, citing statutory provisions overruling instructions.

The court dismissed the writ petition challenging the assessment of turn over tax for a Bar Hotel under section 7 of the KGST Act. It held that the ... Assessment of turn over tax – Compoundment u/s 7 of the KGST Act – Assessment on the basis of the actual sales turn over of IMFL – Held that:- On a reading of section 7 of the KGST Act (as amended) it is evident that Bar attached Hotels were permitted to make payment of turn over tax at the compounded rate, notwithstanding the normal liability for payment of tax at the rate as contemplated under section 5(2). The facility is not extended to Hotels having classification above '3 Star' level and for Heritages or Clubs. With respect to others compounding is permitted at their option In such case the assessees are permitted to pay TOT at the turn over calculated at 140% of the purchase value of the liquor, with respect to hotels situated within municipal area. It is pertinent to note that, under section 7(b) an alternate method for calculation of the turn over is provided for adopting 150% of the highest turnover tax conceded with respect to the previous 3 consecutive years. But when calculating the turn over under the two alternate methods whichever is higher need be adopted - methods of calculation provided under section 7(a) and 7(b) are on the alternative. The authority can fix the turn over by adopting the method as provided under sub section (a) when it is not possible to adopt the method of calculation under section 7(b) - Decided against assessee. Issues:Assessment of turn over tax for the year 2006-07 under section 7 of the KGST Act - Validity of instructions issued by the Commissioner of Commercial Taxes affecting assessment procedure - Rejection of objections by assessing authority - Interpretation of section 7(a) and 7(b) for calculating turn over - Petitioner's contention regarding the impact of Ext.P2 on assessment procedure - Availability of statutory remedy against the assessment order (Ext.P5) - Request for restraining recovery steps for seeking statutory remedy.Analysis:The petitioner, a firm running a Bar Hotel, faced an issue regarding the assessment of turn over tax for the year 2006-07 under section 7 of the KGST Act. The petitioner had opted for compounding as per the provisions of section 7, where the turn over was proposed to be fixed at 140% of the purchase value of liquor. The petitioner objected to this proposal based on an instruction (Ext.P2) from the Commissioner of Commercial Taxes, stating that three years of business conduct is a prerequisite for compounding for Bar Hotels. Despite the objections raised through Ext.P4, the assessing authority finalized the assessment under section 7, considering turn over at 140% of the purchase value of liquor, as per Ext.P5.The petitioner argued that the assessing authority should not have followed the procedure under section 7 due to the binding nature of Ext.P2 instructions from the Commissioner. The petitioner contended that the application for compounding became redundant based on this instruction. However, the court noted that section 7 allows Bar attached Hotels to pay turn over tax at a compounded rate, with specific conditions for calculation. The court highlighted that the methods of calculation provided under section 7(a) and 7(b) are alternative, and the authority can choose the appropriate method based on feasibility.Regarding the impact of Ext.P2 on assessment, the court held that the instruction does not restrict the operation of statutory provisions, and Ext.P2 cannot be considered a clarification under the KGST Act. The court found no grounds to interfere under Article 226, but reserved the petitioner's liberty to pursue statutory remedies against Ext.P5. The writ petition was dismissed with the option to challenge Ext.P5 through appropriate statutory proceedings.In response to the petitioner's request for restraining recovery steps, the court declined interference on merits but granted an equitable relief by directing the assessing authority to suspend coercive recovery measures for a month to facilitate seeking statutory remedies against Ext.P5.