ZODIAC REGENCY Vs. COMMISSIONER OF COMMERCIAL TAXES

JUDGEMENT

(1.) The appeal is filed against judgment of the learned single judge rejecting the appellant's challenge against assessment of turnover tax on the sale of liquor in the appellant's bar hotel at the compounded rate provided under section 7(1)(a) of the Kerala General Sales Tax Act, 1963 (hereinafter called "the Act"). We have heard counsel for the appellant and Government Pleader for the State. The appellant, a bar attached hotel not being a star hotel or heritage hotel, was entitled to pay turnover tax at the compounded rate provided under section 7(1)(a) as against the liability for tax under the charging section, namely, section 5(2) of the Act. The appellant applied for payment of tax at compounded rate under section 7(1)(a) which is 140 per cent of the purchase value of liquor and the appellant's request was allowed by the officer. Consequently during the assessment year 2006-07, the appellant remitted tax at compounded rate under section 7(1)(a) and the same was accepted by the officer. However, when the assessment for the year 2006-07 was proposed by issuing notice on March 1, 2011, the appellant requested for an option to withdraw from the compounding scheme for payment of tax granted and to revert back to payment of tax on the actual turnover based on the charging section, namely, section 5(2) of the Act which provides for. payment of turnover tax at 10 per cent of the sales turnover of liquor in the bar hotel. Even though the appellant relied on exhibit P2 letter issued by the Commissioner on August 10, 2010 to assessing officers declaring eligibility for compounding under section 7(1)(a) only for bar hotels with not less than three years' business prior to the year in which compounding is applied for, the assessing officer turned down the request and completed the assessment based on the application for compounding filed by the appellant and allowed by the assessing officer. The Government Pleader appearing for the State contended that when compounding application is filed and the same is accepted and tax is also remitted by the appellant, the appellant cannot after four years request for an option to revert back to regular assessment based on sales turnover. Another contention raised by the Government Pleader is that the Commissioner's letter issued after four years of the relevant year also has no significance or binding nature on the assessing officer particularly, when the assessee applied for and assessing officer granted the facility for compounding and taxes were remitted by the assessee. The question to be considered is whether the assessment made in accordance with the statutory provision is to be interfered with based on a letter issued by the Commissioner which is contrary to the statute. Section 7 providing for compounding is as follows :

(2.) What is clear from the above is that the payment of tax under the scheme of compounding is an option available to the hoteliers which is for their own benefits. In the normal course, a hotelier is liable to pay turnover tax on the sales turnover of liquor at 10 per cent. However, if the hotelier wants to pay tax at 140 per cent of the purchase turnover of liquor, they can settle their liability without any requirement of production of sales accounts or turnover. For hoteliers who have three years' business in liquor prior to the year in which compounding is applied for, the Department is given an option to fix the turnover tax under the compounding scheme at 115 per cent of the highest turnover tax paid or payable based on accounts for any of the three preceding years, if the same is higher than turnover tax payable on 140 per cent of the purchase turnover of liquor for the year for which compounding is sought. In this case the appellant is in the first year of business and, therefore, clause (b) has no application and so much so, the Department has no option to compare the liability under clause (a) with liability under clause (b) to adopt the higher tax. The contention of the appellant that three years' business preceding the assessment year for which compounding is sought, i.e., 2006-07 in this case, is a condition for compounding is unacceptable because the section does not make it a condition. In fact, section 7(1)(a) is not dependent on 7(1)(b) and so much so, a bar hotel in the first year of business is entitled to apply for compounding, We, therefore, hold that the compounding application submitted by the appellant and accepted by the officer and payment of tax made by the appellant are perfectly in terms of the statutory provisions.

(3.) The next question to be considered is whether the appellant is entitled to challenge the assessment made under the scheme of compounding under section 7(1)(a) based on exhibit P2 issued by the Commissioner. Counsel for the appellant contended and we find force in the contention that if general instructions issued by the Commissioner of Commercial Taxes are more beneficial to the assessees than the strict provisions of the Act, the assessees are certainly entitled to get the benefit, no matter there may be deviation from the statute. However, in this case what we find is that the letter issued by the Commissioner is thoroughly misleading because it is issued only on August 10, 2010 and the same obviously cannot apply for the assessment year 2006-07. When a compounding application is submitted by the assessee and the assessee starts making payment of tax under the scheme of compounding which is not objected by the assessing officer, the only presumption is that the officer accepted the offer. In fact, in the case of an assessee who has paid tax under the compounding scheme after making an application, assessment can be made only in terms of the compounding scheme. The payments made in such cases can be treated as payment of admitted tax over which later the assessee cannot raise a dispute at all. It is also to be noted that an assessee who is otherwise liable to maintain all the records pertaining to business including sales turnover, after offering payment of tax at compounded rate based on purchase price and by disabling the Department to verify sales turnover during the relevant year, cannot revert back to the position of a normal dealer liable to pay tax on the sales turnover. We are of the view that once compounding application is filed and tax is paid in terms of the same, the same binds both the assessee and the Department unless assessee recalls application before starting payment of tax in terms of the compounding scheme. In this case the appellant not only applied for compounding, but paid tax in terms of the compounding application and even filed return based on the same. The appellant has, therefore, no right to withdraw from the compounding scheme or opt for regular assessment on the sales turnover. So far as exhibit P2 is concerned, we have already expressed the view that it is highly misleading and the Commissioner should not have issued such a clarification when the same is patently against the statutory provision. Since the appellant is not entitled to benefit of exhibit P2 which is issued several years after the relevant year, the assessing officer is not bound to consider the same. We, therefore, confirm the judgment of the learned single judge and dismiss the writ appeal. In view of our findings on the merit, there is no scope for filing statutory appeal and, therefore, we vacate the observation of the learned single judge in the impugned judgment in this regard.