Ramachandra Aithal vs State of Karnataka

B.B. Naik, M.-The appellant has filed this appeal against the order passed by the Assistant Commissioner of Commercial Taxes (Appeals), Mangalore under AP No. 255/ 77-78 dated 14-2-1978 for the year 1976-77 by modifying the assessment passed by the Asst. Commercial Tax Officer, Mangalore.

The facts of the case are that the Assistant Commercial Tax Officer, Mangalore South, Mangalore had passed the assessment order on 11-11-1977 for the year 1976-77 estimating the sales turnover of the hotel at Rs. 41,178-45 which is five times the expenses of the establishment. He had estimated purchase turnover under section 6 at Rs. 3,500 and the gross turnover was fixed at Rs. 44,678-45 as against the declared turnover of Rs. 11,315-59. The first appellate authority, after considering the expenses of the establishment, has fixed the sales turnover at Rs. 36,050-00 and the purchase turnover under Section 6 at Rs. 1,000 and the gross turnover was fixed at Rs. 37,050 and the composition tax at Rs. 900 levied by the assessing officer was confirmed while the turnover was modified.

Sri C.R. Srinivasa Murthy, the learned Sales Tax Practitioner represented the case and filed the additional ground stating that the activities of the appellant were only service to human needs. Hence the receipts of the appellant are not liable to sales tax as per the decision of the High Court of Karnataka in the case of Udipi Krishna Bhavan, Kolar, STA 122 & 123/78 dt. 15-9-78, in S.T.A. 122 and 123/78 dated 15-9-1978. Therefore he pleads that the entire sales turnover should be exempted from tax. In the grounds of appeal he has contended that the appellant is a petty dealer whose turnover falls below Rs. 25,000 and therefore he was not bound to issue the sale bills. Therefore the non-issue of sale bills cannot be made a ground for estimation of sales. The assessing officer was not right in applying the working rule of five times the establishment expenses. The assessing officer was not right in estimating the salary of the workers as per the Minimum Wages Act as he had not paid the wages as per that Act and he had paid less than the amount fixed under Minimum Wages Act. The lower authorities have erred in fixing the purchase turnover at Rs. 1000 under section 6 of the Act as he had purchased all the goods from registered dealers in the State. He might have purchased firewood worth Rs. 290 from un-registered dealers. He has also contended that the telephone used is for his private purposes and the customer who used the telephone will pay the charges separately and the telephone was not exclusively meant for the hotel. Therefore he requests to exclude the telephone charges of Rs. 200 from the expenses.

Sri Boregowda, the learned State Representative contended that the appellant cannot file the additional ground at this stage of second appeal disputing the receipt from the hotel as services receipts only but not sales receipts as he had not disputed this point either before the assessing officer or before the first appellate authority. In the case of Northern India Caterers, 45 STC 212, the dispute was whether the receipts of the hotel were sales or services and the Supreme Court had given a finding on that point while there was no dispute on this point in the case of the appellant before the lower authorities. As it is a question of fact, the additional ground cannot be admitted at this stage. He cites the decisions 34 S.T.C. 249, 26 S.T.C. 486, 24 S.T.C. 520. He further contended that the Commercial Tax Officer has already given a finding that the appellant has effected sales of eatables and drinks. Therefore, the lower authorities have correctly levied the tax on the sales effected by the appellant. Therefore pleads that the order of the first appellate authority should be confirmed.

It is seen from the records that the appellant has declared the sales turnover of the hotel at Rs. 11,315-59 which means that he has admitted the receipts from the hotel, are sales, as he had supplied food and drink to his customers on payment. He has not disputed before the lower authorities about the fact whether they were sales or services. He has raised this point for the first time before us. As the lower authorities have given clear findings that the appellant has effected sales of Tea, Coffee, Eatables and as the appellant has not disproved that fact either before the lower authorities or before us we hold that the appellant had effected the sales of food and drink and is liable to tax on such sales.

As regards the quantum of the turnover fixed by the lower authorities, it is noticed that they have followed certain principles while estimating the sales i.e., five times the expenses of the establishment. This is a recognized formula upheld by our own High Court when the appellant has not maintained correct and complete account. The lower authorities have followed a correct procedure in estimating the sales. Further it is noticed that the appellant has not maintained correct and complete accounts by not issuing the sale bills and by not keeping all the purchase vouchers. Even if the turnover is below Rs. 25,000 as per the accounts of the appellant he ought to have issued the bills to prove the correctness of the account maintained by him. It is found that the total expenses of the establishment worked out at Rs. 7,209 as enlisted by the lower authorities, while the appellant has shown the profit worth about Rs. 4000 only which is the difference between the sales and purchase (11,315-7651). The margin of profit is not sufficient to keep the concern going on. This will also indicate that the accounts are not correctly maintained and therefore the lower authorities were correct in estimating the sales at five times the expenses. The telephone charges of Rs. 200 were rightly included in the expenses as the appellant has fixed the telephone in the hotel and the expenses are paid out of the receipts from the hotel. The contention of the learned counsel for the appellant that he had not paid the wages as per the Minimum Wages Act, and he had paid a small sum, is not accepted as he was bound to pay the wages as per the Minimum Wages Act and the establishment is situated in a city like Mangalore and in a sub-urban area, he was required to pay the wages as per the Minimum Wages Act. Hence the lower authorities are correct in adopting the rates of wages prescribed under Minimum Wages Act. The purchase turnover fixed by lower authorities is reasonable.

The case cited by the learned counsel for the appellant regarding the decision of the Karnataka High Court in the case of M/s. Udipi Krishna Bhavan, STA 122 & 123/78 dt. 15-9-78, STA 122 and 123/78 dated 15-9-1978, it is seen that the Supreme Court has set aside this order under Civil Appeals 335, 336/81 in the case of State of Karnataka by Commissioner of Commercial Taxes v. Udipi Krishna Bhavan dated 27-1-1981, C.A. 335, 336/81 dt. 27-1-81 SC, in which it was observed that the decision of the tribunal and the High Court were based on the observation of the assessing officer "The assessee is a hotel wherein food and drinks are served to the visitors". But the Supreme Court held that only this finding is not sufficient to justify the conclusion. Hence it had remanded to the lower authorities to pass fresh order following the guide lines appearing in the judgment of the Supreme Court disposing of the review petition in Northern India Caterers case, 45 S.T.C. 212. Therefore the decision cited by the learned counsel is not helpful. Therefore the appeal filed by the appellant fails.

In the result the appeal is dismissed.