Zodiac Regency vs Commissioner of Commercial Taxes and Another

C.K. Abdul Rehim, J.—The petitioner is a firm running a bar hotel. The issue pertains to assessment of turnover tax for the year 2006-07. The petitioner had opted for compounding as provided u/s 7 of the Kerala General Sales Tax Act (as amended). As per exhibit P3 a notice was issued to the petitioner proposing to finalise the assessment in accordance with the provisions of section 7, fixing the turnover at 140 per cent of the purchase value of liquor. The petitioner submitted objections to the proposal, as evidenced from exhibit P4, contending that the Commissioner of Commercial Taxes had issued a letter (exhibit P2) informing that conduct of three years business is a condition precedent for allowing compounding for bar hotels. Hence it was contended that the petitioner is liable, to be assessed on the basis of the actual sales turnover of IMFL for the relevant year. But through exhibit P5 the objections were rejected and the assessment was completed in accordance with the provisions contained in section 7, reckoning turnover at 140 per cent of the purchase value of liquor. The contention of the petitioner is that, in view of exhibit P2 instructions issued by the Commissioner of Commercial Taxes, the second respondent-assessing authority is not entitled to finalise the assessment following the procedure contemplated u/s 7. It is submitted that in view of the instruction of the Commissioner which is binding on the assessing authority, the application for compounding submitted by the petitioner has become redundant. Further the contention is that in exhibit P5 order the assessing authority has neither considered nor met with the contention raised in this regard, submitted through the objections.

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 turnover tax at the compounded rate, notwithstanding the normal liability for payment of tax at the rate as contemplated u/s 5(2). The facility is not extended to hotels having classification above "three 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 turnover calculated at 140 per cent of the purchase value of the liquor, with respect to hotels situated within municipal area. It is pertinent to note that, u/s 7(b) an alternate method for calculation of the turnover is provided for adopting 150 per cent of the highest turnover tax conceded with respect to the previous three consecutive years. But when calculating the turnover under the two alternate methods whichever is higher need be adopted.

It is evident that the methods of calculation provided u/s 7(a) and 7(b) are on the alternative. The authority can fix the turnover by adopting the method as provided under sub-section (a) when it is not possible to adopt the method of calculation u/s 7(b).

The contention of the petitioner is that in view of exhibit P2, the assessing authority was prevented from finalising the matter u/s 7, since the petitioner has no turnover during the previous three years. Such a contention is not acceptable in view of the fact that the petitioner had already opted for payment of TOT at the compounded rate. Exhibit P2 letter issued by the Commissioner cannot be treated as one putting any restriction on the operation of the statutory provisions, nor can it be considered as any clarification issued u/s 59 of the KGST Act. In exhibit P5 the assessing authority had mentioned that the objection raised by the petitioner has no relevance and hence it is overruled. Under such circumstances I do not find any ground warranting interference of this court invoking jurisdiction under article 226. However, if any statutory remedy is available against exhibit P5, liberty of the petitioner in that regard is reserved.

In the result the writ petition is dismissed reserving liberty of the petitioner if any available to challenge exhibit P5 in appropriate statutory proceedings. The learned counsel for the petitioner makes an appeal to order restrain on the recovery steps for a reasonable period, in order to facilitate to seek statutory remedy against exhibit P5. Even though interference on the merits is declined, I am inclined to grant such an equitable relief. Accordingly the second respondent is directed to keep in abeyance all coercive steps of recovery of the amounts covered under exhibit P5 for a period of one month from today.