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IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2936 OF 2009 (Arising out of S.L.P. (C) No. 19982 of 2007)

M/s M.R. Tourist Home & Ors. … Appellant(s)

                   Versus

Sales Tax Officer & Ors. … Respondent(s)

WITH

  Civil Appeal No. 2935/09 @ S.L.P.(C) No. 19626/07 Civil Appeal No.2939/09 @ S.L.P.(C) No. 20592/07

Civil Appeal Nos.2937-38/09 @ S.L.P.(C) No. 20585-20586/07 Civil Appeal Nos.2940-41/09 @ S.L.P.(C) No. 20601-20602/07

O R D E R

Leave granted.

In this batch of Civil Appeals two questions which arise for determination are:  

whether  Section  7(b)  of  Kerala  General  Sales  Tax  Act,  1963  (for  short  “1963  Act”)  

introduced on 24.10.2006 with retrospective effect from 1.7.2006 could be applied to those  

dealers who had contracted for payment of turnover tax at the compounded rate under the  

alternate  method  of  taxation  provided  for  under  the  unamended  Section  7  for  the  

assessment  year  2006-07?  The  second  and  more  important  question  which  arises  for  

determination is whether Section 7(a) and Section 7(b) operate in different spheres and if  

not  whether  the  said  amended  section  violates  Article  14  and  Article  19(1)(g)  of  the  

Constitution as contended in the writ petition?

For the sake of convenience, we reproduce hereinbelow facts in M/s M.R. Tourist  

Home & Ors.   v.   Sales  Tax Officer & Ors.  (Civil  Appeal  arising out of  S.L.P.(C) No.  

19982/07).

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Appellants conduct bar-attached-hotels, where liquor is supplied to customers.  

Sales tax on liquor is governed by the 1963 Act. Section 7 provides for payment of tax at  

compounded rate in the case of bar-attached-hotels.

The dispute relates to the imposition of additional liability by the Legislature for  

part of the assessment year 2006-07 over and above the tax already compounded and paid  

on the basis of the law as it existed on April, 2006.  

We quote hereinbelow Section 7 of the 1963 Act, as it stood on 1.4.2006:

“7. Payment of tax at compounded rates: Notwithstanding anything contained  in sub-section (2) of Section 5, any bar attached hotel, not being a star hotel of  and above three star hotel, heritage hotel or club, may, at its option, instead of  paying turnover tax on liquor in accordance with the provisions of the said  sub-section, pay turnover tax at the rate specified under the said sub-section  on the turnover of foreign liquor calculated at the following percentage of the  purchase price of such liquor, namely:

(a) in  the  case  of  those  situated  within  the  area  of  a  municipal  corporation  or  municipal  council or cantonment

One  hundred  and  forty  percent

(b) in the case  of  those  situated in  any other place

One  hundred  and  thirty  five  percent”

We also quote hereinbelow Section 7 of the 1963 Act after its amendment from  

1.7.2006:

“7. Payment of tax at compounded rates: Notwithstanding anything contained  in sub-section (2) of Section 5, any bar attached hotel, not being a star hotel of  and above three star hotel, heritage hotel or club, may, at its option, instead of  paying turnover tax on foreign liquor in accordance with the provisions of the  said sub-section pay turnover tax on the turnover of foreign liquor calculated:

(a) at one hundred and forty percent of the purchase value of such liquor,  in the case of those situated within the area of a municipal corporation  or a municipal council or a cantonment, and at one hundred and thirty  five percent of the purchase value of such liquor, in the case of those  situated in any other place; or

(b) at one hundred and fifteen percent of the highest turnover tax payable  by it as conceded in the return or accounts or the turnover tax paid for

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any  of  the  previous  consecutive  three  years,  whichever  is  higher.”  (emphasis supplied)

We also quote hereinbelow Circular No. 44 of 2006 dated 27.11.2006 issued by  

the Commissioner of Commercial Taxes, which reads as follows:

“(1)   Compounding  is  an  option to  be  exercised  on a  yearly  basis.  So  the  effective date of operation of this option will be from 1st April 2006.

(2)    As per the amended provision under Section 7 of the KGST Act, 1963,  any bar attached hotels other than star hotels of and above three star  classification heritage hotel or club are, at their option, eligible to pay  turnover  tax  on  the  sale  of  foreign  liquor  at  compounded  rate  calculated at the following rates, whichever is higher:

(i)  At 140% of the purchase value of liquor, in the case of business  places  situated  within  a  municipal  corporation  or  municipal  council  or a cantonment and at  135% in the case of  business  place situated at other places, or

(ii) at 115% of the highest turnover tax payable for any of the previous  consecutive three years immediately preceding the year to which  the option relates.

(3)    When an option for compounding under the above section is accepted, the  assessing authority shall compute  monthly tax liability worked out on  an  average  basis,  in  accordance  with  item  (ii)  above.  He  shall  then  compare the said figure with figures worked out under item (i) based on  the details conceded as per the return. The tax payable for a month will  be the higher amount so worked out. This will be subject to revision  based on the annual figures.”                                 

(emphasis supplied)

At the outset, we may state, that, both the above questions are interconnected.

As regards the first question, it may be stated that a similar question arose before us  

in the case of M/s Varkisons Engineers  v.  State of Kerala & Anr. (S.L.P.(C) No. 1471/08).  

By  Order dated 23.4.2009 we have remitted the case for reconsideration in accordance  

with law.

For the reasons given in our Order dated 23.4.2009 in the case of M/s Varkisons  

Engineers (supra), we set aside the impugned judgment dated 28.9.2007 in Writ Appeal No.  

1876/07 and we accordingly restore the said Writ Appeal on to the file of the High Court

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for fresh consideration in accordance with law.

As regards the second question, we want the High Court to consider whether Section  

7(a) and Section 7(b) operate in different spheres or in the same sphere and if they operate  

in  the  same  sphere  whether  they  obliterate  the  difference  between  normal  method  of  

taxation under Section 5 and alternate method of taxation under Section 7 (as amended).

In this batch of Civil Appeals, the High Court also needs to consider the question as  

to  whether  Circular  No.  44  of  2006  dated  27.11.2006  issued  by  the  Commissioner  of  

Commercial Taxes was at all binding on the appellant(s). It is well settled that, circulars  

issued by the Commissioner binds the Department and not the assessees and the answer to  

that question would also depend upon the answer to the above two questions.

Lastly, we may state that if the High Court finds that to decide the above questions,  

foundational  facts  need  to  be  established  it  may  direct  the  appellant(s)  to  move  the  

Assessing Officer by filing Returns in accordance with law before adjudicating upon the  

constitutional question(s) on the validity of the amended Section 7.

Since above questions have not been answered, we set aside the impugned judgment  

and we remit the matter to the High Court for fresh consideration in accordance with law  

and accordingly Civil Appeals are disposed of with no order as to costs.

………………………J. ( S.H. KAPADIA)

..………………………J. ( HARJIT SINGH BEDI)

New Delhi, April 23, 2009.

ITEM NO.2                COURT NO.4                      SECTION III

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             S U P R E M E   C O U R T   O F   I N D I A                            RECORD OF PROCEEDINGS                        Petition(s) for Special Leave to Appeal (Civil) No(s).19626/2007

(From the judgment and order dated 28/09/2007 in WA No.1861/2007  of the HIGH COURT OF KERALA AT ERNAKULAM)

M/S. HOTEL ALAKANANDA & ANR.                            Petitioner(s)

                       VERSUS

COMMERCIAL TAX OFFICER & ORS.                           Respondent(s)

(With appln. for permission to file addl. documents, stay and with prayer for interim relief)(For  final disposal)

WITH  SLP(C) NO. 19982 of 2007 – With appln. for exemption from filing c/c of the impugned judgment and with prayer for interim relief & O/R

SLP(C) NO. 20585-20586 of 2007 – With prayer for interim relief and office report

SLP(C) NO. 20592 of 2007 – With prayer for interim relief and office report

SLP(C) NO. 20601-20602 of 2007 – With appln. for exemption from filing c/c of the impugned  judgment and with prayer for interim relief & O/R

Date: 23/04/2009  These Petitions were called on for hearing today.

CORAM :         HON'BLE MR. JUSTICE S.H. KAPADIA         HON'BLE MR. JUSTICE HARJIT SINGH BEDI

For Petitioner(s)    Mr. Venkat Subramanian T.R., Adv.                      Mr. Romy Chacko,Adv.

                    Mr. M.P. Vinod, Adv                      Mr. Dillep Pillai, Adv.                      Mr. Ajay Kumar Jain, Adv.                       For Respondent(s)    Mr. T.L.V. Iyer, Sr.Adv.                      Mr. R. Sathish, Adv.

      UPON hearing counsel the Court made the following

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                          O R D E R  

Leave granted. The appeals are disposed of with no order as to costs.

         (S. Thapar)         PS to Registrar

(Madhu Saxena) Court Master

The signed order is placed on the file.