Absence Of Prescribed Rates On Petroleum Products And Indian Made Foreign Liquor Before 26.03.2022, Tax Demand Invalid: Kerala High Court

The Kerala High Court held that the absence of prescribed rates on petroleum products and Indian-made foreign liquor before March 26, 2022, made the tax demand invalid.

The bench of Justice Dinesh Kumar Singh has observed that though the petitioners were permitted to effect the parcel sales, the rate was not prescribed, and the rate has been prescribed only by the notification dated March 26, 2022.

The petitioner/assessee is a bar-attached hotel (4-star) having FL3/FL11 licenses to sell Indian-made foreign liquor, including beer and wine, only in loose quantity/peg measurements within their licensed premises as per the provisions of the Foreign Liquor Rules and the licenses issued to them.

The petitioner is a dealer under the provisions of the Kerala General Sales Tax Act, 1963. So far as the sale of sealed bottles from retail outlets is concerned, the state government has created a monopoly in favor of the Kerala State Beverages Corporation (KSBC). Kerala State Beverages Corporation owns these retail outlets.

During the year 2020–21, the petitioner filed the annual return, disclosing a total turnover. The assessing authority, however, noticed certain anomalies.

Hence, a notice was sent to the petitioner to file a reply and appear for a personal hearing. The petitioner received the notice. The petitioner had filed the reply along with the books of accounts. It was noticed that the interest for the period with effect from 22.12.2020 to 31.03.2021 was remitted along with the return, and the interest for the period with effect from 01.04.2020 to 21.12.2020 was not remitted.

The order dated July 30, 2022, imposing total tax and interest payable at Rs. 22,49,821 was issued.

The FL3/FL11 licensees were permitted to sell Indian Made Foreign liquor in parcels from 22.05.2020 to 21.12.2020 and 15.06.2021 to 25.09.2021. Section 5 of the Kerala General Sales Tax Act 1963 (KGST Act) provides the tax regime on the purchase and sale of petroleum products and Indian-made foreign liquor de hors, the introduction of VAT laws, and GST laws in the state. Section 5, the charging section, provides for payment of the total turnover tax for the year by the KSBC through its retail outlets as well as FL3/FL11 licensees. For bar-attached hotels, the rate of tax is 10%, and for others, the rate is 5% of the total turnover tax at all points of sale.

The rate of turnover tax payable by the FL3/FL11 licensees on parcel sales of Indian Made Foreign Liquor for the periods 22.05.2020 to 21.12.2020 and 15.06.2021 to 25.09.2021 due to COVID-19 restrictions was not prescribed. However, the same sales from the retail outlets would attract a 5% turnover tax. The Federation of Kerala Hotels’ Association submitted a representation before the government, requesting that the ToT rate be prescribed at parity with the ToT rate payable by the KSBC on their sales through retail outlets.

The petitioner contended that as the rate for effecting parcel sales by FL3/FL11 licensees in view of the Government Order dated May 18, 2020, for the limited period, i.e., May 22, 2020 to December 21, 2020 and June 15, 2021 to September 25, 2021, was not fixed, the petitioners were not aware whether they were liable to pay 10% turnover tax, which they are liable to pay for the sale of IMFL in loose quantity or peg measurements, or 5%, which is the applicable rate of parcel on identical sales by the retail outlet of KSBC. The petitioners could not file their returns and did not pay the tax as returns were not accepted at 5% of ToT on parcel sales by the petitioners.

The department contended that if the petitioners have not paid the tax on the due date, they are liable to pay interest for delayed payment of tax and filing returns. The petitioners were required to pay the turnover tax at a rate of 10%.

The court held that any uncertainty or vagueness in the legislative scheme defining any of these components could render the tax levy invalid.

Counsel For Petitioner: K.I. Mayankutty Mather

Counsel For Respondent: Mohammed Rafiq

Case Title: Sreevalsam Residency Versus State Of Kerala

Case No.: WP(C) NO. 32408 OF 2023

Click Here To Read The Order