The single bench of the Kerala High Court, while deleting an order of penalty under the provisions of Kerala Tax on Luxuries Act, 1976, held that penalty cannot be levied for non-bifurcation of VAT and luxury Tax considering the fact that the same was not deliberately done by the assessee. Since it was merely a mistake without any intention to evade the payment of tax and the Government had not suffered any loss in the revenue, the penalty was held as not justifiable.
The sole issue before the Court was that whether penalty can be imposed for not having bifurcated the assessment to tax with reference to VAT and luxury tax for the relevant assessment years. Briefly explaining the facts of the case, the petitioners are engaged in the business of hotel services.They, without noticing the amendment in the in the Kerala Tax on Luxuries Rules,paid VAT for the usage of Banquet Hall and Poolside area for serving food as well as conducting other services are concerned. As per the said amendment, Rule 3 was incorporated mandating rough estimate with respect to the services rendered while serving food, drink and other services in a hotel, hall, auditorium and other similar places, as per which 25% of the total charges has to be treated as eligible for luxury tax. Both assessment and penalty proceedings were initiated against the assessee for not bifurcating the luxury tax component, value added tax (VAT). The assessment proceedings were completed as per the directions of the High Court. The pending issue was the legality of penalty proceedings against the assessee.
On behalf of the petitioners, it was argued that penalty is not leviable since it was not an intentional act and the Government has not suffered any revenue loss due to non-bifurcation of the tax.
The single bench observed that “it is true that there is deficiency on the part of the assessee in bifurcating the luxury tax as well as VAT, even after the Rule had been amended. However, it is to be noticed that when the entire VAT amount has been paid for the total amount received which includes the rent for Banquet Hall or the Poolside, there is no deliberate attempt to evade payment of VAT or luxury tax.”
“Though it was contended by the learned Senior Government Pleader that there is suppression, I do not think that the facts involved in the present case would demonstrate a case of suppression. It is apparently a mistake being committed by the assessee while imposing tax and insofar as no loss has been caused to the Government in that regard, I am of the view that there is no necessity to impose any penalty on the petitioner. If at all there is any deficit in the collection of tax, the same can be recovered by assessment proceedings.”
Read the full text of the Judgment below.
