Kerala High Court Upholds Sales Tax Department’s Right to Withhold Liquor Sales Over 1.86 Crore Tax Arrears under KGST Act: Dismisses Writ Petition [Read Order]

The High Court of Kerala has upheld the authority of the Sales Tax department to withhold the sale of Indian Made Foreign Liquor (IMFL) to the petitioner with substantial tax arrears under The Kerala General Sales Tax (KGST) Act, 1963.

The judgment came in response to a writ petition filed by M/S. Cannanore County Club & Resorts Pvt Ltd., operating under the trade name Kairali Heritage, challenging the withholding of liquor sales by the tax authorities over arrears exceeding Rs.1.86 Crore under the KGST Act.

The petitioner, represented by its director R. Ananthakrishnan, filed the writ petition against the Deputy Commissioner (Arrear Recovery), Kerala State Goods Service Tax (SGST) Department and the Deputy Commissioner of State Tax. The petitioner, a licensee of Indian Made Foreign Liquor, sought to challenge a letter issued by the Deputy Commissioner (Arrear Recovery), directing the Manager, Kerala State Beverages Corporation (KSBC) Warehouse Thavakkara to withhold the sale of IMFL to the petitioner.

The petitioner had accumulated arrears of Rs.1,86,48,258 under the KGST Act, which led to the initiation of Revenue Recovery proceedings against them. Despite being granted six instalments to pay off the arrears in a previous legal proceeding, the petitioner failed to meet the tax obligations. Consequently, the sales tax authorities took the step of withholding the sale of IMFL to the petitioner as a coercive measure to compel the payment of outstanding taxes.

The petitioner was represented by N. Muraleedharan Nair and Antony Jones while the respondent revenue was represented by Jasmine M. M.

The bench emphasised that the petitioner could not reasonably expect to be supplied with IMFL while being a significant defaulter in tax payments. The judgment reinforced the administrative authority’s power to use various coercive measures to ensure tax compliance, including withholding the supply of liquor.

The bench held “The petitioner cannot make any grievance for non-supply of IMFL for which he has been granted a license when he himself is in huge arrears of tax, and recovery proceedings are pending against him. The petitioner is a defaulter in making payment of tax, and therefore, I do not find that this writ petition is maintainable before this Court”.

The bench also noted that the withholding of IMFL sales was a legitimate and necessary step to encourage the petitioner to clear the substantial tax arrears owed to the government.

The bench upheld the authority of administrative authorities to use measures like withholding liquor sales to recover tax arrears from defaulting businesses.

In result, the single bench of Justice Dinesh Kumar Singh dismissed the Writ Petition filed by the petitioner challenging the withholding of the sale of IMFL due to their substantial arrears of tax under the KGST Act. The court held that the petitioner, being a defaulter in tax payment, could not claim the right to receive liquor for sale, and such measures were within the administrative authority’s powers to coerce tax payment.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates