Subsequent Sale of Liquor to Customers not Exigible to Tax: Andhra Pradesh HC Sets Aside Assessment order under VAT Act [Read Order]

The Andhra Pradesh High Court has held that subsequent sale of liquor  to customers not exigible to Value Added Tax ( VAT ) and set aside  the assessment order dated 06.01.2022 and rectification order dated 25.02.2022 and remanding the matter back to the assessing authority to pass fresh assessment orders by excluding the turnover of Rs.4.54 crores arising out of sale of liquor from the turnover on which tax is levied.

M/s Paradise Bar and Restaurant, the petitioner, who was running the business of a Bar and restaurant in Ananthapur Town, had registered himself as a dealer under the A.P. Value Added Tax Act, 2005 (‘the Act’), with effect from, 31.12.2015.

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The Commercial Tax Officer (CT) (FAC),  Circle-I, Ananthapur, on the basis of an authorization of the Deputy Commissioner (CT), Anantapuramu Division in ADM1B, dated 21.12.2015, had inspected the restaurant and bar of the petitioner and conducted a specific audit, on 31.12.2015.

The Deputy Commissioner (CT), recovered incriminating material relating to the business of the petitioner for the period July, 2014 to October, 2015. An assessment order was passed against the petitioner, assessing the petitioner to tax of Rs.61,13,078. This assessment was challenged before the erstwhile High Court of Andhra Pradesh, by way of W.P.No.38999 of 2016, which came to be allowed and the order of assessment were set aside by order,dated 12.02.2019, and the case was remanded to the original assessing authority for reassessment. This order was passed on the ground that the authorization given to the Deputy Commissioner, Guntakal was not available in a valid format.

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Thereafter, the Deputy Commissioner, Ananthapur Division, authorized the Commercial Tax, FAC, Circle-I to conduct the assessment of the petitioner. The assessing officer issued a show cause notice, dated 23.07.2021, calling upon the petitioner to show cause as to why the turnover of the petitioner for the period July, 2014 to October, 2015 should not be assessed to tax. This show cause notice was returned. However, the petitioner filed written objections to the show cause notice subsequently.

 The main contentions raised by the petitioner were that the estimate of turnover made by the assessing officer, in the show cause notice, is not based on any appropriate material and extrapolation of turnover on the basis of the incriminating material, is not permissible; the restaurant part of the business was handled by a third party, who supplied food directly to the customers and as such the turnover relating to the supply of food cannot be added to the turnover of the petitioner; even otherwise, the rate of tax that could have been levied against the petitioner on the sale / supply of food would only be 4% or 5% and not 12 ½% as sought by the assessing officer.

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The assessing officer, after consideration of these objections, passed an order of assessment, dated 06.01.2022 assessing the tax payable by the petitioner as Rs.61,13,078/-. As there was an earlier payment of Rs.15,00,000/- which had not been taken into account, the petitioner had moved an application, for amendment of the amount due. A rectification order, dated 25.02.2022, was passed and the tax payable was reduced to Rs.46,13,078/-. Aggrieved by the initial order, dated 06.01.2022, and rectification order, dated 25.02.2022, the petitioner has approached this Court by way of the present writ petition.

Sri G. Narendra Chetty, counsel appearing for the petitioner would reiterated  the earlier arguments raised before the assessing authority. The first contention of the petitioner is that the assessing officer, on the basis of some alleged incriminating material, has extrapolated the turnover, discovered in the incriminating material, to the entire period of assessment and such an extrapolation is not permissible, in the absence of any further material, which supports such an extrapolation.

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It was viewed that when incriminating material, demonstrating that certain turnovers have not been included in the reported turnovers, is discovered, it would be open to the assessing authority, to extrapolate such turnover to  period of assessment.The  petitioner, except objecting to such a method of assessment, has not chosen to produce books of accounts or any material to demonstrate such a turnover had not occurred. In the absence of any such material, the best judgment exercise carried out by the assessing authority cannot be set aside. Accordingly, the turnover of Rs.1,02,20,407/- towards sale of food for the period from July 2014 to October 2015 does not require any modification.

The petitioner's second contention that he had no part of the restaurant business and a third party had conducted this business cannot be accepted in light of the fact that the petitioner had not given any details of the alleged third party, except giving a vague name. Further, the Excise Act, under which the petitioner had obtained a bar licence, provides that a bar must also have food service. In the circumstances, the contention of the petitioner that the sale of food in the bar run by the petitioner was conducted by a third party, is not acceptable.

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The third contention of the petitioner is that tax could not have been levied 14.5% in accordance with the provisions of Section 4(9)(c) of the Act, as minimum turnover of Rs.1.5 crores per year was not available. The turnovers, as calculated by the assessing officer, of the petitioner were a liquor sale turnover of Rs.3,54,29,413/- and food sale turnover Rs.1,02,20,407/- for the relevant assessment period July, 2014 to October, 2015.

Section 4(9) of the Act sets out the rate of tax payable on sale or supply of goods, being food or any other article for human consumption or drink, served in hotels or restaurants, other eating houses or anywhere. Sections 4(9)(a) and (b) deal with sale of food for hotels. Section 4(9)(c) deals with sale or supply of food not falling under Section 4 (9)(a) or (b). This clause would be applicable where the annual total turnover is more than Rs.1.5 crores.

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A division bench of Chief Justice Dhiraj Singh Thakur and Justice R Raghunandan Rao viewed that the total turnover would be aggregate of sale prices of all goods taxable and exempted, which is taxable turnover and turnover which has been exempted.  Exempted turnover has been defined in Section 2(14) to mean the aggregate of sale price of goods which has been exempted under the Act.

The turnover of Rs.4.54 crores, being the turnover relating to sale of alcohol and the turnover relating to sale of food has been taxed. The sale of alcohol, in the State of A.P., under the A.P. VAT Act, was to be taxed under Schedule VI ‘at the point of first sale in the State’. This sale would be the sale between M/s. Andhra Pradesh Beverages Corporation Limited and the petitioner.

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The bench found that subsequent sale of liquor by the petitioner to his customers would not be exigible to tax. In fact, Explanation-II to the definition of ‘taxable turnover’ stipulates that the sale prices relating to second and subsequent sale of goods, enumerated in Schedule VI, shall not form part of ‘taxable turnover’. This would mean that the entire turnover of Rs.4.54 crores, which is on account of sale of alcohol would have to be excluded from the taxable turnover of the petitioner. This would leave a turnover of Rs.1,02,20,407/-, which is the turnover relating to sale of food.

As the turnover in question, is less than Rs.1.5 crores per year, the same would be taxable only under Section 4(9)(d).To this extent, the assessment order and the rectification orders dated 06.01.2022 and 25.02.2022 would have to stand modified.

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The court allowed the writ petition partly allowed by setting aside the assessment order dated 06.01.2022 and rectification order dated 25.02.2022 and remanding the matter back to the assessing authority to pass fresh assessment orders by excluding the turnover of Rs.4.54 crores arising out of sale of liquor from the turnover on which tax is levied.

To Read the full text of the Order CLICK HERE

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