Hotel Opt to Pay Sales Tax under Regular Provisions, Dept Cannot Assess under Compounded Basis: Supreme Court Upholds Kerala HC Ruling [Read Order]
Supreme Court upheld Kerala HC ruling that Hotel Sayooj, having paid sales tax under regular provisions, cannot be assessed on a compounded basis.
Hotel Opt - Pay Sales Tax - Supreme Court - Kerala HC - Taxscan
Hotel Opt - Pay Sales Tax - Supreme Court - Kerala HC - Taxscan
In a recent order, the Supreme Court of India upheld a judgment of the Kerala High Court in favour of Hotel Sayooj, ruling that the tax department could not assess the hotel under the compounded provisions of the Kerala General Sales Tax Act when it had in fact paid tax under the regular provisions.
The case arose from a special leave petition filed by the Deputy Commissioner of State Tax challenging the High Court’s order dated 13 November 2024 in Writ Appeal No. 2199 of 2023.
The High Court had set aside the assessment order against Hotel Sayooj for the year 2021–22 after finding that although the hotel had once applied to pay tax on a compounded basis under Section 7, the department never acted on the application during the relevant year, and the hotel continued to pay tax under Section 5 of the Kerala General Sales Tax Act.
The petitioner’s counsel argued that since the hotel had filed its returns in the form prescribed for compounded tax, it should be bound by Section 7. On the other hand, the hotel explained that its application for compounding was never accepted, and it had consistently paid tax as per the regular provisions.
The Kerala High Court observed that there was no consensus between the assessee and the department on compounding, as the hotel’s payments were in line with Section 5 and not Section 7. It pointed out that the department could not, after the close of the assessment year, revive the old application for compounding and use it to raise a differential tax demand.
The Supreme Court agreed with this reasoning. The Bench comprising Justice Pankaj Mithal and Justice Prasanna B. Varale dismissed the petition on 25 August 2025, observing that the High Court’s order was correct and did not suffer from any illegality. The case thus concluded in favour of Hotel Sayooj, confirming its right to be taxed under Section 5 for the year in question.
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