Turnover of sale of alcoholic liquor sold in restaurant is taxed separately

Tvl. National Hotel Vs Commercial Tax Officer (Madras High Court)

Madras High Court held that turnover relating to the sale of alcoholic liquor sold in the restaurant is not to be included in the turnover of foods and drinks as sale of alcoholic liquor is taxable separately.

Facts-

The specific case of the petitioner in these Writ Petitions is that there is no case made out for clubbing the turnover of alcoholic liquor sold from the licenced bar of the petitioner. It is submitted that the sales turnover of alcoholic liquor sold from the bar attached to the petitioner’s hotel, for which, the petitioner was given a bar licence under the provisions of the Tamil Nadu Prohibition Act, 1937 read with Rules made thereunder, cannot be included into the taxable turnover of food and drinks. It is submitted that the sale of alcoholic liquor was separately liable to tax only at the first point of sale at the rate prescribed in the VI Schedule and Part J of the I Schedule to the TNGST Act, 1959.

It is submitted that as per charging Section 3-D under the TNGST Act, 1959, tax is chargeable on the “total turnover” of a registered dealer. It is submitted that the turnover which has already been suffered tax at the first point of sale cannot be taxed again. It is further submitted that the petitioner has also not collected tax on sale of alcoholic liquor.

Conclusion-

Prima facie the petitioner appears to have evaded tax on sale of alcoholic liquor sold which were manufactured in the State at the rate specified in the Sixth Schedule. As both the Appellate Assistant Commissioner and second respondent Appellate Tribunal have failed to look into the same, we are of the view that the petitioner is liable to pay tax.

We however accept the contention of the petitioner that the petitioner is not required to include the turnover relating to the sale of alcoholic liquor sold in its restaurant into the turnover of foods and drinks as sale of alcoholic liquor are separately liable to tax as specified in the Part I & J and Part J & K of the First Schedule and Sixth Schedule to the TNGST Act, 1959. At the same time, the petitioner is required to pay tax on the sale of alcoholic liquor sold in its restaurant in terms of the Sixth Schedule to the TNGST Act, 1959, content of which has been extracted above.

We therefore set aside the impugned order and remit the case back to the original authority namely, Commercial Tax Officer / the first respondent, for re-determination of the tax liability of the petitioner on sale of alcoholic liquor at the rate specified in the Sixth Schedule to the TNGST Act for the alcoholic liquor purchased within the State of Tamil Nadu, within a period of six months from the date of receipt of a copy of this order.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

By this common order, we are disposing both these Writ Petitions are being disposed.

2. These Writ Petitions have been filed against the impugned common order dated 06.03.2006 passed by the second respondent Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench) [hereinafter referred to as “Tribunal”] in Coimbatore Tribunal State Appeal Nos.161 & 162 of 2004 [hereinafter referred to as “C.T.S.A.Nos.161 & 162 of 2004”] and in Coimbatore Objection Petition Nos.58 & 59 of 2004 [hereinafter referred to as “C.O.P.Nos.58 & 59 of 2004”].

3. It is noticed that three State Appeals were filed before the second respondent Tribunal for the Assessment Years 1997-1998, 1998­1999 & 2000-2001 against the common order of the Appellate Assistant Commissioner dated 29.10.2003 allowing the appeals of the petitioner. By the impugned common order dated 06.03.2006, the second respondent Tribunal has passed the following orders:-

Table No.1

4. By the impugned common order dated 06.03.2006, the second respondent Tribunal had accepted the case of the respondent and ordered inclusion of the turnover of liquor sold in the petitioner’s hotel while computing taxable turnover for the purpose of Section 3-D of the Tamil Nadu General Sales Tax Act, 1959 [hereinafter referred to as “TNGST Act, 1959”]. The operative portion of the impugned common order dated 06.03.2006 of the second respondent Tribunal reads as under:-

7. We have considered the arguments of the both the sides and also verified the connected records. The issue involved in these three cases are the liability to tax under section 3D of the TNGST Act on the sales turnover of relating to goods other than Food and Drinks. IN particulars, the respondents in these cases had effected sales of IMFL, which they claim as not includable in the turnover under section 3D of the TNGST Act. The contention was accepted by the first appellate authority. But the order of the first appellate authority is not correct in respect of the assessment years 1997-98 and 1998-99.

8. In the decision reported in 6 TNCTJ 191, the Tamil Nadu Taxation Special Tribunal, Chennai while upholding the validity of Sec 3D of the TNGST Act had held as follows:-

“The second argument that the total turnover of the purpose of Section 3-D of or Section 3E takes into account the second and subsequent sale is based on the misconception. Both Section 3-D and 3-E are charging Sections and as such they or competent to levy tax on the total turnover. The question whether the goods have suffered tax or not would be relevant only when tax is levied at a particular point. This is what is referred to in Section 3, sub-section 2 of the Tamil Nadu General Sales Tax Act. Similarly, Section 4 says that tax shall be payable by a dealer on the sale or purchase inside the State in respect of declared goods at the rate and only at the point specified against each in the second Schedule of the Tamil Nadu General Sales Tax Act, 1959. But Section 3-D which is an independent charging Section authorizes levy of tax on the total turnover and therefore the question whether the sale is a second sale or subsequent or whether the goods have already suffered tax would not come into play. Individual hardships experienced by some of the dealers would not affect the validity of a provision of law. On the basis of hardship and burden, a law cannot be invalidated so long as the law is within the four corners of the Constitution of India. The restrictions placed by the impugned provisions are absolutely reasonable and in the interest of the public. Therefore, neither Article 14 nor Article 19(1)(g) is violated by the impugned provisions of law.”

In view of the above orders of the TNTST, the order of the first appellate authority in setting aside the assessment is not correct and accordingly the same is set aside. Consequently, we restore the orders of assessment made by the Assessing Authority for the years 1997-98 nand 1998-99.

9. As for the assessment year 2000-01, the respondents had contended that the liability to tax under section 3D of the Act arise only on the taxable sale of Food and Drinks and that the other turnover are not to be included, the claim was not admitted by the Assessing Authority and the assessment made on the disputed turnover. The first appellate authority however, had contended the claim of the respondents. The appellant seeks for restoration of assessment stating that the order of the Assessing Authority was legally correct. But the stand taken by the appellant is found to be not correct.

10. Section 3-D was substituted with effect from 1.4.99 by Act 28/99 and the substituted section reads as follows:-

“Section 3-D – Payment of tax by hotels, restaurants and sweet stalls. – (1) Notwithstanding anything contained in subsection (1) of Section 3, every dealer whose total turnover is not less than twenty five lakhs of rupees for the year on the first point of sale of food and drinks in hotels, restaurants, sweet stalls and any other eating houses other than those falling under item 20 of Part-C of the First Schedule shall pay tax at the rate of two per cent of the taxable turnover.”

As could be seen from the above, the liability to tax under section 3D of the Act was on the total turnover during the period from 1997-98 and 1998-99 only and from 1.4.99 onwards the liability is on the taxable turnover relating to the first point of sale of Food and Drinks. The claim of the respondent that the liability is only on the taxable sales of Food and Drinks is therefore correct and the assessment made is not sustainable. We find that the order of the first appellate authority in setting aside the assessment on the disputed turnover is correct and the same is sustained. The Cross Objections Petitions filed by the respondents are only written submissions.

In view of the discussions above, the State appeals in CTSA.161/04 and 171/04 stand allowed and that in CTSA.162/04 stands dismissed.

5. The case was argued as if the petitioner has challenged the impugned common order for the Assessment Years 1997-1998 & 1998­1999. However, prayers in these Writ Petitions indicate that the petitioner has challenged the impugned common order dated 06.03.2006 of the second respondent Tribunal in C.T.S.A.No.161 of 2004 and C.T.S.A.No.162 of 2004. C.T.S.A.No.162 of 2004 pertains to the Assessment Year 2000-2001. The petitioner is actually not aggrieved by the common order in C.T.S.A.No.162 of 2004 for the Assessment Year 2000-2001.

6. Therefore, W.P.No.39537 of 2006 filed against the order passed in C.T.S.A.No.162 of 2004 for the Assessment Year 2000-2001 is a mistake. It cannot be said that the petitioner was an aggrieved person against the said order passed in C.T.S.A.No.162 of 2004 for the Assessment Year 2000-2001. Perhaps, the petitioner should have filed W.P.No.39537 of 2006 against the order passed in C.T.S.A.No.171 of 2004 for the Assessment Year 1998-1999.

7. It is evident that it is a typographical mistake. Ordinarily, for such mistakes committed while filing the Writ Petitions, we would have permitted the petitioner to amend the prayer. However, no useful purpose will be served at this distant point of time as our decision would have been the same even otherwise and our decision on merits in W.P.No.39536 of 2006 would equally apply to challenge to the order passed in C.T.S.A.No.171 of 2004 for the Assessment Year 1998-1999. We therefore proceed to examine the issue.

8. Section 3-D of the TNGST Act as it stood during the relevant period reads as under:-

Section 3-D. Payment of tax by hotels, restaurants and sweet stalls.- (1) Notwithstanding anything contained in sub-section (1) of section 3, every dealer whose total turnover is not less than twenty five lakhs of rupees for the year on the sale of food and drinks in hotels, restaurants, sweet stalls and any other eating houses other than those falling under item 20 of Part-C of the First Schedule, shall pay tax at the rate specified in Part-A of the Ninth Schedule.

(2) A dealer liable to pay tax under sub­section (1) shall not collect any amount by way of tax or purporting to be way of tax on the sale of food and drinks.

9. The specific case of the petitioner in these Writ Petitions is that there is no case made out for clubbing the turnover of alcoholic liquor sold from the licenced bar of the petitioner. It is submitted that the sales turnover of alcoholic liquor sold from the bar attached to the petitioner’s hotel, for which, the petitioner was given a bar licence under the provisions of the Tamil Nadu Prohibition Act, 1937 read with Rules made thereunder, cannot be included into the taxable turnover of food and drinks. It is submitted that the sale of alcoholic liquor was separately liable to tax only at the first point of sale at the rate prescribed in the VI Schedule and Part J of the I Schedule to the TNGST Act, 1959.

10. It is submitted that as per charging Section 3-D under the TNGST Act, 1959, tax is chargeable on the “total turnover” of a registered dealer. It is submitted that the turnover which has already been suffered tax at the first point of sale cannot be taxed again. It is further submitted that the petitioner has also not collected tax on sale of alcoholic liquor.

11. The learned counsel for the petitioner further submitted that the petitioner also cannot be made liable to penalty under Section 12(3)(b) of the Act in the light of the decision of Division Bench of this Court in Appollo Saline Pharmaceuticals (P) Ltd. Vs. Commercial Tax Officer (FAC) and others, [2002] 125 STC 505.

12. On the other hand, the learned Special Government Pleader (T) for the respondents defends the impugned common order of the Tribunal and submits that these Writ Petitions filed by the petitioner are devoid of merits inasmuch as Section 3-D of the TNGST Act, 1959 is a separate charging Section for taxes to be paid by Hotels, Restaurants and Sweet Stalls. It is submitted that the aforesaid provision starts with non-obstante clause and therefore the first sale exemptions which are applicable to those transactions which are liable to tax under Section 3 of the TNGST Act, 1959 are not relevant.

13. It is submitted that as per Sub-Section (2) to Section 3-D, a dealer liable to tax under Sub-Section (1) cannot collect any amount by way of tax or purporting to be way of tax on the sale of food and drinks.

Hence, it is submitted that the impugned common order of the second respondent Tribunal is not required to be interfered with.

14. It is submitted that since the petitioner had failed to include the turnover pertaining to the sale of alcoholic liquor on the strength of bar licence issue to the bar attached to the petitioner’s Hotel, the petitioner was liable to penalty under Section 12(3)(b) of the TNGST Act, 1959. In this connection, the learned Special Government Pleader (T) for the respondents drew attention to the decision of the Tamil Nadu Taxation Special Tribunal in Hotel Ranjith Vs. Commercial Tax Officer, Valluvarkottam Assessment Circle, Chennai, [2001] 124 STC 571.

15. It is submitted that though the aforesaid decision was passed in the context of validity of Section 3-D / 3-E(1) and Part A or Part B of the IX Schedule to the TNGST Act, 1959, the Tamil Nadu Taxation Special Tribunal has categorically held that the taxable turnover for the purpose of Additional Sales Tax Act is taken as the “turnover assessed” under Section 3-D of the TNGST Act, 1959.

16. It is further submitted that the Tamil Nadu Taxation Special Tribunal has rejected the arguments advanced by the petitioner therein with the following observations:-

12. The arguments based on the levy of tax being on the total turnover has to be rejected because the total turnover will not include export sales, import sales and inter-State sales as assumed by the petitioner. In Kannan & Company v. State of Tamil Nadu [1975] 36 STC 300, the Madras High Court has held that the total turnover will not include the inter-State sale and this is being adopted by the Government. The second argument that the total turnover for the purpose of Section 3-D or Section 3-E takes into account the second and subsequent sales is based on a mis-conception. Both Sections 3­D and 3-E charging sections and as such they are competent to levy tax on the total turnover. The question whether the goods have suffered tax or not would be relevant only when tax is levied at a particular point. This is what is referred to in Section 3, Sub-section (2) of the Tamil Nadu General Sales Tax Act. Similarly, Section 4 says that tax shall be payable by a dealer on the sale or purchase inside the State in respect of declared goods at the rate and only at the point specified against each in the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959. But Section 3-D which is an independent charging section authorises levy of tax on the total turnover and therefore the question whether the sale is a second sale or subsequent sale or whether the goods have already suffered tax would not come into play. Individual hardships experienced by some of the dealers would not affect the validity of a provision of law. On the basis of hardship and burden, a law cannot be invalidated so long as the law is within the four corners of the Constitution of India. The restrictions placed by the impugned provisions are absolutely reasonable and in the interest of the public, Therefore, neither Article 14 nor Article 19(1)(g) is violated by the impugned provisions of law. None of the petitioners have explained how the provisions are violative of Article 265 the Constitution of India. Reference may be made to a judgment of the Supreme Court in S.Kodar v. State of Kerala [1974] 34 STC 73, which supports the revenue.

17. It is submitted that Section 3-D is an independent charging section and authorises levy of tax on the “total turnover” and therefore the question whether there was a second sale or subsequent sale or whether the goods have already suffered tax is of no relevance.

18. We have heard the learned counsel for the petitioner and the learned Special Government Pleader (T) for the respondents.

19. The issue for consideration in these Writ Petitions is whether the expression “total turnover” for the purpose of Section 3-D of the TNGST Act, 1959 would include the turnover of alcoholic liquor sold in the hotel of the petitioner along with other food items?

20. As mentioned elsewhere above, the petitioner has wrongly filed W.P.No.39537 of 2006 against the order passed in C.T.S.A.No.162/2004 for the Assessment Year 2000-2001 which was dismissed by the second respondent Tribunal. Actually, the petitioner should have filed Writ Petition against the order passed by the second respondent Tribunal in C.T.S.A.No.171/2004 for the Assessment Year 1998-1999 along with Writ Petition in W.P.No.39536 of 2006 against the order passed in C.T.S.A.No.161/04 for the Assessment Year 1997-1998.

21. Be that as it may, we proceed to examine the issue in the light of the rate of tax under the First and Sixth Schedules to the TNGST Act, 1959. Section 3-D was inserted by Act 39/97 published in Gazette dated 19.05.1997 with effect from 01.04.1997.

22. A reading of Section 3-D of the TNGST Act, 1959 as it stood during the period in dispute makes it clear that it is an exception to Section 3(1) of the TNGST Act, 1959. As per Sub-Section (1) to Section 3-D of the TNGST Act, 1959, every dealer whose whose total turnover is not less than Rs.25,00,000/- for the year on the sale of food and drinks in Hotels, Restaurants, Sweet Stalls and any other eating houses other than those falling under item 20 of Part-C of the I Schedule, was required to pay tax at the rate specified in Part-A of the IX Schedule.

23. As per Sub-Section (2) to Section 3-D of the TNGST Act, 1959, a dealer liable to pay tax under Sub-Section (1) to Section 3-D of the Act cannot collect any amount by way of tax on sale of food and during the during the relevant period.

24. The expression “total turnover” used in Section 3-D of the TNGST Act, 1959 has been defined in Section 2(q) of the TNGST Act, 1959 which reads as under:-

Section 2 Definitions:- In this act, unless the context otherwise requires, –

(a)………

………………

(q) “total turnover” means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax.

25. A reading of the above definition of “total turnover” indicates that the expression “total turnover” is an aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax. Therefore, even if it is the case of the petitioner that the sale of alcoholic liquor was the second sale and was exempted under the provisions of the TNGST Act, 1959, the turnover was to be included for determining the total turnover for the purpose of Section 3-D read with Section 2(q) of the TNGST Act, 1959.

26. Be that as it may, after the insertion of Section 3-D of the TNGST Act, 1959 with effect from 01.04.1997 by Act 39/97 as Gazetted on 19.05.1997, Item No.20 in Part-C of the First Schedule to the TNGST Act was made applicable for levy of tax under Section 3-D of the TNGST Act, 1959.

27. Prior to the aforesaid insertion of Section 3-D of the TNGST Act, 1959, there was no separate charging provision for payment of tax by Hotels, Restaurants and Sweet Stalls. However, Entry in Sl.No.20 in Part-C of the First Schedule to the TNGST Act, 1959 was inserted with effect from 17.07.1996 which reads as under:-

Table No.2

FIRST SCHEDULE

Part – C

Goods which are taxable at the rate of 8 Percent

28. As far as taxability of alcoholic liquors for human consumption of all kinds which are purchased / procured / brought from the outside the State of Tamil Nadu and foreign liquors is concerned, the levy of tax is under Section 3(2) of the TNGST Act, 1959. Section 3(2) is to be read in conjunction with Section 3(1) of the Act. Sections 3(1) and 3(2) as it stood then read as under:-

Table No.3

29. The relevant entries during the period in dispute for liquor purchased from the outside the State of Tamil Nadu and for all kinds of foreign liquors read as under below:-

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FIRST SCHEUDLE

[Section 3(2) of the Act]

30. During the corresponding period, the sale of all kinds of alcoholic liquors for human consumption, other than one mentioned in the above Table, point of levy was both at the first and second sale in terms of the Sixth Schedule to the TNGST Act, 1959. Sixth Schedule to the TNGST Act, 1959 as it stood then reads as under:-

Table No.5

Sixth Schedule

[See Section 3(2-B)]

31. The petitioner has not included the turnover relating to the sale of alcoholic liquors for human consumption in its return. On the other hand, the petitioner has excluded the value of the liquor from the turnover for the purpose of Section 3-D of the TNGST Act, 1959.

32 The petitioner is liable to pay tax only on “foods and drinks” in terms of Entry in Sl.No.20 of Part-C of the Fist Schedule to the TNGST Act, 1959 at 8%. Entry in Sl.No.20 of Part-C of the Fist Schedule to the TNGST Act, 1959 does not include goods specified elsewhere in the other Schedules as is evident from a reading of Entry in Sl.No.20 in Part-C of the Fist Schedule to the TNGST Act, 1959 as the expression used is “other than those falling elsewhere under the Schedule”. Therefore, if alcoholic liquor is liable to tax in any other Schedules, then the turnover of alcoholic liquor cannot be included in the turnover of “food and drinks” at 8% in terms of Entry in Sl.No.20 of Part-C of the First Schedule to the TNGST Act, 1959.

33. The sales turnover of alcoholic liquors were taxable under Part I & J of the First Schedule to the TNGST Act, 1959 during the period between 17.07.1996 and 26.03.1998 and later in Part J & K of the First Schedule to the TNGST Act, 1959 during the period between 27.03.1998 and 11.11.1999. Such turnover cannot be included in the sales turnover of “food and drinks” under Section 3-D of the TNGST Act, 1959 read with Entry in Sl.No.20 in Part-C of the Fist Schedule to the TNGST Act, 1959. Alcoholic liquors specified in Part I & J and in Part J & K of the First Schedule to the TNGST Act, 1959 during the respective period were liable to be taxed only at the first point of sale. They cannot be taxed again.

34. However, for sale of alcoholic liquors purchased within the State, the petitioner would have been liable to pay tax at 30% between 17.07.1996 to 26.03.1998 and for the period starting from 27.03.1998 ending with 11.11.1999, the petitioner would have been liable to pay tax at 40% and thereafter, between 12.11.1999 and 31.11.2001, at 50% under the Sixth Schedule to the TNGST Act, 1959. In other words, if the petitioner had sold alcoholic liquor manufactured in the State, the petitioner would have been liable to tax on the second sale effected from its bar attached to its restaurant independently.

35. The facts on record do not reveal that the petitioner has paid tax on alcoholic liquors sold in its return at 30% for the period between 17.07.1996 and 26.03.1998, at 40% for the period between 27.03.1998 and 11.11.1999 and at 50% for the period between 12.11.1999 and 31.11.2001 as specified in the Sixth Schedule to the TNGST Act, 1959.

36. Prima facie the petitioner appears to have evaded tax on sale of alcoholic liquor sold which were manufactured in the State at the rate specified in the Sixth Schedule. As both the Appellate Assistant Commissioner and second respondent Appellate Tribunal have failed to look into the same, we are of the view that the petitioner is liable to pay tax.

37. We however accept the contention of the petitioner that the petitioner is not required to include the turnover relating to the sale of alcoholic liquor sold in its restaurant into the turnover of foods and drinks as sale of alcoholic liquor are separately liable to tax as specified in the Part I & J and Part J & K of the First Schedule and Sixth Schedule to the TNGST Act, 1959. At the same time, the petitioner is required to pay tax on the sale of alcoholic liquor sold in its restaurant in terms of the Sixth Schedule to the TNGST Act, 1959, content of which has been extracted above.

37. We therefore set aside the impugned order and remit the case back to the original authority namely, Commercial Tax Officer / the first respondent, for re-determination of the tax liability of the petitioner on sale of alcoholic liquor at the rate specified in the Sixth Schedule to the TNGST Act for the alcoholic liquor purchased within the State of Tamil Nadu, within a period of six months from the date of receipt of a copy of this order.

39. The petitioner shall produce records to substantiate its case regarding the sale of alcoholic liquor locally procured and manufactured within the State of Tamil Nadu which were sold in its restaurant as the second sale and had suffered sales tax under the Sixth Schedule to the TNGST Act, 1959. In case, the petitioner fails to produce the same, the assessment shall be completed based on the principles of best judgment as is contemplated under the provisions of the TNGST Act, 1959.

40. Accordingly, these Writ Petitions are disposed of by way of remand. No cost. Consequently, connected Miscellaneous Petition is closed.