The Exclusive Club vs. The Deputy Commissioner
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The appellant, The Exclusive Club, Calicut, is a members' club registered under the Societies Registration Act. It was aggrieved by penalty orders (Ext.P2 series) passed under Section 45A of the Kerala General Sales Tax Act (KGST Act) for non-filing of returns. The appellant contended that due to the principle of mutuality, as recognized in the Supreme Court's decision in State of West Bengal and Others v. Calcutta Club Ltd., it had no tax liability on sales to its members, and therefore, the maximum penalty of ₹10,000/- for non-filing of returns was unjustified. The learned Single Judge dismissed the writ petition, finding no substance in the appellant's claim that exemption from tax liability excused it from filing returns. The appellant appealed this dismissal.
Held
The Court held that the obligation to file a return is imposed on an assessee registered under the KGST Act, irrespective of whether they have a tax liability. The claim for exemption from tax must be made through the return, where trading activities are reported and exemptions are claimed. Since the appellant failed to file any returns, the imposition of penalty under Ext.P2 series of orders was not flawed. However, the Court found merit in the appellant's submission that the authorities should have considered the absence of tax liability when imposing the penalty. Consequently, the Court directed that the appellant be given an opportunity to regularize the non-filing of returns for the period covered by Ext.P2 series within 10 days of receiving the judgment, subject to payment of a reduced penalty of ₹5,000/- for each month. The impugned judgment of the learned Single Judge was set aside, and the penalty orders were modified accordingly.
Key Issues
1. Whether the appellant, a members' club, can claim exemption from the statutory obligation to file returns under the KGST Act solely on the ground that it has no tax liability due to the principle of mutuality, thereby rendering the imposition of penalty for non-filing of returns unjustified? Petitioner's arguments: The appellant argued that filing a return was a mere formality as there was no tax liability. Therefore, the imposition of penalty under Section 45A of the KGST Act was unjustified. They relied on the Supreme Court's decision in State of West Bengal and Others v. Calcutta Club Ltd. to support their claim of no tax liability. Revenue's arguments: The respondent argued that the requirement to file a return is a statutory obligation for all registered dealers under the KGST Act. So long as the registration remains uncancelled, the dealer must file mandated returns within the prescribed time. Claims for tax exemption must be made within these returns. The penalty orders were justified.
Sections Cited
Section 45A
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Cause title — parties, addresses and appearances
JUDGMENT Dr. A.K.Jayasankaran Nambiar, J. This appeal has been preferred by the appellant writ petitioner aggrieved by the judgment dated 17.01.2024 of the learned Single Judge in WP(C).No.23839 of 2023. 2 The brief facts necessary for disposal of the Writ Appeal are as follows: The appellant is stated to be a members' club and in the Writ Petition it was aggrieved by the orders of penalty (Ext.P2 series) passed against it in terms of Section 45A of the Kerala General Sales Tax Act (hereinafter referred to as 'the KGST Act') for non-filing of returns. The case of the appellant in the Writ Petition was essentially that in view of the decision of the Supreme Court in State of West Bengal and Others v. Calcutta Club Ltd. [2019 (70) GSTR 209] that recognised the applicability of the principles of mutuality to determine the indirect tax liability of members' clubs, the appellant would not be liable to pay any tax in respect of sale of goods to its own members. It was, therefore, contended that in the absence of any tax liability that could be fastened on the appellant the imposition of a penalty for non-filing of :3:
returns ought not to have attracted the maximum penalty of 10,000/- rupees.
The learned Single Judge found that inasmuch as the appellant could not claim exemption from filing return merely because it did not have any liability to pay tax, there was no substance in the Writ Petition. The Writ Petition was, therefore, dismissed by the learned Single Judge.
Before us, it is the submission of Sri.Harisankar V. Menon, the learned counsel for the appellant that the circumstances narrated above would reveal that the filing of a return was merely a formality since there was ultimately no liability to pay tax as far as the appellant was concerned. He, therefore, submits that there was no justification for the imposition of any penalty in terms of Section 45A of the KGST Act. The learned Government Pleader Sri.V.K. Shamsudheen, on the other hand points out that the requirement of filing a return is a statutory obligation in relation to persons registered under the KGST Act as dealers, and so long as the registration stands without cancellation, the assessee dealer has to file the statutorily mandated returns within the time prescribed under the statute, and the claim for exemption from tax has also be made only in that return. He, therefore, justified Ex,t.P2 series of orders that were impugned in the :4:
Writ Petition.
On a consideration of the rival submissions, we are of the view that as rightly pointed out by the learned Government Pleader the obligation to file a return is one that is imposed upon an assessee under the KGST Act so long as he comes within the purview of the Act through the registration taken thereunder. The claim for exemption, if any, from payment of tax has to be made through the return, wherein an assessee is expected to report the results of his trading activities over the stipulated period covered by the return, and thereafter, claim any exemption of tax if permitted by the statute. In other words, the claim for exemption of turnover from tax has to be made only in the return. Since the appelant herein did not file any returns, the imposition of penalty by Ext.P2 series of orders cannot be found fault with. However, we take note of the submission of Sri.Harisankar V. Menon, that even if a penalty was warranted in terms of Section 45A, the authorities ought to have taken into account the fact that there was no tax liability that could be imposed on the appellant for the purposes of imposing a lesser penalty on the appellant. We find force in the said submission of the learned counsel and direct that an opportunity be extended to the appellant to regularise the irregularity of non-filing of returns for the period covered by Ext.P2 series of orders within a period
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of 10 days from the date of receipt of a copy of this judgment subject to payment of penalty of Rs.5000/- each for the various months covered by Ext.P2 series of orders. The Writ Appeal is accordingly allowed by setting aside the impugned judgment of the learned Single Judge as also by modifying Ext.P2 series of orders impugned in the Writ Petition to the extent indicated above. DR. A.K.JAYASANKARAN NAMBIAR JUDGE DR. KAUSER EDAPPAGATH JUDGE mns
Reproduced from the public record of the Kerala High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.