M/S. Elite Tourist Home vs. The Intelligence Officer

Facts

The petitioner, M/s. Elite Tourist Home, a proprietorship operating a bar attached hotel, was registered under the Kerala General Sales Tax Act, 1963. An inspection by the Intelligence Officer on March 17, 2020, found no stock variation. However, a notice dated July 28, 2020, was issued under Section 45A of the KGST Act for the Assessment Year 2019-20, proposing to estimate turnover based on the combined average Gross Profit (CAGP) from April 1, 2019, to the date of inspection. This estimation resulted in a proposed penalty for non-maintenance of accounts. The petitioner filed objections, but an order dated August 25, 2020, imposed a penalty of Rs. 11,33,886/- under Section 45A of the KGST Act.

Held

The Court dismissed the writ petition, relegating the petitioner to their alternative remedy of appeal. The Court found that while the Division Bench judgment in U.K Monu Timbers dealt with penalty proceedings under the KVAT Act and held estimation impermissible under Section 67 of the 2003 Act, another Division Bench judgment in Hotel Surya v. State of Kerala, concerning the KGST Act, 1963, and proceedings under Section 45A, had a different view. In Hotel Surya, the Court held that estimating turnover by adding the average gross profit revealed from recovered bills to the declared purchase price, and then quantifying the tax due on the differential turnover, could not be considered an usurpation of the Assessing Officer's power of estimation, especially when the assessee had opportunities to produce documents but failed to do so. The Court noted that the instant case was similar to Hotel Surya, where the Intelligence Officer found the gross profit to be different from what the petitioner assessed. The Court agreed with the findings in Hotel Surya and the subsequent Single Bench decision in M/s Parur Tourist Home, which followed Hotel Surya and dismissed the writ petition, directing the petitioner to avail the appellate remedy.

Key Issues

1. Whether the Intelligence Officer had the jurisdiction to estimate the turnover based on the combined average gross profit, or if this power exclusively rests with the Assessing Officer, as per Section 45A of the KGST Act, 1963, and Section 27 of the KGST Act, 1963? 2. Whether the penalty imposed by the Intelligence Officer, based on his estimation of turnover, is legally sustainable, considering the absence of stock variation and the petitioner's contention that such estimation is beyond the Intelligence Officer's purview? Petitioner's arguments: The petitioner contended that the Intelligence Officer exceeded his jurisdiction by estimating turnover based on the average gross profit of different counters, which cater to different customer segments and thus have varying profit margins. They argued that estimation is the exclusive domain of the Assessing Officer and cited the Division Bench judgment in U.K Monu Timbers (M/s.) Vs. State of Kerala and Flipkart Internet Private Limited and Another v. State of Kerala and Others. Respondent's arguments: The Government Pleader opposed the petition, citing a Single Bench decision in W.P.(C) No.16321 of 2014 (M/s Parur Tourist Home v. State of Kerala) which, relying on Hotel Surya v. State of Kerala, relegated the petitioner to their remedy of appeal.