The Kerala High Court recently ruled that the absence of specified rates on petroleum products and Indian-made foreign liquor before March 26, 2022, renders tax demands invalid. Justice Dinesh Kumar Singh's bench noted that while the petitioners were allowed to conduct parcel sales, the rates were not prescribed until the March 26, 2022 notification.
The petitioner, a 4-star bar-attached hotel, held FL3/FL11 licenses to sell Indian-made foreign liquor, including beer and wine, within their premises. Under the Kerala General Sales Tax Act, they were classified as dealers. Notably, the state government had granted a monopoly to the Kerala State Beverages Corporation (KSBC) for the sale of sealed bottles from retail outlets.
In the 2020–21 fiscal year, the petitioner filed an annual return, disclosing their turnover. Anomalies were detected by the assessing authority, prompting a notice for a reply and a personal hearing. The petitioner responded, addressing concerns about interest remittance.
The FL3/FL11 licensees were permitted parcel sales during specific periods due to COVID-19 restrictions. Section 5 of the KGST Act governs the tax regime for petroleum products and Indian-made foreign liquor, irrespective of later VAT and GST laws. The KSBC and FL3/FL11 licensees were subject to a total turnover tax, with bar-attached hotels taxed at 10% and others at 5%.
For the periods affected by COVID-19 restrictions, the rate of turnover tax on parcel sales by FL3/FL11 licensees was unspecified, while retail outlets faced a 5% tax. The Federation of Kerala Hotels’ Association sought parity in rates, urging the government to align them with KSBC's retail outlet rates.
The petitioner argued uncertainty regarding the applicable rate for parcel sales due to the absence of a specified rate. They couldn't file returns or pay taxes at the 5% rate, as returns were not accepted. The department insisted on a 10% turnover tax, and if unpaid, claimed the petitioners were liable for interest and late filing penalties.
In summary, the court highlighted the invalidity of tax demands without pre-March 26, 2022, prescribed rates. The lack of clarity during the specified periods and the subsequent introduction of rates raised justifiable concerns for FL3/FL11 licensees. The court's decision emphasized the importance of clear taxation guidelines, especially during exceptional circumstances like the pandemic, where businesses faced uncertainties and challenges. It underscored the need for consistent and timely rate notifications to enable businesses to fulfill their tax obligations accurately and in accordance with the law.
TAGS: Kerala High Court Tax Demand Prescribed Rates Petroleum Products Indian-made Foreign Liquor Justice Dinesh Kumar Singh FL3/FL11 licenses
