Fort Kochi Hotels Private Limited vs State of Kerala

K. Vinod Chandran, J.—The petitioner, admittedly, is the transferee of a property owned by the 3rd respondent, the latter of whom is now under orders of winding up, issued by the Calcutta High Court.

The brief facts necessary, for the adjudication of the controversy raised herein, is that, the petitioner purchased the subject property by Exhibit P1 sale deed dated 30.11.2007. The petitioner also, after purchase, constructed a building thereon and has established a hotel, which is said to have commenced operation from 2009 and is still functioning. While so, the petitioner was issued with revenue recovery notices, attaching the property and threatening sale, for recovery of the sales tax dues, of the 3rd respondent-Company.

The petitioner had challenged the revenue recovery proceedings as provided under the Kerala Revenue Recovery Act, 1968 [for brevity "RR Act"]. The petitioner''s challenge were declined by Exhibits P6, P7 and P11 orders, by the hierarchy of authorities under the RR Act, which orders are challenged, inter alia, herein.

With respect to the basis for the recovery proceedings initiated by the State, on enquiry, it was revealed that, the same is based on the demand raised for the assessment years 2002-03 to 2004-05. The 3rd respondent was a tea broking Company, which had filed the annual returns for the respective years; but had not produced the requisite documents under the Kerala General Sales Tax Act, 1963 [for brevity "KGST Act"] and Central Sales Tax Act, 1956 [for brevity "CST Act"] for claiming exemption for the export sale carried on by them in the subject assessment years.

The winding up proceedings are said to have commenced some time in the year 2009, pursuant to which an order of winding up was passed, appointing the Official Liquidator of the High Court of Calcutta to take over possession of the property, on 26.02.2010. The Official Liquidator is also represented herein. On enquiry, it was revealed that Exhibit P4 series of assessment orders were passed for the subject years under the KGST Act and the CST Act. For the assessment year 2002-03, the orders were dated 02.01.2010 and for the other two years, the orders were both dated 10.05.2010. The petitioner herein, hence, also challenge Exhibit P4 series of assessment orders on the ground that no notice was issued and that there were clear violation of principles of natural justice.

The respondent-State has filed a counter affidavit, wherein the notices said to have been issued are produced. Exhibit R2(a) is an adjournment notice, wherein it was stated that the case posted for evidence to 03.07.2005 was adjourned to 16.08.2006. The assessment years with respect to which it relates, is not evident from the said notice. Exhibit R2(b) is a notice under Section 17(3) of the KGST Act for the assessment years 2002-03 and 2003-04. Looking at Exhibit R2(c), a reply filed by the 3rd respondent-Company, it is evident that they were directed to produce the books of accounts for the assessment years 2002-03 to 2004-05. Hence, there can be no dispute that notices were issued for all the said years. The prayer for adjournment made by Exhibit R2(c) obviously was allowed as per Exhibit R2(d), adjourning the case to 22.09.2006. After that there is only the assessment orders passed in January 2010 and May, 2010.

Even according to the State, there were no notices issued in the interregnum period. It is also clear that there is no hearing conducted in the interregnum. In any event, as was stated earlier, the winding up proceedings, which commenced in the year 2009, also resulted in the Official Liquidator being appointed in February, 2010. Admittedly the assessments for the later years, being 2003-04 and 2004-05, were only concluded as per orders produced as Exhibit P4 series dated 10.05.2010, subsequent to the winding up order. The order of the assessment year 2002-03 also was concluded in January, 2010 when, admittedly, the winding up proceedings were pending before the High Court. The primary contention raised by the petitioner herein, to challenge the assessment orders, in the subject years is the violation of principles of natural justice.

Going by the plain facts stated earlier, it is evident that, after 2006 there were no proceedings but for the conclusion of the assessment by Exhibit P4 series of orders. It is also pertinent that the assessee, under the KGST Act and the CST Act as also Rules framed thereunder, has time till the assessment proceedings are concluded to produce the necessary declaration forms for purposes of claiming exemption of certain turnover from being levied with tax.

The petitioner, who was the transferee of the property of the 3rd respondent, in its endeavour to save the property from distress, wherein substantial improvements have been made by the petitioner; has enquired about the details regarding the books of accounts and is now informed that the entire documents, being declaration forms under the KGST Act and CST Act, are available with the Chartered Accountant, the details of which are produced as Exhibit P8 series. It is the contention of the petitioner that, in the context of the Official Liquidator of the Calcutta High Court having authorised the petitioner to produce the declaration forms before the Assessing Officer, the petitioner would do so; on the assessment orders, Exhibit P4 series, being set aside.

The learned Special Government Pleader (Taxes), however, contends that de hors any assessment order being passed; as per Section 26A and 26B of the KGST Act, it cannot be disputed that the State has a charge over the property and the same can be proceeded with, treating the transfer effected by Exhibit P1 as void, at least for the purposes of recovery as provided under Section 26A.

There can be no dispute to the above proposition going by the specific words employed in Sections 26A and 26B. Section 26B creates a first charge on the property of a dealer who is a defaulter of tax, penalty, interest or any other amount payable under the KGST Act. Section 26A also speaks of such a charge during the pendency of any proceedings under the Act or after the completion thereof. Hence, the completion of the assessment or the consequent demand being raised, is not necessary for such charge to be given effect to. In any event, even as per the admission of the 3rd respondent, which is evident from Exhibit R2 (c) request, notices were issued for purposes of assessment long prior to Exhibit P1 sale deed and there can be no doubt that any demand raised, on conclusion of such proceedings, would be a first charge on the property and the State would be entitled to proceed against the property treating the transfer effected as void; for the purposes of recovery.

The existence of a charge on the property alone is not the issue in the present writ petition. The challenge raised against the revenue recovery proceedings, need not be considered for the present, in the nature of the orders intended to be passed, with respect to the assessments said to have been concluded by Exhibit P4 series of orders.

As was noticed before hand, after 2006 there is absolutely no evidence placed on record to evidence any hearing having been conducted or a subsequent notice having been issued; for reason only of passage of time from the proceedings initiated in the year 2006. The learned Special Government Pleader would, in fact, refer to paragraph 3 of the counter affidavit, wherein it has been noticed that a further notice under Section 17(4) of the KGST Act for the assessment years 2002-03 and 2003-04 was issued to the assessee on 22.10.2009, to which the assessee had not replied. It is not clear to as why such a notice was issued, since the said provision deals only with the dealers who deal in goods coming under the Third Schedule to the Act. In any event, the Government does not have a contention in the counter affidavit that the 3rd respondent, was heard subsequent to the prayer for adjournment as per Exhibit R2(c). With respect to the notice said to have been issued on 22.10.2009, a copy is not seen produced and it is also to be noticed that; by that time the winding up proceedings were commenced before the Calcutta High Court.

Looking at the entire facts placed before Court, this Court does not have any hesitation to come to the conclusion that Exhibit P4 series of assessment orders were passed without affording a reasonable opportunity to the assessee to produce the books of accounts as also the declaration forms. The assessments having been completed without proper notice and without opportunity, Exhibit P4 series of assessment orders are liable to be set aside.

This Court is conscious of the fact that, the assessment orders have not been challenged by the assessee and is now assailed by the petitioner, whose concern is with the distress caused on the property, pursuant to the recovery initiated on the basis of the assessment orders. The Official Liquidator, who is represented before this Court, has also agreed to the authorisation of the petitioner to complete the assessment proceedings. The petitioner has also agreed to the settlement of any liability mulcted, on proper conclusion of assessments; though for the purpose of saving their property.

Even according to the petitioner, the declaration forms, which are enumerated in Exhibit P8 series, cover a major portion of the demand now raised; which definitely would be liable for exemption on production of such documents. According to the petitioner, what would remain is only an amount of around Rupees Twenty Lakhs. In such circumstances, Exhibit P4 series of assessment orders are set aside on condition of the petitioner remitting an amount of Rs. 20,00,000/- [Rupees twenty lakhs only] within a period of one month, from today. It is made clear that the said amount shall be deposited with the State and not adjusted towards the tax or the liability of the 3rd respondent. On such deposit being made, Exhibit P4 series orders, for the assessment years 2002-03, 2003-04 and 2004-05 under the KGST Act and CST Act shall stand set aside. The petitioner shall appear before the Assessing Officer at 11.00 a.m. on 27.08.2014 with proper authorisation from the Official Liquidator, Calcutta High Court. The Assessing Officer shall notify a date for hearing and the matter shall be concluded within three months from the date of appearance of the petitioner.

There would be no reason why this Court should consider the various orders passed by the authorities under the RR Act, since by the deposit of the amount as directed herein above, the basis of the recovery under the RR Act, being the assessment orders against the 3rd respondent, stands effaced. Hence, the recovery based on Exhibit P4 series assessment orders necessary cannot be proceeded with.

On the assessment being completed after looking into the declaration forms, the liability, if any, would necessarily be a charge on the subject property covered by Exhibit P1 sale deed, going by Sections 26A and 26B of the KGST Act. Needless to say that the Assessing Officer shall not, merely for the reason of passage of time, mechanically conclude the assessments; but shall look into the ''H'' Forms and shall also make an objective consideration of declaration forms. The Assessing Authority need not be constrained by the time stipulated by this Court, since such time is stipulated only in the interest of the State.

Writ petition is allowed as above. Parties are directed to suffer their respective costs.