Once an assessee applies for compounding and pays tax in terms of the same, it binds both the assessee and the department unless the assessee recalls the application before starting payment of tax in terms of the compounding scheme.

Ramachandran Nair, J. –

The appeal is filed against judgment of the learned Single Judge rejecting the appellant's challenge against assessment of turnover tax on the sale of liquor in appellant's Bar hotel at the compounded rate provided under Section 7(1)(a) of the Kerala General Sales Tax Act (hereinafter called "the Act"). We have heard counsel for the appellant and Government Pleader for the State.

2. The appellant, a Bar attached hotel not being a Star hotel or Heritage hotel, was entitled to pay turnover tax at the compounded rate provided under Section 7(1)(a) as against the liability for tax under the charging Section namely, Section 5(2) of the Act. Appellant applied for payment of tax at compounded rate under Section 7(1)(a) which is 140% of the purchase value of liquor and the appellant's request was allowed by the officer. Consequently during the assessment year 2006-2007 appellant remitted tax at compounded rate under Section 7(1)(a) and the same was accepted by the officer. However, when the assessment for the year 2006-2007 was proposed by issuing notice on 1.3.2011, the appellant requested for an option to withdraw from the compounding scheme for payment of tax granted and to revert back to payment of tax on the actual turnover based on the charging section namely, Section 5(2) of the Act which provides for payment of turnover tax at 10% of the sales turnover of liquor in the Bar hotel. Even though appellant relied on Ext.P2 letter issued by the Commissioner on 10.8.2010 to Assessing Officers declaring eligibility for compounding under Section 7(1)(a) only for Bar hotels with not less than three years' business prior to the year in which compounding is applied for, the Assessing Officer turned down the request and completed the assessment based on the application for compounding filed by the appellant and allowed by the Assessing Officer. Government Pleader appearing for the State contended that when compounding application is filed and the same is accepted and tax is also remitted by the appellant, the appellant cannot after four years request for an option to revert back to regular assessment based on sales turnover. Another contention raised by the Government Pleader is that the Commissioner's letter issued after four years of the relevant year also has no significance or binding nature on the Assessing Officer particularly, when the assessee applied for and Assessing Officer granted the facility for compounding and taxes were remitted by the assessee. The question to be considered is whether the assessment made in accordance with the statutory provision is to be interfered with based on a letter issued by the Commissioner which is contrary to the statute. Section 7 providing for compounding is as follows:

"Payment of tax at compounded rates:- (1) Notwithstanding anything contained in sub-section (2) of Section 5, any bar attached hotel, not being a star hotel of and above three star hotel, heritage hotel or club, may, at its option, instead of paying turnover tax on foreign liquor in accordance with the provisions of the said sub-section pay turnover tax on the turnover of foreign liquor calculated--

(a) at one hundred and forty per cent of the purchase value of such liquor, in the case of those situated within the area of a municipal corporation or a municipal council or a cantonment, and at one hundred and thirty five per cent of the purchase value of such liquor, in the case of those situated in any other place; or (b) at one hundred and fifteen per cent of the highest turnover tax payable by it as conceded in the return or accounts, or the turnover tax paid for any of the previous consecutive three years, whichever is higher." What is clear from the above is that payment of tax under the scheme of compounding is an option available to the hoteliers which is for their own benefits. In the normal course, a hotelier is liable to pay turnover tax on the sales turnover of liquor at 10%. Howev