Pankaj Janta Cinema vs State Of Gujarat & 1

(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged an order dated 20.11.2000 passed by the Deputy Commissioner (Entertainment Tax) Surat as confirmed by the appellate order dated 4.5.2002 passed by the Collector of Entertainment Tax, Surat and the revisional order dated 16.3.2004 passed by the Commissioner of Entertainment Tax on behalf of the State Government.

2. Brief facts are as under:

2.1 The petitioner is a proprietory concern and is engaged in operating a cinema house in Sayan village in Olpad Taluka of Surat District. As required under the Gujarat Entertainment Tax Act(“the said Act” for short) and the Rules made thereunder, the petitioner had applied for and was granted license for running such a cinema house for exhibiting films in the year 1997 with the seating capacity of 753 seats. In terms of such license, the petitioner was exhibiting films regularly. After the petitioner started such exhibition, the authorities under the said Act had on several occasions inspected the cinema hall and found no major irregularities. Last such visit was made by the Mamlatdar, Olpad on 22.3.2000. However, on 25.4.2000, the authorities under the said Act carried out a surprise check of the cinema house in the afternoon, when the afternoon show between 3pm to 6 pm was going on. During such inspection, several irregularities with respect to the registers, accounts, etc were noticed. Most significantly, the authorities found that the cinema hall had 814 seats as against the sanctioned capacity of 753 seats. Outlining such irregularities, a show cause notice dated 30.6.2000 came to be issued. Several instances of irregularities were pointed out.

2.2 The petitioner replied to such a show cause notice and raised several contentions. In the reply the petitioner disputed the counting of the seats in the cinema hall. The petitioner also contended that in any case, in the last inspection that the Mamlatdar carried out on 22.3.2000, no irregularities were found; the Mamlatdar did not find any additional seats. Even before such inspection by Mamlatdar several inspections were carried out by different officers. The petitioner referred to an order dated 16.12.1996 passed by the Learned Single Judge of this Court in Special Civil Application No.9693/1996 to contend that in such a case, tax and penalty, if at all, can be levied for the period post last inspection and not for any period anterior thereto.

2.3 The Prescribed Officer i.e. the Deputy Commissioner(Entertainment Tax) however, vide his impugned order dated 20.11.2000 did not accept any of the objections and contentions of the petitioner. He proceeded to hold that there were 814 seats in the cinema hall. He found that petitioner had opted for fixed weekly tax structure under which irrespective of number of shows and viewers, the petitioner would pay a committed charge to the Government towards entertainment tax. He calculated the differential tax on the basis of additional seats found in cinema hall right from the date license was granted till the date of inspection on 25.4.2000 and consequently raised the unpaid tax demand of Rs.2,86,359/­. Simultaneously, looking to the misdemeanor of the petitioner, he also imposed penalty of 100% of such tax assessed. He noted that in terms of section 9(3) of the said Act though penalty could be one and half times the unpaid tax, he imposed matching amount towards penalty.

Importantly, with respect to petitioner's contention that any irregularity even if so found during the inspection held on 25.4.2000 must be presumed to have arisen after the last inspection and in that case, no tax can be demanded for the period prior to 22.3.2000, the Prescribed Officer made no reference in his conclusions.

2.4 The petitioner challenged such an order of the Prescribed Officer before the Appellate Authority. The appeal came to be dismissed by an order dated 4.5.2002 on similar grounds. The petitioner thereupon, approached the Government by filing a revision petition. Such revision also was dismissed on 16.3.2004. Hence the petition.

3. Learned counsel for the petitioner submitted that the authorities erred in believing that there was addition of number of seats in cinema hall. The petitioner's explanation was not taken into account. In any case, the petitioner could not have been asked to pay the tax for the period prior to 22.3.2000 since the Mamlatdar, Surat had inspected the premises and found no irregularities on that day. In this respect counsel in addition to above noted order dated 16.12.1996 passed by the learned Judge of this Court, relied on decision of Division Bench dated 5.8.2004 passed in Special Civil Application No.7627/1991.

4. On the other hand, learned AGP Ms. Maithili Mehta submitted that the addition of number of seats was established through cogent evidence. Representative of the petitioner was in fact present when the inspection was carried out. In presence of such representative, counting had been done. The report was countersigned by the representative.

With respect to the previous inspections by Mamlatdar and other officers, she submitted that there was no specific mention of counting the number of seats in such inspections and therefore, it cannot be presumed that during such inspections, the authorities had also counted number of seats and found them in order.

5. Having thus heard learned counsel for the parties, firstly we are of the opinion that insofar as number of seats on 25.4.2000 i.e. on the date of inspection is concerned, there is little doubt. The authorities counted number of seats in the cinema hall in presence of the representative of the petitioner and found that there were 814 seats. This finding of fact accepted by the appellate and revisional authority calls for no interference in absence of any rebuttal evidence produced by the petitioner.

6. We may recall that the petitioner was granted license for running the cinema hall with 753 seats. Therefore, the fact that the petitioner increased number of seats without amending the license, without informing the authorities or taking prior or later permission for the same stands established.

7. The question is to what extent the petitioner can be asked to pay the unpaid tax and matching penalties.

8. Section 9 of the said Act pertains to assessment of escaped payments for admission and re­assessment of taxes. Section 9 reads as under :

“9. Assessment of escaped payments for admission and re­ assessment of payments for admission assessed at lower rate (and assessment on failure to pay tax under Sec.6­B) (1) Where for any reason any payment for admission to any entertainment or any complimentary ticket has escaped assessment to tax or the proprietor has failed to pay tax payable under Sec.6­B, the prescribed officer may, subject to the provisions of sub­sec(3) and at any time within such period as may be prescribed, assess to the best of his judgement the tax due on such payment or ticket or on failure to pay tax under Sec.6­B, after making such inquiry as he may consider necessary and after giving the proprietor a reasonable opportunity to show cause against such assessment.

(2) Where for any reason any payment for admission to any entertainment or any complimentary ticket has been assessed at a rte lower than the rate at which it is assessable under Sec.3 or Sec. 4, as the case may be, the prescribed officer may, subject to the provisions of sub­sec.(3) and at any time within such period as may be prescribed, re­assess the tax due on such payment or ticket, after making such inquiry as he may consider necessary and after giving the proprietor a reasonable opportunity to show cause against such re­assessment.

(3) In making any assessment or re­assessment under sub­sec(1) or sub­sec(2) as the case may be, the prescribed officer may, if he is satisfied that due to wilful mis­statement or suppression of the facts by the proprietor, the tax has not been levied or has been levied at a rate lower than the rate at which it is leviable, direct the proprietor to pay, in addition to the tax assessed or re­assessed under sub­sec.(1) or sub­sec(2), as the case may be, and without prejudice to any other liability that he may incur under the provisions of this Act, a penalty not exceeding one and a half times the tax so assessed or re­assessed:

Provided that no penalty under this sub­section shall be imposed unless the proprietor affected has had a reasonable opportunity of showing cause against such imposition.

(4) The power under sub­sec(1) or sub­sec.(2) may be exercised by the prescribed officer, notwithstanding that the original order of assessment, if any, passed in the matter has been the subject matter of an appeal or revision.

(5) In computing the period of limitation for assessment or re­ assessment under this section, the time during which proceedings for assessment or re­assessment may have remained stayed under the orders of a civil court or other competent authority shall be excluded.

(6) The provisions of sub­secs.(1) to (5) shall, so far as may be, apply in any case where for any reason tax under Secs. 6,6­1 or 6­ B has escaped assessment.”

9. In terms of sub­section(1) of section 9 of the said Act, thus the authorities had the power to assess or reassess any tax which had remained unpaid within the prescribed time. Rule 23 of the Gujarat Entertainment Tax Rules 1993 (“the Rules” for short) lays down a period of three years for such purpose.

10. At this stage, we may also notice that sub­section(3) of section 9 of the said Act authorises the Prescribed Officer to levy penalty at one and a half times the tax assessed or re­assessed if the default in payment of tax was on account of any willful misstatement or suppression of facts by the proprietor of the cinema.

11. It is not in dispute that the cinema house of the petitioner was inspected on several occasions after the license was granted. The petitioner had pointed out this fact to the Prescribed Officer in reply to the show cause notice. He pointed out that last such inspection was made by the Mamlatdar, Surat on 22.3.2000. The petitioner also provided further details of such periodical inspection to the authorities in his appeal memo. From such details, it can be found that between November 1998 to April 2000, the cinema hall was inspected on as many as seven occasions by officers of different levels including Deputy Commissioner of Entertainment Tax, Mamlatdar Surat and the Commissioner of Entertainment Tax. During none of these visits the seating capacity of the cinema hall was found not in order. Surely when the license was granted to the petitioner, the authorities were expected to and presumably would have inspected the hall and also counted number of seats declared by the petitioner. Therefore, crucial question when the number of seats were increased has nowhere come on record. The Prescribed Officer despite the petitioner's clear objection on this count, gave no findings.

12. It may that in a given case it would be open for the authorities to assess or re­assess the tax and recover unpaid dues even during the period prior to last inspection and no rule of universal application can be laid down. Essentially every breach would have to be judged on facts of the case. In a given case, it may be possible to contend that the breach or default was such which would not have been detected or unearthed in the previous inspection. However, there had to be some material to peg back petitioner's liability to pay tax on the increased seating capacity prior to last visit of the Mamlatdar. Most importantly, the authorities never even addressed this issue though the petitioner raised such a contention at the very outset in the reply to the show cause notice itself. The petitioner in fact referred to the order of this Court wherein under similar circumstances, the authorities were directed to recompute the tax from the date of last inspection.

13. In facts of the present case, therefore, we are of the opinion that the tax demand on the basis of increased capacity from the commencement of the cinema house was wholly impermissible. We therefore, quash the impugned orders to that extent and direct the respondent authorities to recalculate the unpaid tax from 22.3.2000 and levy penalty at 100% of such amount.

14. It is stated that a sum of Rs.3 lakhs has been deposited by the petitioner before respondent no.2 during the pendency of the petition. The respondents shall recalculate the tax and penalty of the petitioner in terms of the above directions. This shall be done within a period of eight weeks from the date of receipt of a copy of this order. After adjusting revised liability plus simple interest on such amount at the rate of 9% per annum from the date of the order of the Prescribed Authority till deposit of Rs. 3 lakhs by the petitioner, against the amount of Rs.3 lakhs deposited by the petitioner, the remaining amount shall be refunded with simple interest at the rate of 9% per annum from the date of deposit till actual repayment.

15. The petition is disposed of. Rule made absolute to above extent with no order as to costs.

(Akil Kureshi,J.) (Harsha Devani,J.) (raghu)