ARAM REFRESHMENT vs STATE OF GUJARAT
- Court
- Gujarat High Court
C/TAXAP/1272/2018 JUDGMENT DATED: 14/10/2026
(GJHC240618212018)
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 1272 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRZAR S. DESAI
==========================================================
Approved for Reporting Yes No
==========================================================
ARAM REFRESHMENT
Versus
STATE OF GUJARAT
==========================================================
Appearance:
UCHIT N SHETH(7336) for the Appellant(s) No. 1
MR CHINTAN DAVE, AGP for the Opponent(s) No. 1
==========================================================
CORAM: HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRZAR S. DESAI
Date : 14/10/2026
JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. Uchit Sheth for
the appellant and learned Assistant
Government Pleader Mr. Chintan Dave for
the respondent.
2. This Appeal is filed under section 78
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of the Gujarat Value Added Tax Act,
2003 [for short ‘the VAT Act’] arising
out of a Judgement and Order dated
06.08.2018 passed by the Gujarat Value
Added Tax Tribunal [for short ‘the
Tribunal’] in Second Appeal No. 578 of
2017.
3. The Appeal was admitted by order dated
26.10.2018 on the following substantial
questions of law:
“1. Whether on the facts and in the
circumstances of the case the
Gujarat Value Added Tax Tribunal
was justified in confirming
cancellation of composition
permission in the case of the
appellant for the year 2012-13?
2. Whether purchase of tax-free
goods from outside the State
warrants cancellation of
composition permission granted to
the appellant under Section 14D of
the VAT Act?”
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4. Brief facts of the case are as under:
4.1 The assessee was running a
restaurant as proprietor and was
registered under the VAT Act and
Central Sales Tax Act, 1956, and
thereafter, under the provisions of
the Central Goods and Service Tax
Act,2017, w.e.f. 01.07.2017.
4.2 It is the case of the
appellant that the proprietory concern
of the appellant i.e. Aram Refreshment
was of Mrs. Hina Bhatt and, her
husband Mr. Deepak Bhatt is the
proprietor of business of lodging and
boarding in the name of New Aram
Restaurant and Lodging Boarding i.e.
Hotel Aram and both the businesses are
situated in adjoining premises.
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4.3 The appellant is registered
under the scheme of Composition of
lump-sum payment of VAT under section
14D of the VAT Act read with Rule 28C
of the Gujarat Value Added Tax Rules,
2006 (for short the ‘VAT Rules’).
4.4 The appellant made the payment
for purchase of sugar sachets from
June 2012 to March 2013 in four
invoices totaling to Rs. 22,000/- and
out of four invoices, one invoice was
in the name of the appellant.
4.5 It also appears from the the
books of accounts produced on record
of the appellant that the appellant
received the payment in cash from
Hotel Aram to make the payment of
purchase of sugar sachets in advance
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and thereafter, made the payments
through its bank account.
4.6 In such circumstances, a show-
cause notice was issued by considering
the Bill No. 73 dated 08.09.2012 that
the appellant purchased sugar of Rs.
5,500/- from Maharashtra and
therefore, there is a breach of
section 14D of the VAT Act read with
Rule 28C(6) of the VAT Rules and, the
permission for lump-sum Composite
Scheme was cancelled by the authority
which was affirmed up to the Gujarat
Value Added Tax Tribunal as per the
impugned order.
4.7 The Tribunal, while dismissing
the appeal of the appellant, has
observed as under:
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“21. Considering the rival
submissions, facts and
circumstances of the case, it is
not a matter of dispute that the
husband and wife, namely, Mr.
Deepak Bhatt and Mrs. Hina
D.Bhatt are running the business
of hotel and refreshments in the
same premises. The appellant is
a proprietary concern of
Mrs.Hina D.Bhatt carrying on the
business of restaurant in the
name of Aram Refreshments and
Mr. Deepak Bhatt carries on the
business of lodging and boarding
in the name of New Aram
Restaurant and Lodging Boarding.
Aram Refreshments is having
lumpsum permission as restaurant
under Section 14D of the GVAT
Act. It also appears that copies
of sales invoices of Dhampure
Speciality Sugars Limited and
Siddivinayak Trading indicate
purchase of sugar sachets from
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outside the State of Gujarat and
payments thereof were made by
Aram Refreshments. The appellant
has produced extracts of account
of the Aram Hotel in the books
of account of the appellant at
Page 38 of paper book to show
that the payment is made by Aram
Hotel but the entries raises
suspicion with regard to
genuineness of the transaction
as Aram Hotel has made cash
payments to the appellant and
thereafter, appellant has made
online payments to the vendors.
It appears that such entries can
be said to have been made with a
view to come out of breach of
conditions of composition
granted by the authority. Here.
it appears at Page Nos.26 and 27
of paper book for invoice No.580
which indicate the TIN
No.24100500088 which is of
appellant - Aram Refreshments.
It also appears that statute
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does not provide for lumpsum
dealer to make purchase of tax
free goods from outside the
State of Gujarat. It appears
from Page Nos.26 and 27 of the
paper book that there was name
of Aram Refreshments as well as
TIN Number of appellant is
clearly mentioned in same
invoices which indicate that
intention of appellant was to
buy the sugar from outside the
State of Gujarat, which
definitely leads to the
violation of condition of
lumpsum permission. The statute
has prescribed condition for
lumpsum dealer prohibiting to
make purchases from outside
State of Gujarat for taxable and
tax free goods, therefore,
appellant was required to
observe the condition of lumpsum
permission. According to learned
Advocate. Mr.Sheth such
cancellation at the most should
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be up to relevant financial year
but should not be for all time
to come. It is true that by the
impugned order, the appellant
would not be entitled for the
benefit of lumpsum in future
also. Such penalty would be
disproportionate to the breach
alleged. therefore, keeping in
view the nature of breach, such
cancellation of lumpsum
permission should be limited up
to the concerned financial year,
therefore, it would be
reasonable to cancel the
permission from 04.06.2012 to
the end of concerned financial
year i.e. 31.03.2013. Therefore,
considering the facts of the
case and nature of breach of
condition of lumpsum, the order
passed by Commercial Tax
Officer-1, Unit-100, Jamnagar
cancelling the lumpsum
permission granted to the
appellant with effect from
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04.06.2012 and confirmed by
learned First Appellate
Authority Deputy Commissioner of
Commercial Tax, Appeal-11,
Rajkot on 30.05.2017 is required
to be modified. Accordingly, we
pass the following order.”
4.8 The Tribunal only gave partial
relief to the appellant by restricting
the cancellation of the composite
Scheme for the period from 04.06.2012
to the end of the concerned Financial
Year i.e. up to 31.3.2013.
5. Learned advocate Mr. Uchit Sheth appearing
for the appellant submitted that the
appellant has never shown the purchase of
sugar in the books of accounts as per the
ledger account at Page 44 of the paper
book as the appellant has received such
amount in advance from the concern of her
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husband. However, the Tribunal has
discarded such ledger account on the
ground that such entries can be said to
have been made with a view to come out of
the breach of the condition of composition
granted by the authority.
5.1 It was submitted that
considering the value of the
transaction at a minuscule amount of
Rs. 22,000/- for the period under
consideration, a huge liability of Rs.
75 Lakhs had been created by the
respondent by cancelling the
composition license as per section 14D
of the VAT Act by taking a recourse to
sub-rule (6) of Rule 28C of the VAT
Rules ignoring the fact that sugar is
an exempted item for which, no tax is
required to be paid by the seller and
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therefore, there was no loss to the
Revenue assuming for a while that the
sugar was purchased by the appellant
from the outside the state.
5.2 It was further submitted that
the reasons assigned by the Tribunal
are contrary to the very basic purpose
of prohibiting a dealer enjoying a
composition permission to make
purchases outside the state. It was
submitted that the logic behind such
prohibition is that since a dealer
enjoying the composition permission
only pays a lump-sum tax on the sale
transaction of food. Therefore, the
State should at least receive tax at
the full rate on the materials used.
However, if a dealer enjoying such
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benefit of composition purchases
taxable goods from outside the State,
then the State would never get the
full tax on those goods at that stage.
5.3 It was submitted in the facts
of the case, considering the
transactions recorded in the books of
accounts of the assessee more
particularly, when no purchases have
been shown, no amount of sugar is
shown to have been purchased in the
books of accounts and merely the
payment is made on behalf of Hotel
Aram which was run by the husband of
the appellant, the respondent
authorities could not have cancelled
the permission for lump-sum payment of
tax under the composition scheme by
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invoking sub-rule (7) of the Rule 28C
of the VAT Rules.
5.4 It was further submitted that sub-
rule (7) of Rule 28C of the VAT Rules
only refers that such permission is
liable to be cancelled if there is a
breach of the Rule and considering the
facts of the case, the respondent-
authority ought not to have cancelled
the permission for composition tax.
6. On the other hand, learned AGP Mr. Chintan
Dave appearing for the respondent
submitted that the invoices clearly show
that the sugar has been purchased by the
appellant. Reference was also made to the
letter written by Siddhi Vinayak Trading,
an authorized distributor of Dhampur
Specialty Sugar Limited, Delhi, dated
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08.09.2012 addressed to the appellant for
receipt of the payment of Rs 5,500/-
against the supply of the sugar sachets.
6.1 It was therefore,
submitted that merely because the
appellant has shown in the books of
accounts that the payment has been
made by the appellant on behalf of
Hotel Aram could not make any
difference as the invoices and the
confirmation of receipt of payment by
the supplier is in the name of the
appellant and therefore, there is a
clear breach of the Rule 28C(6) of the
VAT Rules. It was therefore submitted
that the respondent-authority has
rightly reject cancelled the
permission for lump-sum payment of tax
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under the composition Scheme as per
section 14D of the VAT Act.
6.2 It was also submitted that
that there are concurrent findings of
facts recorded by the Assessing
Officer, Appellate Authority and the
Tribunal that the appellant has
committed breach of Rule 28C(6) of the
VAT Rules and therefore, unless the
appellant shows that such concurrent
finding is perverse and contrary to
the record, no interference can be
made by the court by granting any
benefit to the appellant as it is an
admitted fact that there is a breach
of condition and the appellant also,
in alternative, has prayed that such
cancellation of permission should be
restricted for the period of such
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breach. Accordingly, the Tribunal has
restricted the cancellation of the
permission from 04.06.2012 to the end
of concerned financial year i.e. up to
31.03.2013.
6.3 It was, therefore, submitted
that once it was found as an admitted
fact that there was a breach of
condition, an amount of Rs. 22,000/-
would not make any difference and even
a single invoice found by the
authority showing the purchase of
goods in contravention of Rule 28C(6)
of the VAT Rules would result in the
cancellation of the permission as per
Rule 28C(7) of the VAT Rules after
considering the reply of the assessee.
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7. Having heard learned counsels for the
respective parties and considering the
facts of the case, it appears that the
authorities have used the bulldozer to
crush a fly by canceling the permission
of payment of lump-sum composition tax
under section 14D of VAT Act read with
Rule 28C of the VAT Rules.
8. The facts as emerge from the record and
are not in dispute can be summarized as
under:
8.1 The appellant is running the
business of restaurant and has availed
the benefit of composition scheme for
payment of lump-sum tax as per section
14D of the VAT Act read with Rule 28C
of the VAT Rules. Therefore, it would
be necessary to refer to the relevant
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provisions of the VAT Act and the VAT
Rules as under:
“14. Option for payment of
lumpsum tax in lieu of tax on
Sales.
.. … …
(3)A dealer who is permitted
under sub-section (1) to pay lump
sum tax shall not,-
(a) be entitled to claim tax
credit in respect of tax paid by
him on his purchases,
(b) charge any tax under this Act
in his sales bill or sales
invoice in respect of the sales
on which lump sum tax is payable;
and
(c) issue tax invoice to any
dealer who has purchased the
goods from him.”
“14.D [Composition of tax on
sales of eatables by hotels,
restaurants, Caterers etc.
(1) Notwithstanding anything
contained in this Act, the
Commissioner may, in such
circumstances and subject to such
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conditions as may be prescribed,
permit a dealer who is engaged in
business of sale of eatables in
any form (whether processed or
unprocessed) served, delivered or
given in package from the place
of business of the dealer or any
other place, to pay at his option
in lieu of the amount of tax
leviable from him under this
Act,in respect of sales of
eatables, lump sum tax by way of
composition at such rate as may
be fixed by the State Government
by Notification in the official
Gazette.
Provided that the commissioner
shall not grant permission to pay
lump sum tax a dealer who is
engaged in the activity of
manufacture of such goods as the
State Government may, by
Notification in the Official
Gazette, specify.
(2) The provisions of sub-section
(3) and (4) of section 14 shall
apply mutatis mutandis to a
dealer who is permitted under
sub-section (1) to pay lumpsum
tax by way of composition.
(3) The permission granted under
sub-section (1) shall remain
valid so long as the provisions
of this section and rules made in
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this behalf are complied with. In
case of breach of any of the
provisions, the dealer shall not
liable to pay tax under section 7
and 9 for such tax period as may
be prescribed.
Explanation. - For the purpose of
this section, the word "eatables"
means all kind of foods for the
purpose of consumption including
all type of alcoholic and non-
alcoholic beverages, water
(mineral, purified of aerated)
and soda water, icecream and
kulfi, sweets and sweetmeats,
fruits 8s fruits juice, all type
of milk preparations, bakery
products and such other goods as
the State Government may, by
order specify]”
28C. Procedure and conditions for
lump-sum payment under section
14D
(1) An application for permission to
pay lump sum tax under section 14D
shall be submitted by the dealer in
Form 210C to the Commercial Tax
Officer in whose jurisdiction he is
required to furnish return under
rule 19.
(2) An application under sub-rule
(1) shall be submitted,-
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(a) before 30th September, 2006
(i) in respect of permission for
year 2006-2007, and
(ii) in respect of a dealer who has
obtained permission earlier to pay
lump sum tax under section 14 read
with rule 28,
(b) within thirty days from the date
on which the total turnover exceeds
rupees fifty-lacs in respect of a
dealer who has been granted
permission to pay lump sum tax under
section 14,
(c) within thirty days before the
commencement of the year subsequent
to year 2006-2007.,
"[Provided that for the year 2007-
2008, such application shall be
submitted on or before the 30th
June, 2007';]
[Provided that the dealer who is
granted permission to pay lump sum
tax under section 14D shall not file
a fresh application and permission
granted earlier shall continue
subject to other provisions of the
Act and these rules."]
(d) within [Ninety Days] from the
date of effect of registration where
the dealer gets new registration.
(3) The option to pay lump sum tax
under sub-rule (1) shall be for a
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period ending with the financial
year.
(3A) Any registered dealer opting to
pay lump-sum tax under section 140
has already claimed the tax credit
for the goods hold in the stock on
the date of effect of permission to
pay lump-sum tax, shall reverse such
tax credit and the amount of such
reversal of tax credit shall be paid
by him.
(3B) (1) The Commissioner shall not
grant permission to pay lump-sum tax
under section 140 to a registered
dealer who has, in stock any
eatables or raw materials thereof in
any form (whether processed or
unprocessed), which
(i) have been purchased in the
course of inter-State trade or
commerce or imported from a place
outside the territory of India,
(ii) have been received from his
branch situated outside the State or
from his consigning agent outside
the Gtate, or
(iii) have not borne the tax payable
under the Act.".]
(4) If the application made under
sub-rule (1) is complete in all
respect and the dealer is eligible
for the permission, the Commissioner
may grant permission under sub-
section (1) of section 14D in Form
211 C, within a period of fifteen
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working days from the date of
receipt of the application.
(5) (a) The permission to pay lump
sum tax shall be effective from the
date of application where the
application is made under clause (a)
or (d) of sub-rule (2);
(b) The permission to pay lump sum
tax shall be effective from the date
on which the total turnover exceeds
rupees fifty lacs where the
application is made under clause (b)
of sub-rule (2);
(c) The permission to pay lump sum
tax shall be effective from the
beginning of the year where the
application is made under clause (c)
of sub-rule (2).
(6) The dealer shall not -
(a) purchase eatables or raw
materials there of, in any form
(whether processed or unprocessed)
in the course of interstate trade or
commerce or import such goods from a
place outside the territory of
India, or
(b) receive eatables or raw material
thereof, (whether processed or
unprocessed) in any form from his
branch situated outside the State or
from consigning agent outside the
State.
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[Provided that dealer to whom such
permission is granted may purchase
goods which are not produced in the
State due to legal constraints, for
the purpose of sales in the same
form, subject to following
conditions;,
(a) such dealer shall be liable to
pay tax under section 7 on the
turnover of sales of such goods.
(b) such sales shall not be included
in the total turnover of sales for
calculating the amount of lump-sum
tax,
(c) such dealer shall keep separate
accounts for the purchase and sale
of such goods.".]
(7) if the dealer to whom such
permission is granted contravenes
the provisions of the Act or the
rules made in this behalf, such
permission shall be liable to be
cancelled forthwith from the date of
the event concerning such
contravention. Consequently, such
dealer shall be liable to pay tax
from the date of such contravention.
No order for cancellation of
permission under this sub-rule shall
be made unless the dealer has been
given reasonable opportunity of
being heard.
(8) If the dealer to whom such
permission is granted elects not to
have such permission, such dealer
shall intimate accordingly to the
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concerned Commercial Tax Officer and
such officer shall cancel the
permission and thereupon such dealer
shall be liable to pay tax under the
Act from the month immediately
succeeding the month during which
permission to pay lump sum tax has
been cancelled on the basis of his
application.
(9) The lump sum tax shall be
paid in the manner in which the tax
is payable under rule 26.
(10) The dealer shall display
conspicuously at each place of his
business including branches a notice
with the phrase "Tax is not charged
separately".
(11) The State Government may, by
general or special order direct any
dealer or a class of dealers to keep
such additional books of accounts
(including the records of purchases
and sales), invoices and computer
records in the manner, as may be
specified therein.".
9. On perusal of the above provisions of the
Act and Rules together with the documents
placed on record by the appellant before
the authorities and the Tribunal, it
appears that the respondent-authority
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found four invoices of purchase of sugar
sachets and more particularly, Invoice No.
73 dated 08.09.2012 in name of the
appellant and three invoices in name of
Hotel Aram which belonged to the husband
of the appellant, cancelled the permission
for lump-sum payment under the composition
Scheme.
10. It appears from the record that the
appellant had shown at the relevant time
in the books of accounts that the amount
paid by the appellant for purchase of
sugar sachets was received from the
husband of the appellant i.e. Hotel Aram.
Accordingly, it is not in dispute that no
purchase of sugar from outside Gujarat had
been shown by the appellant but only the
payment was made by the appellant as per
the ledger account of Hotel Aram from the
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books of the appellant for the period from
01.04.2012 to 31.03.2013 is reproduced as
under:
Date Particulars Vch
Type
Vch
No.
Devit Credit
04.06.2012 Dr Cash Receipt 5500.00
CASH REDCEIVED
FROM DEEPAK
BHATT CAPITAL
ACCOUNT FOR NEW
ARAM RESTAURANT
AND LODGING
BOARDING FOR
PAYMENT TO
SIDDHIVINAYAK
TRADING
27.06.2012 Cr Bank of Baroda A/c. 7732 Payment 000129 5500.00
PAID TO
SIDDHIVINAYAK
TREDING ON
BEHALF OF NEW
ARAM RESTAURANT
AND LODGING
BOARDING
07.09.2012 Dr Cash Receipt 5500.00
CASH REDCEIVED
FROM DEEPAK
BHATT CAPITAL
ACCOUNT FOR NEW
ARAM RESTAURANT
AND LODGING
BOARDING FOR
PAYMENT TO
SIDDHIVINAYAK
TRADING
22.10.2012 HDFC Bank-9811-Online Payment
Payment Direct
5500.00
Debit
P AID TO
SIDDHIVINAYAK
TREDING ON
BEHALF OF NEW
ARAM RESTAURANT
AND LODGING
BOARDING
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Payment
19.11.2012 Dr Cash Receipt 5500.00
CASH REDCEIVED
FROM DEEPAK
BHATT CAPITAL
ACCOUNT FOR NEW
ARAM RESTAURANT
AND LODGING
BOARDING FOR
PAYMENT TO
SIDDHIVINAYAK
TRADING
13.12.2012 Cr HDFC Bank-9811-Online Payment
Direct
Debite
d
5500.00
Payment
P AID TO
SIDDHIVINAYAK
TREDING ON
BEHALF OF NEW
ARAM RESTAURANT
AND LODGING
BOARDING
11.03.2013 Dr Cash Receipt 5500.00
CASH REDCEIVED
FROM DEEPAK
BHATT CAPITAL
ACCOUNT FOR NEW
ARAM RESTAURANT
AND LODGING
BOARDING FOR
PAYMENT TO
SIDDHIVINAYAK
TRADI NG
25.03.2013 Cr HDFC Bank-9811-Online Payment Payment Direct 5500.00
PAID TO
SIDDHIVINAYAK
TREDING ON BEHALF
OF NEW ARAM
RESTAURANT AND
LODGING BOARDING
11. From the above ledger account, it is clear
that before making payment through the
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bank to the supplier, the amount was
received in cash by the appellant from her
husband Deepak Bhatt and the same was
shown in the ledger account of Hotel Aram.
12. However, the Tribunal has disputed such
entries without any basis on the
presumption that such entries can be said
to have been made with a view to come out
of the breach of condition of composition
granted by the authority. However, the
fact remains that such a presumption could
not have been drawn by the Tribunal when
such entries were not doubted by the
respondent-authority nor was it proven in
any way to be sham or bogus with a view to
evade the breach of a condition. However,
the fact remains that there is nothing on
record to show that the assessee has shown
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the purchase of the sugar sachets in books
of account by debiting the purchase of the
goods or raw materials so as to attract
the provision of sub-rule (6) of Rule 28C
of the VAT Rules when the appellant has
not debited any amount towards purchase in
the books of account, it cannot be said
that the appellant had made purchases from
outside the State more particularly, when
the payment was made through the bank
account of the appellant, where the
reimbursement was merely for the amount
received from the husband of the
appellant. It is also pertinent to note
that except four invoices amounting to Rs.
22,000/-, the respondent authorities have
not been able to find out any purchase
made by the appellant in contravention of
Sub-rule (6) of Rule 28C of the VAT Rules.
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13. In view of such facts emerging from the
record, we are of the opinion that the
Tribunal has committed an error by drawing
unwarranted presumption that the entries
made in the books of account have been
made with a view to come out of the breach
of condition for composition granted by
the authority and such presumption is
without any basis or any corroborative
evidence on record. In that view of the
matter, the impugned order of the Tribunal
cannot be sustained and therefore, we
answer the question No.1 in favour of the
appellant-assessee and against the Revenue
as the Tribunal was not justified in
confirming the cancellation of the
composition permission in case of the
appellant for the period from 04.06.2012
to 31.03.2013. In view of answer to
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Question No. 1 in favour of the assesse,
we decline to answer question No.2 as the
appellant has never purchased any tax free
goods from outside the State and
therefore, and whether such goods were tax
free is of no consequence. Therefore,
question No.2 is not answered in the facts
of the case. The Appeal is accordingly
allowed. No order as to costs.
(BHARGAV D. KARIA, J)
(NIRZAR S. DESAI,J)
JYOTI V. JANI
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