HC held that The mere fact that petitioner’s work, which commenced in previous year, had been compounded for that year would not require continuance under scheme in the subsequent year, for reason of there being no provision available requiring such a continuance.
RELEVANT EXTRACT OF THE JUDGMENT
4. The facts, with respect to the above writ petition is that the petitioner is a registered works contractor, under the Kerala Value Added Tax Act, 2003. The petitioner was first registered in the assessment year 2013-14. He had only one work in the said year being that of four lining of a section of the National Highway between Walayar and Vadakkanchery. The work extended to the two successive assessment years. The petitioner filed an application for compounding under Section 8(a) of the KVAT Act in all the said three years; 2013- 14, 2014-15 and 2015-16. The permissions granted by the Department is produced as Exts.P1 to P3. The contract concluded on 31.10.2015.
5. The petitioner, in the same year ie., in 2015-16 was awarded with another contract of four lining work between Kazhakkootam and Mukkola. Though the agreement was executed in April 2015, the works commenced only in September 2015. The petitioner on the basis of the permission at Ext.P3 for the year 2015-16, paid compounded tax for the first bill, which was cleared in the assessment year 2015-16. The work continued in the next assessment year also ie., in 2016-17.
6. The petitioner, in the year 2016-17, did not apply for compounding, under Rule 11 of the Kerala Value Added Tax Rules, (for brevity ‘the KVAT Rules’). The petitioner filed returns for the first two quarters of the assessment year 2016- 17 under regular assessment and also paid tax. The Assessing Officer however, rejected the return and issued notice on the ground that by virtue of proviso (4) of Section 8(a) of the KVAT Act, the petitioner could not have resiled from the compounding for that particular work; since as at the date of commencement the petitioner had applied and had been permitted compounding. The compounding having been applied for in the assessment year in which the work commenced had to be continued, was the stand of the department. The petitioner’s contention is that the petitioner had applied for a compounding in the year 2015-16 but, had specifically not filed any application for the year 2016-17 and there was no compounding applied for that particular work, ie; the second contract obtained by the petitioner.
7. The learned Government Pleader would contend that the petitioner having applied for compounding for all works in the year 2015-16; the second work awarded to the petitioner in that assessment year; would be treated as compounded. The petitioner having paid tax under compounded scheme as against the first bill, on that count too would have to be considered as compounded that work. The petitioner hence, cannot resile from the compounding by virtue of proviso (4) of Section 8(a) of the KVAT Act. It is also submitted that a dealer, who seeks assessment under the regular scheme, ought to have filed a monthly return and a quarterly return could have been filed only by a dealer under the compounding scheme as is provided under Rule 24 of the KVAT Rules. It is argued that the conduct of the assessee insofar as filing quarterly returns, indicates that he intended to continue compounding.
8. What assumes significance is that the 4th proviso was not available at the time of commencement of the assessment year 2016-17. The resolution of the dispute would require an examination of the provisions as available for the respective years. It is stated in the statement filed that there was a proviso under Section 8(a) of the KVAT Act from the year 2006, which required a dealer, who applied and obtained compounding for a work in a particular year to continue the compounding scheme till the completion of the work. However, the said proviso was substituted by Kerala Finance Act, 2014; which reads as follows:
“Provided also that in the case of any work compounded under this clause, and which remains unexecuted fully or partly as on 31st March, 2014, the contractor may continue to pay tax in respect of such works in accordance with the provisions of this clause as existed when he had opted for compounding up to 31st March, 2015”.
The earlier proviso as existed from the Kerala Finance Act, 2008 is also extracted hereunder:-
“Provided also that in the case of any work covered under the above provisions which remains unexecuted fully or partly at the end of the year, the contractor shall continue to pay tax in respect of such works in accordance with the provisions of this clause”.
9. Hence, by the use of words “shall”; till 2014 there was a mandate to continue under the compounding scheme once applied for and allowed. In the year 2014-15, the same was substituted by the above proviso, which confined such continuance till the end of the assessment year ie: upto 31.03.2015. The word ‘shall’ as employed in the earlier proviso was also changed to ‘may’; making the continuance optional. There was no change in the assessment year 2015-16, and hence there was no such proviso, which required a dealer, who had applied for compounding, for a work in the earlier year to continue under the compounding scheme itself in that year also. At the commencement of the assessment year 2016-17 also there was no such requirement. Only by 18.07.2016, the 4th proviso to Section 8(a) of the KVAT Act now relied on by the Assessing Officer was introduced which reads as hereunder:-
“Provided also that subject to eligibility a work once compounded under this clause, shall remain compounded till the completion of such work”.
10. From the time of introduction of the 4th proviso, necessarily there is a mandate to continue the compounding when applied for and allowed in an year; at least of that work commenced in the year. However, the proviso was introduced only after the commencement of the subject assessment year being 2016-17. The petitioner had not applied for a compounding in that year. The mere fact that the petitioner’s work, which commenced in the previous year, had been compounded for that year would not require continuance under the scheme in the subsequent year, for reason of there being no provision available requiring such a continuance.