Commercial Tax Officer Vs Chungath Jewellery (Kerala High Court)
Facts- When the compounded tax for dealers in ornaments or articles of gold, or other metals were retrospectively amended for the year 2011-12, the dealers raised a challenge against the collection of differential tax.
The learned Single Judge allowed all the writ petitions after concluding that the differential tax attempted to be collected from the writ petitioners for the assessment year 2011-12 was legally unsustainable. The department has come up in these appeals contending that the retroactive operation of the compounded rate of tax was within the scope of the Government’s authority and the consequential collection of differential tax was legally valid.
It was contended that the compounded tax being in the nature of a contract, the Government was estopped from demanding compounded tax at a higher rate sanction was granted by the assessing officer to pay tax under the compounded scheme, that too in instalments.
Conclusion- Held that the retrospectivity of tax or its collection brought in by the Finance Act 16 of 2011 is not controlled by the validation clause in section 12 of that Kerala Value Added Tax Act, 2003.
In the above circumstances, we are of the view that the State was bound and entitled to recover the differential tax from the dealers and the demand notices were issued in valid exercise of power.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
When the compounded tax for dealers in ornaments or articles of gold, or other metals were retrospectively amended for the year 2011-12, the dealers raised a challenge against the collection of differential tax. Several writ petitions were filed before this Court. The learned Single Judge allowed all the writ petitions after concluding that the differential tax attempted to be collected from the writ petitioners for the assessment year 2011-12 was legally unsustainable and accordingly quashed all the impugned orders/demand notices. The department has come up in these appeals contending that the retroactive operation of the compounded rate of tax was within the scope of the Government’s authority and the consequential collection of differential tax was legally valid.
2. This batch consists of 13 writ appeals and two writ petitions. W.A.No.2312/2015 is treated as the main appeal. The questions arising for consideration are common and hence we heard all the writ appeals and the writ petitions together. Since the circumstances are similar in all these cases, we confine the factual narrative that too, briefly, to the circumstances pleaded in the leading case.
3. The writ petition was preferred when the dealer was directed to pay the balance tax due under the newly introduced compounded rate of tax. It was contended that the compounded tax being in the nature of a contract, the Government was estopped from demanding compounded tax at a higher rate after Ext.P1 sanction was granted by the assessing officer to pay tax under the compounded scheme, that too in instalments.
4. Section 8(f) of the Kerala Value Added Tax Act, 2003 (for short ‘the KVAT Act’) provides for compounded tax for dealers in ornaments and articles of gold, etc. On 24-02-2011 a finance bill was presented before the 12th Kerala Legislative Assembly, as Bill No.426 (hereinafter referred to as the ‘First Bill’). The Bill proposed a revision of the existing rates for compounded tax under section 8(f) of the KVAT Act from 01-04-2011. Even though the Bill was not passed by the legislative assembly, due to statutory prescriptions and declarations made in the Bill, the tax implications under the First Bill came into effect from the proposed date i.e: 01-04-2011. The year 2011 was the year of elections to the Kerala Legislative Assembly. The 12th Kerala Legislative Assembly was therefore dissolved on 14-05-2011 and a new Government took charge. Thereafter the new Government brought a fresh Finance Bill on 19.07.2011 as Bill No.20 (hereinafter referred to as the ‘Second Bill’) of the 13th Kerala Legislative Assembly. The second bill was passed on 08-11-2011 as Kerala Finance Act 16 of 2011, (hereinafter referred to as ‘Act 16 of 2011’).
5. The 1st respondent is a dealer in ornaments and articles of gold. 1st respondent (hereinafter referred to as the dealer) had opted to pay tax at compounded rates from the year 2009-10 onwards. The dealer was permitted by Ext.P1 order of the assessing authority to pay tax at the compounded rate prevalent as on 01-04-2011 for the year 2011-12 on the basis of the rates prescribed under the First Bill. However, after the coming into force of the amended provisions, the assessing officer demanded the differential tax allegedly due from the dealer on the basis of the amended provisions. The demand was challenged by the dealer in the writ petition. A relief of declaration was sought for declaring that the provisions of the Second Bill which resulted in Finance Act 16 of 2011 shall not affect the vested rights accrued to the dealer on account of the order permitting it to pay tax at compounded rates on the basis of the First Bill.
6. By the judgment under challenge, the learned Single Judge held that once the assessee opts to pay tax at compounded rates and the said option was accepted, there came into existence a contract which neither side could resile from. It was also held that the validation clause in Act 16 of 2011 made it legally impermissible and unfair to proceed against the dealers with the demand for differential tax. As mentioned earlier, the said judgment is challenged by the Department. The writ petitions connected with this batch of writ appeals are those which were omitted to be tagged along with the connected cases before the learned Single Judge. They raise the same issue as in the other writ petitions and are hence being considered along with the appeals.
7. We heard the learned Senior Government Pleader Sri.Mohammed Rafiq on behalf of the appellant. We also heard Senior Advocate Raju Joseph, Adv. Harishankar V. Menon and Adv. Anil Kumar on behalf of the respondents.
8. Under S. 8(f)(i) of the KVAT Act, the rate of compounded tax for dealers who opted to pay tax under the section for the first time was marginally higher than those who had opted to pay the tax at compounded rates from the previous year or even before that period. Section 8(f)(v) of the Act dealt with the category of dealers who had opted for compounded tax from the previous years. It may be essential to extract section 8(f)(i) and S.8(f)(v) of the KVAT Act as it stood on 31-03-2011. (Explanations 1 to 5 and 7 & 8 and sub-clauses (ii) to (iv) of S. 8(f) are not extracted as they are not relevant for the purpose of these appeals). S.8(f)(i) as on 31.03.2011 was as follows;
S.8. Payment of tax at compounded rates.- Notwithstanding anything contained in section 6,-
(f)(i) any dealer in bullion or ornaments or wares or articles of gold, silver or platinum group metals including diamond may at his option, instead of paying tax on their sale in the State in respect of such goods in accordance with the provisions of section 6, may pay tax at the rate of,–
(a) one hundred and fifteen per cent, in case the total turnover of the dealer opting to pay tax under this clause, for the preceding year was above rupees ten lakhs or below;
(b) one hundred and twenty percent, in case the total turnover of the dealer opting to pay tax under this clause, for the preceding year was above rupees ten lakhs and up to rupees forty lakhs;
(c) one hundred and thirty five percent, in case the total turnover of the dealer opting to pay tax under this clause, for the preceding year was above rupees forty lakhs and up to rupees one crore; and at
(d) one hundred and fifty percent, in case the total turnover of the dealer opting to pay tax under this clause, for the preceding year was above rupees one crore and above;
of the highest tax payable by him as conceded in the return or accounts, or tax paid by him under this Act, whichever is higher, for a year during any of the three consecutive years preceding that to which such option relates.
Explanation 6 : Where a dealer has opted for payment of tax under this clause for the first time in 2010-11 and has commenced business only in 2009-10 and the tax payable as per return or account during 2009-10 is less than the output tax payable, then the tax payable for 2009-10 shall be notionally re-determined on the basis of output tax for determining the tax liability for 2010-11;
(v). Where a dealer had paid tax under this clause for the previous year, the tax payable for the succeeding year under this clause shall be,
(a). One hundred and five percent of such tax paid during the previous year, in case their turnover for the above goods for the preceding year was rupees ten lakhs or below;
(b). one hundred and ten percent of such tax paid during the previous year, in case their turnover for the above gods for the preceding year was above rupees ten lakhs and up to rupees forty lakhs;
(c). one hundred and fifteen percent of such tax paid during the previous year, in case their turnover for the above goods for the preceding year was above rupees forty lakhs and up to rupees one crore; and
(d) one hundred and twenty five percent of such tax paid during the previous year, in case their turnover for the above goods for the preceding year exceeded rupees one crore :
Provided that the tax payable under this sub-clause by the dealers covered under Explanation 6 of this clause shall be at the appropriate percentage of tax mentioned in (a), (b), (c) or (d) above, of the tax re-determined under the said Explanation.;
(vi) Where a dealer who opts for compounding under this clause has been transacting business under a brand name, the compounded tax payable under this clause shall not be less than the compounded tax payable and the business been run as a branch of the franchisee or of other franchisees.”
9. The above compounded rate of tax for dealers falling under section 8(f) was sought to be revised with effect from 01-04-2011 by the First Bill as follows:
(ii) in clause (f),-
In sub-clause (i), in Explanation 6, for the figures “2009-10” and “2010-11”, wherever they occur, the figures “2010-11” and “2011-12” shall respectively be substituted;
After sub-clause (i), the following sub-clause shall be inserted, namely:-
“(ia) Notwithstanding anything contained in this clause, a dealer shall not be allowed to opt for the payment of tax under this clause unless he has conducted business up to a full year as on the first day of April of the year to which the option relates.”’
(c). In sub-clause (v),-
(i) In item (a), for the words “one hundred and five percent of such”, the words “the same amount of” shall be substituted;
(ii) In item (b), for the words “one hundred and ten percent”, the words “one hundred and five percent” shall be substituted;
(d) Sub-clause (vi) shall be omitted;”
10. The changes brought about by the Second Bill which culminated as Act 16 of 2011 were as follows;
“(v). Where a dealer had paid tax under this clause for the previous year, the tax payable for the succeeding year under this clause shall be calculated at the rates mentioned in item (i) or (ii) below, whichever is higher-
(i) (a) at the same amount of tax paid during the previous year, in case their turnover for the above goods for the preceding year was rupees ten lakh or below;
(b) at one hundred and five percent of such tax paid during the previous year, in case their turnover for the above goods for the preceding year was above rupees ten lakh and up to rupees forty lakh;
(c) at one hundred and fifteen percent of such tax paid during the previous year, in case their turnover for the above goods for the preceding year was above rupees forty lakh and up to rupees one crore; and
(d) at one hundred and twenty five percent of such tax paid during the previous year, in case their turnover for the above goods for the preceding year exceeded rupees one crore:
Provided that the tax payable under this sub-clause by the dealers covered under Explanation 6 of this clause shall be at the appropriate percentage of tax mentioned in (a), (b), (c) or (d) above, of the tax re-determined under the said Explanation.
(ii) 1.25% of the turnover of sales of the goods covered under this clause, for the previous year.”;
11. The above changes for clarity are reduced into a tabular column as follows:
