Kerala High Court
Kairali Jewelery vs The Assistant Commissioner-Iii on 23 October, 2019
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR
WEDNESDAY, THE 23RD DAY OF OCTOBER 2019 / 1ST KARTHIKA, 1941
WP(C).No.16566 OF 2019(U)
PETITIONER:
KAIRALI JEWELERY
MAITHANAM, VARKALA, THIRUVANANTHAPURAM DIST., PIN -
695 141 (REPRESENTED BY ITS MANAGING PARTNER, SHRI.
NADARSHA)
BY ADVS.
SRI.S.SURESH BABU (CHERUNNIYOOR)
SHRI.SIVANKUTTY S.
RESPONDENTS:
1 THE ASSISTANT COMMISSIONER-III
SPECIAL CIRCLE, STATE GOODS AND SERVICE TAX
DEPARTMENT, TAX TOWERS, KARAMANA, THIRUVANANTHAPURAM,
PIN - 695 002
2 COMMISSIONER OF STATE GST DEPARTMENT
TAX TOWERS, KARAMANA, THIRUVANANTHAPURAM,
PIN - 695 002
GOVERNMENT PLEADER DR.THUSHARA JAMES
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
23.10.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
W.P(C) No. 16566/19 2
C.R.
JUDGMENT
The petitioner is a partnership business engaged in sale of gold and silver jewellery and registered as an assessee under the KVAT Act. It is not in dispute that since 2005-2006 the business has been paying tax on compounded basis in lieu of the regular method of paying tax under Section 6 of the KVAT Act. While so, in December 2012, the petitioner decided to open a new branch for their business. The issue then arose as regards the basis for payment of tax for the business carried on in the new branch. As per the provisions of Section 8(f), as it stood during the relevant time, an assessee who had opted to pay tax on compounded basis in respect of the principal place of business, had necessarily to pay tax on compounded basis in respect of all branches that existed in the year to which the option related. This meant that in the case of the petitioner, who was paying tax on compounded basis at the principal place of business, payment of tax in relation to the branch for the year 2012-2013 had also to be on compounded basis. The case of the petitioner, however, is that the new branch was opened only in December 2012 and therefore functioned as a business entity only for four months (December 2012 - March 2013) in the assessment year 2012-2013. He therefore contends that if the levy of tax under Section 8(f) of the KVAT Act is made applicable to his branch for that year, it can only W.P(C) No. 16566/19 3 be for the period during which the branch functioned as a business entity during the assessment year, and not for the whole year. The return filed by the petitioner for that year, in relation to the newly opened branch, was in connection with an assessment under Section 6(1) of the Act, and payment of tax in respect of the business done by the branch was also on that basis. While completing the assessment of the petitioner's business for the assessment year 2012-2013, however, the assessing authority found that the petitioner was obliged to pay tax on compounded basis even in respect of the newly opened branch, and further that the tax payable on compounded basis in respect of the newly opened branch had to be the same as what was paid in respect of the principal place of business for the said year. Accordingly, the compounded tax payable for the newly opened branch was fixed at Rs.23,07,180/-, which is the same amount that was fixed as compounded tax for the principal place of business, and a demand notice was issued to the petitioner for the differential tax payable. The said assessment is impugned in this writ petition.
2. A statement has been filed on behalf of the respondents wherein reference is made to the provisions of Section (8)(f) of the KVAT Act and in particular, Explanation 3 and Explanation 5 thereof, which read as under:
W.P(C) No. 16566/19 4
Explanation 3.-- Dealers opting for payment of tax under this clause shall pay compounded tax in respect of all their branches existing in the year (to which the option relates.) Explanation 5.-- Where a dealer opens a new branch in the current year, the additional compounded tax payable under this clause in respect of such branch shall be the average of the tax payable by him in respect of his principal place of business and all branches.
3. It is contended that a reading of Section 8(f) of the Act and the Explanations thereunder would clearly reveal that the payment of tax on compounded basis is based on a formula that is enumerated in the Section. Consequently, when an assessee opts to pay tax on compounded basis, in lieu of the payment of tax on regular basis under Section 6 of the KVAT Act, then he has to pay tax strictly in accordance with the formula provided in Section 8(f). It is contended that when the statutory provision clearly indicates that the payment of tax by a newly opened branch has to be on compounded basis, in cases where the payment of tax in respect of the principal place of business is on compounded basis, then the assessee has to pay the same tax as is paid in respect of the principal place of business, in respect of the branch as well. The contention, in other words, is that where the payment of tax on compounded basis is pursuant to an option exercised by an assessee, then the assessee has to strictly comply with the statutory provisions with regard to payment of tax and cannot contend for an alternate formula for payment of tax in W.P(C) No. 16566/19 5 respect of the branches.
4. I have heard Sri.S.Suresh Babu, the learned counsel for the petitioner and Dr.Thushara James, the learned Government Pleader for the respondents.
5. On a consideration of the facts and circumstances of the case and the submissions made across the Bar, I find that the payment of tax under Section 8(f) of the KVAT Act, in respect of the category of dealers enumerated therein, is in lieu of payment of tax in terms of Section 6 of the KVAT Act. It follows, therefore, that an assessee opting to pay tax on compounded basis must necessarily accept the statutory mandate for payment of tax in accordance with the formula prescribed in Section 8(f) and cannot choose to pay tax on a different basis. The issue that arises in the instant case, however, is whether or not the petitioner herein is obliged to pay tax on compounded basis, in respect of the newly opened branch, for the whole year or only for that portion of the year when it was functioning as a business entity. The provisions of S.8(f) do not expressly provide for such a situation. In my view, an interpretation of the statutory provision must bear in mind the mandate of Article 265 of our Constitution which states that there can be no levy or collection of tax except in accordance with law. As per the charging W.P(C) No. 16566/19 6 section under the KVAT Act (Section 6), there can be a levy of tax under the Act only when the taxable event of sale or purchase of goods occurs. In other words, there cannot be a levy of tax under the Act, either actual or notional, for the period when the assessee did not occasion a taxable event. In the instant case, although the petitioner had exercised his option to pay tax on compounded basis, in lieu of the regular method of payment of tax under the Act, the assessment and consequential collection of tax from him could only have been for the period during which he carried on a business of sale or purchase of goods, that attracted the levy of tax, in his newly opened branch. Thus, while he opted to pay tax in respect of the principal place of business, in accordance with the formula under Section 8(f), and the tax liability in respect of the branch that was opened during the year had to be worked out on the basis of the tax paid in respect of the principal place of business, the levy of tax had to be confined to the period during which the branch existed for carrying on the business. Accordingly, the tax liability of the branch that was opened in December 2012 had to be computed on the basis of the tax paid in relation to the principal place of business, but for the period during which the branch functioned as a business entity during the relevant assessment year. The assessment of the petitioner for the year 2012-13 would, therefore, have to be completed by adopting the figure of Rs.23,07,180/- as the W.P(C) No. 16566/19 7 compounded tax payable for the principal place of business and adding to the said sum, an amount of Rs.7,67,269/- [(2307180/12) x 4] as the compounded tax payable for the newly opened branch. Inasmuch as in Ext.P3 assessment order, the assessment has not been completed in the manner indicated above, I allow this Writ Petition by quashing Ext.P3 and direct the 1 st respondent to pass a fresh order of assessment, in line with the directions in the judgment, within one month from the date of receipt of a copy of this judgment.
The Writ Petition is disposed as above.
Sd/-
A.K.JAYASANKARAN NAMBIAR
JUDGE
okb
//True copy// P.S. to Judge
W.P(C) No. 16566/19 8
APPENDIX
PETITIONER'S/S EXHIBITS:
EXHIBIT P1 A TRUE COPY OF THE JUDGMENT DATED
10.01.2017 IN WP(C) NO.750 OF 2017
EXHIBIT P2 THE TRUE COPY OF THE ARGUMENT NOTES DATED
27.04.2018
EXHIBIT P3 A TRUE COPY OF THE ASSESSMENT ORDER DATED
26.03.2019 FOR THE YEAR 2012-13