Kerala High Court
Bhima Jewellery vs Assistant Commissioner (Assessment) ... on 11 April, 2002
Equivalent citations: [2003]129STC90(KER)
Author: C.N. Ramachandran Nair
Bench: C.N. Ramachandran Nair
JUDGMENT C.N. Ramachandran Nair, J.
1. The petitioner is a dealer in gold ornaments registered under the Kerala General Sales Tax Act, 1963, hereinafter called "the Act", before the first respondent. The jewellery made of gold, silver and platinum group metals and articles made of such metals are taxable at the point of first sale in the State at the rate of four per cent as provided under item No. 75 of the First Schedule to the Act. However, the petitioner has opted to pay tax at compounded rate under Section 7(1) of the Act. The said section with the explanations and provisos applicable to this case are extracted hereunder for easy reference :
"7. Payment of tax at compounded rates.--(1) Notwithstanding anything contained in Sub-section (1) of Section 5,--
(a) any dealer in gold or silver ornaments or wares, may, at his option, instead of paying tax in accordance with the provisions of that Sub-section, pay tax at one hundred and fifty per cent of the tax payable by him as conceded in the return or accounts for the immediate preceding year.
Explanation--For the purpose of this clause tax payable as conceded in the return or account for the immediate preceding year' means tax payable on the sales turnover under Sub-section (1) of Section 5 and the tax payable on the purchase turnover under Section 5A :
Provided that where during the preceding year, the dealer had not transacted business for any period the tax payable for the whole year shall be calculated proportionately on the basis of the tax pay-able for the period during which such dealer had transacted business ;
Provided further that where a dealer has paid tax under this sub-section for the preceding year, the compounded tax to be paid by him for the succeeding year shall be one hundred and twenty per cent of such tax paid or one hundred and twenty per cent of the tax pay-able as per the return or accounts of the dealer for the preceding year whichever is higher :
Provided also that where such dealer has paid compounded tax consecutively for a period of three years the compounded tax payable for the succeeding year shall be one hundred and fifteen per cent, and in the case of a dealer who has paid compounded tax consecutively for a period of five years the compounded tax payable for the succeeding year shall be one hundred and ten per cent, of such compounded tax paid or payable by him for the immediate preceding year :
Provided also that where such a dealer acquires any running business or a branch of a business with respect to gold, silver ornaments or wares during the year, the amount of compounding tax payable in respect of such business shall be calculated in accordance with the provisions of this clause as if it were an independent business, taking into account the turnover conceded in the return or accounts thereof for the previous year with respect to that business or on the basis of the quantum of compounded tax fixed for the previous year in accordance with the second and third provisos, as the case may be:
Provided also that where a dealer paying tax in accordance with the provisions of this sub-section opens a new branch during a year, such branch shall be treated as if it were an independent place of business and the provisions of this sub-section shall apply to it accordingly. .....".
There is no dispute with regard to tax payable by the petitioner on the gold ornaments as provided in the abovesaid Schedule. However, the petitioner's objection is against the demand of additional sales tax by the first respondent on the tax payable by the petitioner at compounded rate under Section 5D introduced to the Act by Act 7 of 2001 with effect from July 23, 2001. Though the proviso to the said section, as originally enacted, provided that levy would be only up to March 31, 2002, there is a budget proposal in the budget presented for this year to continue the levy for the next financial year also. The petitioner paid additional sales tax under the said section in addition to payment of tax at compounded rate under Section 7(1) along with monthly returns filed for July and August, 2001. However, since the petitioner discontinued the payment for September and October, 2001, the first respondent issued demand in form 14D prescribed under Rule 21(10) of the Kerala General Sales Tax Rules, 1963 demanding additional sales tax for the said two months. The petitioner has produced notices in form 14D received for September and October, 2001 and marked them as exhibits P2 and P3 respectively. The contention of the petitioner is that since the petitioner has no liability either under Section 5 or Section 5A of the Act, and since the petitioner is paying tax at compounded rate under Section 7(1) of the Act, the petitioner has no liability to pay additional sales tax provided under Section 5D of the Act, which applies only to tax payable under Sections 5 and 5A of the Act. The alternate contention raised by the petitioner is that the demand of additional sales tax by issuing form 14D is not authorised under the Act because the liability is not admitted in the returns filed and if the first respondent ever wanted to levy additional sales tax, the same should have been done after completing the assessment either provisional or regular after observing the procedural formalities provided under the Act. In other words according to him, for liability under Section 5D of the Act, the impugned demand notices are unsustainable for want of proper assessment justifying the demand.
2. I heard learned counsel appearing for the petitioner, Dr. Muhamed Kutty, and Sri Raju Joseph, Special Government Pleader for Taxes, appearing for the State.
3. Since the dispute is with regard to liability under Section 5D, the section is extracted hereunder for easy reference :
"5D. Levy of additional sales tax.--The tax payable under Section 5 and Section 5A shall be increased by an additional sales tax at the rate of fifteen per cent of the tax payable under the said sections :
Provided that no additional sales tax under this section shall be levied,--
(a) on the tax payable on high speed diesel oil, petrol and liquefied petroleum gas falling under sub-items (i), (v) and (viii) respectively of serial number 108 and foreign liquor falling under serial number 60 of the First Schedule;
(b) on any goods falling under the Second Schedule in such a way that the tax leviable under Section 5 and Section 5A and that leviable under this section together exceed four per cent :
Provided further that the levy of additional tax payable under this section shall only be for the period up to 31st March, 2002."
The learned counsel for the petitioner, Dr. Muhamed Kutty contended that Section 5D creates liability for additional sales tax only in respect of tax paid under Section 5 and Section 5A, and since the petitioner is not paying tax either under Section 5 or under Section 5A, the petitioner has no liability for additional sales tax. According to him, the tax payable under Section 7(l)(a) at the compounded rate is an all inclusive tax and a dealer paying tax under the said section will have no liability under any other provision, including Section 5D. He referred to the explanation available to the section of the Kerala Additional Sales Tax Act, 1978 which was earlier in force on the subject and which was later repealed. According to him, under the 1978 Act an additional sales tax was payable on the entire sales tax liability under the Act. The explanation to the charging section of that Act made it clear that the rate of sales tax as reduced under notification issued under the Sales Tax Act was also to be increased by additional sales tax. According to him, the present provision contained in Section 5D does not make such a provision and the scope of Section 5D is very limited and the additional sales tax under the said section is only in respect of tax payable under Section 5 and Section 5A. Another argument advanced is that payment of tax at compounded rate is on tax payable under Section 5 and since Section 5D forms part of Section 5 the payment of compounded tax under Section 7(1) includes additional tax also, According to him, the tax paid at compounded rate under Section 7(l)(a) by the petitioner should take in additional sales tax as well, and therefore the payment of tax at compounded rate is a clear discharge of liability of sales tax and additional sales tax under the Act. The last argument is alternate in nature and is against the issue of form 14D which is only a demand of tax without any assessment before that, either provisional or regular. He also referred to the decision of this Court in O.P. No. 36033 of 2000 Reported as Pioneer Industries v. Additional Sales Tax Officer in [2003] 129 STC 84 supra. Wherein this Court has held that the proceedings under Section 7(1) are not appealable as there is no dispute in the matter. If a demand of tax under Section 7(l)(a) is not appealable, then it is not a proceeding determining tax under Section 5 because against the assessment under Section 5(1) there is an appeal provided. In that view of the matter he contends that assessment for tax under Section 7(l)(a) is not assessment of tax under Section 5, and therefore there is no liability on the petitioner to pay additional sales tax under Section 5D on tax paid at compounded rate.
3. The Special Government Pleader (Taxes) on the other hand submitted that Section 7(l)(a) is not an independent charging section, and it is an option exercised by the assessee by paying tax at compounded rate. It is only a discharge of liability under Section 5(1). According to him, the petitioner in fact is discharging his liability under Section 5(1) by exercising his option under Section 7(l)(a). According to him, tax at the compounded rate is nothing but tax payable under Section 5(1) but paid at compounded rate. He vehemently opposed the contention of counsel for the petitioner that Section 7(l)(a) constitutes an independent charging provision and the same is independent of Section 5(1). The Special Government Pleader also relied on the decision of this Court reported in Parakkattil Aleyamma v. Sales Tax Officer [1993] 91 STC 518. Further he relied on the judgment of this Court in O.P. No. 3583 of 2002. Reported in [2002] 128 STC 301 (Ker) (P.O. Abraham Associates v. Commissioner, Commercial Taxes). Wherein this Court held that the additional sales tax is payable in respect of tax paid at a lower rate on the basis of notification S.R.O. No. 1728 of 1992. According to him, the legal principle involved is the same as this case.
4. After hearing the arguments of counsel for the petitioner and Special Government Pleader and on going through the relevant sections of the Act, I am of the view that the contention of the petitioner cannot be accepted because, but for the compounding, the petitioner would have been liable to pay tax under Section 5(1) of the Act. Compounding is nothing but an option given to the petitioner to pay the tax to the extent and at the rates provided under the said section at the option of the dealer, who would otherwise be liable to pay normal tax under Section 5(1). The wording of Section 7(l)(a) is such that a dealer is only given an option to pay tax under that section, instead of the normal payment of tax under Section 5(1) of the Act. Therefore I am of the view that Section 7(l)(a) does not constitute an independent charging section. When a dealer pays tax under Section 7(l)(a) at his option, he is only discharging liability under Section 5(1). Therefore when the option is exercised under Section 7(l)(a), the tax payable under Section 5(1) is substituted by it and the petitioner's contention to the contrary is not tenable. So much so, a person paying tax at the compounded rate whether under Section 7(l)(a) or under Section 7(l)(b) or Section 7(7) or 7(7A) will have to pay additional sales tax under Section 5D on such compounded tax. According to the petitioner if this interpretation is followed, additional sales tax will be payable in respect of licence fee under Section 5B. Further according to him then lottery tickets under Section 5BA will also attract additional sales tax which does not appear to be justified. I cannot agree with this proposition. This is because Sections 5B and 5BA constitute independent charging sections with regard to items referred to therein, whereas Section 7 or any sub-section provided thereunder does not constitute any independent charging provision, but it is only a substitute for the tax payable under the various provisions of Section 5 of the Act. Therefore I am of the view that the petitioner and other dealers paying tax at compounded rate under various sub-sections of Section 7 are liable to pay additional sales tax under Section 5D of the Act. Similar is the view taken in the decision in O.P. No. 3583 of 2002. Reported in |2002] 128 STC 301 (Ker) (P.O. Abraham Associates v. Commissioner, Commercial Taxes). Dated February 18, 2002. The Special Government Pleader also brought to my notice the clarification issued by the Commissioner of Commercial Taxes in Order No. C3-43060/01/ CT dated December 28, 2001, The clarification was issued in the context of payment of tax under Section 7(l)(b) of the Act by mechanised granite crushing unit which also pays tax at compounded rate. According to the clarification issued, additional sales tax is payable in addition to the tax payable at the compounded rate by that dealer. Though the clarification may be binding on the department, it may not be binding on the court. However, the clarification is consistent with the view taken by me above and the interpretation placed by me on Section 5D of the Act. In the decision reported in Parakkattil Aleyamma v. Sales Tax Officer [1993] 91 STC 518, this Court held that the additional sales tax is payable by those who are paying the tax at compounded rate under Section 7(14) of the Act. Even though the said decision is in the context of the Additional Sales Tax Act of 1978, I feel the principle is squarely applicable to the present case, and I therefore follow the same.
5. The alternate point raised by Dr. Mohamedkutty is against the issue of form 14D demanding additional sales tax without making a regular or provisional assessment. According to the petitioner, the petitioner is entitled to a notice and only after making an assessment, provisional or regular, which the petitioner has a right to contest, the assessing officer has the right to demand tax. Moreover, according to him Rule 21(10) provides for demand of tax only admitted in the returns. However, the Special Government Pleader pointed out that the assessee himself paid the additional sales tax along with monthly returns for earlier two months. According to him, the officer would have raised the demand straightaway taking it as a omission to pay additional sales tax by the assessee in the monthly returns, in respect of which tax is demanded under exhibits P2 and P3. He further contended that there is no scope for provisional or regular assessment in this case because the additional sales tax is due under the return itself because the tax payable under Section 5D is 15 per cent of the sales tax shown in the return, and since liability is automatic and related to the tax payable under the Act, no purpose will be served by issuing notice to the petitioner, is his contention. I agree with the view of counsel for the petitioner that the tax not shown as due in the return cannot be demanded by issuing of form 14D under Rule 21(10) of the Rules as the assessing officer has necessarily to issue notice and any demand over and above the tax shown as due in the return should be made after making provisional or regular assessment and after issuing notice to the assessee and after hearing his objections. However, in this case I do not think there is any need to direct the officer to make an assessment because the issue is only a matter of application of Section 5D to the assessee. As the case was contested on merits before me and I have decided the issue in this O.P. there is no need for remanding the matter to the assessing officer for making an assessment. In the circumstances, it is declared that the assessee is liable to pay additional sales tax under Section 5D on the tax paid at compounded rate and demand vide exhibits P2 and P3 are in order and hence are sustained. The original petition is accordingly dismissed.
Order on C.M.P. No. 60219 of 2001 in O.P. No. 36819 of 2001 dismissed.