Kerala High Court
Bhima & Brother vs Assistant Commissioner (Assmt) on 15 October, 2008
Author: K.M.Joseph
Bench: K.M.Joseph
IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 26530 of 2008(G)
1. BHIMA & BROTHER, MULLAKKAL,
... Petitioner
Vs
1. ASSISTANT COMMISSIONER (ASSMT),
... Respondent
2. THE STATE OF KERALA, REPRESENTED BY
For Petitioner :SRI.E.K.NANDAKUMAR
For Respondent :GOVERNMENT PLEADER
The Hon'ble MR. Justice K.M.JOSEPH
Dated :15/10/2008
O R D E R
K.M. JOSEPH, J. " C.R."
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W.P.(C) No. 26530 OF 2008 G
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Dated this the 15th day of October, 2008
J U D G M E N T
The question that falls for decision in this case is the true scope of Explanation 5 to Section 8(f) of the Kerala Value Added Tax Act which reads as follows:
" 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. Such dealers will be permitted to continue to pay compounded tax under this clause even if they do not opt for paying tax under this clause for the new branch."
Section 8(1) stands substituted with effect from 1.4.2008. According to the petitioner, the said Explanation is inapplicable to the petitioner. In order to appreciate the contentions of the petitioner it is necessary to advert to the WPC.26530/08 : 2 : following facts.
2. Petitioner is a registered dealer in gold and silver ornaments under the KVAT Act(hereinafter referred to as "the Act"). It has its head office at Alappuzha and has two branches, one at Kollam and another at Thrissur. For the assessment years 2006-07 and 2007-08, the petitioner applied for and was granted permission to pay tax at compounded rate under section 8(f) of the Act as evident from Exts.P1 and P2. The branch of the petitioner at Thrissur did not opt for compounding for the years 2005-06, 2006-07 and 2007-08. They opted for regular assessment and have paid tax. Exts.P3, P4 and P5 are the copies of the returns filed by the branch at Thrissur for the assessment years 2005-06, 2006-07 and 2007-08. Petitioner, for the head office and both the branches at Kollam and Thrissur, filed an application for permission to opt for payment of tax under section 8 of the Act ie., at compounded rates for the assessment year 2008-09 vide Ext.P6. Ext.P7 is the order dated 6.5.2008 permitting the petitioner to pay tax at compounded rate in a sum of WPC.26530/08 : 3 : Rs.54,06,554/-. The petitioner sought clarification as to how the figure is arrived at, vide Ext.P8. That came to be responded by the 1st respondent vide Ext.P9. Petitioner challenges Exts.P7 and P9. In Ext.P9, reference is made to Explanation 5 to section 8(f). In other words, the view taken is that the compounded tax due for a new branch will be fixed at the average tax payable for the other branches in terms of the Explanation 5 to section 8(f) of Finance Bill, 2008 and the compounded tax paid for Kollam and Alappuzha for the assessment year 2007-08 was taken as the base year and the average tax due for Thrissur branch was calculated at 50% of the tax due for the other two branches and tax at the rate of 115% has been fixed as due for the year 2008-09. It is on this basis, that the calculation in Ext.P7 is sought to be justified.
3. A counter affidavit has been filed on behalf of the 1st respondent. Reference is made in the counter affidavit to Circular No.42/2006. It is, inter alia, stated therein as follows. WPC.26530/08 : 4 :
" In case of a branch opened by a dealer after 31.3.05, who has opted to pay tax as in item 1 and 11 above the tax payable for the new branch will be worked out as in sub clause 1 and 11 based on the figure used for computing the tax liability by taking the average of the tax paid or payable for the principal place of business and other branches as if the new branch had not been opened. Since M/s.Bhima had started the branch after 31.3.05 and they have not opted for compounding earlier for the new branch started after 31.3.05. The circular direction is specific and clear that the tax payable for the branch will be worked out by taking the average of the tax paid or payable for the principal place of business and other branches as if the new branch had not been opened."
4. The petitioner has opted to pay tax at compounded rate for the Thrissur branch for the year 2007-08. The Thrissur branch started functioning during 2005-06. Under the Finance Act, 2008, a dealer who opts for payment of tax under section 8 of the Act is liable to pay tax for all the branches they are having at compounded rate. It is stated in WPC.26530/08 : 5 : the counter affidavit that the Finance Act has reduced the highest tax payable by the dealer to 150% from 200% for a period of 12 months during any of the preceding three years. It is the further case of the respondent that no circular contrary to the Circular No.42/06 has been issued and that the compounded tax is calculated treating the branch as a new unit on the basis of Circular No.42/06.
5. A reply affidavit is filed essentially reiterating the stand and also producing Ext.P13 which is the Circular No.42/06. It is the case of the petitioner that Ext.P13 circular is inapplicable for the assessment year 2008-09 and it is only relevant for the assessment year 2006-07.
6. I heard learned counsel for the petitioner Sri.Anil D. Nair and learned Government Pleader Sri.C.K.Govindan.
7. Sri.Anil D. Nair would submit that it is clear that Exts.P7 and P9 cannot be sustained. A perusal of Explanation 5 to section 8(f) of the Act which has already been extracted in this judgment would show that it will be applicable only if a new branch is opened after 1.4.2008, he WPC.26530/08 : 6 : contends. In this case, he points out that the branch at Thrissur is opened in the year 2005. The branch at Thrissur did not opt for compounding in terms of the law prevalent in the assessment years prior to 1.4.2008. This was permitted and the branch filed returns under section 6. It is only the head office at Alappuzha and the branch at Kollam which were the subject matter of the application for compounding and which stood allowed. He would further invite my attention to the terms of the Circular which is apparently the basis of Exts.P7 and P9. The Circular reads, inter alia, as follows.
" 2. Dealers who had commenced business after 30.9.2006 will not be eligible to pay tax at compounded rate for the year 2006-
07.
5. The compounded tax to be paid by such dealers for 2006-07 will be calculated as follows:
(i) At 200% of the highest tax payable for a period of twelve months during any of the years 2003-04, 2004-05 or 2005-06.
(ii) At 400% of the tax payable or paid for the year 2005-06 in the case of dealers who do WPC.26530/08 : 7 : not qualify for compounding as per sub clause
(i) of clause (f) of section 8.
(iii) In the case of a dealer commencing business during the period from 1.4.2006 to 30.9.2006, the compounded tax per month shall be at 150% of the average monthly tax paid or payable from the commencement of business till 30.9.2006.
(iv) In the case of a "branch" opened by a dealer after 31.3.2005, who has opted to pay tax as in item (i) and (ii) above, the tax payable for the new branch will be worked out as in sub clause (i) and (ii) based on the figures used for computing the tax liability, by taking the average of the tax paid or payable for the principal place of business and other branches, as if the new branch had not been opened.
6. Branches are treated as independent units for the purpose of compounding. So if need be, dealers are at liberty to opt out of compounding in respect of any branch and compound for the rest.
11. In respect of the dealers opting for compounding during 2006-07, the tax paid during the year shall be adjusted against the compounded tax liability fixed under section WPC.26530/08 : 8 : 8(f) of the Kerala Value Added Tax Act.
12. The last date for filing application for compounding for the year 2006- 07 will be 30th of November, 2006."
8. The Circular in my view would appear to be inapplicable in respect of compounding for the assessment year 2008-09. In specific terms paragraph 5 of the Circular refers to compounding tax to be paid for the year 2006-07. Of particular importance is paragraph 6 which countenances liberty for the dealers to opt out of compounding in respect of any branch. Paragraph 6 and the provisions applicable for compounding with effect from 1.4.2008 are irreconcilable and after 1.4.2008 it is not in dispute that compounding is possible only for all the branches. It is the inevitable result of the wording of Explanation 3 to section 8(f) of the Act. Explanation 3 reads as follows.
" 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 previous to the year in which the option relates. " WPC.26530/08 : 9 :
9. This is a definite indication available from the circular that it cannot continue to govern the assessee from 1.4.2008 onwards as the circular if placed side by side the statutory provision can only perish in view of the conflict between them. That apart, even on the wording of Explanation 5, I would think that the stand taken by the respondent is unsustainable. The plain meaning of the words assume primary significance in the task of interpretation of any statute sans ambiguity, manifest injustice or absurdity. Looking at the Explanation, it appears to me that Explanation 5 will be applicable only if the dealer opens a new branch in the current year. The words "open a new branch" cannot permit the respondent to apply the Explanation to a case where a branch was in existence from the year 2005 and to treat the same as opened in the current year for the only reason that compounding is sought for in respect of the said branch in the year 2008-09 for the first time is not contemplated. I would think that such an interpretation would be opposed to the plain meaning of the words embedded in WPC.26530/08 : 10 : the provision. Neither is the respondent in my view entitled to draw support from Circular No.42/06 for the reasons which I have already indicated. If that be so, Exts.P7 and P9 are plainly unsustainable. Accordingly, I allow the writ petition and quash Exts.P7 and P9. A decision will be taken on Ext.P6 in accordance with law within one month from the date of receipt of a copy of this judgment. Till such decision is taken, the petitioner is permitted to pay the monthly compounded tax at the rate of Rs.49,42,211/-.
Sd/-
(K.M.JOSEPH, JUDGE) aks // TRUE COPY // P.A. TO JUDGE