2003 (11) TMI 562 - HC - VAT and Sales Tax

Issues Involved:
1. Liability of a dealer opting for payment of sales tax at compounded rates under section 7 to pay additional tax under section 5D of the Kerala General Sales Tax Act, 1963.
2. Legality of demand raised through notices in form 14-D.
3. Interpretation of section 5D in relation to section 7.
4. Validity of the clarification issued by the Commissioner.
5. Imposition of interest without assessment.
6. Constitutionality and fairness of the tax structure.

Issue-wise Detailed Analysis:

1. Liability of a Dealer Opting for Compounded Rates to Pay Additional Tax:
The main question was whether a dealer who opts to pay sales tax at compounded rates under section 7 is liable to pay additional tax under section 5D. The court held that section 7, which allows dealers to pay tax at compounded rates, does not exempt them from the additional tax levied under section 5D. Section 5 is the charging section, and section 5D, introduced later, imposes an additional tax of 15% on the tax payable under sections 5 and 5A. The court found no indication that the legislature intended to exclude dealers under section 7 from this additional tax.

2. Legality of Demand Raised Through Notices in Form 14-D:
The appellant contended that the demand for additional tax through notices in form 14-D was illegal. The court agreed with the appellant that the tax not shown as due in the return cannot be demanded by issuing form 14-D under rule 21(10) without issuing a notice and making an assessment. However, since the appellant was liable to pay the additional tax, the demand raised by exhibits P2 and P3 was sustained, and the writ petition was dismissed.

3. Interpretation of Section 5D in Relation to Section 7:
The court examined whether section 7, which begins with a non obstante clause, covers the liability under section 5D. It concluded that the non obstante clause in section 7 only implies an overriding effect in case of conflict but does not indicate that it covers additional tax liability under section 5D. The court emphasized that section 7 covers the liability under sections 5 and 5A but not section 5D, which was introduced later.

4. Validity of the Clarification Issued by the Commissioner:
The appellant argued that the clarification issued by the Commissioner should not be relied upon for interpreting the provision. The court acknowledged that while the clarification is not binding on the Appellate Tribunal, it illustrates the Department's viewpoint and is in conformity with the statutory provision. Therefore, the court found no issue with the learned single Judge's reliance on the clarification.

5. Imposition of Interest Without Assessment:
The appellant contended that the imposition of interest without an assessment order was unjustified. The court noted that the payment and recovery of tax under the Act are governed by section 23, which provides for the levy of interest if the tax is not paid. Since the appellant was liable for the additional tax and had not paid it, the demand for interest was deemed legal.

6. Constitutionality and Fairness of the Tax Structure:
The appellant argued that the tax structure was arbitrary and oppressive, quoting classical literature to support the view that taxes should not harm the taxpayers. The court agreed in principle but stated that tax policy is a matter for the Legislature, and courts can only intervene if a provision is shown to be unconstitutional. In this case, there was no challenge to the legislative competence or constitutionality of the provisions.

Conclusion:
The court dismissed the appeal, upholding the liability of the appellant to pay additional tax under section 5D, the legality of the demand notices, and the imposition of interest. The court found no merit in the appellant's arguments and sustained the order of the learned single Judge.

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