2006 (3) TMI 718 - HC - VAT and Sales Tax

Summary

Issues:
- Interpretation of scope of section 7(1)(a) of the Kerala General Sales Tax Act, 1963 regarding the benefit of compounding for a specific year.

Analysis:
The petitioner challenged an order (exhibit P2) by the Deputy Commissioner of Commercial Taxes regarding the petitioner's sales tax assessment for the year 1996-97 under section 35 of the KGST Act, which set aside the assessment at a compounded rate of tax. The petitioner contended that the matter involved the interpretation of the scope of section 7(1)(a) of the Act. Despite the availability of a statutory appeal, the petitioner filed an original petition, prompting the court to proceed with deciding the case on merits. The issue revolved around the interpretation of section 7(1)(a) of the Act prior to its amendment, specifically focusing on the eligibility criteria for paying tax at a compounded rate.

The petitioner commenced business in November 1995 and applied for payment of tax at a compounded rate for 1996-97 based on the tax payable during the previous year. The assessing officer accepted this claim, but the Deputy Commissioner, through exhibit P2 order, ruled that the petitioner was not entitled to the benefit of compounding as the petitioner had not carried on business for a full year in any of the preceding three years. The petitioner argued that section 7(1)(a) did not mandate carrying on business for the whole year in the preceding three years and referenced a proviso introduced in 1998 to support this claim. The Government Pleader, however, contended that the requirement of three years' business was inherent in the section even before the amendment.

The court analyzed section 7(1)(a) before the proviso's introduction and concluded that the dealer seeking the benefit of compounding should have carried on business for some period in all three financial years preceding the year for which the benefit is claimed. The court clarified that the proviso only addressed situations where there was a break in business during a financial year but did not negate the requirement of conducting business in all three preceding years. The court deemed the amendment clarificatory and upheld the Deputy Commissioner's decision that the petitioner was not entitled to the benefit of compounding for 1996-97. Consequently, the original petition challenging exhibit P2 was dismissed for lacking merit.