2006 (10) TMI 405 - HC - VAT and Sales Tax

Summary

Issues:
1. Liability to pay interest under section 23(3A) of the KGST Act for differential tax assessed over the compounded tax paid under section 7(1)(a) of the KGST Act.

Analysis:
The judgment of the court addressed the issue of whether the appellant, a dealer in jewellery, was liable to pay interest levied in the assessment under section 23(3A) of the KGST Act for the differential tax assessed over the compounded tax paid under section 7(1)(a) of the KGST Act. The appellant applied for payment of tax at a compounded rate under section 7(1)(a) for the year 2001-2002. The tax payable under this section was determined to be 120 per cent of the tax paid for the preceding year or 120 per cent of the tax payable based on the return or accounts in that year, whichever is higher. However, it was discovered during assessment that there was a short payment due to the non-inclusion of tax on the purchase turnover of old gold in the appellant's accounts for the previous year. The assessing officer demanded interest for the belated payment of the differential tax, which the appellant contested. The Deputy Commissioner initially cancelled the interest demand, but the Commissioner of Commercial Taxes reinstated it under section 23(3A), leading to the appellant's appeal.

The court noted that the assessing officer did not specify the provision under which interest was levied, and the first revisional authority wrongly assumed it was under section 23(3) instead of section 23(3A). The court upheld the Commissioner's order in reinstating the interest, emphasizing that the appellant had the opportunity to contest the levy before the Commissioner. The court examined the statutory provision under which interest is levied, which applies when turnover is not included in the return filed or when turnover has escaped assessment, leading to a short payment of tax. In this case, the appellant failed to include the purchase turnover of old gold in the return for the previous year, resulting in the short-payment of tax under the compounding scheme. The court rejected the appellant's argument that the short-payment was due to an error by the assessing officer, as the turnover was not declared in the return but was disclosed in the accounts.

Furthermore, the court highlighted that the assessing officer did not have the opportunity to verify the accounts before the compounding application was filed, leading to the determination of tax liability based on the return that did not include the relevant turnover. Therefore, the court concluded that the short levy and payment of tax were solely due to the non-inclusion of turnover in the return, affirming the Commissioner's decision and dismissing the appellant's appeal.