2006 (6) TMI 493 - HC - VAT and Sales Tax

Summary

Issues involved:
Sales tax assessments for 2000-01 and 2001-02, payment of tax at compound rate under section 7(1)(a) of the Kerala General Sales Tax Act, liability for tax on standard gold (bullion) in addition to compounded tax, scope of section 7(1)(a) regarding other goods dealt with by the dealer, interpretation of "gold or silver ornaments or wares" under the Act, exclusion of tax paid on standard gold (bullion) from compounded tax liability, demand of additional tax under section 5D, interest on tax payment.

Analysis:

1. Payment of Tax at Compound Rate under Section 7(1)(a): The petitioners, dealers in gold and silver jewellery, claimed the benefit of paying tax at a compounded rate under section 7(1)(a) of the Act. This provision allows dealers to settle their tax liability by paying a percentage of the tax payable in the preceding year. However, the assessing officer contended that the turnover from the sale of standard gold (bullion) is separately taxable in addition to the compounded tax for jewellery business. The key issue here is whether the payment of tax at a compound rate for jewellery covers the tax liability on other goods dealt with by the dealer. The court clarified that the tax payable on other goods, such as standard gold (bullion), is not covered by the payment of tax at a compound rate for jewellery.

2. Interpretation of "Gold or Silver Ornaments or Wares": The court analyzed whether standard gold (bullion) falls under the category of "gold or silver ornaments or wares" as mentioned in section 7(1)(a). It was established that standard gold (bullion) does not constitute gold ornaments or wares. The court emphasized that the scheme of payment at a compound rate is specifically for items covered under the relevant entry in the Schedule to the Act, which does not include standard gold (bullion). The distinction between gold ornaments and bullion was crucial in determining the tax liability for the dealers.

3. Exclusion of Tax on Standard Gold (Bullion) from Compound Rate Calculation: The court addressed the argument raised by the petitioners regarding the exclusion of tax paid on standard gold (bullion) from the calculation of the compound rate tax. It was agreed that if standard gold (bullion) is not covered by the provisions of section 7(1)(a), then the tax paid on such transactions should be excluded from the compound rate calculation. The court directed the assessing officer to modify the tax liability at a compound rate by excluding the tax paid on the first sales of standard gold (bullion) in the previous year.

4. Demand of Additional Tax and Interest Payment: The judgment also dealt with the demand for additional tax under section 5D on the tax payable at a compounded rate. The court referred to a previous decision and rejected the petitioner's argument, confirming the demand for additional tax. Regarding the payment of interest on tax, the court clarified that interest cannot be demanded unless there is a default in payment. It directed the assessing officer to issue revised orders modifying the demand as required, emphasizing that no interest is payable unless a default occurs after a fresh demand is raised based on revised or regular assessments.

In conclusion, the court upheld the separate demand for tax on standard gold (bullion) in addition to the tax payable at a compound rate, with specific instructions to exclude the tax paid on standard gold (bullion) from the compound rate calculation for the subsequent year. The writ petitions were disposed of accordingly, addressing the various issues raised by the petitioners in relation to the sales tax assessments and payment of tax under the Act.