2008 (5) TMI 623 - HC - VAT and Sales Tax

Case of compounding - tax calculated as ₹ 14,25,132 being two hundred per cent of the tax liability for the assessment year 2001-02 - Held that - In the facts of this case, admittedly when the petitioner has given exhibit P5 and what is more, when there was no order granting permission under rule 30, it was not open to the authority under exhibit P9 series issued in the year 2005 to take the view that the petitioner must be held to the earlier application for compounding. All the more so, the unrebutted allegations in the writ petition would show that the petitioner was filing monthly returns and paying tax which were being accepted. Thus considerable force in the contention taken by the petitioner. In view of the fact that there is no order permitting compounding of the assessment, it is to be completed under section 5. Exhibit P9 is quashed.

Summary

Issues involved:
1. Application for compounding filed by the petitioner for the assessment year 2002-03.
2. Withdrawal of the compounding application by the petitioner.
3. Dispute over the enhanced tax rate of two hundred per cent.
4. Challenge to the assessment completed by the assessing authority.
5. Interpretation of Rule 30 of the Kerala General Sales Tax Rules, 1963 regarding compounding.

Analysis:
1. The petitioner, a registered dealer in gold and silver ornaments, filed an application for compounding for the assessment year 2002-03 under the belief that the tax liability was limited to 120 per cent. However, upon discovering an amendment raising the liability to two hundred per cent, the petitioner sought to withdraw the application through exhibit P5. The assessing authority completed the assessment for the year 2002-03 based on the assumption that the petitioner is liable to pay at the enhanced rate. The petitioner challenges this assessment in exhibit P9 series and seeks its quashing.

2. The petitioner's argument, presented by the Senior Counsel, revolves around the contention that once compounding is permitted by an order under Rule 30 of the KGST Rules, it cannot be unilaterally withdrawn. However, in this case, no order granting permission for compounding was issued before the petitioner withdrew the application. The petitioner maintained regular tax payments and filed returns, indicating compliance with tax obligations. The assessing authority's reliance on previous cases where permission for compounding had been granted does not apply here due to the absence of such permission in the current scenario.

3. The court examined the provisions of Rule 30, which outline the procedure for applying and granting permission for tax payment at compounded rates. Since no permission had been granted in this case, the court concluded that there was no binding contract between the parties regarding compounding. As a result, the assessing authority's decision to calculate tax at the enhanced rate without permission was deemed improper. The court held that the petitioner should be assessed under Section 5(1) of the KGST Act for the assessment year 2002-03, and directed the assessing authority to complete the assessment accordingly, thereby quashing exhibit P9.

4. The judgment emphasizes the importance of following legal procedures and ensuring that permissions are granted before enforcing tax liabilities. It highlights the need for clarity in assessing tax obligations and upholding the rights of dealers under the relevant tax laws. The court's decision in this case underscores the principle that unilateral withdrawal of a compounding application is permissible if permission has not been granted, thereby protecting the rights of the petitioner in fulfilling tax obligations.