2007 (9) TMI 597 - HC - VAT and Sales Tax

Whether the amended provisions of section 7(a) and (b) of the Kerala General Sales Tax Act, 1963 can be applied to those dealers who had opted for payment of turnover tax for the assessment year 2006-07 before the amendment was brought into the statute and whether the dealers are entitled to pay tax at the rate prescribed in clause (a) of section 7 of the KGST Act before its amendment on the purchase of liquor for the assessment year 2006-07? Held that - By using the expression whichever is higher immediately after clause (a) and clause (b) of section 7, the Legislature intends to provide only one rate under the compounding scheme for payment of turnover tax under the Act. Though a dealer may exercise his option to pay turnover tax under compounding scheme under clause (a) of section 7 of the Act, the assessing authority need not give him permission as required under rule 30 of the Rules, if one hundred and fifteen per cent of the turnover tax payable or paid for three consecutive years is higher than what is prescribed under clause (a) of section 7 of the Act and can still insist on the dealer, to pay turnover tax at the highest rate as provided either under clause (a) or (b) of section 7 of the Act. This is made clear by the Legislature by making certain amendments in the Kerala Finance Bill, 2007. For the reasons stated above, we hold that there are no merits in these appeals. They are accordingly dismissed. After the judgment was pronounced in open court, the learned counsel appearing for the assessee would request this court to grant permission to the assessees either to opt for compounding under the new provisions or in the alternative to permit them to request the assessing authorities to complete the assessments in their case as provided under the charging provision. In our view, the request appears to be reasonable. Therefore, the petitioners are granted permission either to opt for payment of the turnover tax under the compounding scheme or as provided under section 5(2) of the Act within a month s time from today. If such a request is made, the assessing authority would consider the same in accordance with law.

Issues Involved:
1. Applicability of amended provisions of Section 7(a) and (b) of the Kerala General Sales Tax Act, 1963 to dealers who opted for payment of turnover tax for the assessment year 2006-07 before the amendment.
2. Entitlement of dealers to pay tax at the rate prescribed in clause (a) of Section 7 of the KGST Act before its amendment for the assessment year 2006-07.
3. Retrospective operation of the amended provisions and its reasonableness and legality.
4. Doctrine of promissory estoppel and its applicability against the statute.
5. Interpretation of the punctuation and language used in the amended Section 7 of the KGST Act.

Detailed Analysis:

1. Applicability of Amended Provisions:
The court examined whether the amended provisions of Section 7(a) and (b) of the KGST Act, 1963 could be applied to dealers who had opted for payment of turnover tax for the assessment year 2006-07 before the amendment. The appellants, running bar-attached hotels, had opted for payment of turnover tax at compounded rates as per the original Section 7, which was later amended by the Kerala Finance Act, 2006. The court noted that the amended provisions were intended to address revenue losses and were made effective retrospectively from July 1, 2006. The court concluded that the amended provisions applied to the appellants, as the Legislature has the competence to enact laws with retrospective effect.

2. Entitlement to Pay Tax at Pre-Amendment Rate:
The appellants contended that they should be allowed to continue paying tax at the rates prescribed in the original Section 7(a) for the entire assessment year 2006-07, as they had already opted for the compounding scheme. The court rejected this argument, stating that the Legislature's power to amend laws includes the authority to apply such amendments retrospectively. The court emphasized that the legislative intent was to increase revenue by modifying the compounding scheme, and this intent must be respected.

3. Retrospective Operation and Reasonableness:
The appellants argued that the retrospective operation of the amended provisions was unreasonable and arbitrary, violating Articles 14 and 19 of the Constitution. The court disagreed, citing precedents that uphold the Legislature's power to enact retrospective fiscal legislation. The court noted that retrospective laws are not per se unreasonable, and practical difficulties or inequalities resulting from such laws do not render them unconstitutional. The court also highlighted that the appellants had the option to choose regular assessment under Section 5(2) if they found the amended compounding scheme burdensome.

4. Doctrine of Promissory Estoppel:
The appellants invoked the doctrine of promissory estoppel, arguing that the government should be bound by the original Section 7 provisions, as they had arranged their affairs based on the promise made by the Legislature. The court clarified that the doctrine of promissory estoppel cannot be used against the Legislature in the exercise of its legislative functions. The court cited the Supreme Court's decisions in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Union of India v. Godfrey Philips India Ltd., which establish that promissory estoppel does not apply to legislative acts.

5. Interpretation of Punctuation and Language:
The appellants contended that the punctuation and language used in the amended Section 7 should be interpreted to allow them to choose either clause (a) or (b) for paying turnover tax. The court examined the use of semi-colons and the word "or" in the provision, concluding that the legislative intent was to provide a single rate for the compounding scheme, with the higher rate between clauses (a) and (b) prevailing. The court emphasized that punctuation should not control the plain meaning of the text and that the legislative policy aimed to increase revenue must be upheld.

Conclusion:
The court dismissed the appeals, holding that the amended provisions of Section 7(a) and (b) of the KGST Act applied retrospectively to the appellants. The court rejected the arguments based on promissory estoppel and the interpretation of punctuation, emphasizing the legislative intent to increase revenue through the amended compounding scheme. The court granted the appellants permission to opt for either the new compounding scheme or regular assessment under Section 5(2) within a month.

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