2009 (2) TMI 764 - HC - VAT and Sales Tax

Whether section 47(16A) under which circular Nos. 50 and 53 of 2006 are issued, does not authorise collection of advance tax before sale? Whether section 47(16A) authorises declaration of evasion-prone goods and collection of tax in advance, i.e., prior to sale of goods, then such provision is unconstitutional? Held that - What is contemplated in the section is collection of tax for the commodities covered by the notification which are declared evasion-prone, at the earliest opportunity possible, which is on arrival of goods in the State itself, thereby making evasion of tax for the goods impossible. Therefore, we reject the contention of the appellants that section 47(16A) does not authorise collection of tax before sale. Consequently we hold that the impugned circulars authorising collection of tax in advance prior to sale of the commodities referred to therein are in accordance with the statutory provisions. We are not impressed with the argument of the appellants that their rights under article 19(1)(g) are violated inasmuch as before the incidence of tax falls, they are made to pay the tax because for sale of commodity from the beginning to the end of a month, the dealers are allowed to keep the tax until the 10th of the succeeding month when they are required to remit the monthly tax. Since the statute authorises dealers to retain collected tax for up to 40 days, we see no reason why dealers cannot be called upon to pay tax in advance for the commodity brought for sale in the State. Further, the system of payment of advance tax is working very smoothly for the last three years which only shows that the traders have accepted the same. Appeal dismissed

Summary

Issues:
Constitutional validity of section 47(16A) of the Kerala Value Added Tax Act, 2003 and circulars issued by the Commissioner authorizing advance tax collection on specified goods.

Detailed Analysis:

1. Interpretation of Section 47(16A):
The appellants contested the constitutional validity of section 47(16A) and circulars issued by the Commissioner, arguing that the provision does not authorize the collection of advance tax before the sale of goods. They highlighted that rule 22 of the Kerala Value Added Tax Rules, 2005, specifies tax payment by the 10th of the succeeding month for sales made each month. However, the learned single judge rejected this contention, emphasizing that interpreting the section to disallow advance tax collection would defeat the purpose of preventing tax evasion. The court agreed that the intent is to identify evasion-prone goods and collect tax in advance to eliminate tax evasion opportunities.

2. Constitutional Validity of Advance Tax Collection:
The appellants further argued that if section 47(16A) permits the declaration of evasion-prone goods and advance tax collection before sales, it is unconstitutional. The Special Government Pleader contended that the tax paid in advance can be credited by the dealer with the next monthly return, serving as security for future tax liabilities. The court concurred, noting that the advance tax acts as a security measure and facilitates accurate accounting of goods. It was clarified that the advance tax collected is not a new concept and aligns with tax recovery practices under previous tax laws. The court upheld the constitutionality of advance tax collection as it aids in preventing tax evasion and ensures proper tax accounting by dealers.

3. Compliance and Adjustment of Advance Tax:
The court highlighted that dealers can adjust the advance tax paid against their monthly tax liability, even if the goods for which advance tax was paid are not sold in the same month. This adjustment mechanism allows dealers to retain the collected tax as a security until the succeeding month's tax payment. The court emphasized that the advance tax collection system has been functioning smoothly for years, indicating acceptance and compliance by traders. It was concluded that the grievances expressed by the appellants regarding advance tax payment were unfounded, as the system facilitated tax compliance and accountability effectively.

4. Prevention of Tax Evasion:
The court underscored the importance of collecting tax in advance on specified goods to prevent tax evasion, especially in cases where goods are brought into the state under false names or registrations. By collecting tax at the check-post, the state aims to curb tax evasion practices, as evidenced by numerous penalty cases involving goods transported under deceptive arrangements. The court noted that the advance tax collection mechanism serves as a preventive measure against tax evasion and ensures accountability in the trading process.

In conclusion, the High Court of Kerala upheld the constitutional validity of section 47(16A) and the circulars issued by the Commissioner for advance tax collection on specified goods, dismissing the writ appeals and petitions raised by the appellants.