2013 (2) TMI 648 - HC - VAT and Sales Tax

Compounding - whether Section 8(f)(ii) of the Kerala Value Added Tax Act which authorised cancellation of the permission granted for payment of tax at compounded rates from suffer any unconstitutionality? Held that - The assessee having voluntarily opted for the compounding, fully knowing the conditions that are attached to the scheme, cannot thereafter contend that the conditions are illegal and he is estopped from doing so. Further, petitioner could not satisfy me that the condition that is incorporated by the Legislature suffer from anyone of the limitations, including those of Articles 14 or 19(1)(g), rendering the provision unconstitutional. If that be so, this contention of the counsel for the petitioner does not merit acceptance. Admittedly, the issue in question pertains to the assessment year 2010-11. The amendment to the section was only with effect from 1.4.2011. If that be so, the petitioner cannot contend that the respondents could not have relied on this power for the assessment year 2010-11 Section 8(f)(iii) provides for appellate remedy against orders issued under Section 8(f)(ii). Similarly, the assessment order passed against the petitioner, which is only consequential, is also appealable as provided under Section 55 of the Act. Therefore, while uphold the constitutional validity of Section 8(f)(ii), decline to examine the validity of the impugned orders on the other factual grounds urged by the petitioner and leave it open to the petitioner to pursue the matter before the appropriate statutory appellate authority.

Summary

Issues Involved:
1. Validity of Section 8(f)(ii) of the Kerala Value Added Tax Act.
2. Cancellation of permission for payment of tax at compounded rates.
3. Assessment and demand notices issued to the petitioner.
4. Constitutionality of the conditions for compounding under Section 8(f) of the Act.

Issue-Wise Detailed Analysis:

1. Validity of Section 8(f)(ii) of the Kerala Value Added Tax Act:
The petitioner challenged the constitutional validity of Section 8(f)(ii) of the Kerala Value Added Tax Act, arguing that it violates Articles 14 and 19(1)(g) of the Constitution of India. The court examined whether this section, which allows the cancellation of permission for payment of tax at compounded rates under certain conditions, contravenes constitutional provisions. The court noted that the power to read down a statute is exercised to save it from unconstitutionality. However, this power is invoked only if the statute would otherwise be unconstitutional. The court found that Section 8(f)(ii) did not contravene any constitutional limitations and was a valid piece of legislation. Therefore, the court upheld the constitutional validity of Section 8(f)(ii).

2. Cancellation of Permission for Payment of Tax at Compounded Rates:
The petitioner had opted for payment of tax at compounded rates for the assessment year 2010-11, which was initially allowed. However, the first respondent later issued a notice proposing to cancel this permission due to the petitioner holding stock exceeding double the quantity held in the previous year. The court highlighted that the petitioner's closing stock for 2009-10 was 215.115 grams, whereas for 2010-11, it was 61449.097 grams, indicating a substantial increase. Section 8(f)(ii) permits cancellation of compounding permission if the stock exceeds double the quantity held in the previous year. The court found that this ground for cancellation was valid and upheld the first respondent's action.

3. Assessment and Demand Notices Issued to the Petitioner:
Following the cancellation of compounding permission, the first respondent issued an assessment order and a demand notice for the tax year 2010-11. The petitioner was assessed to have a taxable turnover of Rs. 32,45,06,031.25 and was liable to pay tax at 4%, resulting in a total tax due of Rs. 1,29,80,241/-. After crediting the amount already remitted, the balance tax due was Rs. 1,14,83,679/-, along with interest. The court noted that the petitioner did not reply to the notice, leading to the issuance of the assessment order. The court declined to examine the validity of these orders on factual grounds, leaving it open for the petitioner to pursue the matter before the appropriate appellate authority.

4. Constitutionality of the Conditions for Compounding under Section 8(f) of the Act:
The petitioner argued that the conditions for compounding, particularly the ground of holding stock exceeding double the previous year's quantity, were unconstitutional. The court emphasized that the benefit of paying tax at compounded rates is available only to those who opt for it and comply with the prescribed conditions. The petitioner, having opted for compounding, was bound by these conditions. The court found no evidence that these conditions violated Articles 14 or 19(1)(g) of the Constitution. Furthermore, the court noted that the ground for cancellation was omitted from the Act with effect from 1.4.2011, but this amendment did not apply retrospectively to the assessment year 2010-11.

Conclusion:
The court dismissed the writ petition, upholding the constitutional validity of Section 8(f)(ii) of the Kerala Value Added Tax Act and the actions taken by the first respondent. The petitioner was advised to pursue any factual disputes through the appropriate appellate channels.