2015 (10) TMI 626 - HC - VAT and Sales Tax

Payment of tax on compounding basis - Section 5A - petitioner failed to comply with the monthly payment of the instalments fixed under the compounding scheme - Held that - On a perusal of Section 5A of the Kerala Tax on Luxuries Act, it is evident that, the scheme of compounding that is envisaged therein is a code in itself. There are provisions which deal with the manner in which the compounding application is to be filed by the assessee and processed by the department. The provisions of Section 5A also deal with the determination by the assessing authority of the monthly instalment of tax that is required to be paid by an assessee under the scheme. Section 5 A (6) which is relevant for the purposes of the instant case, states that, if the tax determined is not paid as specified in Sub Section 5, it shall be recovered along with penalty in accordance with the provisions of the Act. - while it would be open to the Revenue Department to proceed against the petitioner for recovery of the defaulted instalments under the scheme of compounding under Section 5A of the Act, their action in completing a regular assessment under Section 6 of the Kerala Tax on Luxuries Act is clearly illegal - The amounts, if any, remitted by the petitioners pursuant to the orders that have been quashed in these writ petitions shall be adjusted towards any liability flowing from the default of the petitioners under the scheme of compounding under Section 5A of the Act. - Appeal disposed of.

Summary

Issues:
- Assessment under Kerala Tax on Luxuries Act based on compounding scheme
- Authority to complete regular assessment on best judgment basis
- Jurisdiction of revenue authorities to proceed with assessment while compounding option subsists

Analysis:
1. Assessment under Kerala Tax on Luxuries Act based on compounding scheme:
The petitioner, engaged in renting out a houseboat, opted for tax payment on a compounding basis under Section 5A of the Act for the assessment years 2013-2014 and 2014-2015. The compounding fee was fixed, and monthly instalments were to be paid. However, the petitioner defaulted on the payments. The revenue authorities proceeded to issue an assessment order and demand notices for recovery. The petitioner contended that the authorities could only proceed with revenue recovery steps for defaulted amounts.

2. Authority to complete regular assessment on best judgment basis:
The Government Pleader argued that under Section 6 of the Kerala Tax on Luxuries Act, if an assessee defaults in complying with the compounding scheme, the revenue authorities have the right to complete the assessment on a regular basis. It was contended that defaulting on payments forfeits the right to continue under the compounding scheme.

3. Jurisdiction of revenue authorities to proceed with assessment while compounding option subsists:
The court analyzed the provisions of Section 5A, which outline the compounding scheme as a self-contained code. It highlighted that if an assessee defaults on payments under the compounding scheme, the revenue authorities can recover the defaulted amounts as per the Act. However, the court referred to Supreme Court decisions emphasizing that once an assessee opts for compounding and it is accepted by the revenue authorities, neither party can withdraw from the option. The court held that while revenue authorities can proceed for recovery of defaulted instalments under the compounding scheme, completing a regular assessment under Section 6 while the compounding option subsists is illegal.

In conclusion, the court quashed the assessment orders, demand notices, and recovery notices issued to the petitioner. It declared that the assessment for the relevant years should be in accordance with the compounding option exercised by the petitioner. Any amounts paid by the petitioner pursuant to the quashed orders would be adjusted towards liabilities under the compounding scheme.