2014 (8) TMI 1148 - HC - VAT and Sales Tax

Recovery proceedings - Kerala General Sales Tax Act - tax at compounded rates in terms of Section 7 of the Act - principles of natural justice - Held that - a final order accepting and allowing the application for payment of tax at compounded rate in terms of Section 7 of the Act can come only at the end of the accounting year concerned. This is why in sub-rule 3 of Rule 30 of the Rules, it is stated that on the application being allowed, the assessing authority shall serve the dealer a notice of demand under Form - 13. The argument on behalf of the petitioner that the impugned proceedings are without jurisdiction is only to be rejected - petition dismissed.

Summary

Issues:
Challenge to revenue recovery proceedings and notice of demand under Kerala General Sales Tax Act.

Analysis:
The writ petition challenged revenue recovery proceedings and a notice of demand issued under the Kerala General Sales Tax Act by a registered dealer operating a bar hotel. The dealer was eligible to apply for paying tax at compounded rates under Section 7 of the Act. Rule 30 of the Rules outlined the application process, stating that the assessing authority must conduct necessary inquiries and pass an order granting or rejecting the application. An order of rejection should not be made without giving an opportunity of being heard. If the application is granted, the assessee starts paying tax at compounded rates, determined based on purchase turnover for the accounting year and sales turnover for the previous three years. The final order accepting the application can only come at the end of the accounting year. The department followed permissible procedures under Rule 13 for issuing notices of demand and scrutinizing annual returns.

Precedent Reference:
Reference was made to the decision in Koothattukulam Liquors v. Deputy Commissioner of Sales Tax, which established that compounding creates a binding contract between the State and the assessee. However, this principle did not apply to the current case as compounding proceedings conclude only with the issuance of the final order after assessment under Section 7. The case cited dealt with arrack licensees, not similar to cases under Section 7 of the Act.

Judgment:
The argument that the impugned proceedings were without jurisdiction was rejected. The court dismissed the writ petition, affirming the validity of the revenue recovery proceedings and notice of demand issued under the Kerala General Sales Tax Act.