2017 (1) TMI 1716 - HC - GST

Compounding rate of tax - bar attached hotel of and below two star - section 7 of the Kerala General Sales Tax Act, 1963 - whether the assessee would be able to opt as between Clauses (a) and (b) of S. 7(1)(i)? - HELD THAT - When Clause (b) of S. 7(1)(i) applies, the amount of tax is a pre-determined amount. That is dependent upon the turnover of the three previous consecutive years. Therefore, even when assessee proceeds to seek payment of tax at compounded rate under S. 7(1) for a particular year, he would be guided by books of accounts which are in that person's possession itself. Hence, no fresh assessment as known to law is required. There are no jurisdictional error in either the assessing authority having required the assessee to pay the differential in terms of S. 7 or the Accountant General's office or the squad of that office having prompted the assessing authority to proceed to make demand for the remaining amount. Assessee, ultimately, argued that the assessee was essentially falling into a trap of misrepresentation by the assessing authority - HELD THAT - This argument only to be rejected because there is no question of any misrepresentation of any nature, since the payment of tax consequent on an option exercised by the assessee does not depend upon any representation of the assessing authority or any other statutory authority under the Act. What we say now is in tandem with what we have already said as to the automatic flow of the consequences of option. Further, there is no question of the assessee opting either for a particular rate of tax or for opting as between Clauses (a) and (b) of S. 7(1)(i) of the Act adverse to the interest of the Revenue. Revision dismissed.

Summary

Issues:
Interpretation of provisions under Section 7 of the Kerala General Sales Tax Act, 1963 regarding payment of tax at a compounded rate and the applicability of Clauses (a) and (b) under Section 7(1)(i).

Analysis:
The judgment by the Kerala High Court, delivered by T.B. Radhakrishnan, J., addresses the issue of an assessee eligible to pay tax at a compounded rate under Section 7 of the Kerala General Sales Tax Act, 1963. The court clarifies that once the option to pay tax at a compounded rate is exercised, the payment of tax will be governed by the provisions of Section 7, and there is no opportunity to choose among different limbs of Section 7. The court emphasizes that the liability to pay tax at a compounded rate is determined based on the turnover or total revenue generated by the assessee, deciding whether Clause (a) or (b) of Section 7(1)(i) applies. The judgment cites various decisions, including Bhima Jewellery v. Asstt. Commissioner, Raju Jacob v. Sales Tax Officer, Koothattukulam Liquors v. Deputy Commissioner of Sales Tax, and Annie George v. The State of Kerala, to support the principle that once the compounding option is exercised, a bilateral contract is formed between the assessee and the State, binding them to the compounding mechanism under Section 7.

Moreover, the court addresses the argument raised by the assessee regarding the assessing authority's acceptance of tax and subsequent demand by the Accountant General's office for unpaid amounts under Section 7(1). The court rejects the contention that the action taken against the assessee was unfounded, stating that the statutory liability to pay tax at a compounded rate arises once the option is exercised. The court emphasizes that the assessing authority has the right to demand payment of any balance due under Section 7, even if prompted by the Accountant General's audit findings. The judgment clarifies that no fresh assessment is required when the pre-determined amount of tax under Section 7(1)(i) is applicable, as it is based on the turnover of previous years and guided by the assessee's own books of accounts.

Furthermore, the court dismisses the argument of misrepresentation by the assessing authority, asserting that the payment of tax following the exercised option is not dependent on any representation by the authority. The court concludes that there is no scope for the assessee to opt for a specific rate of tax or choose between Clauses (a) and (b) of Section 7(1)(i) against the interest of the Revenue. Ultimately, the court upholds the Tribunal's decision and dismisses the revisions, affirming the statutory liability of the assessee to pay tax at a compounded rate as per the provisions of the Act.