2017 (3) TMI 1487 - HC - VAT and Sales Tax

Compounding of offences - KVAT Act - For compounding an offence which of the compounding fees should be paid by the assessee the one prevailing when the evasion took place or the one prevailing at the time of actual compounding? Held that - If it is a continuing offence the penalty applicable at the terminus is the penalty the erring assessee shall be mulcted with - If it is non-recurring (for want of a better expression) the liability stipulated when the offence has been committed alone shall apply. We shall in a while examine whether either of these contingencies applies to the case on hand. Compounding is in relation to an offence; what was imposed however is fee. No quarrel can we have with the proposition that imposing fee is a taxing aspect of the State under Article 265 of the Constitution of India. Equally indisputable is that fee can be levied even retrospectively as it falls beyond the mischief of Article 20(1) of the Constitution which concerns punitive sanctions punishment and penalty neither of which is fee. Viewed alternatively we may before parting with the matter observe that the appellant has not made out any positive case that the nomenclature notwithstanding what is being collected is penalty rather than fee. The compounding fee as prevailing at the time of the assessee s deciding to pay it shall alone apply - appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Determination of the applicable compounding fee under Section 74 of the Kerala Value Added Tax Act (KVAT Act) for tax evasion: whether it should be the fee prevailing at the time of the offence or at the time of compounding.

Issue-Wise Detailed Analysis:

1. Determination of Applicable Compounding Fee:
The primary issue is whether the compounding fee should be based on the rate prevailing when the tax evasion occurred or the rate at the time of opting for compounding. The appellant, a jeweler and assessee under the KVAT Act, was detected for tax evasion during an inspection on 17.01.2009 for the assessment year 2008-2009. Notices were issued proposing a penalty under Section 67 of the Act. To avoid coercive proceedings, the appellant opted for compounding under Section 74, initially willing to pay ?2 lakh as per the rate during the assessment year. However, the authorities demanded ?4 lakh based on an amendment effective from 01.04.2009.

Appellant's Argument:
The appellant argued that the compounding fee should be tied to the period of the offence (2008-2009), where the maximum fee was ?2 lakh. They contended that the subsequent amendment increasing the fee to ?4 lakh should not apply retroactively. The appellant relied on precedents emphasizing that penalties and fees should correspond to the law in force at the time of the offence.

Revenue's Argument:
The Revenue argued that compounding is a voluntary act by the assessee to avoid harsher penalties, and the applicable fee should be the one prevailing at the time of opting for compounding. They contended that the appellant, aware of the amendment, cannot later dispute the fee. The Revenue likened compounding to a compromise, emphasizing its non-coercive nature.

Court's Discussion and Judgment:
The Court examined the statutory provisions and relevant case law. It noted that Section 74 of the VAT Act, as of 31.03.2009, stipulated a maximum compounding fee of ?2 lakh, which was increased to ?4 lakh from 01.04.2009. The Court referred to precedents like Hotel Ambassador and Suresh Seth, which discussed the applicability of penalties based on the law at the time of the offence. However, the Court distinguished between penalties and fees, noting that fees could be levied retrospectively as they are not punitive.

The Court concluded that the compounding fee applicable should be the one prevailing at the time the assessee opted for compounding, not when the offence occurred. Thus, the fee of ?4 lakh was deemed appropriate. The appeal was dismissed, upholding the judgment of the learned Single Judge, with no order on costs.