2017 (8) TMI 870 - HC - VAT and Sales Tax

Payment of tax on compounded basis - case of petitioner is that the application for payment of tax on compounded basis, not having been accepted by the respondents, there was no obligation on the petitioner to discharge his tax liability for the assessment year in question on compounded basis - Section 8(b) of the Kerala Value Added Tax Act - Held that - The analogy, as per the statutory provisions, is to the formation of a contract between the assessee on the one hand, and the tax department on the other, and consequent to the formation of the contract, neither side is permitted to resile therefrom - in the absence of any acceptance of the application of the petitioner, the petitioner was obligated to discharge his liability only on the basis of the regular method of assessment of tax as indicated in Section 6 of the KVAT Act. Since there is no dispute in the instant case that, the petitioner had discharged his liability for the period in question in accordance with Section 6(1) of the KVAT Act, the demand in Ext. P5 notice cannot be legally sustained - petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Application for payment of tax on compounded basis not acted upon by respondents.
2. Demand for differential tax despite cancellation of compounding application.
3. Legal obligation to discharge tax liability based on accepted application.
4. Interpretation of statutory provisions under Kerala Value Added Tax Act.

Analysis:
The petitioner, operating a metal crusher unit, filed an application (Ext. P1) under Section 8(b) of the Kerala Value Added Tax Act to pay tax on a compounded basis for the assessment year 2016-2017. However, the respondents did not pass any orders on the application. The petitioner, assuming non-acceptance, continued paying tax on a regular basis. Subsequently, the petitioner formally canceled the compounding application through communication (Ext. P2). Despite this cancellation, the petitioner received a notice (Ext. P3) demanding differential tax for the period in question, based on the assumption that the petitioner had opted for compounded tax payment. The petitioner contested this by stating that since the compounding application was not accepted, there was no liability to pay tax on a compounded basis. Following this, another notice (Ext. P5) was issued directing the petitioner to remit the differential compounded tax immediately.

In the writ petition, the petitioner challenged the legality of Ext. P5 notice, arguing that without acceptance of the compounding application, there was no obligation to pay tax on a compounded basis. The respondents, in their counter affidavit, mentioned that the petitioner did not submit any letter canceling the compounding option, but remained silent on whether the initial application was accepted within the statutory time frame. The court analyzed the statutory provisions of Section 8(b) of the KVAT Act, highlighting the necessity for the department to accept the application before the dealer can remit tax on a compounded basis. Referring to a previous case, the court emphasized that insulating oneself from tax demands without formal permission is not applicable in this scenario.

The court concluded that since the petitioner's application was not accepted, the obligation was to discharge tax liability based on the regular assessment method outlined in Section 6 of the KVAT Act. As the petitioner had already fulfilled this obligation, the demand in Ext. P5 notice was deemed legally unsustainable. Consequently, the court allowed the writ petition, quashing both Ext. P3 and P5 communications issued to the petitioner.