2017 (11) TMI 1035 - HC - VAT and Sales Tax

Payment of tax on compounded basis - ice cream - the petitioner applied for payment of tax on compounded basis, by taking the view that the ice cream that was manufactured and sold by it, was an item of cooked food which was one of the items in respect of which an assessee could discharge tax on compounded basis u/s 8 of the KVAT Act - reassessment order - whether it was open to the respondent to propose a rejection of an application submitted by an assessee for payment of tax on compounded basis, at the fag end of the assessment year, in respect of which the compounding application was preferred? Held that - when the statutory provisions detailing the procedure to be followed by an assessee, for the purpose of payment of tax on compounded basis, contemplate the consideration, by the department, of an application preferred by an assessee, and an intimation to be given to the assessee as to whether or not his application was accepted, for the purposes of enabling the assessee to discharge his liability on compounded basis, the respondent cannot, by a delayed action on its part, prevent an assessee from discharging the liability on compounded basis - In the instant case, since the assessee, after opting to pay tax on compounded basis, had to commence payment of tax on the said basis in the first quarter of the assessment year in question, any communication rejecting the request of the assessee for payment of tax on compounded basis ought to have been served on the assessee before the expiry of the said quarter. Only in such an event, would the assessee have had an opportunity to pay tax in accordance with the regular provisions of tax, as against the provisions of Section 8 of the KVAT Act - The non communication of any such rejection order by the respondent, effectively estopped it from subsequently issuing an order rejecting the application, since by that time the assessee was justified in discharging its liability in accordance with Section 8 of the KVAT Act, for which he had opted. The assessment orders impugned in these writ petitions cannot be legally sustained. The delayed action on the part of the respondent would, under the circumstances, amount to a mere change of opinion by the assessing officer and, it is trite, that in exercise of powers under Section 25(1) of the KVAT Act, a change of opinion by an assessing officer cannot be the basis of a reassessment against the assessee. The proposal to reject the application submitted by the assessee was served on the assessee only on 06.02.2017, which is in the last quarter of the assessment year 2016-17. This amounts to a serious lapse on the part of the department in the matter of issuing notices to an assessee, who in their opinion, was not entitled to opt for payment of tax on compounded basis, in respect of the product dealt with by him during the previous assessment year - It is for the Commercial Tax Department in the State to look into this lapse on the part of the officers under the department and take appropriate action against the said officers, in the event of a finding that there was negligent conduct on the part of the officers in permitting the assessee to pay tax on compounded basis. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Assessment of tax on compounded basis under the Kerala Value Added Tax Act.
2. Legality of rejecting application for payment of tax on compounded basis.
3. Authority of the department to propose rejection of application at the end of the assessment year.
4. Consequences of delayed action by the department.
5. Judicial precedent on assessment of tax under regular provisions after accepting tax on compounded basis.
6. Observations on the functioning of the Commercial Taxes Department.

Analysis:
1. The petitioner, a company engaged in the manufacture and sale of ice cream, applied for payment of tax on a compounded basis under the Kerala Value Added Tax Act for the assessment years 2015-2016 and 2016-17. The respondent initially accepted the tax paid by the petitioner on a compounded basis without objection. However, later objections were raised, and the petitioner was proposed to be assessed under regular provisions. The main contention was whether the respondent could reject the application for compounded tax payment at the end of the assessment year after accepting the payments without demur.

2. The court observed that the statutory procedure required the department to consider the application for compounded tax payment and communicate the acceptance or rejection to the assessee promptly. The court relied on a previous judgment to establish that once an assessee opts for compounded tax payment and the department accepts the payments without objection, the department cannot subsequently demand tax under regular provisions. The delayed rejection of the application by the department was deemed unjustified, and the assessment orders were quashed.

3. The judgment highlighted the importance of timely communication by the Commercial Taxes Department to prevent unjust consequences for the assessee. The court expressed concern over the delayed notices proposing rejection of the application for compounded tax payment, indicating a lapse in the department's functioning. The court recommended the department to investigate and take appropriate action against officers responsible for negligent conduct in handling such cases.

4. In conclusion, the court ruled in favor of the petitioner, quashing the assessment orders and providing consequential reliefs. The judgment emphasized the need for adherence to procedural requirements and timely communication to avoid unjust outcomes for taxpayers. The observations on the functioning of the Commercial Taxes Department underscored the importance of efficient and responsible administration in tax matters.