2018 (3) TMI 908 - HC - VAT and Sales Tax

Compounding of offences - section 74 of the Kerala Value Added Tax Act, 2003 - Petitioner challenges the assessment order inter alia contending that it was based on a compounding order which is patently illegal - Held that - when an assessee exercises the option u/s 74 (1) of the Act, he virtually agrees to the turnover suppression and the irregularity in maintaining true and correct accounts - even without going into the so called conflict of opinion, in the facts of the present case, we do not think that we will be justified in interfering with the judgment of the learned Single Judge - appeal dismissed.

Summary

Issues Involved:
1. Challenge to the assessment order based on compounding order.
2. Discrepancy in the valuation of stock at MRP rate.
3. Maintainability of rectification application.
4. Conflict between judgments in Jaya Jewellers and Trichur Auto Spares.
5. Legal justification for appeal against compounding order.

Issue-wise Detailed Analysis:

1. Challenge to the assessment order based on compounding order:
The petitioner challenged the assessment order (Ext.P6) for the year 2014-15, arguing that it was based on a compounding order which was patently illegal. The petitioner had initially applied for compounding the offence to avoid unpleasant consequences and paid ?8 lakhs as a compounding fee/tax under Section 74 of the Kerala Value Added Tax Act, 2003. The petitioner contended that the compounding fee was erroneously calculated based on the MRP rate of the stock, which was not permissible under the Act. The taxable event under the Act is sale/purchase, and thus, the actual sale price/purchase price should be used for valuation.

2. Discrepancy in the valuation of stock at MRP rate:
The petitioner argued that the estimation of the value of the stock at MRP rate was incorrect and unsustainable in law. The compounding fee should have been calculated based on the actual sale price/purchase price, not the MRP. The petitioner expected the correction of this anomaly in the statutory revision and contended that the assessment based on said valuation was illegal and arbitrary.

3. Maintainability of rectification application:
The petitioner filed a rectification application, which was rejected by the 2nd respondent on the grounds that there was no provision for rectification. The petitioner then filed a revision petition along with an application to condone the delay. The learned Single Judge found that since the petitioner had accepted the offence and agreed for compounding, the rectification application was not maintainable, even according to the dictum laid down in Trichur Auto Spares. The petitioner did not file any appeal or pay the amounts determined as compounding fee, and thus, the writ petition was dismissed.

4. Conflict between judgments in Jaya Jewellers and Trichur Auto Spares:
The petitioner’s counsel argued that there was a conflict between the judgments in Jaya Jewellers and Trichur Auto Spares. In Jaya Jewellers, it was held that once a compounding is accepted, the order cannot be challenged. In contrast, Trichur Auto Spares allowed for an appeal in cases of patent mistakes in the quantification of the compounding fee. The court noted this conflict but ultimately aligned with the view that once the compounding is accepted, the order cannot be challenged, especially when the facts are not disputed, and the compounding application is filed without coercion.

5. Legal justification for appeal against compounding order:
Section 55 of the Act allows any person aggrieved by an order to prefer an appeal. However, there is no provision indicating that no appeal could be filed against an order passed under Section 74. The court observed that if the dispute pertains solely to the quantification of the compounding fee, an appeal under Section 55 is the remedy. However, in the present case, the petitioner had admitted to the offence and the turnover suppression, thus agreeing to the compounding. The court found that the petitioner could not challenge the compounding order since it was accepted without coercion, and the factual circumstances did not justify interference with the judgment of the learned Single Judge.

Conclusion:
The appeal was dismissed, affirming the judgment of the learned Single Judge. The court held that the petitioner could not challenge the compounding order as he had admitted to the offence and agreed to the compounding without coercion. The valuation of stock at MRP rate and the quantification of the compounding fee were not grounds for maintaining a rectification application or an appeal, given the circumstances of the case.