2018 (3) TMI 1103 - HC - VAT and Sales Tax

Tax under the compounding scheme - The notice was on the ground that there could be no compounding applied for, for ice-creams which is not a cooked food. Held that - a penalty has been imposed along with the regular assessment made, which is not possible. The assessee made a bonafide attempt to be included under the compounding scheme on the reasonable presumption that ice-creams would also be cooked food . A vigilant officer could have rejected the application. The department was not vigilant but was also lethargic in so far as permitting the assessee to make remittances under the scheme for the subsequent year also when already notice was issued for cancellation of the compounding in the previous year. There can be no contumacious conduct found on the part of the asessee. The assessing officer would issue fresh notice for assessment, and the assessee would be entitled to produce the purchase invoices for the two years, which shall be taken into account and the input tax credit allowed to the extent proved by invoices - appeal disposed off.

Summary

Issues:
1. Right of the petitioner to pay tax under the compounding scheme.
2. Validity of the assessment orders for the years 2015-2016 and 2016-2017.
3. Interpretation of the term "cooked food" under the Kerala Value Added Tax Act, 2003.
4. Application of compounding scheme to ice-creams.
5. Revision of compounding order under Section 56 of the KVAT Act.
6. Deemed permission and deemed order under the compounding scheme.
7. Assessment process and input tax credit entitlement for the assessee.

Analysis:
1. The judgment dealt with the right of the petitioner to pay tax under the compounding scheme, challenging the assessment orders for the years 2015-2016 and 2016-2017. The petitioner, engaged in the manufacture and sale of ice-creams, applied for compounding, but the Assessing Officer threatened cancellation of compounding and issued regular assessment orders. The Single Judge allowed the claim, stating that once the department accepted tax payments under the scheme, they cannot subject the assessee to regular assessment later. The High Court agreed with the Single Judge's findings, criticizing the department's functioning but emphasized that the department's lethargy cannot absolve the assessee from statutory consequences.

2. The interpretation of the term "cooked food" under the KVAT Act was crucial in determining the application of the compounding scheme to ice-creams. The department argued that ice-cream is not a cooked food based on specific entries in the taxing statute. The High Court held that since ice-cream is separately included in the notified goods taxable at a higher rate, it could not be considered as cooked food under the compounding scheme. The Court emphasized that specific statutory entries override common parlance interpretations, and the compounding application for ice-creams was erroneous and revisable under Section 56 of the KVAT Act.

3. The judgment discussed the deemed permission and deemed order under the compounding scheme, stating that in the absence of an explicit order permitting compounding, the department could revise the decision. The Court highlighted the statutory consequences of deemed orders, allowing for revisions even without explicit permissions. However, due to hidden prejudice caused to the assessee, the Court decided to vacate the orders interfering with the cancellation of compounding and regular assessments.

4. Regarding the assessment process and input tax credit entitlement, the High Court directed fresh assessments for the years in question. The Court noted the department's lack of vigilance and the assessee's bonafide attempt to apply for the compounding scheme. The Court instructed the assessing officer to allow input tax credit based on purchase invoices provided by the assessee, without penalizing for technical glitches. Interest on tax demanded would run from one month after finalization of assessment, with no penalties levied.

In conclusion, the judgment addressed various legal issues concerning the compounding scheme, interpretation of statutory terms, revision of orders, and assessment processes, providing detailed analysis and directions for the involved parties.