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2018 (5) TMI 1183 - HC - VAT and Sales TaxCompounding of offences - legality of Ext.P15 order that cancelled Ext.P6 order, by which, the petitioners in these writ petitions were permitted to compound an offence that was alleged against them under Section 67 of the KVAT Act - Section 74 of the KVAT Act - Held that - upon an option being exercised by an assessee, to compound an offence, the assessing authority or other officer authorised by the Government under the said Section, has a discretion to accept the offer of compounding from an assessee. On the offer of the assessee being accepted, a binding contract comes into existence between the assessee on the one hand and Department on the other, by which, the assessee is obliged to pay an amount by way of compounding fee over and in addition to the tax payable under the Act. Once the said amounts are paid, no further penal or prosecution proceedings can be taken against the assessee in respect of the offence. The tenor of the aforesaid provision, therefore, is that once an offer is made by an assessee for compounding an offence, and the assessee satisfies the pre-requisites for compounding the offence by paying the tax amount determined as payable together with the applicable compounding fee, the acceptance of the offer of the assessee, by the Department, brings into existence a binding contract, closing the penalty proceedings by accepting the amounts due from the assessee, and from the said binding contract, neither party is permitted to resile. On a perusal of Section 56 of the KVAT Act, it is clear that the exercise of suo motu power of revision by the Deputy Commissioner, is expressly made subject to the provisions of the Act. This would mean that the Deputy Commissioner, in the exercise of his power under Section 56 of the KVAT Act, would necessarily be bound by the statutory scheme of finality envisaged in respect of orders passed under Section 74 of the KVAT Act. Petition allowed.
Issues Involved:
1. Legality of Ext.P15 order canceling Ext.P6 order permitting compounding of offences under Section 74 of the KVAT Act. 2. Scope of Deputy Commissioner’s power under Section 56 of the KVAT Act. 3. Finality of compounding orders under Section 74 of the KVAT Act. 4. Determination of tax liability by Intelligence Officer vs. Assessing Officer. Detailed Analysis: 1. Legality of Ext.P15 Order Canceling Ext.P6 Order Permitting Compounding of Offences: The primary issue in both writ petitions is the legality of Ext.P15 order, which canceled Ext.P6 order permitting the petitioners to compound an offence alleged under Section 67 of the KVAT Act. The petitioners argue that once the compounding offer is accepted and the requisite amounts are paid, a binding contract is formed, preventing either party from resiling. This position is supported by precedents such as State of Kerala v. Molly Babu and S. Viswanathan v. State of Kerala. The court agrees with the petitioners, noting that the compounding order, once accepted, should not be reopened, thus quashing Ext.P15 order. 2. Scope of Deputy Commissioner’s Power Under Section 56 of the KVAT Act: The respondents contend that the Deputy Commissioner has the power under Section 56 of the KVAT Act to revise any order prejudicial to the interests of revenue, including orders under Section 74. However, the court finds that the power of revision under Section 56 is subject to the provisions of the Act, implying that the Deputy Commissioner cannot revise an order that has attained finality under Section 74. The court emphasizes that the statutory scheme of finality for compounding orders precludes the Deputy Commissioner from exercising revisional power over such orders. 3. Finality of Compounding Orders Under Section 74 of the KVAT Act: The court highlights that Section 74 allows an assessee to compound an offence, forming a binding contract upon acceptance by the Department. This finality is integral to the statutory scheme, preventing the reopening of such orders. The court references several decisions affirming this position, underscoring that the Deputy Commissioner, as a statutory creature, cannot override this finality. 4. Determination of Tax Liability by Intelligence Officer vs. Assessing Officer: The respondents’ grievance is that the Intelligence Officer’s erroneous determination of tax liability led to lower tax assessment. The court clarifies that the tax liability determined during penalty proceedings is not final for assessment purposes. The assessing authorities can independently determine the actual tax liability during assessment proceedings. The court notes that the assessment proceedings in these cases did not fully rectify the Intelligence Officer’s errors, but it remains open for the Department to initiate proceedings for escaped turnover under Section 25(1) of the KVAT Act. Conclusion: The writ petitions succeed in challenging Ext.P15 order. The court quashes Ext.P15 order in both writ petitions, providing consequential reliefs to the petitioners. The Department may still pursue proceedings for escaped turnover as per Section 25(1) of the KVAT Act, in accordance with the law.
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