2018 (12) TMI 352 - HC - VAT and Sales Tax

Compounding of tax - voluntarily switched over to regular assessment - case of assessee was that the assessee was coerced into agreeing for the compounding of the offence - Limitation. Whether the assessee would have agreed to payment of such a compounding fee, especially in the context of the assessee having challenged the original order itself on the ground of coercion? - Held that - This is a fit case where this Court should exercise discretion insofar as denying the Department the right to make any revision of the compounding fee which already has been accepted by the assessee and amounts paid. Disentitlemnet of the regular assessment made on the assessee being dis-entitled to continue the compounding under Section 8(c) due to the commencement of the beer and wine parlour - Held that - The assessee could take a contention that there should be a cancellation first effected before the regular assessment is made. On the assessee obtaining a beer and wine parlour licence and commencing the sale, the entitlement to continue compounding under Section 8(c) automatically stands extinguished. There is absolutely no requirement of cancellation first before a regular assessment is taken up. We reject the contention so raised. Limitation - Held that - Limitation raises mixed questions of fact and law. But in the present case, there is no dispute on facts. The relevant facts are only the subject assessment year as also the date on which the Department initiated proceedings to determine the taxable turnover under Section 25(1) based on the detection of the dis-entitlement of the assessee to continue under the compounding scheme - the question of limitation is only a question of law. Assessment order set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Compounding fee and coercion
2. Regular assessment under Section 8(c) of the Act
3. Limitation under Section 25(1) of the Act

Compounding Fee and Coercion:
The case involved two Writ Appeals arising from a common judgment regarding compounding under the Kerala Value Added Tax Act, 2003. The assessee, a hotel owner, applied for compounding for the sales turnover of cooked food but later obtained a license for a beer and wine parlour, which rendered the compounding option inapplicable. The Department demanded varying compounding fees, leading to disputes. The Single Judge found that the compounding fee could not exceed Rs. 2 lakhs as per Section 74 of the Act, rejecting the coercion claim by the assessee. The Court upheld the Single Judge's decision on this issue, dismissing one appeal and partially allowing the State's appeal regarding the fee amount.

Regular Assessment under Section 8(c) of the Act:
The assessee challenged the regular assessment due to the disentitlement to continue compounding under Section 8(c) after starting the beer and wine parlour. The Court held that the commencement of the new business automatically extinguished the entitlement to compound, rejecting the requirement for cancellation before regular assessment. The Court dismissed the contention raised by the assessee on this issue.

Limitation under Section 25(1) of the Act:
The Court addressed the limitation issue raised by the assessee, emphasizing that it involved mixed questions of fact and law. However, in this case, there was no factual dispute, only the assessment year and the initiation date of proceedings under Section 25(1). The Court held that the limitation period of five years applied, and the failure to initiate proceedings within this timeframe divested the officer of jurisdiction. Consequently, the Court allowed the appeal, setting aside the assessment order, and disagreed with the argument that the issue of limitation could not be considered under Article 226 of the Constitution of India.

In conclusion, the Writ Appeals were ordered accordingly, with each party bearing their respective costs.