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2020 (6) TMI 141 - HC - VAT and Sales TaxReduction in tax liability - payment of tax at compounded rate - Section 8(f) of the Kerala Value Added Tax Act, 2003 - Explanation added in the year 2014 - clarificatory in the nature or not - Section 43B of the Income Tax Act - assessee contended before the learned Single Judge that the only measure that could be adopted by the Assessing Officer to correct the mistake if at all occasioned, was the devise of rectification for which limitation is prescribed of four years - HELD THAT - Section 8(f)as available in the subject assessment year and as amended in the year 2014 have been extracted by the learned Single Judge which we need not repeat. Suffice it to find that the entire provision itself was substituted, on amendment, but however, sub-clause (i) in its effect remained the same. The tax payable under the year of option was dependent upon the turnover of the previous year and had to be at the rate of 115% of the tax paid or payable, if the turnover for the preceding year was ₹ 10 lakhs or below, 120%, if it were above ₹ 10 lakhs and up to ₹ 40 lakhs, 135%, above ₹ 40 lakhs and up to Rupees one crore and 150% above Rupees one crore. The percentage being determined on the highest tax conceded or paid in the three consecutive years preceding the year under option. In the present case no curative exercise having been carried out by the amendment of 2014. Clause (f) of Section 8 was substituted in its entirety with six explanations where as the original clause (f) had eight explanations. If Explanation 3 in the new clause (f), as introduced in 2014, is found to be clarificatory, it has to be bodily taken out of the amended provision and placed in the un-amended clause (f) which is not a permissible exercise. The Explanation in the amended clause(f) applies to that provision and not to the earlier one. Clause (f) as amended in 2014 can only apply prospectively and the Explanations therein are intended at explaining the meaning and intendment of the section itself, to clarify any obscurity or vagueness thereat, to make meaningful and workable the dominant object of that particular provision and not do any or all of these with respect to the un-amended provision, which had all-together different explanations - Explanation 3, of the amended Section 8(f) if available in the year 2011-12 and 2012-13 would not enable a reduction insofar as the determination of the quantum of the tax payable under the compounding provision for the year under option merely for reason of the closure of the business in the previous year, which in the present case is on the last date of closure, ie, 31st of March. Explanations, of the year 2014, speak only of a closure in the year of option and does not reckon a closure in the previous year. The option available was very clear insofar as the tax payable under the compounding scheme to be at a percentage above the tax liability of the previous year. The assessee with open eyes applied under the scheme and obtained permission. There was no cause for any exclusion since the closed down branch had business in the previous year for which tax was also paid at the compounded rate. Coming to the relevant years, 2011-12 and 2012-13 again the assessee could not have claimed any deduction since the provision remained as such - The assessee however carried on that branch's business for the entire year - there is no such exclusion of a liability for the previous year can be granted under the provisions under Section 8(f) as it existed in the year 2011-12 and 2012-13. The closure of branch on 31.03.2010 is irrelevant insofar as the tax liability determined in the years 2011-12 and 2012-13 on the basis of the tax conceded or paid in the three consecutive years preceding the year under option. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Tax liability reduction under Section 8(f) of the Kerala Value Added Tax Act, 2003 (KVAT Act) for assessment years 2011-12 and 2012-13. 2. Nature and applicability of the Explanation added in 2014 to Section 8(f) of the KVAT Act. 3. Limitation period for rectification versus assessment orders under Section 25(1) of the KVAT Act. 4. Impact of branch closure on compounded tax liability. 5. Binding nature of the compounding agreement between the assessee and the department. Issue-wise Detailed Analysis: 1. Tax liability reduction under Section 8(f) of the KVAT Act for assessment years 2011-12 and 2012-13: The State appealed against the learned Single Judge's judgment reducing the tax liability for the assessee, a jewelry business, under Section 8(f) of the KVAT Act for the years 2011-12 and 2012-13. The Single Judge found that the Explanation added in 2014 was clarificatory and thus applicable retrospectively, benefiting the assessee. However, the High Court disagreed, stating that the 2014 amendment was not clarificatory and could not be applied retrospectively. 2. Nature and applicability of the Explanation added in 2014 to Section 8(f) of the KVAT Act: The court examined whether the Explanation added in 2014 was clarificatory. The Single Judge had relied on the Supreme Court's decision in Allied Motors Private Limited v. Commissioner of Income Tax to conclude that the Explanation was clarificatory. However, the High Court found that the amendment in 2014 substituted the entire provision of Section 8(f) with six new explanations, which were intended to explain the new section, not the old one. Therefore, the 2014 amendment could not be applied retrospectively to the assessment years 2011-12 and 2012-13. 3. Limitation period for rectification versus assessment orders under Section 25(1) of the KVAT Act: The assessee argued that the impugned orders were beyond the limitation period for rectification, which is four years. However, the court noted that the orders were assessment orders under Section 25(1), which has a limitation period of five years. The court cited a previous Division Bench decision in Commercial Tax Officer v. Hotel Breezeland Ltd., confirming that the assessment under Section 25(1) could be carried out even if the assessee had opted for compounding. 4. Impact of branch closure on compounded tax liability: The assessee closed one of its branches on 31.03.2010 and contended that the tax paid for that branch in the previous year should not be included in the compounded tax liability for 2011-12 and 2012-13. The court found that the Explanation in the 2014 amendment allowed for a proportionate reduction only if a branch was closed during the year under option, not for closures in previous years. Therefore, the closure of the branch on 31.03.2010 did not affect the tax liability for the subsequent years. 5. Binding nature of the compounding agreement between the assessee and the department: The court emphasized that the compounding agreement between the assessee and the department was binding. The assessee, having opted for the compounding scheme, could not later claim deductions for the closed branch. The court cited the Supreme Court's decision in State of Kerala v. Builders Association of India, which held that the compounding provision is an alternative method of tax assessment that the assessee can choose if it is advantageous. The assessee cannot challenge the compounded tax liability after opting for it. Conclusion: The High Court allowed the State's appeal, setting aside the judgment of the learned Single Judge. The court held that the 2014 amendment to Section 8(f) of the KVAT Act was not clarificatory and could not be applied retrospectively. The assessee's compounded tax liability for the years 2011-12 and 2012-13 included the tax paid for the closed branch in the previous year, and the assessment orders were within the limitation period under Section 25(1) of the KVAT Act.
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