2023 (10) TMI 586 - HC - VAT and Sales Tax

Permission to pay tax on compounded basis - an amount of Rs.305 crores was established to represent the turnover in relation to sales effected to its sister concerns by the petitioner who had effected purchases of the goods in question as an agent of the said sister concerns - HELD THAT - While the petitioner had shown the agency sales affected to its sister concerns as part of its turnover in its accounts, as also in the returns filed before the KVAT authorities during 2010-11, the mistaken turnover shown did not have any implication for the payment of tax on compound basis for the said year because the payment of tax under Section 8(f)(v) was only in relation to the tax paid by the petitioner for the immediately preceding year i.e. the petitioner was statutorily obliged to pay only 125% of tax paid during 2009-10, irrespective of its actual sales turnover for the year 2010-11. It is also not in dispute that the petitioner had discharged its tax liability for the year 2010-11 in accordance with the statutory provisions then in force. The First Appellate Authority found that since the petitioner had obtained the statutorily prescribed Form 25F to claim exemption of the agency sales turnover from its declared turnover for the year in question, the same could be excluded for the purposes of computation of tax in terms of Section 8(f)(v) for the year 2011-12. The Appellate Tribunal, however, set aside the order of the First Appellate Authority on the finding that Form 25F had relevance only in a situation where the assessment to tax was in terms of Section 6 of the KVAT Act and not in situations where the payment of tax was on compounded basis under Section 8(f)(v) of the KVAT Act. In the instant case while the turnover of the assessee was a factor for determination of tax liability in terms of Section 6 of the KVAT Act, it was not a relevant factor for determination of tax liability, in terms of the formula under Section 8(f) of the KVAT Act in 2010-11 as also till later in the assessment year 2011-12. It was only after the assessee had exercised its option to pay tax on compounded basis for 2011-12 that Section 8(f)(v) was amended to make the turnover of the previous year a part of the formula for determination of tax liability in terms of Section 8(f)(v) - when the turnover of the previous year is suddenly introduced as a new factor in the formula for determining tax liability in terms of the compounding provisions, it would be grossly unfair to deny an assessee the opportunity to demonstrate that any amount shown in his accounts/return does not represent his turnover. Merely because the Form 25 declaration is prescribed under the KVAT Rules in connection with a determination of tax liability in terms of Section 6 read with Rule 10 of the KVAT Act and Rules it does not mean that the facts intended to be proved through it cease to exist or be relevant merely because the assessment is on a different basis, and in accordance with a formula which treats that fact as relevant and incorporates it as a component - When an assesee furnishes a declaration in Form 25 to his assessing officer, he seeks to exclude the amount covered by the Form 25 declarations from the computation of his turnover for the purposes of assessment to tax. It is not a case where the assessee initially includes an amount in his turnover and then seeks exemption/deduction of that amount for computing his taxable turnover. The amounts covered by the Form 25 declaration do not form part of his turnover at all. The amounts covered by Form 25 declarations cannot form part of the assessee's turnover even for the purposes of Section 8(f) of the KVAT Act - Revision disposed off.

Issues Involved:
1. Legality of the revised assessment order for the year 2011-12.
2. Inclusion of agency sales in the turnover for the year 2010-11.
3. Jurisdiction of the First Appellate Authority to permit revision of returns for 2010-11.
4. Relevance of Form 25F declarations in the context of compounded tax assessment.

Summary:

1. Legality of the Revised Assessment Order for 2011-12:
The petitioner, a jeweller registered under the KVAT Act, opted to pay tax on a compounded basis for the year 2011-12. Initially, the tax was computed based on pre-amended provisions. However, a statutory amendment introduced retrospectively required the petitioner to pay tax at the higher of two rates: 125% of the previous year's tax or 1.25% of the turnover of sales for the previous year. Consequently, the Assessing Authority revised the tax amount to Rs. 13,07,73,895/- from Rs. 3,00,19,620/-.

2. Inclusion of Agency Sales in Turnover for 2010-11:
The petitioner contested the revised assessment, arguing that the turnover for 2010-11 erroneously included agency sales, resulting in double taxation. The First Appellate Authority allowed the petitioner to revise the return for 2010-11, excluding the turnover related to agency sales, supported by valid Form 25F declarations. The Appellate Tribunal, however, set aside this order, stating that the provisions for deduction of turnover under Rule 10(1)(h) of the KVAT Rules were not applicable for compounded tax assessments under Section 8(f).

3. Jurisdiction of the First Appellate Authority to Permit Revision of Returns:
The State challenged the First Appellate Authority's decision to permit revision of returns for 2010-11, as the Assessing Authority had previously rejected such a request. The Appellate Tribunal upheld the State's contention, emphasizing that the rejection order had attained finality and could not be revisited.

4. Relevance of Form 25F Declarations in Compounded Tax Assessment:
The petitioner argued that Form 25F declarations, which proved that tax had already been paid by the principal on agency sales, should be considered to exclude such turnover from the petitioner's liability. The Appellate Tribunal disagreed, noting that Form 25F was relevant for assessments under Section 6 but not for compounded tax assessments under Section 8(f).

Court's Analysis and Findings:
The court found that the turnover for 2010-11, including agency sales, was mistakenly shown and did not impact the tax payment for that year due to the pre-amended provisions. The retrospective amendment in 2011-12, which made the previous year's turnover relevant, necessitated a fair opportunity for the petitioner to demonstrate the correct turnover. The court held that the petitioner should be allowed to exclude agency sales turnover, supported by Form 25F declarations, from the computation of compounded tax for 2011-12. The court emphasized that amounts covered by valid Form 25 declarations do not form part of the petitioner's turnover and should not be included in the assessment for compounded tax.

Conclusion:
The court disposed of the revision by answering Questions 'A' to 'F' against the assessee and in favor of the State, while Questions 'G' to 'I' were answered in favor of the assessee and against the State. The court set aside the part of the Tribunal's order that rejected the exclusion of agency sales turnover and upheld the First Appellate Authority's decision to allow the revision of returns for 2010-11.

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