2008 (10) TMI 606 - HC - VAT and Sales Tax

True scope of Explanation 5 to section 8(f) of the Kerala Value Added Tax Act 2003 questioned - Held that - Explanation 5 will be applicable only if the dealer opens a new branch in the current year. The words open a new branch cannot permit the respondent to apply the Explanation to a case where a branch was in existence from the year 2005 and to treat the same as opened in the current year for the only reason that compounding is sought for in respect of the said branch in the year 2008-09 for the first time is not contemplated. I would think that such an interpretation would be opposed to the plain meaning of the words embedded in the provision. Neither is the respondent in my view entitled to draw support from circular No. 42/06 for the reasons which I have already indicated. If that be so exhibits P7 and P9 are plainly unsustainable. Accordingly I allow the writ petition and quash exhibits P7 and P9. A decision will be taken on exhibit P6 in accordance with law within one month from the date of receipt of a copy of this judgment. Till such decision is taken the petitioner is permitted to pay the monthly compounded tax at the rate of Rs. 49, 42, 211.

Summary

Issues:
Interpretation of Explanation 5 to section 8(f) of the Kerala Value Added Tax Act, 2003 regarding compounded tax for new branches. Application of circular No. 42/2006 in determining tax liability for new branches. Conflict between circular provisions and statutory provisions post-April 1, 2008.

Analysis:
The judgment primarily revolves around the interpretation of Explanation 5 to section 8(f) of the Kerala Value Added Tax Act, 2003, which deals with compounded tax for new branches. The petitioner, a dealer in gold and silver ornaments, had a head office and two branches, one of which did not opt for compounding in previous years. The petitioner applied for compounding for all branches for the assessment year 2008-09. The dispute arose regarding the calculation of compounded tax for the new branch at Thrissur based on Explanation 5. The respondent relied on circular No. 42/2006, stating that tax for new branches should be calculated based on the average tax paid for other branches as if the new branch had not been opened.

The petitioner contended that the circular was inapplicable for the assessment year 2008-09 and that compounding was only relevant for the head office and one branch. The court analyzed the circular and statutory provisions, noting that post-April 1, 2008, compounding was possible only for all branches as per Explanation 3 to section 8(f). The court emphasized the plain meaning of Explanation 5, stating that it applies only when a dealer opens a new branch in the current year. The court found the respondent's interpretation unsustainable and held that the circular could not govern post-April 1, 2008, due to conflicts with statutory provisions.

Consequently, the court allowed the writ petition, quashed the disputed exhibits, and directed a decision on the application for compounding within one month. The petitioner was permitted to pay the monthly compounded tax at a specified rate until a decision was made. The judgment clarified the scope of Explanation 5, highlighted the conflict between circular and statutory provisions, and provided a clear ruling on the application of compounded tax for new branches under the Kerala Value Added Tax Act.