2014 (3) TMI 782 - SC - VAT and Sales Tax

Opting out of scheme of compound levy / composite method of taxation on ground of closure of business - Whether a fortiori can be taken in the lean season when the assessee voluntarily and with full knowledge of features of alternate method of taxation has opted to be governed by it - Correctness of the order passed by the High Court - Kerala General Sales Tax Act 1963 Held that - The compounding of the tax by way of contract of payment of tax is a lump sum on the value of contract on an agreed rate. The contract of compounding is a statutory contract under a scheme in which the State Government can increase or decrease the rate of compounding of tax. It is an invitation to offer for compounding for each financial year resulting in an agreement qua such financial year. Therefore the contract between the assessee and the assessing authority can be then annulled by the parties only under the circumstances which are provided under the provisions of the Contract Act. The composition of tax is nothing but an alternative route to assessment regulated by the terms of a contract between the assessee and the assessing authority to arrive at the same destination - the dealer who had voluntarily and with full knowledge of features of alternate method of taxation has opted to be governed by it a fortiori cannot in the lean season claim for his assessment to be made under the regular assessment in the same assessment year - This has been taken note by the assessing authority and the First Appellate Authority and by the High Court - High Court has not committed any error. Decision in the case of Venus Castings (P) Ltd 2000 (4) TMI 37 - SUPREME COURT OF INDIA and Supreme Steels & General Mills and Ors 1996 (11) TMI 355 - SUPREME COURT OF INDIA followed Appeal dismissed Decided against assessee.

Summary

Issues Involved:
1. Applicability of compounded tax rates under Section 7 of the Kerala General Sales Tax Act, 1963.
2. Validity of the assessee's request to revert to regular assessment under Section 5(1) and Section 17 after opting for compounded tax rates.
3. Legal implications of the bilateral agreement under the composition scheme.

Issue-Wise Detailed Analysis:

1. Applicability of Compounded Tax Rates Under Section 7 of the Kerala General Sales Tax Act, 1963:
The primary issue revolves around the applicability of Section 7 of the Kerala General Sales Tax Act, 1963, which provides for payment of tax at compounded rates. The assessee, a dealer in arrack, had filed an application in Form No. 21 on 24.05.1993 to opt for compounded tax rates, which was approved by the assessing authority on 28.06.1993. Section 7(14) specifically allows dealers in arrack to pay tax at a compounded rate of thirty percent of the rental amount payable under the Abkari Act, less tax paid for the purchase of arrack on the first sale point. The procedure for opting for compounded tax rates is outlined in Section 7(15), requiring the dealer to make an application and pay tax in monthly installments.

2. Validity of the Assessee's Request to Revert to Regular Assessment:
The assessee continued business until 15.08.1993 and then requested to revert to regular assessment under Section 5(1) read with Section 17, citing business closure. The assessing authority rejected this request, emphasizing that once the option for compounded tax rates is exercised and accepted, the dealer cannot revert to regular assessment within the same assessment year. The Tribunal initially allowed the assessee's appeal, but the High Court reversed this decision, aligning with the precedent set in Udaya Traders vs. Sales Tax Officer, Chengannur & Ors., 1995 (99) STC 41.

3. Legal Implications of the Bilateral Agreement Under the Composition Scheme:
The concept of compounded tax is described as a bilateral agreement between the dealer and the State Government, aiming to simplify tax collection and assessment. Once the dealer opts for compounded tax rates and this option is accepted, it becomes a binding agreement. The dealer is not required to file monthly, quarterly, or annual returns, and the tax is assessed at an agreed lump sum amount. The agreement can only be annulled under circumstances provided by the Indian Contract Act, such as fraud, misrepresentation, coercion, or undue influence. The judgment references cases like Commissioner of Central Excise and Custom vs. M/s Venus Castings (P) Ltd., and Union of India & Ors. vs. Supreme Steels & General Mills and Ors., which reinforce that once an option for compounded tax is exercised, the dealer cannot switch to regular assessment within the same financial year.

Conclusion:
The Supreme Court upheld the High Court's decision, stating that the assessee, having voluntarily opted for compounded tax rates, cannot revert to regular assessment mid-year. The composition scheme is a statutory contract, and the dealer is bound by the terms once the option is exercised and accepted. The appeal was dismissed, affirming the High Court's judgment that there was no error warranting interference.