2015 (1) TMI 80 - HC - VAT and Sales Tax

Rejection of application for registration u/s 6(5) of the Kerala Value Added Tax Act, 2003 as a presumptive dealer with liability to pay tax at lesser rate and the assessment finalised u/s 25(1) of the Kerala Value Added Tax Act Satisfaction of liability u/s 6(1) or not Held that - The Commissioner of Commercial Taxes had issued a Circular No. 5 of 2005 dated April 1, 2005, explaining the scope of provision, wherein it was observed that the rate of presumptive tax was one per cent of the taxable turnover of the dealer - The amendment was brought about on August 28, 2005, giving retrospective effect from April 1, 2005 - Section 6(5) as amended with retrospective effect from April 1, 2005, the rate of tax payable by an eligible presumptive tax dealer has been brought down to 0.5 per cent of the turnover of the sales of the taxable goods. There was a total stock of ₹ 13.45 lakhs, which however was sought to be explained by the petitioner stating that it was only in respect of maize , which was purchased for feeding the petitioner s own poultry and not for sale; adding that it was not a taxable commodity - the commodity is the same and the rate of tax is also the same, as it is 12.5 per cent - The benefit of lesser rate of tax available to a presumptive tax dealer under section 6(5) is carved out by way of exemption in respect of such dealers, who satisfy the different parameters as prescribed under the statute - It is for the law making authorities to prescribe various conditions so as to extend the benefit of exemption, by way of reduced rate of tax and incorporation of such provisions with retrospective effect cannot be misunderstood as enhancement of any rate of tax, by virtue of any amendment - The idea and understanding of the petitioner is thoroughly wrong and misconceived. Constitutional validity of section 6(5) with regard to the retrospective amendment made on August 28, 2005 w.e.f. April 1, 2005 Held that - There is absolutely no challenge or discrimination with regard to the rate of tax in respect of broiler chicken, which is 12.5 per cent, whether it is imported from outside the State or procured within the State - However, in respect of certain specified class of dealers, who satisfy the conditions stipulated under section 6(5) and having a place lower in the hierarchy with maximum turnover of less than ₹ 50 lakhs, are given the benefit of option of paying tax as a presumptive tax dealer on the total sales turnover at the prescribed rate, subject to satisfaction of the requirements - This, in no way, violates the mandate under article 301 or 304(a) of the Constitution of India - That apart, when the petitioner raises a blanket challenge against section 6(5) referring to the discrimination to the imported commodity and if the said provision is to go on this count, the benefit of option also goes and the petitioner cannot be heard to say that he is entitled to have the benefit of section 6(5) as a presumptive tax dealer - The challenge is quite wrong and unfounded. The liability to satisfy tax is not depending upon the right or chance of the dealer to have it passed on to the purchaser - Tax is payable at the instance of sale and only by virtue of the statutory prescription that the dealers have been permitted to pass on the liability to buyers, which in no case can be a pre-condition to have mulcted with the tax liability - the tax paid by the petitioner u/s 6(5) was not in full conformity with the statutory prescription and as such, the option exercised and satisfaction of the requirements could be said as incomplete. By virtue of the specific exclusion of first taxable sellers from the scheme of payment of presumptive tax under clause (d) of section 6(5), the lower authorities including the Tribunal have rightly rejected the claim of the petitioners - section 6(5)(d) was very much there in existence, right from the beginning when the VAT Act was brought into force with effect from April 1, 2005, independent of any amendment subsequently brought about on August 28, 2005 (with retrospective effect from April 1, 2005) as the petitioner is not entitled to have the benefit of presumptive tax under section 6(5) (even by virtue of the unamended provision itself), the petitioner is not entitled to have any relief in this writ petition decided against petitioner.

Summary

Issues Involved:
1. Rejection of application for registration under section 6(5) of the Kerala Value Added Tax Act, 2003.
2. Constitutional validity of section 6(5) with retrospective amendment.
3. Eligibility criteria for presumptive tax dealer status.
4. Applicability of section 24 of the Kerala Value Added Tax Act.
5. Alleged discrimination and violation of Articles 301 and 304(a) of the Constitution of India.
6. Reasonableness of retrospective amendment under Article 14 of the Constitution.
7. Procedural fairness regarding consideration of objections and replies.

Detailed Analysis:

1. Rejection of Application for Registration under Section 6(5):
The petitioner, a poultry farm, applied for registration as a "presumptive dealer" under section 6(5) of the Kerala Value Added Tax Act, 2003, aiming to benefit from a reduced tax rate. The application was rejected because the petitioner's turnover for the preceding year was Rs. 84.87 lakhs, exceeding the Rs. 50 lakh limit stipulated in the amended section 6(5). The court upheld this rejection, noting that the petitioner's total turnover exceeded the statutory limit, making them ineligible for the presumptive tax scheme.

2. Constitutional Validity of Section 6(5) with Retrospective Amendment:
The petitioner challenged the constitutional validity of the retrospective amendment to section 6(5), which came into effect on April 1, 2005. The court found that retrospective amendments are not uncommon in fiscal law and that the amendment was introduced to safeguard revenue interests. The court held that the amendment did not constitute an enhancement of the tax rate but rather a modification of the eligibility criteria for the presumptive tax scheme.

3. Eligibility Criteria for Presumptive Tax Dealer Status:
The petitioner argued that they had complied with the requirements for presumptive tax dealer status by cutting down their turnover and stopping imports. However, the court noted that the petitioner's turnover for the preceding year was above the Rs. 50 lakh threshold, and they had not surrendered their CST registration by March 31, 2005. Thus, they did not meet the criteria for presumptive tax dealer status under the amended section 6(5).

4. Applicability of Section 24 of the Kerala Value Added Tax Act:
The petitioner contended that section 24, which deals with the applicability of enhanced tax rates, should protect them from the retrospective amendment. The court disagreed, stating that section 24 pertains to changes in tax rates, not eligibility criteria for tax schemes. The court clarified that the presumptive tax scheme was an exemption with specific conditions, and changes to these conditions did not equate to an enhancement of the tax rate.

5. Alleged Discrimination and Violation of Articles 301 and 304(a) of the Constitution:
The petitioner claimed that section 6(5) discriminated against dealers engaged in inter-state purchases, violating Articles 301 and 304(a) of the Constitution. The court found no merit in this argument, noting that the tax rate for broiler chicken was uniform at 12.5%, regardless of the source. The presumptive tax scheme was an optional benefit for dealers meeting specific criteria, and its exclusion of certain dealers did not constitute discrimination.

6. Reasonableness of Retrospective Amendment under Article 14 of the Constitution:
The petitioner argued that the retrospective amendment was unreasonable and violated Article 14. The court held that the amendment was reasonable, given its purpose of refining the eligibility criteria for the presumptive tax scheme. The amendment was introduced within four months of the scheme's implementation and reduced the tax rate from 1% to 0.5%, benefiting eligible dealers.

7. Procedural Fairness Regarding Consideration of Objections and Replies:
The petitioner claimed that their objections were not considered before the assessment order was finalized. The court noted that the petitioner failed to submit a timely reply to the pre-assessment notice and that the objections were received after the assessment order was dispatched. The court found no procedural unfairness, as the assessment was justified based on the petitioner's turnover exceeding the statutory limit.

Conclusion:
The court dismissed the writ petition, upholding the rejection of the petitioner's application for presumptive tax dealer status and the constitutional validity of the retrospective amendment to section 6(5). The court found no merit in the petitioner's arguments regarding discrimination, procedural fairness, or the applicability of section 24. The petitioner's challenge was deemed unfounded, and the assessment order was affirmed.