2015 (1) TMI 681 - HC - VAT and Sales Tax

Option to change the scheme of payment of tax - from compounded levy scheme to general provisions of levy - Assessee opted for payment of tax at the compounded rate u/s 8(b) of the KVAT Act - single crushing machine - Held that - Where the choice of an assessee, as to the manner of payment of tax, is based on a particular provision of law as it stood at the time of the exercise of his option, and that basis is thereafter changed, the assessee must necessarily be given an opportunity to reconsider his option for the purposes of payment of tax in terms of the KVAT Act - the orders passed by the assessing authorities have the effect of forcing upon the assessee, an option that he never contemplated, and in that sense, it affects the very understanding between the assessee and the department with regard to the payment of tax on compounded basis thus, the order is set aside - as the petitioners have clearly expressed that they do not wish to opt for payment of tax at the revised compounded rates for the AY, the respondent assessing authorities in all the cases shall proceed to complete the assessment, for the AYs as per the regular provisions of the KVAT Act and not in accordance with the provisions of Section 8 of the Act decided in favour of petitioner.

Summary

Issues Involved:
1. Validity of the enhanced compounded tax rate under the Kerala Finance Act, 2009.
2. The binding nature of the compounding option exercised by the assessees.
3. The impact of delayed orders by assessing authorities on the tax liability of assessees.

Detailed Analysis:

1. Validity of the Enhanced Compounded Tax Rate:
The primary issue in these writ petitions is whether the Kerala Finance Act, 2009, which amended the compounded tax rate provisions under Section 8(b) of the Kerala Value Added Tax Act (KVAT Act) with effect from 1st April 2009, justified the respondent assessing authorities in either rectifying earlier orders or passing new orders to enforce the enhanced tax rate of Rs. 1,50,000/- for crushing machines exceeding 30.48 cm x 22.86 cm. The petitioners argued that their applications for compounded tax were based on the earlier rate of Rs. 25,000/- as per the Kerala Finance Bill, 2009, and thus, they should not be subjected to the amended rate.

2. Binding Nature of the Compounding Option:
The respondents contended that once the assessees opted for the compounding scheme, they could not resile from it even if the tax rate was subsequently enhanced. The court noted that compounding options, once exercised, are binding on both the assessee and the government. However, the court also recognized that the amendment introduced by the Kerala Finance Act, 2009, with retrospective effect, altered the very basis of the assessee's decision to opt for compounded tax, which was initially based on the lower rate of Rs. 25,000/-.

3. Impact of Delayed Orders by Assessing Authorities:
The court observed that the assessing authorities are expected to act promptly on applications for compounded tax to inform the assessees of their tax obligations before the regular tax payment dates. In this case, the delay in passing orders for two of the writ petitions resulted in the assessees being subjected to the amended higher rate of Rs. 1,50,000/-, which was not the rate prevailing at the time of their application. The court found this delay significant as it affected the assessees' understanding and decision-making regarding their tax obligations.

Conclusion:
The court concluded that the orders passed by the assessing authorities, which enforced the higher compounded tax rate of Rs. 1,50,000/-, were not justified as they altered the basis on which the assessees had opted for the compounded tax scheme. The court quashed the impugned orders, allowing the petitioners to be assessed under the regular provisions of the KVAT Act for the assessment year in question. The assessing authorities were directed to complete the assessments within three months, providing the petitioners an opportunity to be heard. The writ petitions were disposed of accordingly.