2016 (1) TMI 508 - HC - VAT and Sales Tax

Eligibility to pay VAT on works contract at compounded rates - Kerala Value Added Tax Act (KVAT) - As per the provisions of Section 8(a)(i) of the KVAT Act, as it stood on 1.4.2005, any works contractor who was not an importer or a dealer effecting first taxable sale in the State could, at his option, instead of paying tax in accordance with the provisions of the said section, pay tax at 2% of the whole contract amount. - Effect of subsequent amendment - Held that - The amendment to Section 8(a)(i) having come into force in the middle of the assessment year, and it being almost impossible on account of the statutory provisions of Section 7(5) of the CST Act, to get a cancellation of the certificate of registration issued to them under the CST Act in 2005-06 itself, it would be unfair on the part of the respondents to insist on the higher rate of compounded tax under Section 8(a)(ii) of the KVAT Act being paid by the petitioners on the works contracts executed by them. The orders of penalty imposed on the petitioners on this ground also cannot be legally sustained. - Demand of differential tax and penalty set aside - Decided in favor of assessee. Regarding the petitioners could have applied for a surrender of their certificate of registration under the CST Act during the assessment year 2005-06 itself, for reasons best known to them, did not choose to apply for a cancellation of the CST registration before the commencement of the assessment year 2006- 07 - Held that - petitioners had ample time during the assessment year 2005-06 itself to ensure that they were duly qualified for exercising their option under Section 8(a)(i) for the assessment year 2006-07. The petitioners having not chosen to do so, and having opted for payment of tax at the lower rate of compounded tax under Section 8 (a)(i), when they were not entitled for the same, the orders impugned in these writ petitions, where the Assessing officers find that the petitioners are not entitled to the rate of tax under Section 8(a)(i) of the KVAT Act, cannot be said to be illegal - Decided against the assessee.

Summary

Issues:
1. Interpretation of provisions of the Kerala Value Added Tax Act regarding payment of tax at compounded rates for works contractors.
2. Application of the amendment to Section 8(a)(i) of the KVAT Act introduced on 28.8.2005 for assessment years 2005-06 and 2006-07.
3. Validity of Assessing Officers' decisions to cancel the option for payment of tax on compounded basis and impose higher tax rates.

Analysis:
1. The writ petitions involved a common issue related to the payment of tax at compounded rates under the Kerala Value Added Tax Act for works contractors. The petitioners had applied for compounding at lower rates under Section 8(a)(i) of the KVAT Act, which allowed for a 2% tax rate on the whole contract amount. However, an amendment on 28.8.2005 changed the conditions for opting for compounded rates, leading to confusion and disputes regarding the eligibility criteria for the concessional rates.

2. For the assessment year 2005-06, petitioners faced challenges complying with the amended Section 8(a)(i) due to the requirement of surrendering CST registrations, which was difficult to achieve within the timeframe. The court acknowledged the petitioners' genuine attempt to comply with the law and found it unfair to deny them the benefit of the concessional rate of 2% compounded tax. The court ruled in favor of the petitioners, quashing the orders demanding higher tax rates and penalties imposed by the Assessing Officers.

3. In contrast, for the assessment year 2006-07, petitioners were found to have not taken timely actions to surrender their CST registrations, making them ineligible for the lower compounded tax rate under Section 8(a)(i) of the KVAT Act. The court noted that petitioners had sufficient time to ensure their eligibility but failed to do so, leading to the dismissal of their writ petitions challenging the Assessing Officers' decisions to impose higher tax rates.

4. The judgment highlighted the importance of timely compliance with statutory provisions and the impact of legislative amendments on taxpayers' eligibility for concessional tax rates. It differentiated between the situations of the petitioners for the two assessment years based on their actions regarding CST registrations and their awareness of the legal requirements. The court's decision in each case was based on the specific circumstances and legal provisions applicable during the relevant assessment years.