2017 (2) TMI 5 - HC - VAT and Sales Tax

Withdrawal of Compounding u/s 8 - re-constitution of the firm due to death of the partner - The petitioner s contention is that since the compounding has not been accepted and an order passed, the petitioner cannot be asked to continue compounding and the petitioner is entitled to resile from the compounding scheme, which, is a contract between parties which would be concluded only on an order being issued - Held that - evidently the compounding application was allowed by the Department on 17.05.2016. The application for withdrawal was made on 22.07.2016, received by the authority on 25.07.2016. It is also evident from the facts disclosed that the partnership firm had filed a return for one month ie April 2016 and paid tax as per the compounding scheme. The contention of the stoppage of the unit also cannot be believed since even as per the returns filed by the assessee for the months of May to August, 2016, there was tax payable on conceded turnover and the same paid under Section 6 as evidenced from Exhibit P8 series of returns. Court has found that there is no reason for the Assessing Officer to consider the withdrawal application, since the assessee has already acted in accordance with the compounding application made and remitted the tax due under the scheme. The order granting permission to compound was also made on 17.05.2016. Based on it, the assessee could be considered to have not paid the tax; but, however, this Court is of the opinion that there can be no penalty imposed for reason of there being no evasion attempted by the petitioner. The issue is one of non-payment or default in payment and not an evasion. Petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Disallowance of withdrawal of compounding application.
2. Reconstitution of firm and application for withdrawal from compounding.
3. Entitlement to resile from compounding scheme.
4. Comparison with a previous case regarding withdrawal from compounding.
5. Penalty proceedings for non-payment of compounded tax.

Analysis:

1. The petitioner was aggrieved by the non-approval of the withdrawal of the compounding application. The petitioner had applied for compounding under Section 8, but due to various reasons, including the death of a partner and reconstitution of the firm, they sought to withdraw from the scheme. The petitioner argued that since the compounding was not accepted and no order was issued, they should be allowed to resile from the compounding scheme, citing a previous court decision. The court considered the timeline of events and the tax payments made under different schemes before dismissing the petition.

2. The firm underwent reconstitution after the death of a partner, leading to the petitioner's application for withdrawal from the compounding scheme. The petitioner mentioned delays in transferring licenses and issues with revenue authorities as reasons for seeking withdrawal. Despite filing returns and paying taxes under different schemes, the petitioner contended that without an order finalizing the compounding, they should be permitted to withdraw. However, the court found the circumstances did not warrant allowing the withdrawal and cited specific dates of application and approval to support its decision.

3. The court compared the present case with a previous judgment where a dealer was allowed to withdraw from compounding due to a mistaken application and subsequent correction before the expiry of the first month. In contrast, in the current case, the compounding application was allowed before the withdrawal request was made, and taxes were paid under the scheme. The court distinguished the situations and concluded that the petitioner was not entitled to resile from the compounding scheme based on the facts presented.

4. Referring to another judgment, the court highlighted the relevance of a specific case involving withdrawal from compounding based on permission status. The court found the circumstances of the present case aligned more closely with the mentioned judgment, leading to the dismissal of the petitioner's plea for withdrawal from the compounding scheme.

5. In a separate issue regarding penalty proceedings for non-payment of compounded tax, the court reviewed the actions of the petitioner in response to penalty notices. The court determined that the petitioner had paid taxes under a different scheme and had requested withdrawal from compounding, which was not considered by the Assessing Officer. The court concluded that there was no evasion attempted by the petitioner and set aside the penalty orders, directing a fresh review to address specific concerns raised in the judgment.