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2018 (4) TMI 374 - HC - VAT and Sales TaxReassessment of tax - Composition Scheme - Liquor - Composition facility (COT) which was granted by the department was cancelled by the Assistant Commissioner of Commercial Taxes on the ground that the petitioner is dealing in liquor either at the principal place of business or branches. Therefore the petitioner is not entitled to avail or opt for Composition Scheme in terms of Section 15(1)(c) of the KVAT Act. Whether the respondent-authorities can re-assess the assessee under VAT Scheme for the tax periods 2014-15, the composition scheme being cancelled with effect from 22.07.2015, directing the assessee to submit returns in VAT 100 with effect from 01.08.2015? Held that - it is clear that unless the certificate issued under Rule 137 Composition Certificate has not been cancelled, the Dealer-Petitioner herein would be entitled to continue with the benefit under Section 15 of the KVAT Act on composition scheme. Indisputably, as narrated above, order of cancellation of composition scheme facility has been passed on 22.07.2015 with immediate effect. It is also made clear that VAT option is enabled to file VAT-100 returns with effect from 1.8.2015. Even in the notice, for cancellation of composition scheme, it was proposed to cancel the COT facility with immediate effect. No reassessment can be made under Section 39 1 of the VAT Act subjecting the petitioner to tax under VAT Scheme. It is not in dispute that the petitioner is filing VAT 100 returns and paying the tax under the VAT Scheme subsequent to cancellation of the composition certificate with effect from 22.07.2015 - the reassessment order impugned herein deserves to be quashed without adverting to the other arguments canvassed. Re-assessment order as well as demand notice quashed - Petition allowed.
Issues Involved:
1. Legality of the Re-assessment order and demand notices dated 04.10.2016. 2. Eligibility and cancellation of the Composition Scheme under Section 15(1) of the KVAT Act. 3. Impact of inter-state purchases and liquor sales on the eligibility for the Composition Scheme. 4. Validity of reassessment under the VAT Scheme for the tax period April 2014 to March 2015. 5. Principles of natural justice in the cancellation of the Composition Scheme. Detailed Analysis: 1. Legality of the Re-assessment Order and Demand Notices: The petitioner challenged the Re-assessment order and demand notices dated 04.10.2016 issued by the prescribed Authority, which related to the tax periods April 2014 to March 2015. The petitioner contended that the re-assessment order was illegal and void because the composition scheme opted by the petitioner was cancelled with effect from 22.07.2015, and as long as the certificate of composition was in operation, no re-assessment could be made under the VAT Scheme. 2. Eligibility and Cancellation of the Composition Scheme: The petitioner, a registered dealer under the KVAT Act, was engaged in the hotel industry and had opted for the Composition Scheme in terms of Section 15(1) of the KVAT Act for two outlets, namely 'The French Loaf' and 'Wangs Kitchen'. The Assistant Commissioner of Commercial Taxes cancelled the Composition facility on 22.07.2015, citing that the petitioner was dealing in liquor either at the principal place of business or branches, making them ineligible for the Composition Scheme under Section 15(1)(c) of the KVAT Act. 3. Impact of Inter-state Purchases and Liquor Sales: The Enforcement Wing's inspection on 16.12.2015 revealed that the petitioner was engaged in inter-state purchases of capital goods and raw materials against 'e-Sugam' and 'C' forms, and also purchased and sold liquor against excise license CL-9. These activities contravened the conditions of the Composition Scheme under Section 15 of the KVAT Act, as inter-state purchases and liquor sales were prohibited under the scheme. 4. Validity of Reassessment under the VAT Scheme: The respondent-authorities reassessed the petitioner under the VAT Scheme for the tax period 2014-2015, enhancing the tax liability with penalty and interest. However, the court noted that the cancellation of the Composition Scheme was effective from 22.07.2015, and the reassessment under the VAT Scheme for the period April 2014 to March 2015 was invalid because the Composition certificate was still in effect during that period. 5. Principles of Natural Justice: The court referred to previous judgments, emphasizing that the cancellation of the Composition certificate must follow the principles of natural justice. The certificate issued under Rule 137 of the KVAT Rules entitles the dealer to the benefits of the Composition Scheme unless it is cancelled in accordance with Rule 145. The court observed that the cancellation of the Composition Scheme was not retrospective and was effective only from 22.07.2015, making the reassessment for the period April 2014 to March 2015 invalid. Conclusion: The court concluded that the reassessment under the VAT Scheme for the tax period April 2014 to March 2015 was invalid as the Composition certificate was in effect during that period. The reassessment order dated 04.10.2016 and the demand notices were quashed. The petitioner was entitled to continue under the Composition Scheme until its cancellation on 22.07.2015. The court allowed the writ petitions and quashed the reassessment order and demand notices, with no order as to costs.
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