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TMI Blog2020 (6) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... paid or payable, if the turnover for the preceding year was ₹ 10 lakhs or below, 120%, if it were above ₹ 10 lakhs and up to ₹ 40 lakhs, 135%, above ₹ 40 lakhs and up to Rupees one crore and 150% above Rupees one crore. The percentage being determined on the highest tax conceded or paid in the three consecutive years preceding the year under option. In the present case no curative exercise having been carried out by the amendment of 2014. Clause (f) of Section 8 was substituted in its entirety with six explanations where as the original clause (f) had eight explanations. If Explanation 3 in the new clause (f), as introduced in 2014, is found to be clarificatory, it has to be bodily taken out of the amended provision and placed in the un-amended clause (f) which is not a permissible exercise. The Explanation in the amended clause(f) applies to that provision and not to the earlier one. Clause (f) as amended in 2014 can only apply prospectively and the Explanations therein are intended at explaining the meaning and intendment of the section itself, to clarify any obscurity or vagueness thereat, to make meaningful and workable the dominant object of that par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erry and three branches at Kottayam, Thiruvalla and Chengannoor. From the year 2006-2007 onward the assessee was paying tax under Section 8(f) of the Kerala Value Added Tax Act, 2003 (hereinafter KVAT Act ).The assessee on 31.03.2010 closed down the branch at Thiruvalla and from the next assessment year the business is carried on from the Head Office and two branches. 3. The assessee for the year 2010-11 applied for compounding and the issue is said to be pending before the Tribunal in appeal. The Department maintains that the compounded tax to be paid by the assessee is at the percentage prescribed of the tax paid in the previous year, ie, 2009-10 which included the Head Office and three branches. In the year 2011-12 and 2012-13 the assessee again applied for compounding and the same was permitted. The assessee had made an application excluding that portion of the tax paid, attributable to the Thiruvalla Branch for the year 2009-10; in the year 2010-11. The assessee was permitted to pay tax under the compounded provision by Exts.P1 and P1(a) orders dated 13.12.2011 and 04.08.2012. Later notice was issued under Section 25(1) of the KVAT Act and Exts. P4 and P4(a) orders were pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lways a possibility of the tax effect in the year under option being more than that provisionally accepted at the time of grant of permission to compound by the assessing authority. Looking at the rules as also the provisions of the Act, it was categorically held that even if the assessee is permitted to pay tax under the compounding provision, there could necessarily be an assessment determining the actual amounts payable under the compounding provision. This would not detract from the principle of there being a binding contract between the assessee and the department; which is on the aspect of compounding, from which neither can resile from. The binding nature of the agreement between the assessee and the department is insofar as neither being permitted to resile from the compounding provision so as to attempt a regular assessment adopting the complicated process of examination of books of accounts and records. 7. The learned counsel for the assessee Sri.Harisankar V Menon while accepting the said position however, draws a caveat insofar as the compounding provision not intending to tax an assessee more than that, what would necessarily and legally follow from Section 6 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The percentage being determined on the highest tax conceded or paid in the three consecutive years preceding the year under option. 10. We need extract only the relevant explanations as it existed in the subject assessment years and that available in the amended section 8(f)(i) in 2014. As it existed in the subject assessment years: Explanation 8:- Where a dealer who had opted and paid tax under this clause during previous years with respect to a branch that had remained closed during the whole of the year 2009-10, for the purpose of determining the compounded tax payable for 2010-2011, the tax paid in respect of that branch shall not be reckoned. Explanation relied on as it existed after the amendment in the year 2014 Explanation 3. Where a dealer paying tax under this clause, closes a branch during the year under option, proportionate reduction considering the number of business places, in the payment shall be granted in the next monthly instalment onwards, for the remaining months of the year . 11. We are unable to agree with the learned Single Judge that Explanation 3 as available in the amended Section 8(f) is clarificatory, for more than one rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es unduly wide bringing within it scope those payments, which were not intended to be prohibited from the category of permissible deductions. 12. In the present case we find no such curative exercise having been carried out by the amendment of 2014. Clause (f) of Section 8 was substituted in its entirety with six explanations where as the original clause (f) had eight explanations. If Explanation 3 in the new clause (f), as introduced in 2014, is found to be clarificatory, it has to be bodily taken out of the amended provision and placed in the un-amended clause (f) which is not a permissible exercise. The Explanation in the amended clause(f) applies to that provision and not to the earlier one. Clause (f) as amended in 2014 can only apply prospectively and the Explanations therein are intended at explaining the meaning and intendment of the section itself, to clarify any obscurity or vagueness thereat, to make meaningful and workable the dominant object of that particular provision and not do any or all of these with respect to the un-amended provision, which had all-together different explanations [S.Sundaram Pillai v. V.R.Pattabiraman (1985 1 SCC 591)]. 13. The fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applies under the compounding provision the tax liability would be the specified percentage of the highest of the previous three years liability. However, if during the course of the year under option, 2011-12, say in September, one of the branches is closed. The liability from October would be reduced insofar as that portion being excluded. If in the subsequent year 2012-13, the very same provision existed, there could be no reduction claimed insofar as the tax liability for the previous year with respect to the closed branch up to September, 2010; though that branch is not functioned in that subsequent year; which then becomes the year under option. 15. Explanation 3, of the amended Section 8(f) if available in the year 2011-12 and 2012-13 would not enable a reduction insofar as the determination of the quantum of the tax payable under the compounding provision for the year under option merely for reason of the closure of the business in the previous year, which in the present case is on the last date of closure, ie, 31st of March. Explanations, of the year 2014, speak only of a closure in the year of option and does not reckon a closure in the previous year. 16. We also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d if the assessee had gone under regular assessment. However, the assessee chose to apply for compounding which alternate mode specifically provided for an enhanced percentage of the turnover for the previous year which took in the business of the 3rd branch also. The assessee had no escape from paying tax on the basis of the earlier turnover since that was an alternate mode available to the assessee for which the assessee had voluntarily opted with open eyes. 18. Now, we have to look at whether the Explanation as available in the relevant years under the un-amended Section 8(f) was absurd or unworkable. Explanation 8 as extracted herein above only provided for deduction of the business of a branch which had remained closed during the whole of the year 2009-10. There is no absurdity in the provision nor can it be found unworkable. Hardship, definitely could be pleaded but is no ground against the taxing statute especially one which provided an alternate mode from that of the rigour of a regular assessment which also was available as an alternative option. The assessee had a choice not to opt under the compounding provision. Having so opted, he cannot plead hardship and seek m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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