Amon & Company Calcutta Pvt. Ltd. v. Intelligence Officer Commercial Taxes, Mattancherry; Assistant Commissioner of Commercial Taxes, Special Circle (Produce), Mattancherry; State of Kerala represented by its Secretary, Department of Tax

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **FRIDAY ,THE 31ST DAY OF AUGUST 2018 / 9TH BHADRA, 1940** **WA.No. 2557 of 2015 IN WP(C). 25880/2015** **AGAINST THE ORDER/JUDGMENT IN WPC 25880/2015 of HIGH COURT OF KERALA DATED 13-10-2015** ## **APPELLANT/PETITIONER:** **AMON & COMPANY CALCUTTA PVT. LTD. OLD HARBOUR HOTEL, 1/328, TOWER ROAD, FORT KOCHI, KOCHI - 682 001, REPRESENTED BY ITS DIRECTOR.** **BY ADV. SRI. JOSEPH KODIANTHARA (SR.) SRI. ABRAHAM JOSEPH MARKOSE** ## **RESPONDENT/S/RESPONDENTS:** - **1 THE INTELLIGENCE OFFICER COMMERCIAL TAXES, MATTANCHERRY, MAIN CIVIL STATION, ALUVA - 1.** - **2 ASSISTANT COMMISSIONER OF COMMERCIAL TAXES SPECIAL CIRCLE (PRODUCE) MATTANCHERRY, COCHIN - 682 002.** - **3 STATE OF KERALA REPRESENTED BY ITS SECRETARY, DEPARTMENT OF TAX, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM - 695 005. BY ADV.SRI.V.K.SHAMSUDEEN, SENIOR GOVERNMENT PLEADER.** WA Nos.2557, 2605/15 & 291/16 -2- **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 31.08.2018, ALONG WITH W.A.NOS.2605/2015 AND 291/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## W.A.Nos.2557 & 2605 of 2015 and 291 of 2016 ## J U D G M E N T ## Vinod Chandran, J. These Writ Appeals arise from the common judgment of a learned Single Judge in two Writ Petitions filed by an assessee under the Kerala Value Added Tax Act, 2003 (for brevity 'the Act'). Two Writ Appeals are by the assessee and the other by the Department. The parties are referred to as the assessee and the Department. 2. The assessee is running a hotel and for the assessment year 2009-10 applied for compounding, for the sales turnover of cooked food, the rate for which in the relevant year was 0.5% of the total turnover. The option exercised for compounding was accepted by the Department and the assessee started payment on the basis of the compounding permission granted by the Department. 3. On 19.8.2009, the assessee obtained a licence for a beer and wine parlour. Section 8(c) of the Act WA Nos.2557, 2605/15 & 291/16 -3- provided for an option of compounding to any dealer in cooked food and beverages, but however prohibited it inter alia for a bar attached hotel or a dealer serving cooked food in a bar attached hotel. Hence, from the date on which the assessee obtained a licence for running a beer and wine parlour and also commenced it, there could have been no payment of tax as per the compounding allowed by the Department. The assessee failed to reveal the same to the Department and switch over to regular assessment. The learned counsel for the assessee has a contention that the Department was in the know of things since the assessee commenced paying tax on the beer and wine sold in the premises. However, that does not absolve the liability of the assessee to have voluntarily switched over to regular assessment, for the sale of cooked food. 4. The Department later coming to know of the commencement of beer and wine parlour initiated a crime file and issued notice to the assessee. The assessee is said to have agreed to the compounding of the offence alleged. The Department demanded Rs.4 lakhs which was paid by the assessee. Later, the Department sought to revise the demand of compounding fee, for WA Nos.2557, 2605/15 & 291/16 -4- settlement of the offence to Rs.8 lakhs. The assessee was issued with a notice for regular assessment on the basis of the disentitlement of the assessee to continue payment under the compounding scheme. The assessee challenged the same in WP(C) No.25880/2015. The ground raised to challenge the regular assessment, as found from the Writ Petition, is the failure of the Department to cancel the permission granted for compounding under Section 8(c). It was argued that without cancellation of the said option, the Department could not have resiled from the binding contract entered into between the Department and the assessee. The assessee also filed a Writ Petition against the compounding fee levied alleging that the assessee was coerced into agreeing for the compounding of the offence and the said writ petition was numbered as WP(C) No.26068/2015. 5. The learned Single Judge considered both the issues together. On the question of coercion, the learned Single Judge found that, the assessee having paid up the amounts cannot now turn around and allege coercion by the Department to accept the compounding of the offence. However, the learned Single Judge looked WA Nos.2557, 2605/15 & 291/16 -5- into the provisions for compounding of an offence under Section 74 of the Act and found that only Rs.2 lakhs could have been imposed. The learned Single Judge also found that the differential compounding fee claimed enhancing it to Rs.8 lakhs could not have been claimed by the Department. On the regular assessment taken up, the learned Single Judge left the remedy of the assessee to challenge the same before the appellate forum. Both the assessee and the Department are in appeal. The assessee in WA No.2605/2015 asserts that the compounding fee remitted was on coercion. In WA No.2557/2015, the regular assessment is challenged on the ground, earlier noticed, of no cancellation of the permission to compounding having been made by the Department as also on the grounds of limitation under Section 25(1) of the Act. 6. The learned Senior Government Pleader in answer submits that the ground of limitation was never raised by the assessee in the Writ Petition or even in the Writ Appeal. It is also argued that the learned Single Judge having refused to exercise discretion to interfere with the assessment order, the Division Bench also should not interfere with the same, since the WA Nos.2557, 2605/15 & 291/16 -6- proceedings essentially is on judicial review, wherein the jurisdiction of the Court is confined and constricted insofar as examining whether there is lack of jurisdiction, violation of natural justice, abuse of process or a challenge on grounds of the statutory provision being ultra-vires. The learned Senior Government Pleader urged that the question be left to the Tribunal to be considered on the issue of limitation. Insofar as the penalty, the learned Senior Government Pleader points out that when the application for compounding was filed, there was an amendment to Section 74 enhancing the maximum compounding fee to Rs.8 lakhs. The maximum compounding fee as it stood under Section 74(1)(a) was Rs.2 lakhs. By Finance Act, 2009 with effect from 01.04.2009 this was enhanced to Rs.4 lakhs. A further enahacement was made substituting the words 'Rs.4 lakhs' with 'Rs.8 lakhs' by an amendment in the Kerala Finance Act, 2011 w.e.f. 19.7.2011. The application for compounding was filed in the year 2014 and hence compounding fee would be Rs.8 lakhs is the argument. 7. On the question of compounding fee, we have to notice the various amendments brought in as also the WA Nos.2557, 2605/15 & 291/16 -7- date of application. As was pointed out, initially, the maximum compounding fee was Rs.2 lakhs; then enhanced to Rs.4 lakhs and eventually to Rs.8 lakhs. The application filed was also after the enhancement to Rs.8 lakhs as seen from the statute. The learned Single Judge had considered the issue on the basis of the provision as it stood in the subject assessment year, which is as below:- “74. Composition of offence.- (1) The Assessing Authority or other officer or authority authorized by the Government in this behalf may accept from any person who has committed or is reasonably suspected of having committed an offence against this Act, other than those specified under clause (e) of subsection (1) or clauses (b), (c) or (d) of subsection (2) of section 71 by way of compounding of such offence,- (a) where the offence consists of the evasion of any tax payable under this Act, in addition to the tax so payable a sum of money equal to the amount of tax so payable subject to a minimum of rupees five hundred and maximum of rupees eight lakhs; and Provided that the maximum compounding fee collectable against a single offence spread over several return periods in a financial year shall be two lakh rupees.” 8. The learned Single Judge relied on the proviso to find that the maximum compounding fee collectable against the single offence spread over several return periods in a financial year shall be two lakh rupees. We see that, even now, the statute in the WA Nos.2557, 2605/15 & 291/16 -8- various texts available before us shows the amount as Rs.2 lakhs in the proviso. However, we have to look at the amendment to understand as to the substitution made. We have looked at the Kerala Finance Act, 2009 and this is the specific amendment seen therefrom:- “(22) in section 74, in sub-section (1), for the words 'two lakhs', the words 'four lakhs' shall be substituted.” 9. The words 'two lakhs' have been substituted with the words 'four lakhs' and the substitution should be to all places in sub-section (1). Hence, in subclause (a) as also in its proviso, the amount would stand substituted to 4 lakhs. We agree with the learned Single Judge that there could have been no allegation raised that the compounding of the offence was on coercion of the Department. The assessee had not only made an application, but had also remitted the amounts demanded by the Department. We, hence, reject WA No.2605/2015 and allow the appeal of the State to that extent. 10. The State however in WA No.291/2016 has a contention that the actual compounding fee is Rs.8 lakhs as is seen from the amendment made, applicable and valid on the date of application. It has to be WA Nos.2557, 2605/15 & 291/16 -9- noticed that the Department had only sought for Rs.4 lakhs which was remitted by the assessee and later a rectification was made. This would raise a question as to whether the assessee would have agreed to payment of such a compounding fee, especially in the context of the assessee having challenged the original order itself on the ground of coercion. In such circumstances, we are of the opinion that this is a fit case where this Court should exercise discretion insofar as denying the Department the right to make any revision of the compounding fee which already has been accepted by the assessee and amounts paid. In such circumstances, WA No.291/2016 would stand partly allowed setting aside the judgment of the learned Single Judge only to the extent of directing refund of Rs.2 lakhs. The compounding fee at Rs.4 lakhs as demanded by the Department and remitted by the assessee would stand sustained. 11. Now we come to W.A.No.2557/2015, wherein the assessee has challenged the regular assessment made on the assessee being dis-entitled to continue the compounding under Section 8(c) due to the commencement of the beer and wine parlour. We are not convinced WA Nos.2557, 2605/15 & 291/16 -10- that the assessee could take a contention that there should be a cancellation first effected before the regular assessment is made. On the assessee obtaining a beer and wine parlour licence and commencing the sale, the entitlement to continue compounding under Section 8(c) automatically stands extinguished. There is absolutely no requirement of cancellation first before a regular assessment is taken up. We reject the contention so raised. 12. Be that as it may, the assessee has a further contention; not raised as a ground in the appeals or the writ petitions, which is on limitation. Limitation raises mixed questions of fact and law. But in the present case, there is no dispute on facts. The relevant facts are only the subject assessment year as also the date on which the Department initiated proceedings to determine the taxable turnover under Section 25(1) based on the detection of the disentitlement of the assessee to continue under the compounding scheme. The order of the intelligence officer was passed as early as on 6.3.2014 as is revealed from Ext.P10 assessment order produced in WP(C) No.25880/2015. Notice under Section 25(1) again WA Nos.2557, 2605/15 & 291/16 -11- referred to in Ext.P10 is dated 10.8.2015. Proceedings had to be taken up within five years, which is the limitation as provided under Section 25(1) of the Act. There is no adjudication on facts required other than what is stated herein above. Hence, the question of limitation insofar as the present case is concerned, is only a question of law. 13. We do not agree with the learned Senior Government Pleader that the issue cannot be considered in a proceedings under Article 226 of the Constitution of India. This Court has already held that the limitation under Section 25(1) is for initiation of proceedings in M/s.Cholayil Pvt. Ltd. v. Assistant Commissioner (Assessment) [W.A.No.1184/2013] and in Commercial Tax Officer v. S.Najeem [W.A.No.230/2017] . The issue is also one of lack of jurisdiction insofar as the expiry of the period of limitation having divested the officer of the jurisdiction to proceed to determine the taxable turnover under Section 25(1). In such circumstances, we are constrained to allow W.A.No.2557/2015 setting aside the assessment order. We interfere with the judgment of the learned Single Judge to that extent also. WA Nos.2557, 2605/15 & 291/16 -12- The Writ Appeals are ordered accordingly. Parties are left to suffer their respective costs. **Sd/-** **K.VINOD CHANDRAN** **Judge** **Sd/-** **ASHOK MENON Judge** jg