George Kochupparambil v. Commercial Tax Officer, Ist Circle, Thodupuzha; Inspecting Assistant Commissioner, Commercial Taxes, Idukki; State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE ANTONY DOMINIC** **WEDNESDAY, THE 4TH DAY OF APRIL 2012/15TH CHAITHRA 1934** **WP(C).No. 6924 of 2012 (M) --------------------------** **PETITIONER(S):** **-------------** **GEORGE KOCHUPARAMBIL, AGED 39 YEARS UNITED GRANINTES & METALS, VAZHITHALA P.O. THODUPUZHA.** **BY ADVS.SRI.V.V.GEORGEKUTTY** **SRI.AJI V.DEV** **RESPONDENT(S):** - **--------------** **1. COMMERCIAL TAX OFFICER** **IST CIRCLE, THODUPUZHA-688004.** **2. INSPECTING ASSISTANT COMMISSIONER** **COMMERCIAL TAXES, IDUKKI, KATTAPPANA-688003.** **3. STATE OF KERALA REPRESENTED BY THE SECRETARY (TAXES), GOVERNMENT SECRETARIAT THIRUVANANTHAPURAM-695001.** **BY SR GOVERNMENT PLEADER SMT.SOBHA ANNAMMA EAPPEN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 3003-2012, THE COURT ON 04-04-2012 DELIVERED THE FOLLOWING:** ## **WPC NO.6924/12** ## **APPENDIX** ## **PETITIONER'S EXHIBITS** **EXHIBIT-P1. TRUE COPY OF THE PERMISSION TO COMPOUND FOR 2011-12 IN FORM 1.E ISSUED BY THE 1ST RESPONDENT ON 29/06/2011.** **EXHIBIT-P1(a).TRUE COPY OF THE PROCEEDINGS PERMITTING PAYMENT IN COMPOUNDED SCHEME ISSUED BY THE 1ST RESPONDENT ON 29/06/2011.** **EXHIBIT-P2. TRUE COPY OF THE INTIMATION LETTER OF THE INSTALLATION OF THE NEW MACHINERY BY THE PETITIONER WITH A REQUEST TO REVISE THE ORDERS, ON 4/10/2011.** **EXHIBIT-P3. TRUE COPY OF THE PERMISSION TO COMPOUND CONE MACHINERY FOR 2011-12 IN FORM 1.E ISSUED BY THE 1ST RESPONDENT ON 24.12.2011.** **EXHIBIT-P3(a).TRUE COPY OF THE PROCEEDING PERMITTING PAYMENT IN COMPOUND SCHEME ON CONE MACHINERY ISSUED BY THE 1ST RESPONDENT ON 24/12/2011.** **EXHIBIT-P4. TRUE COPY OF THE PURCHASE INVOICE OF THE NEW CONE MACHINERY ON 05/07/2011.** **EXHIBIT-P5. TRUE COPY OF THE SALE VOUCHER OF OLD 3 SECONDARY MACHINES ON 05/09/2011.** **EXHIBIT-P6. TRUE COPY OF THE RECTIFICATION PETITION DATED 19/01/2011 FILED BY THE PETITIONER.** **EXHIBIT-P6(a).TRUE COPY OF THE REMINDER OF THE RECTIFICATION PETITION FILED BY THE PETITIONER.** **EXHIBIT-P7. TRUE COPY OF THE ARREAR NOTICE DATED 20/1/2011 ISSUED BY THE 1ST RESPONDENT.** ## **//True Copy//** **PA to Judge** **Rp** ## **ANTONY DOMINIC, J. ================ W.P.(C) NO. 6924 OF 2012** **===================** ## **Dated this the 4[th] day of April, 2012** ## **J U D G M E N T** Petitioner is a dealer registered under the KVAT Act, who owns a metal crusher unit. He has opted for payment of tax under the Compounded Scheme as provided under section 8(b) of the Act. Ext.P1(a) is the proceedings of the 1[st] respondent according permission in this behalf and Ext.P1 is the permission in Form No IE issued by the 1[st] respondent on 29/6/11. Accordingly tax was being paid by the petitioner for the three secondary machines and one primary machine that were installed in his unit. 2. According to the petitioner, during the 3[rd] quarter of 2011-12, on 01/10/2011, replacing 3 old secondary machines, a modern cone machinery attracting higher tax liability was installed in his unit. By Ext.P2, the installation and replacement of the machineries was intimated to the 1[st] respondent with a request to revise the tax liability as provided under Rule 11(7) of the KVAT Rules. Complaint of the petitioner is that instead of revising the tax liability for the period subsequent to the installation of the new cone machinery, the 1[st] respondent issued **WPC.No.6924/12** **:2 :** Exts.P3 and P3(a), a fresh permission in Form 1E and proceedings. 3. As a result, petitioner is now saddled with additional tax liability even for the 1[st] and 2[nd] quarters of 2011-12, which was already paid in terms of Exts.P1 and P1(a) orders of the 1[st] respondent. Further it is also complained that in the fresh proceedings issued, the tax liability for the old and replaced machineries is not deducted. Thus with the installation of the new machineries, the petitioner is fastened with the liability to pay tax for the whole year not only for the new machinery but also for the replaced machines as well. According to him, the representations filed complaining of the alleged illegality in the matter were not even responded. It is in these circumstances, the writ petition is filed for redressing the aforesaid grievances. 4. According to the petitioner, in view of Rule 11(7) of the KVAT Rules, when details regarding installation of the additional and replaced machineries are furnished, the Assessing Authority is obliged to revise the permission granted under Rule 11(2) of the Rules. It was contended that when such revision is effected, the revised tax liability can be only for the period subsequent to **WPC.No.6924/12** **:3 :** installation of machinery and that the tax liability in respect of the replaced machineries should be deducted. 5. On the other hand, based on the instructions obtained, the learned Government Pleader contended that compounding is optional and that permission for payment of tax at compounded rates is allowed on an annual basis accepting the option exercised by the dealer. According to her, once option is accepted and permission is granted, the dealer cannot opt out of the scheme or seek any modification of the liability under the scheme. It was also argued that once the details of the additional machinery installed are furnished as provided under Rule 11(7) of the KVAT Rules, the Assessing Authority is bound to revise the permission granted. Further, according to her, when revision is effected on the installation of additional machinery, what is revised is the permission granted and that such revision of the permission already granted can only be for the whole year and not with effect from the date of installation of the additional machinery. It was also contended that as per Rule 11(7), revision is permitted only on installation of additional machinery, and therefore, even if any **WPC.No.6924/12** **:4 :** existing machinery is replaced during the year, the dealer is not relieved of the liability to pay tax for the replaced machinery. Therefore, the learned Government Pleader argued that the writ petition is without any merit and prayed for its dismissal. 6. I have considered the contentions raised by the learned counsel. In my view, the contentions raised will have to be answered with reference to the statutory provisions governing the scheme of payment of tax at compounded rates. In so far as this case is concerned, what is relevant is Section 8(b) of the Act and Rule 11(7) of the Rules, which are extracted below for easy reference. **Section 8(b)** :- Any dealer producing granite metals with the aid of mechanized crushing machine may, at his option, instead of paying tax in accordance with the provisions of the said sections, pay tax at the following rates, namely:- (i) for each crushing machine of size not exceeding 30.48 cm x 22.86 cm = Rs.40,000 per annum.] (ii) for the each crushing machine of size exceeding 30.48 cm x 22.86 cm but not exceeding 40.64 cm and 25.40 cm = Rs.1,40,000 per annum.] (iii) for the each crushing machine of size exceeding 40.64 cm x 25.40 cm= Rs.2,80,000 per annum. (iv) for each cone crusher [Rs.15,00,000 per annum. **WPC.No.6924/12** **:5 :** Provided that in the case of dealers, who opted to pay compounded tax under this clause, no separate assessment shall be made in respect of m-sand produced by them. Provided further that notwithstanding anything contained in this clause, dealers with a single crushing machine of size not exceeding 30.48 cm x 22.86 cm shall pay Rupees Twenty five thousand only per annum and those with a single crushing machine of size above 30.48 cm x 22.86 cm but not exceeding 40.64 cm x 25.40 cm shall pay Rupees One lakh only per annum, as tax under this clause. Explanation:- For the purpose of this clause, primary crushers shall also be reckoned for the purpose of computation of compounded tax, and the rate applicable to primary crushers shall be at fifty percent of the aggregate of the tax payable on secondary crushers. **- Rule 11(7):** Where any additional machinery or machineries are installed by a dealer producing granite metals with the aid of mechanized crushing machine who had opted for payment of compounded tax under clause (b) of section 8, the details thereof shall be furnished to the assessing authority within fifteen days of such installation and the assessing authority shall thereupon revise the permission granted under sub-rule (2). 7. If the relevant statutory provisions are analysed, it can be seen that scheme of payment of tax at compounded rates has the following elements: 1. that the scheme is purely optional and the **WPC.No.6924/12** **:6 :** dealer who wants to avail of the benefit should exercise his option for the same in the manner prescribed. 2. If the assessing authority is satisfied that the application is in order, it shall grant permission. 3. Where the assessing Authority is not satisfied that the application is in order, after affording an opportunity of hearing to the dealer, the application shall be rejected and reasons thereof shall be recorded. 4. A dealer whose option has been accepted, shall pay tax annually at the rates specified in clauses (1) to (iv) of Section 8(b) of the Act. 5. Where any additional machinery is installed, within 15 days of such installation, the details thereof shall be furnished to the assessing authority, who thereupon shall revise the permission granted. 6. For valid and sufficient reasons, after affording the dealer an opportunity of hearing and with prior approval of the District Deputy Commissioner, the assessing authority may refuse permission to pay tax under the scheme and cancel permission already granted. **WPC.No.6924/12** **:7 :** 8. Having thus understood the scheme for payment of tax at compounded rates, I shall now proceed to consider the issues that are raised in this writ petition. The first issue to be considered is when permission granted is revised, whether the revision will take effect from the beginning of the year or whether the increased liability is only for the period subsequent to the installation. It also will have to be examined whether inspite of such revision, the dealer should continue to pay tax in respect of the replaced machinery. 9. A close reading of Rule 11(7) of the Rules show that once a dealer who has opted for the scheme furnishes details regarding the installation of additional machinery or machineries, the assessing authority is bound to revise the permission granted. Section 8 of the Act reveals that liability to pay tax is for an year and is related to the number and capacity of the machineries installed. These details are included in the permission granted to the dealer and it is this permission which is revised by the assessing authority. The rule does not provide that once permission is revised under 11(7), it will be effective from the **WPC.No.6924/12** **:8 :** commencement of the year as contended by the learned Government Pleader. In the light of these provisions, I am of the view that the increased liability of the dealer can only be for the period subsequent to the installation of the additional machinery and not from the commencement of the year, because a dealer can have liability to pay tax only in respect of the machineries installed by him. If it is held that irrespective of the time of installation of the additional machinery, the liability of the dealer will commence from the beginning of the year, that will be contradictory to the scheme of compounding in which liability is related to the number and capacity of the machinery installed. The contention that permission granted is for one year and therefore revised liability is also for the whole year is without any substance and deserves only to be rejected. If that be so, the increased liability of the dealer on revision of permission as per Rule 11(7) of the KVAT Rules, commences only from the quarter during which the additional machinery was installed and to that extent, the impugned orders call for interference. 10. The second question is whether inspite of having **WPC.No.6924/12** **:9 :** replaced a machinery, a dealer who has opted for payment of tax at compounded rates, should continue to pay tax for the whole year for the replaced machinery also. Having regard to the provisions of the Act and the Rules referred to above, I am of the view that this issue has to be answered against the petitioner. Rule 11 (7) of the KVAT Rules provide for revision of the permission granted only in a situation where “additional machinery is installed” This, therefore means that under no other circumstances, a dealer who has opted for the benefit of compounding, can claim revision of the permission granted to him for the whole year. Therefore, the fact that during the course of the year a dealer has replaced a machinery, is inconsequential in so far as his liability for payment of tax for the year is concerned. This view I have taken, is fully supported by the judgment of this Court in _**Falcon Rock Products v. Sales Tax Officer**_ (2000(2) KLT 284), where interpreting the scheme of compounding contained in Section 7(1)(b) of the KGST Act, this Court held thus:- The question raised is regarding the liability to pay tax at the compounded rate for the period during which it did not produce any materials. It must be noted that the legislature did not think it necessary to provide for giving any deduction or **WPC.No.6924/12** **:10 :** reduction in the rate of tax for the period in any financial year during which commercial production was not made. Presumably it is for the reason that the rate of tax provided under clause (b) is not geared to the turnover. It is geared only to the capacity of the machinery employed. 6. That apart, the compounding provision is only optional. If an assessee feels that the application of the compounding provision may work hardship in a financial year, it is not necessary for such assessee to make application of repayment of the tax at the compounded rate. It is for the assessee to consider as to whether the exercise of the option is advantageous to the assessee in any particular year. Only if it is found to be advantageous, the option need be exercised. Here in this case, the petitioner might have thought that the exercise of option as provided under S.7(1)(b) would be beneficial. After having exercised the option and have courted an order, it is not open to the petitioner to turn round and say that it is not liable to pay the tax as determined by the assessing authority in accordance with the provisions of S.7(1) (b). As already pointed out, if the legislature wanted to give any deduction from the tax as determined under the provisions of S.7(1)(b) of the Act for the period during which it did not work, legislature would have specifically provided for that as has been done in the case of a dealer in gold and silver ornaments by incorporating a proviso as done in S.7 (1)(a). In this case, the legislative's intention is very clear that the tax payable under S.7(1)(b) is for the whole year not withstanding the fact that it has effected commercial production only for a period of two months. 11. In the light of the aforesaid findings, Exts.P3 and P3(a) will stand quashed and the 1[st] respondent is directed to pass fresh **:11 :** ## **WPC.No.6924/12** orders in the matter and with notice to the petitioner at any rate within 4 weeks of receipt of a copy of this judgment. 12. Petitioner will produce a copy of this judgment and writ petition before the first respondent for compliance. Writ petition is disposed of as above, without any order as to costs. Sd/- ## **ANTONY DOMINIC, JUDGE** Rp //True Copy// PA to Judge