Josco Gold Corporation Pvt. Ltd. v. Commercial Tax Officer, 1st Circle, Kottayam; Assistant Commissioner-I (Kerala Value Added Tax), Commercial Taxes, Kottayam; Sales Tax Commissioner, Commissionerate of Sales Tax, Trivandrum; Secretary, Taxes Department, Government of Kerala; State of Kerala, represented by the Secretary, Finance Department, Government Secretariat, Trivandrum

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE ANTONY DOMINIC** **MONDAY, THE 4TH DAY OF FEBRUARY 2013/15TH MAGHA 1934** ## **WP(C).No. 1669 of 2013 (G) --------------------------** **PETITIONER(S): -----------------------** **JOSCO GOLD CORPORATION PVT. LTD., REPRESENTED BY ITS GENERAL MANAGER, JOSCO COMPLEX, M.C. ROAD, KOTTAYAM - 686 001.** **BY SRI.RAJU RAMACHANDRAN, SENIOR ADVOCATE. ADVS. SRI.V.G.ARUN, SRI.T.R.HARIKUMAR.** ## **RESPONDENT(S):** **--------------------------** **1. THE COMMERCIAL TAX OFFICER, 1ST CIRCLE, KOTTAYAM - 686 001.** **2. THE ASSISTANT COMMISSIONER-I , (KERALA VALUE ADDED TAX), COMMERCIAL TAXES, KOTTAYAM - 686 001.** **3. THE SALES TAX COMMISSIONER, COMMISSIONERATE OF SALES TAX, TRIVANDRUM - 695 001.** **4. THE SECRETARY, TAXES DEPARTMENT, GOVERNMENT OF KERALA, GOVERNMENT SECRETARIAT, TRIVANDRUM - 695 001.** ## **5. STATE OF KERALA,** - **REPRESENTED BY THE SECRETARY, FINANCE DEPARTMENT, GOVERNMENT SECRETARIAT, TRIVANDRUM - 695 001.** **BY SR. GOVT. PLEADER SMT.SHOBA ANNAMMA EAPEN.** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 04-02-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **rs.** ## **WP(C).No. 1669 of 2013 (G)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:-** **EXT.P-1 COPY OF THE APPLICATION SUBMITTED UNDER FORM-1D DATED 22.04.2010.** **EXT.P-2 COPY OF THE LETTER ISSUED BY THE PETITIONER TO THE FIRST RESPONDENT DATED 06.08.2010.** - **EXT.P-3 COPY OF THE LETTER ISSUED BY THE PETITIONER TO THE FIRST RESPONDENT DATED 14.07.2010.** - **EXT.P-4 COPY OF THE SHOP INSPECTION REPORT OF THE COMMERCIAL TAX OFFICER, NEDUMANGAD DATED 17-08-2010.** - **EXT.P-5 COPY OF THE COMPOUNDING ORDER NO.32050539652/10-11 DATED 01.09.2010 ISSUED BY THE FIRST RESPONDENT.** - **EXT.P-6 COPY OF A NOTICE NO.32050539652/10-11 DATED 25.10.2012 ISSUED BY THE FIRST RESPONDENT.** - **EXT.P-7 COPY OF THE REPLY SUBMITTED BY THE PETITIONER TO THE FIRST RESPONDENT DATED 26.11.2012.** - **EXT.P-8 COPY OF THE ORDER NO.32050539652/10-11 DATED 03.12.2012 ISSUED BY THE FIRST RESPONDENT.** - **EXT.P-9 COPY OF THE NOTICE NO.32050539652/10-11 DATED 04.12.2012 ISSUED BY THE FIRST RESPONDENT.** - **EXT.P-10 COPY OF THE ASSESSMENT ORDER NO.32050539652/10-11 DATED 31-12-2012.** - **EXT.P-11 COPY OF THE DEMAND NOTICE UNDER FORM NO.12 ISSUED ALONG WITH THE ASSESSMENT ORDER DATED 31.12.2012.** ## **RESPONDENT'S EXHIBITS:NIL.** ## **//TRUE COPY//** ## **P.A. TO JUDGE** **rs.** ## **ANTONY DOMINIC, J.** ------------------------------------------- W.P(C).No.1669 of 2013 ------------------------------------------Dated this the 4[th] day of February, 2013 ## **JUDGMENT** - 1.This writ petition is filed by a private limited company, engaged in he business of gold and silver ornaments. It is a dealer registered under the KVAT Act on the rolls of the first respondent. - 2.Section 8(f) of the Kerala Value Added Tax Act (hereinafter referred to as the 'Act', for short) permits dealers like the petitioner to opt for payment of tax at compounded rates specified in that Section. Accordingly, the petitioner opted for payment of tax at compounded rates for the assessment year 2009-10 and that was allowed. For the assessment year 201011, the petitioner submitted Ext.P1 application dated 22.4.2010, opting for payment of tax under Section 8(f) of the Act. This application was allowed and by Ext.P5 order dated 1.9.2010, the first respondent permitted the petitioner to pay tax at compounded rate. The order also stated the tax liability for the year 2010-11. WPC.1669/13 2 - 3.In the mean time, on 6.8.2010, the petitioner sent Ext.P2 letter to the first respondent informing that they are opening a new branch at Nedumangad and that they wanted to pay tax under the compounding system for that showroom also. It is also stated that by Ext.P3 letter dated 14.7.2010, the petitioner had already sought a clarification from the first respondent whether they can continue compounding facility if they stock 100 kgs of gold in the newly opened showroom. Though the respondents do not admit receipt of this letter, case of the petitioner is that they did not get any reply to Ext.P3. - 4.Their Nedumangad branch was opened on 8.8.2010. This branch was inspected by the officers of the Commercial Taxes Department on 17.8.2010 and Ext.P4, the shop inspection report, discloses that the physical stock of gold in that branch was 98567.241 gms. - 5.Subsequently, on 25.10.2012, the first respondent issued Ext.P6 notice under Section 8(f)(ii) of the Act, calling upon the WPC.1669/13 3 petitioner to show cause why the permission granted for payment of tax at compounded rates shall not be cancelled. The reason for such a proposal was that on further scrutiny of the records, it was found that during 2009-10, their closing stock was 215.115 gms of gold valuing Rs.2,47,382/-, whereas, the closing stock for 2010-11 was 61449.087 gms of gold worth Rs.7,43,81,047/-. The petitioner was also offered an opportunity for hearing on 9.11.2012. - 6.On receipt of Ext.P6 notice, the petitioner submitted Ext.P7 reply. Thereafter, Ext.P8 order was issued on 3.12.2012, whereby, the first respondent exercised his power under Section 8(f)(ii) of the Act and cancelled the permission granted for payment of tax at compounded rates and ordered that the petitioner is liable to pay tax as provided under Section 6(1) of the Act. - 7.Immediately thereafter, on 4.12.2012, the petitioner was issued Ext.P9 notice under Section 25(1) of the Act alleging WPC.1669/13 4 that they had a taxable turn over of Rs.32,45,06,031.25 and that they are liable to pay tax at 4%. The petitioner did not submit any reply to Ext.P9. In such circumstances, the first respondent passed Ext.P10 assessment order, in terms of which, the total tax due from the petitioner, for the assessment year 2010-11 was Rs.1,29,80,241/- and that after giving credit to Rs.14,96,562/- remitted by the petitioner, the balance tax due was Rs.1,14,83,679/-. In addition, it is also ordered that Rs.1,14,836/- is due towards interest. - 8.Accordingly, Ext.P11 demand notice was issued, demanding Rs.1,42,83,136/-. It was thereupon, this writ petition was filed seeking to quash Exts.P8 and P10 orders and to declare that Section 8(f)(ii) of the Act is ultra vires Articles 14 and 19(1)(g) of the Constitution of India. The petitioner also seeks a declaration that once permission is granted for compounding, mandating collection of tax at a specified rate, respondent cannot cancel the permission and compel the petitioner to pay tax at higher rate than what is specified in the order. WPC.1669/13 5 - 9.I heard learned senior counsel for the petitioner and also the learned Government Pleader for the respondents. 10.Learned senior counsel for the petitioner contended that after the application for compounding was made, they submitted Ext.P2 letter dated 6.8.2010 intimating the first respondent that they are opening a branch at Nedumangad on 8.8.2010. It is stated that by Ext.P3 they also sought a clarification on the stock which they proposed to hold in the new showroom that there was no reply to that letter. Further, it is also their case that the stock was inspected on 17.8.2010 and in Ext.P4 shop inspection report, it was found that they had a closing stock of 98567.241 gms of gold. According to the petitioner, it was after all these developments, including the shop inspection, that compounding was allowed by Ext.P5 order issued on 1.9.2010. Therefore, it was argued that there was no malafide attempt on their side and that in such a case, Section 8(f)(ii) of the Act should be read down as one conferring a discretionary power on the authority to cancel the permission granted or WPC.1669/13 6 not. It was argued that if the Section is read as providing mandatory provisions for cancellation of the permission already granted, the Section is unconditional as it violates Articles 14 and 19(1)(g) of the Constitution. 11.Admittedly, the petitioner is a dealer in gold, registered under the Act. Therefore, the petitioner is liable to pay tax as provided under Section 6 of the Act. However, the Legislature has introduced Section 8 in the Act, giving dealers freedom to opt for payment of tax at compounded rates. In so far as the dealers in ornaments or articles of gold, silver, diamond etc, are concerned, Section 8(f) is the provision permitting option for payment of tax at compounded rates. For the purposes of this case, Section 8(f)(i), its explanation (5), proviso to the explanation and Section 8 (f)(ii), being relevant, are extracted below for reference. “8. Payment of tax at compounded rates.Notwithstanding anything contained in Section 6,- . . . . . . . . . . . . . . . . . . . . . WPC.1669/13 7 (f)(i) any dealer in ornaments or wares or articles of gold, silver or platinum group meals including diamond may at his option, instead of paying tax in respect of such goods in accordance with the provisions of section 6, pay tax at,- (a) one hundred and fifteen per cent, in case their annual turnover for the above goods for the preceding year was rupees ten lakhs or below; (b) one hundred and twenty per cent, in case their annual turnover for the above goods for the preceding year was above rupees ten lakhs land up to rupees forty lakhs; (c) one hundred and thirty five per cent, in case their annual turnover for the above goods for the preceding year was above rupees forty lakhs and up to rupees one crore; and at (d) one hundred and fifty per cent, in case their annual turnover for the above goods for the preceding year exceeded rupees one crore; of the highest tax payable by him as conceded in the return or accounts, or tax paid by him under this Act, whichever is higher, for a year during any of the three consecutive years preceding that to which such option relates. . . . . . . . . . . . . . . . . . . . . . . . . . **Explanation 5** .- Where a dealer opens a new branch in the current year, the additional compounded tax payable under this clause in respect of such branch WPC.1669/13 8 shall be the average of the tax payable by him in respect of his principal place of business and all branches. . . . . . . . . . . . . . . . . . . . . . . . . . . . provided that dealer who opts for payment of tax under this clause may collect tax at the rate not exceeding 1.25 per cent for the commodity, but where the tax so collected during year is in excess of the tax payable for the year under this clause, the tax collected in excess shall be paid over to the Government in addition to tax payable under this clause. . . . . . . . . . . . . . . . . . . . . . . . . . (ii) The assessing authority, for valid and sufficient reasons, such as shifting of place of business, holding of stock exceeding double the quantity held in the previous year, furnishing of false information, suppression of relevant information, failure to furnish such information demanded, may refuse permission to pay tax under this section and cancel the permission if any granted: provided that no orders under this sub-clause shall be issued without giving the dealer an opportunity of being heard and without prior approval of the District Deputy Commissioner.” WPC.1669/13 9 12.A reading of the aforesaid provisions of Section 8(f) shows that notwithstanding Section 6, which provides for levy of tax on sale or purchase of goods, the dealers in gold ornaments, like the petitioner, are permitted to pay tax at compounded rates as prescribed in clauses (a), (b), (c) or (d) of Section 8(f) (i), provided they exercise option for the same. Rule 11 of the KVAT Rules provides for filing of option by dealers for payment of tax at compounded rates and forms also have been prescribed for making such application. Ext.P1 is the application filed by the petitioner opting for payment of tax at compounded rate. This application contains a declaration of the petitioner's willingness to satisfy all the conditions prescribed for payment of tax under the compounding system. - 13.Thus the benefit of the system of payment of tax at compounded rates is available only to those assessees who opt for the same and on their undertaking to comply with the conditions prescribed for such benefit. One of the conditions specified by the Legislature is in Section 8(f)(ii) of the Act and WPC.1669/13 10 this provision authorises the Assessing Authority to refuse permission to pay tax under Section 8 and cancel the permission already granted to a dealer. One of the grounds for cancellation, which was specified in the section, during the assessment year 2010-11 was, holding double the quantity of stock held in the previous year The existence of this ground rendered the assessee ineligible for the benefit of Section 8(f) and the Assessing Authority is entitled to either refuse permission and if permission is already granted, to cancel the same. - 14.In so far as this case is concerned, the closing stock of the petitioner for the year 2009-10 was 215.115 gms of gold whereas the closing stock for 2010-11 was 61449.097 gms. This shows that there was increase in the stock of gold by 285 times. Consequently, the ground specified in Section 8(f)(ii), viz., holding of stock exceeding double the quantity held in the previous year, is attracted and it was on that basis, Ext.P6 WPC.1669/13 11 notice calling upon the assessee to show cause why the permission granted shall not be cancelled was issued. 15.The above being the scope of Section 8(f), I must confess my inability to accept the plea of the counsel for the petitioner that Section 8(f)(ii) should be read down to avoid unconstitutionality. The courts have the power to read down the provision of a statute, but that power is invoked to save the statutory provision from the vice of unconstitutionality. This position has been clarified by the Apex Court in its judgment in **M.Rathinaswami** v. **State of Tamil Nadu** [(2009) 5 SCC 625], where it was held thus: “28. It is well settled that to save a statutory provision from the vice of unconstitutionality sometimes a restricted or extended interpretation of the statute has to be given. This is because it is a well-settled principle of interpretation that the Court should make every effort to save a statute from becoming unconstitutional. If on giving one interpretation the statute becomes unconstitutional and on another interpretation it will be constitutional, then the court should prefer the latter on WPC.1669/13 12 the ground that the legislature is presumed not to have intended to have exceeded its jurisdiction.” Therefore, the question of reading down a provision arises, not for avoiding any hardship to an assessee, or to sustain any administrative action, but only if it is found that but for such an exercise, the legislation would be an unconstitutional one. Therefore, the first question to be examined is whether Section 8(f)(ii) of the Act which authorised cancellation of the permission granted for payment of tax at compounded rates from suffer any unconstitutionality justifying its reading down. - 16.Apart from the division of taxing power between the Union and State Legislatures by the relevant Entries in the legislative lists in Schedule VII, taxing power of the Legislatures is subject to the following limitations imposed by the Constitution: ## “(i) It must not contravene Art.13. WPC.1669/13 13 (ii) It must not deny equal protection of the laws (Art.14) must not be discriminatory or arbitrary. (iii) It must not constitute an unreasonable restriction upon the right of business (Art.19(1)(g). (iv) No tax shall be levied the proceeds of which are specially appropriated in payment of expenses for the promotion or maintenance of any particular religion or religious denomination (Art.27). (v) A State Legislature or any authority within the State cannot tax the property of the Union (Art.285). (vi) The Union cannot tax the property and income of a State (Art.289). (vii) The power of a State to levy tax on sale or purchase of goods is subject to Art.286. (viii) Save in so far as Parliament may, by law, otherwise provide, a State shall not tax the consumption or sale of electricity in the cases specified in Art.287.” 17.If Section 8(f)(ii), permitting cancellation of the permission for payment of tax at compounded rate on the ground that the stock exceeded double the quantity held in the previous year, does not attract anyone of the aforesaid limitations, section is a valid piece of legislation and if it is a valid piece of legislation, the question of reading down the provision does WPC.1669/13 14 not arise at all. As already seen, Section 8(f) of the Act is subject to conditions and it is for an assessee to opt for the benefit of this Section. Once the benefit is opted for and that option is accepted, the assessee is bound by the conditions that are incorporated in the scheme of compounding. One of the conditions is that the assessee will lose the benefit of compounding if the stock held by it exceed double the total quantity held in the previous year. In my view, the assessee having voluntarily opted for the compounding, fully knowing the conditions that are attached to the scheme, cannot thereafter contend that the conditions are illegal and he is estopped from doing so. Further, petitioner could not satisfy me that the condition that is incorporated by the Legislature suffer from anyone of the limitations, including those of Articles 14 or 19(1)(g), rendering the provision unconstitutional. If that be so, this contention of the counsel for the petitioner does not merit acceptance. WPC.1669/13 15 - 18.It was then contended by the petitioner that the ground, holding of stock exceeding the total quantity held in the previous year, was omitted from the Section as per the Kerala Finance Act, 2011 with effect from 1.4.2011 and that therefore, the invocation of the omitted ground is a colourable exercise of power. Admittedly, the issue in question pertains to the assessment year 2010-11. The amendment to the section was only with effect from 1.4.2011. If that be so, the petitioner cannot contend that the respondents could not have relied on this power for the assessment year 2010-11. - 19.Section 8(f)(iii) provides for appellate remedy against orders issued under Section 8(f)(ii). Similarly, the assessment order passed against the petitioner, which is only consequential, is also appealable as provided under Section 55 of the Act. Therefore, while I uphold the constitutional validity of Section 8(f)(ii), I decline to examine the validity of the impugned orders on the other factual grounds urged by the petitioner WPC.1669/13 16 and leave it open to the petitioner to pursue the matter before the appropriate statutory appellate authority. Subject to the above, this writ petition will stand dismissed. Sd/ANTONY DOMINIC Judge kkb.4/2.