Kunhiraman Jewellery v. State of Kerala

OT.REV.(VAT) Nos.2,4 & 5/2019 1 # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **TUESDAY, THE 16TH DAY OF JUNE 2020 / 26TH JYAISHTA, 1942** **OT.Rev.No.2 OF 2019** **AGAINST THE ORDER IN TAVAT 41/2016 OF AGRL.INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,KOZHIKODE** ## **REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE:** **KUNHIRAMAN JEWELLERY, MAIN ROAD, THALASSERY.** **BY ADV. SRI.RAJESH NAMBIAR** ## **RESPONDENT/RESPONDENT:** **THE STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT, DEPARTMENT OF COMMERCIAL TAXES, SECRETARIAT, THIRUVANANTHAPURAM PIN - 695 001.** **BY SENIOR GOVT. PLEADER SRI.V.K.SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 16.06.2020, ALONG WITH OT.Rev.4/2019 & OT.Rev.5/2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** OT.REV.(VAT) Nos.2,4 & 5/2019 2 # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **TUESDAY, THE 16TH DAY OF JUNE 2020 / 26TH JYAISHTA, 1942** ## **OT.Rev.No.4 OF 2019** **AGAINST THE ORDER/JUDGMENT IN TAVAT 43/2016 OF AGRL.INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,KOZHIKODE** ## **REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE:** **M/S. KUNHIRAMAN JEWELLERY MAIN ROAD, THALASSERY** **BY ADV. SRI.RAJESH NAMBIAR** ## **RESPONDENT/RESPONDENT:** **THE STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT, DEPARTMENT OF COMMERCIAL TAXES, SECRETARIAT, THIRUVANANTHAPURAM - 695 001** **BY SENIOR GOVT. PLEADER SRI.V.K.SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 16.06.2020, ALONG WITH OT.Rev.2/2019 & OT.Rev.5/2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** OT.REV.(VAT) Nos.2,4 & 5/2019 3 ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **TUESDAY, THE 16TH DAY OF JUNE 2020 / 26TH JYAISHTA, 1942** **OT.Rev.No.5 OF 2019** **AGAINST THE ORDER/JUDGMENT IN TAVAT 42/2016 DATED 08-102019 OF AGRL.INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,KOZHIKODE** ## **REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE:** **M/S.KUNHIRAMAN JEWELLERY, MAIN ROAD, THALASSERY** **BY ADV. SRI.RAJESH NAMBIAR** ## **RESPONDENT/RESPONDENT:** **THE STATE OF KERALA,REPRESENTED BY SECRETARY TO GOVERNMENT, DEPARTMENT OF COMMERCIAL TAXES, SECRETARIAT, THIRUVANANTHAPURAM-PIN 695 001.** **SENIOR GOVT. PLEADER SRI.V.K.SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 16.06.2020, ALONG WITH OT.Rev.2/2019 & OT.Rev.4/2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** OT.REV.(VAT) Nos.2,4 & 5/2019 -4- ## **ORDER** ## **T.R.RAVI, J.** The revision petitions have been filed by the assessee which is a partnership firm constituted on 01.04.2011. The revision petitions relate to assessment years 2012-13, 2013-14 and 2014-15. Since all the three revision petitions raise the same question of law, they are being heard and disposed of together. The facts are stated as in O.T.Rev.No.2 of 2019. 2. The Assessee firm is a dealer in gold jewellery. The Managing partner of the partnership firm was earlier conducting business as a proprietor. He stopped his business on 31.3.2011 and cancelled his registration. The petitioner was assessed under the KVAT Act for the year 2011-12 and Rs.4,24,664/- was paid as tax. During 2012-13, the petitioner applied for compounding facility under Section 8(f) of the KVAT Act and permission was granted by the authorities. An amount of Rs.6,36,996/-, being 150% of the tax paid for the year 2011-12, was paid as tax OT.REV.(VAT) Nos.2,4 & 5/2019 -5- under the compounding scheme, based on order No.32120804079/12-13 dated 19.05.2012. The petitioner applied for payment of tax at compounded rates for the subsequent years 2013-14 and 2014-15 which was also permitted by the Assessing Authority. 125% of the tax paid during 2012-13 was paid as tax for the year 2013-14 and 125% of the tax paid for the year 2013-14 was paid as tax for the year 2014-15. 3. On 20.01.2015, the Assessing Officer issued Annexure A order purporting to be under Section 66 of the KVAT Act, proposing to rectify the order of assessment for the year 201213. The Officer took into account the tax paid by the proprietary concern of the Managing Partner during the assessment years 2009-10 and 2010-11, compared the same with the tax paid by the partnership firm for the year 2011-12, and noted that the net tax paid during 2010-11 by the proprietary concern, amounting to Rs.5,78,614/-, should be taken as the basis for arriving at the compounded tax for the year 2012-13, since the same is higher OT.REV.(VAT) Nos.2,4 & 5/2019 -6- than the tax paid during the years 2009-10 and 2011-12. The Assessing Officer found that the compounded tax due for the year 2012-13 will be 8,67,960/- and after deducting the compounded tax paid, the balance due will be Rs.2,30,964/- on which an interest of Rs.15,812/- was also demanded. The assessee challenged Annexure A order before the Appellate Authority contending that the tax paid by the proprietary concern cannot be taken into account for arriving at the compounded tax payable by the firm, since the proprietary concern and the partnership firm are two different entities having separate registration under the Act. The Appellate Authority rejected the contentions of the assessee and dismissed the appeal by Annexure B order. Further appeal preferred before the Appellate Tribunal was also dismissed by Annexure C order. Orders similar to Annexures A, B and C have been issued by the respective authorities for the assessment years 2013-14 and 2014-15, since the increased demand for 2012-13 would have a cascading effect on the subsequent years; which have been challenged in O.T.Rev.Nos.4 OT.REV.(VAT) Nos.2,4 & 5/2019 -7- and 5 of 2019. 4. Heard Sri Rajesh Nambiar on behalf of the petitioner and Sri V.K.Shamsudheen Senior Government Pleader on behalf of the Revenue. 5. The counsel for the petitioner contends that the authorities are not entitled in law to invoke Section 66 and rectify a defect which is not really existing. According to the counsel, Annexures A, B and C orders have proceeded on the basis that the business of the partnership is the continuation of the business of the sole proprietary concern of the Managing Partner. According to him, the business of the proprietary concern has come to an end on 31.3.2011 and application for cancellation of the registration had also been submitted and that, the mere fact that the sole proprietor is the Managing Partner of the firm which took over the business of the proprietary concern is not sufficient to say that the businesses are same and continuing. The learned counsel points out that there is substantial difference between a sole proprietary concern and a partnership firm with relation to OT.REV.(VAT) Nos.2,4 & 5/2019 -8- the ownership of the business, its properties, sharing of its income, etc. The counsel hence submits that the rectification of the assessment sought to be carried out by Annexure A order, by treating the tax paid by the Managing Partner on the turnover of his erstwhile proprietary concern as the basis for calculating the tax due under a compounding scheme, is legally wrong. The counsel points out that the KVAT Act does not provide for such a course of action. 6. The Senior Government Pleader on the other hand submits that the partners, other than the Managing Partner, have not contributed to the capital of the firm and that the entire closing stock of the proprietary concern has been taken over by the firm and as such it is a continuation of the business. The counsel submits that what is required for the purpose of calculating the compounded tax is the continuation of the business, irrespective of the nature of the entity which is carrying on the business. He relies on the judgments of the Hon'ble Supreme Court in _**Sakthi Trading company v. Commissioner**_ OT.REV.(VAT) Nos.2,4 & 5/2019 -9- _**of Income Tax, Coimbatore,**_ reported in _**[(2001) 6 SCC 455]**_ and _**Commissioner of Income Tax-Gujarat-II V. Kwality Steels Suppliers Complex,**_ reported in _**[(2017) 14 SCC 548]**_ in support of his arguments. 7. The questions of law arising in the revision petition have been reframed as follows; (i) Whether the Appellate Tribunal is correct in law, in holding that for the purpose of taxation the taxable turnover for the previous years in respect of the erstwhile proprietary concern, taken over by the present dealer which is a partnership firm, is also to be taken into account? (ii) Whether the Appellate Tribunal was right in holding that the partnership firm which is the assessee, is a continuation of the erstwhile proprietary concern, for the purpose of estimating tax due under the compounded scheme? 8. A 'partnership' according to Section 4 of the Partnership OT.REV.(VAT) Nos.2,4 & 5/2019 -10- Act, 1932, is the relationship between persons who have agreed to share the profit of business carried on by all or any of them acting for all. A firm is a conglomeration of its partners and is not a juristic person ( _**see Tanna and Modi v. CIT [(2007 (7) SCC 434]**_ . Partners are co-owners of the property of the firm ( _**See B.Subramanyam v. Rajesh Raghuvandra Rao [(2009) 5 SCC 608]**_ . A firm is not a legal person even though it has some attributes of personality ( _**See CIT v. R.M.Chitambaram Pillai [1977 1 SCC 431]**_ . A partner can retire from an ongoing partnership without effecting dissolution of the firm, if the partnership agreement provides therefor ( _**See Vishnuchandra v. Chandrika Prasad Agarwal [(1983) 1 SCC 22**_ **]** . We are referring to the above decisions to reiterate that there is considerable difference between the concept of a partner and that of an individual. 9. Section 2 (xxxia) of the KVAT Act, 2003 defines “partner and partnership” to have the same meaning as defined in the Indian Partnership Act, 1932. Section 2(xxxiii) defines a OT.REV.(VAT) Nos.2,4 & 5/2019 -11- 'person' to include an individual, a joint family, a company, a **firm,** an association of persons or a body of individuals whether incorporated or not, the Central Government or the Government of Kerala or the Government of any other State or any department thereof, or a Union Territory in India, a local authority and every artificial juristical person not falling under any of the preceding. It can thus be seen that for the purpose of KVAT Act, an individual and a firm are treated differently. A reading of Section 8(f) of the KVAT Act further establishes the fact that what is to be taken into account is the taxable turnover of the previous years, of the assessee in question, for the purpose of arriving at the compounded rate of tax. That is to say, the taxable turnovers of two different dealers cannot be considered together. Going by the scheme of the KVAT Act, the assessment of a dealer cannot be on the basis of the turnover of another dealer whose registration has been cancelled. The fact that a similar business is being continued by the partnership firm after taking over the stock of the sole proprietary concern, would OT.REV.(VAT) Nos.2,4 & 5/2019 -12- not lead to a legal conclusion that it is a continuance of the business by the same person. 10. In **Sakthi Trading Company (supra)** relied upon by the Senior Government Pleader, the assessee which was a partnership firm was reconstituted on the death of one of its partners with effect from the following day after the death. The Commissioner of Income Tax took the view that since the death of the partner had caused a dissolution of the firm, the closing stock on the date of dissolution should be valued at market price. The Apex Court held that, since the business is continued by the reconstituted firm, there is no discontinuance due to dissolution, the question of revaluing stock cannot arise. The above decision cannot in any way apply to the facts of the case on hand. So also, in **Kwality Steels (supra)** relied on by the learned Senior Government Pleader, the assessee firm which had only two partners was dissolved on the death of one of the partners. In the said case, the Hon'ble Supreme Court held that when a business continues, it may not be necessary to follow the market OT.REV.(VAT) Nos.2,4 & 5/2019 -13- rate to value the closing stock, as the reasons because of which the same is to be done were not available. The reason according to the Apex Court is that when the dissolution of the firm did not result in the selling of the assets of the firm including stock-in -trade, there was no necessity to value stock-in-trade at market price. The above decision also cannot have any bearing on the issue before us. In the result, we answer the questions of law raised in favour of the assessee and against the revenue. The revisions petitions are allowed, setting aside the orders Annexures A, B and C in all the revision petitions. In the circumstances of the case, there will be no order as to costs. **Sd/K. VINOD CHANDRAN JUDGE** **Sd/T.R. RAVI JUDGE** dsn OT.REV.(VAT) Nos.2,4 & 5/2019 -14- ## **APPENDIX OF OT.Rev 2/2019** **PETITIONER'S EXHIBITS:** **ANNEXURE A TRUE COPY OF THE RECTIFIED ORDER ISSUED U/S 66 OF THE KVAT ACT FOR THE YEAR 2012-13 DATED 20.1.2015 ANNEXURE B TRUE COPY OF THE 1ST APPELLATE ORDER DATED 17.2.2016 ANNEXURE C TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 8.10.2018 IN T.A. (VAT) NO. 41/2016 ANNEXURE D TRUE COPY OF THE LETTER RECEIVED BY THE PETITIONER FROM THEIR BANKER DATED 11.12.2018** OT.REV.(VAT) Nos.2,4 & 5/2019 15 ## **APPENDIX OF OT.Rev 4/2019** **PETITIONER'S EXHIBITS:** ## **ANNEXURE A** **TRUE COPY OF THE RECTIFIED ORDER ISSUED U/S 66 OF THE KVAT ACT FOR THE YEAR 2014-15 DATED 20.01.2015** **ANNEXURE B TRUE COPY OF THE 1ST APPELLATE ORDER DATED 17.02.2016 ANNEXURE C TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 08.10.2018 IN T. A. (VAT) NO.43/2016** **ANNEXURE D TRUE COPY OF THE LETTER RECEIVED BY THE PETITIONER FROM THEIR BANKER DATED 11.12.2018** OT.REV.(VAT) Nos.2,4 & 5/2019 16 ## **APPENDIX OF OT.Rev 5/2019** **PETITIONER'S EXHIBITS:** ## **ANNEXURE A** **TRUE COPY OF THE RECTIFIED ORDER ISSUED U/S 66 OF THE KVAT ACT FOR THE YEAR 2013-14 DATED 20.1.2015** **ANNEXURE B TRUE COPY OF THE 1ST APPLICATION ORDER DATED 17.2.2016** **ANNEXURE C TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 8.10.2018 IN T.A (VAT) NO 42/2016** **ANNEXURE D** **TRUE COPY OF THE LETTER RECEIVED BY THE PETITIONER FROM THE CANARA BANK DATED 11.12.2018**