M/S ALUKKAS JEWELLARY v. The State of Kerala & Another (W.A.No. 1207 of 2007 (A) ; W.A. Nos. 1644 of 2009 & STR. No. 136 of 2008)

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MRS. JUSTICE SHIRCY V. THURSDAY, THE 2ND DAY OF NOVEMBER 2017/ 11TH KARTHIKA, 1939 **W.A.No. 1207 of 2007 (A) ------------------------** AGAINST THE ORDER/JUDGMENT IN WP(C) 40077/2003 of HIGH COURT OF KERALA DATED 19-08-2005 APPELLANT/PETITIONER: ----------------------- M/S.ALUKKAS JEWELLARY ROUND EAST, THRISSUR, REP: BY A.V.JOSE,, MANAGING PARTNER BY ADV. SRI.JOSE JOSEPH RESPONDENTS/RESPONDENTS: -------------------------- 1. THE STATE OF KERALA REP: BY SECRETARY TO GOVERNMENT, COMMERCIAL TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM 2. THE ASSISTANT COMMISSIONER(ASSMT.) COMMERCIAL TAXES, SPECIAL CIRCLE, THRISSUR BY GOVERNMENT PLEADER(TAXES) MR. C.K. GOVINDAN THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 25.09.2017, ALONG WITH STRV. 136/2008 AND WA. 1644/2009, THE COURT ON 02.11.2017 DELIVERED THE FOLLOWING: **[CASE REPORTABLE]** ## **P.R. RAMACHANDRA MENON & SHIRCY V, JJ.** .............................................................................. ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & ST.REV. No.136 OF 2008.** ......................................................................... **Dated this the 2[nd] November, 2017** ## **JUDGMENT** ## **P.R. Ramachandra Menon, J.** Almost a common question of law is involved in all these cases, though something else is also there with reference to the issue projected in W.A.No.1207 of 2007. In the said circumstances, all these cases are taken up and heard together, although arising from separate verdicts. The Writ Appeals arise from two separate judgments passed by the learned Single Judge on the same day, wherein the assessee is stated as aggrieved as to the interference declined by the learned Single Judge, but for a slight modification with regard to the 'interest' payable, while declaring that the amendment brought about during the middle of the year will have effect from the date of bringing it in to force and that the liability to satisfy tax after the amendment will be **2** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** based on the enhanced rate. In the STR preferred by the State, the question of law raised is whether the Tribunal was right in declaring that the amendment brought about during the middle of the year was to have application only from the date of amendment and not in respect of the period prior to the said date **,** since the application for amendment was preferred only after the date of amendment. The assessee is same in both the appeals, while it is a different assessee in the STR. 2. Heard Mr. George Joseph who appeared for the assessee in the appeals and Mr. Govindan, the learned Government Pleader for the State/Revenue in those cases and in the STR.136 of 2008, Mr. Rajakannan appeared for the assessee in the Revision Petition filed by the State. 3. W.A.1644 of 2009 is taken as the lead case. The pleadings and proceedings are referred to as given in the said case, except where it is separately mentioned, depending upon the context. **3** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** 4. By virtue of the mandate under Section 7(1)(a) of the KGST Act, it is open for the assessee to satisfy tax at the compounded rate, if an option is exercised in this regard, notwithstanding the ordeal to undergo the process and procedure under Section 5 of the said Act for fixation of the liability. The assessee in all the three cases are doing business in Jewellery. It was accordingly, that Ext.P1 application was filed by the assessee seeking for permission to satisfy tax at the compounded rate for the year 2001-02 at 120% of the tax paid/payable for the preceding year, in terms of Sect.7(1)(a) of the Act. It is stated that such application was preferred well on time, i.e. on or before the first day of May of the particular year. When tax is sought to be paid at the compounded rate, in conformity with the mandate under Rule 30(1), though it was necessary to have passed an order by the assessing authority in terms of Rule 30(2) of the Rules, (once the application is accepted), no such order was passed and the assessee continued to pay tax based on the monthly rate of 120% of the Tax paid for the preceding year. **4** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** While so, the Kerala Finance Bill 2001 was introduced by the Legislative Assembly on 23.07.2001, whereby the rate of compounded tax payable under Section 7(1(a) of the Act was enhanced from 120% to 150% w.e.f. 23.07.2001, which was published in the Kerala Gazette-Extra Ordinary dated 19.11.2001. Later, the second respondent issued Ext.P4 notice on 19.06.2002 proposing to fix the compounded tax at the rate of 150% of the tax payable for the preceding year and levying additional sales tax which was objected to by the assessee, by filing Ext.P5 reply dated 24.06.2002. This was followed by Ext.P6 notice dated 19.11.2002 which was responded to by the appellant assessee vide Ext.P7 reply dated 25.11.2002. Thereafter , the assessee filed Ext.P3 revised return for the year 2001-02 on 27.12.2002. The second respondent, considering the facts and circumstances, passed Ext.P8 assessment order on 30.12.2002, repelling the objections raised by the assessee and fixing the compounded rate of tax at 150% of the Tax payable for the preceding year, which was sought to be challenged by **5** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** filing O.P.14557 of 2003 before this Court, seeking to set aside Ext.P8 and to declare that the compounded rate payable was only at the rate of 120% of the tax payable for the preceding year and for such other reliefs. Interference was declined by the learned single Judge as per the judgment dated 19.08.2005, but for making it clear that, interest could be demanded only for the period of default after the due date for payment under Ext.P8 was over. This in turn is under challenge in the above appeal. 5. Coming to W.A. 1207 of 2007, the appellant assessee commenced the business by opening a branch at Perinthalmanna on 01.09.1999. After filing application for permission to satisfy tax at the compounded rate, in terms of Sec.7, for the year 2000-01[as per Exts.P1/P2 dated 13.07.2000], the second respondent permitted the assessee to pay the tax at the compounded rate under Section 7(1)(a). Ext.P3 application was preferred by the appellant assessee on 16.04.2001 for permission to pay tax under Section 7(1)(a) also in respect of the new **6** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** branch at Thiruvananthapuram, which was opened in the same month/year. It was thereafter that the Kerala Finance Act 2001 was published in the Kerala Gazette (Extra Ordinary dated 19.11.2001) bringing the enhanced rate of tax from 120% to 150% and deletion of the relevant proviso under **Section 7 (1) (a)** from 23.07.2001. Prior to the date of amendment , it was open for the assessee to satisfy the tax in respect of the new Branch by remitting 25% of the tax payable in respect of the transactions in the Main/Head office, which benefit was taken away as per the amendment. 6. Ext.P3 application dated 16.04.2001, which was preferred prior to the amendment, [seeking to satisfy tax as per the pre-amended provisions], was not acceded to and the assessment was finalised by the second respondent as per Ext.P4 order dated 10.04.2002, making the amended provision applicable . This was under challenge in **O.P.No.15583 of 2002** , also seeking for a declaration that the 'first proviso' to Section 7 (1)(a) of the Act was not applicable to the petitioner's case. The ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** **7** Original Petition was dismissed as per Ext.P5 judgment dated 16.12.2002 **,** observing that there was no merit; however holding that no interest was liable to be paid except for the period of default 'after the due date for payment' under the revised demand impugned in the Original Petition. Though an appeal was stated as preferred against the said verdict, the outcome is not revealed, which presumably ended up in dismissal. 7. While so, the second respondent issued Ext.P7 Notice dated 08.10.2003 proposing to fix the compounded tax payable for the year year **2001-02** for the principal place of business and the branch at Perinthalmanna; simultaneously proposing to complete regular assessment on the Branch at Thiruvananthapuram. Though Ext.P8 objection was preferred by the assessee, it was turned down and Ext.P9 order was passed in conformity with the proposal and fixing the liability accordingly, which made the assessee to have it challenged by way of W.P(C **) 40077 of 2003** . The assessee had also sought for a declaration that the substituted proviso to Section 7(1) (a) of the KGST Act **8** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** and the last proviso inserted to the Kerala Finance Act 2001 w.e.f. 23.07.2001 were not applicable for considering Ext.P3 application, besides such other incidental reliefs. The prayers were declined and the Writ Petition was dismissed, however making it clear that the assessing officer shall not charge any 'interest' for the tax payable on the monthly returns upto July, 2001 and that interest should be demanded for the delay in payment of tax. if any, for the later periods. 8. With regard to the **STR 136 of 2008** , the assessee filed an application for permission to satisfy tax for the year **2001-02** at the compounded rate on 29.08.2001, which was considered and allowed by the competent authority as per order dated 17.09.2001. The assessing authority finalised the assessment as per Annexure A, levying tax at the compounded rate of 150% of the tax paid for the previous year, i.e. 2000-01 based on the amendment brought about as per the Finance Act 2001 w.e.f. 23.07.2001. Contending that the amendment published in the Gazette Notification dated **19.11.2001** was not having any **9** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** retrospective effect, an appeal was preferred for enabling the tax to be paid at the rate of 120%. The plea was accepted and the first appellate authority passed Annexure B verdict in favour of the assessee. The first appellate authority held that no additional sales tax was liable to be paid and further that no question of payment of any interest would be attracted . The matter was taken up before the Kerala Sales Tax Appellate Tribunal, by way of Appeal, at the instance of the State/Department. This however did not turn to be fruitful and it was dismissed as per Annexure C order dated 15.10.2007, which in turn is sought to be challenged by way of the present Revision Petition, raising a question of law as to whether the Tribunal was correct in holding that, the assessee who had applied for paying tax at the compounded rate (after enhancement of the rate prescribed under the Act was brought into force by an amendment to the KGST Act), is liable to pay the tax for the pre-amended period at the reduced rate. 9. During the course of hearing the learned counsel for the assessee pointed out that the verdicts relied on by the learned **10** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** single Judge as such are not applicable to the case in hand . A Division Bench of this Court held in _**V.S. Jyothish Kumar and others vs. State of Kerala and others**_ [( **1994) 95 STC 527** that, once an option is exercised, the dealer cannot walk off, ignoring it. But in the instant case, though an application was preferred by the assessee in terms of Rule 30(1) of the **KGST Rules** , despite the duty cast on the assessing authority to have passed an order under Rule 30(2) of the Rules, no such order was ever passed. Reliance is also sought to be placed on the verdict passed by another learned Judge of this Court in _**C.V. Suresh Kumar and others vs. State of Kerala and others**_ [( **1994)2 KTR 227(Ker.)]** explaining the meaning of the word 'compounding' ( in para 27), that once an option is exercised by the assessee, it could not have been varied detrimental to his rights and interests, as it is more so a contract, on the basis of a mutual agreement. Similarly, it is pointed out that, in the case dealt with by the learned single Judge in _**Prakash Jewellery and another vs. State of Kerala**_ [( **2004) (12) KTR 543** **11** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** **(Ker.)],** on the very first day of the assessment year itself, erratum notification was in existence, which is not the position in the instant case and hence the said verdict stands on a different footing. Reference is also made to the subsequent judgments rendered by a learned Judge of this Court in _**Sasi vs. the Commercial Tax Officer**_ **[2010(1)KLT661]** and _**V.P. Chekku vs. Commercial Tax Officer**_ [ **2015(78)VST 110(Ker)]** (para 4), where the Finance Act was given retrospective effect from first day of April onwards, which is not the position in the instant case, having given effect only from 23.07.2001. The position was reiterated in **Malabar Gold vs. Assistant Commissioner, Commercial Taxes [2016(89)VST 193]** rendered by a learned Single Judge. Reference is also made to the verdict passed by a Constitution Bench of the Supreme Court in _**Commissioner of Sales Tax vs. Modi Sugar Mills Ltd.**_ [( **1961)12 STC 182 (SC)],** which involved enhancement of the rate of tax during the middle of the year. It is pointed out by the learned counsel that, once an option is given, if any exemption comes to be granted **12** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** during the middle of the year, the assessee is not extended the said benefit and as such, it is quite reciprocal, that once the application for compounding is submitted well within time, ie. on or before the 1[st] of May of the relevant year, the subsequent amendment enhancing the rate of tax would have no application in the case of the appellant/assessee. Yet another point asserted by the learned counsel is that, the assessing authority had levied the **AST** (Additional Sales Tax), which was forbidden by virtue of the law declared by the Supreme Court in _**Bhima Jewellery vs. Asst.Commissioner (Assessment), Kerala and anothe**_ r [( **2014) (22)KTR 175(SC)]** to the effect that no AST is liable to be fixed or realised in the case of dealers who opt for compounding. Similar contentions are made with reference to the appellant/assessee in W.A No.1207 of 2007 as well, in relation to sustainability of the deletion of the relevant proviso under Section **7(1)(a)** of the KGST Act, whereby the benefit earlier given [enabling the assessee to satisfy tax in respect of the newly opened branch at the rate of 25% of the Main Branch/premises **13** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** for the previous year] was taken away during the middle of the assessment year. It is contended that the law which was prevailing on the date of application was something else, which had to be applied in the said case as well. 10. The learned Govt. Pleader appearing for the State/Revenue submits that absolutely no prejudice has been caused to the appellant/assessee in the appeals and that the liability to satisfy interest has been curtailed/reduced, making it effective only after it has become due. 11. There is no dispute with regard to the factual position (in relation to the legal provision) as to the date of presentation of the Bill in the Assembly, whereby Section 7(1)(a) of the KGST Act was sought to be amended. As rightly noted by the learned Single Judge, along with the presentation of the Bill, declaration under the Provisional Collection of Revenue Act was also made, so that the provisions of the Bill would come operative from the date of introduction of the same in the Assembly, i.e. w.e.f.. 23.07.2001. There is no case for the assessee that he had **14** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** satisfied the differential tax at the enhanced rate after the said date; after passing the Finance Act, 2001, which made the assessing authority to issue **Ext.P4 notic** e (in OP. 14557 of 2003) ultimately leading to **Ext.P8** assessment order. Though Ext.P8 assessement order passed by the said authority had given effect to the said amendment right from the date of commencement of the Financial year i.e. from first of April onwards, demanding tax at the enhanced rate of 150% of the previous year's tax, it has been rightly intercepted by the learned Single Judge to the requisite extent i.e. to be operative only from 23.07.2001. 12. The version of the assessee that he had filed an application for compounding prior to the date of introduction of the Bill and within the stipulated time under Rule 30(1)of the KGST Rules,1963 [i.e. on or before first of May of the year to which the option relates] and that he had not filed any application for compounding after the amendment was made effective, [so as to have enabled him to satisfy the tax at the **15** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** unamended rate of 120% of the previous year's tax for the whole year], is without any pith or substance, in so far as the amendment was brought into effect from 23.07.2001 and hence the right of the assessee to satisfy tax at the unamended compounded rate could only be upto 23.07.2001 and never beyond. It was in the said circumstance that reference was made and reliance was placed on, to the verdict passed by a Division Bench of this Court in _**V.S. Jyothish Kumar and others vs. State of Kerala and others**_ [( **1994) 95 STC 527]** and that of a learned Single Judge in _**Prakash Jewellery and another vs. State of Kerala**_ **[(2004) 12 KTR 543** (Ker.); that once a compounding application was filed and accepted, the assessee could not turn back and was liable to pay tax at the compounded rate. 13. In this context, it is also to be noted that the right to satisfy the tax at the compounded rate as stipulated under Section 7(1)(a) of the Act is optional and there is absolutely no compulsion for the assessee to have it satisfied at the enhanced **16** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** rate and he could have sought for proper assessment in terms of regular assessment. There is no case for the assessee that, after coming across the enhancement of the compounded rate of tax, as per the Finance Act, 2001, w.e.f 23.07.2001, the assessee had submitted any application to enable him to satisfy tax on the basis of regular assessment from 23.07.2001 or such other dates, as permissible in accordance with law. The assessee chose to satisfy the tax at the unamended rate on his own, which was without authority, having been not authorised in terms of the relevant provisions of law. This is more so when, even according to the assessee, no order was passed by the competent authority in terms of rule 30(2) of the Rules in the application preferred under Rule 30(1). In any view of the matter, in so far as the amendment was brought into force w.e.f. 23.07.2001, it was obligatory for the assessee to have satisfied the differential tax as well, if he wanted to continue the benefit of satisfaction of tax at the compounded rate. It is also relevant to note that the purpose of alternative mode of satisfaction of tax at the **17** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** compounded rate, is with the intent to enable the assessee to avoid all the hassles/ordeal of a regular assessment and as such, it is intended for the mutual benefit of the assessee as well as that of the Revenue. When the assessee relieves himself from the ordeal as above, there is no headache for the Revenue as well, to complete the process and procedure of regular assessment and there will be steady collection of revenue to the requisite extent, as specified. The fact that rate of tax payable at the compounded rate came to be enhanced during the middle of the year, by itself will not give any unfettered right to the assessee to have satisfied the tax at the unamended rate, even if he had submitted the application for compounding prior to the date of introduction of the Bill/Amendment. This Court finds that the finding and reasoning given by the learned Single Judge in this regard are perfectly within the four walls of law **.** 14. It is also to be noted that, while upholding the version of the Revenue to have the tax satisfied at the amended rate, the learned Single Judge also found that there was no basis or **18** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** rationale to have fixed the liability w.e.f. the first of April, 2001, the amendment having been brought about only w.e.f 23.07.2001. It was accordingly, that the relief was moulded holding that the liability to satisfy tax at the amended rate, in terms of the Finance Act, 2001 will commence only from the first of August, 2001. In other words, in respect of the period from 01.04.2001 till 31.07.2001, it will be at the unamended rate of of 120% of the previous years' tax. It was accordingly, that a declaration was made that the assessee cannot be called upon to pay interest for any period upto the date for payment provided under Ext.P8 assessment, which led to the direction given to the assessing authority to revise Ext. P8 assessment in terms of the above findings and to demand interest only for the period of default after the due date for payment under Ext.P8 is over. 15. In the light of the above discussions , we find that the verdict passed by the learned Single Judge (on the very same day) in W.P(C)No. 40077 of 2003 is also not liable to be intercepted. As rightly observed by the learned single Judge, the **19** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** provision for payment of tax at the compounded rate and so also, what shall be the circumstance under which the benefit could be extended; whether the proviso _**(inserted by Act 7 of 2001 w.e.f. 23.07.2001**_ ) which was already in existence under Section 7(1)(a) should be permitted to continue etc., are matters of legislative policy, where no encroachment can be made by this Court or any other Court. 16. With regard to the grievance projected by the assessee, as to the deletion of the relevant proviso, [which earlier permitted the assessee to satisfy the tax in respect of a newly opened branch at the rate of 25% of the compounded tax in respect of the transaction of the main office for the previous year] it has been noted that rampant misuse was resulted/made by the assessee, which came to the notice of the Government, who thought it fit and proper to have the said proviso deleted, facilitating regular assessment of the newly opened branch offices. This is purely a matter of 'Policy' and the assessee cannot insist to have the statutory provision (proviso to Section **20** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** 7 (1)(a)) to be retained in the statute without undergoing any change for ever. There cannot be any interference on 'Policy matters' by this Court as well. 17. In so far as there is no alteration with regard to the structure of levy and the net result because of the amendment is only deletion of the provision for compounding in respect of branch office transaction, it is a matter of 'policy' of the Government, which cannot be interfered with by any Court of law. It is also to be noted in this context that the learned Single Judge had moulded the relief to the assessee by directing the assessing officer not to charge any 'interest' for the tax payable on the monthly returns upto the introduction of the Finance Bill, 2001 and that interest could be demanded for the delay in payment of tax, if any, for the period after the amount had become legally due. As it stands so, the said verdict passed by the learned single Judge, which is the subject matter of consideration in W.A. 1207 of 2007, also does not call for any interference. ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** ## **21** 18. Coming to S.T.Revision No. 136 of 2008, the question of law raised by the State is whether the Tribunal was correct in holding that the assessee, who had applied for paying the tax at the compounded rate after enhancement of the rate prescribed under the Act was brought into force by an amendment to the KGST Act, is liable to pay tax for the pre-amended period at the reduced rate?. In view of the observations and findings given above, the said question can only be answered in the 'negative' and against the State/Revision petitioner. 19. The assessment made by the assessing authority as per Annexure A realising the compounded tax at the enhanced rate of 150% for the whole year from 01.04.2001 to 31.03.2002 has been correctly interfered with by the appellate authority vide Annexure B, holding that the same could only be after the amendment, virtually modifying the assessment order for the year 2001-02. Similarly, the Addl.Sales Tax ordered by the Assessing authority as per Annexure A has been intercepted, holding that it shall be deleted in respect of the period prior to **22** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** 01.07.2003, as the Addl. Sales Tax was brought into force only from 01.07.2003. The appellate authority vide Annexure B has granted relief in respect of levy of interest as well, in terms of the verdict passed by this Court in _**P.K. Damodaran vs. State of Kerala**_ **[(2004) 138 STC 442 (Ker.)]** . It is the said order that has been affirmed by the Appellate Tribunal vide Annexure - C. 20. The point for consideration in the appeal filed by the Revenue, [as extracted in para 3 of Annexure- C] was whether the respondent - assessee was liable to pay tax at the compounded rate of 150% for the entire assessment year 200102 as contended by the appellant?. This has been answered in the 'negative', holding that the amendment, as per the Finance Act 2001 (Act 7 of 2001) was brought into force only from 23.07.2001 (the date of introduction of Bill) and that the same was not having retrospective effect. It was accordingly held that the compounded tax could be paid at the pre-amended rate of 120% for the period from 01.04.2001 to 22.07.2001 and at the amended rate of 150% from 23.07.2001 to 31.03.2002. It was **23** ## **W.A.Nos.1207 OF 2007, 1644 OF 2009 & STR. No.136 OF 2008.** hence observed that the appeal was devoid of any merit; in turn dismissing the same. We find no tenable ground to intercept the said verdict as well. In the above circumstance, we do not find any merit in the appeals preferred by the assessees [Writ Appeals No.1207 of 2007 and 1644 of 2009] and the Revision Petition [STR No.136 of 2008] filed by the State/Revenue. All the cases are dismissed accordingly. Pending applications, if any, are also dismissed. **P.R. RAMACHANDRA MENON, JUDGE** **JUDGE** lk