M/S ANJANAM TECHNOLOGIES v. Assistant Commissioner-III, Thrissur Commercial Taxes Special Circle, Thrissur and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR** **MONDAY, THE 9TH DAY OF OCTOBER 2017/17TH ASWINA, 1939** **WP(C).No. 19819 of 2017 (B)** **----------------------------** **PETITIONER:** ## **-----------** **M/S.ANJANAM TECHNOLOGIES, VELAKODE, MUNDOOR, VIA THRISSUR, REPRESENTED BY ITS MANAGING PARTNER, SATHIAN P.V.** **BY ADVS.SRI.HARISANKAR V. MENON SMT.MEERA V.MENON** **RESPONDENT(S):** **--------------** **1. ASST. COMMISSIONER-III, THRISSUR COMMERCIAL TAXES SPECIAL CIRCLE, THRISSUR-680001.** **2. COMMISSIONER OF COMMERCIAL TAXES, TAX TOWERS, KILLIPALAM, KARAMANA, THIRUVANANTHAPURAM-695002.** **3. INSPECTING ASST. COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, THRISSUR-680001.** **BY GOVERNMENT PLEADER SMT JASMIN. M.M** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 09-10-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **K.V.** ## **WP(C).No. 19819 of 2017 (B)** ## **----------------------------** ## **APPENDIX** **PETITIONER(S)' EXHIBITS -----------------------** **EXHIBIT P1- COPY OF NOTICE ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2013-14 DATED 10.5.2017 EXHIBIT P1(A)- COPY OF NOTICE ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2014-15 DATED 10.5.2017 EXHIBIT P1(B)- COPY OF NOTICE ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2015-16 DATED 10.5.2017 EXHIBIT P1(C)- COPY OF NOTICE ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2016-17 DATED 10.5.2017 EXHIBIT P2- COPY OF OBJECTION FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT DATED 15.5.2017 EXHIBIT P2(A)- COPY OF OBJECTION FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT DATED 15.5.2017 EXHIBIT P2(B)- COPY OF OBJECTION FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT DATED 15.5.2017 EXHIBIT P2(C)- COPY OF OBJECTION FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT DATED 15.5.2017 EXHIBIT P3- COPY OF ORDER ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2013-14 DATED 31.5.2017 EXHIBIT P3(A)- COPY OF ORDER ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2014-15 DATED 31.5.2017 EXHIBIT P3(B)- COPY OF ORDER ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2015-16 DATED 31.5.2017** **RESPONDENT(S)' EXHIBITS NIL -----------------------** **K.V. P.S.TO JUDGE** ## **A.K.JAYASANKARAN NAMBIAR, J.** =========================================== **W.P.(C). No. 19819 of 2017** ===================================================== **Dated this the 9[th] day of October, 2017** ## **JUDGMENT** The petitioner, who is engaged in the activity of powder coating, an activity in the nature of works contract, is an assessee on the rolls of the 1[st] respondent. During the first year of business, namely 2012-13, the petitioner opted to pay tax on compounded basis under Section 8 of the Kerala Value Added Tax Act ( _hereinafter referred to as the Act for short)_ and accordingly after getting the necessary permission from the department to do so, filed the necessary returns and paid tax at the applicable rates on compounded basis. For the immediately succeeding year 2013-14, inasmuch as there was no change in the nature of the business, the petitioner continued to pay tax on compounded basis, although without formally preferring an application for payment of tax on compounded basis for the said year. The petitioner continued the said practice for the subsequent three years also upto assessment year 2016-17. It is relevant to note that, during the said period from 2013-14 to 2016-17, while opting to pay tax on compounded basis, albeit without filing a formal application for the same, the petitioner also relinquished his claim for input tax credit, since a -2- W.P.(C). No. 19819 of 2017 person paying tax on compounded basis was not entitled, as per the statutory provisions, to avail input tax credit. By Ext.P1 series of notices issued to the petitioner on 10.05.2017, the respondents cited the non filing of applications for compounding by the petitioner as a reason to reopen the assessment for the years 2013-14 to 2016-17 and subject the turn over of the petitioner to assessment under the regular method in Section 6 (1)(f) of the Act. Although the petitioner preferred detailed replies to the said preassessment notices, the proposals were confirmed against the petitioner by Ext.P3 series of orders, whereby, demands of differential tax were raised against the petitioner. In the writ petition Ext.P3 series of orders is impugned, _inter alia_ , on the ground that, while it would be inequitable on the part of the respondents to proceed against the petitioner seeking a demand of differential tax, solely on the ground that the petitioner had not preferred any compounding application for the assessment years in question, it is also contended that at any rate, the power to assess escaped turnover under Section 25 cannot be exercised on a mere change of opinion of the assessing officer, more so, when it was within the knowledge of department, that the petitioner was paying tax on compounded basis during the assessment years in -3- W.P.(C). No. 19819 of 2017 question. The petitioner would place reliance on the decisions of this Court in _State of Kerala v. Kalyanaraman_ **[2009 (3) KLT S.N.31]** , _Johnson & Johnson Limited v. Assistant Commissioner (Assessment), Special Circle 1, Ernakulam and Others_ **[2009 (23) VST 274]** and _M/s. Surya Rock Products v. Additional Sales Tax Officer, Angamaly and Another._ **[2002 (10) KTR 615]** , in support of his contentions. 2. A counter affidavit has been filed on behalf of the respondents, wherein the stand taken is that, inasmuch as the petitioner had not complied with the necessary conditions for payment of tax on compounded basis, namely the filing of an application for such payment, he was not entitled as per the statutory provisions, to avail the benefit of payment of tax on compounded basis. The orders impugned in the writ petition are sought to be justified on the aforesaid contentions, and it is further stated that, the apprehension of the petitioner that he will not get input tax credit is misplaced since the respondents have already allowed input tax credit to the petitioner while confirming the proposals in Ext.P1 series of notices. The decision of the Division Bench of this Court in **2009 (23) VST 274** is stated to have been distinguished by a learned Single Judge in the judgment dated -4- W.P.(C). No. 19819 of 2017 06.06.2016 in WP(C) No.9770 of 2016, wherein the learned Judge found that, on the facts of the case before him, the decision of the Division Bench could not be applied since, that was a case where the assessee therein had not filed any application for payment of tax on compounded basis. It is contended therefore, that the judgment of the Single Judge would have a direct bearing on the facts of the instant case and the writ petition therefore ought not to be allowed. 3. I have heard the learned counsel appearing for the petitioner as also the learned Government Pleader appearing for the respondents. 4. On a consideration of the facts and circumstances of the case as also the submissions made across the bar, I find from the facts in the writ petition that this is a case where, in the first year of business, namely 2012-13, the petitioner had opted for payment of tax on compounded basis through the filing of an application, which was accepted by the respondents. In the subsequent four years, the petitioner under the belief that no fresh application needed to be filed, proceeded to pay tax on -5- W.P.(C). No. 19819 of 2017 compounded basis by filing the necessary returns as also desisting from availing input tax credit, as was expected of him under the statutory provision which dealt with payment of tax on compounded basis. The said procedure was not objected to by the respondents, who accepted the returns, as also the tax paid by the petitioner without demur during the assessment years in question. The only question that arises for determination is whether, solely on the ground of not filing an application for permission to pay tax on compounded basis, the petitioner should now be denied the benefit of payment of tax on compounded basis, more so when it is not the case of the department that there has been a shortage of the payment of tax or that the petitioner has breached any substantive statutory provision governing payment of tax on compounded basis. In my view, the grant of permission to an assessee, to pay tax on compounded basis, results in the formation of a contract with regard to the manner of payment of tax, between the assessee and the department. The contract that comes into existence is one from which neither party can resile. On the facts of the instant case, since the conduct of the petitioner was found acceptable to the respondents for the four year period from 2013-14 to 2016-17, it cannot be said that there was any -6- W.P.(C). No. 19819 of 2017 escapement of turnover, or any under assessment of tax payable by the assessee, for the purposes of invoking the powers under Section 25 (1) of the KVAT Act. Rather, on the facts of this case, it is evident that Ext.P1 series of notices issued to the petitioner is merely in the result of a change of opinion of the assessing officer, as regards the mode of assessment to be pursued against the petitioner. In my view, the powers under Section 25(1) cannot be exercised on a mere change of opinion of the assessing officer. That apart, having consented to a definite course of action by the petitioner, as regards the manner of assessment and payment of tax on compounded basis, whereby the assessee also refrained from availing input tax credit, it would be unconscionable for the respondents to now take a stand that the petitioner should pay tax on regular basis under Section 6(f) of the KVAT Act and deny him the benefit of payment of tax on compounded basis, for which he had opted for in the very first year of his business, namely assessment year 2012-13. The decisions relied on by the petitioner would be authority enough to hold that the respondents ought not be permitted to re-open the assessment of the petitioner so as to subject him to tax under Section 6(f) of the KVAT Act. The writ petition, therefore, succeeds and I allow the same by quashing -7- W.P.(C). No. 19819 of 2017 Ext.P3 series of orders. Sd/- **A.K.JAYASANKARAN NAMBIAR JUDGE** das/ 10.10.2017