M/S A.V.J. Emporium v. Assistant Commissioner (Assessment), Commercial Taxes, Allappuzha & The State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT :** **THE HONOURABLE MR. JUSTICE K.M.JOSEPH** **MONDAY, THE 26TH MAY 2008 / 5TH JYAISHTA 1930** **WP(C).No. 11888 of 2005(M)** **--------------------------------------** **PETITIONER:** **--------------------** **M/S.A.V.J.EMPORIUM, MULLAKKAL, ALLAPPUZHA, REPRESENTED BY ITS MANAGING PARTNER, R.PARAMESWARAN PILLAI.** **BY ADV. SRI.K.M.FIROZ** **RESPONDENTS:** **----------------------** **1. THE ASSISTANT COMMISSIONER (ASSESSMENT), COMMERCIAL TAXES, ALLAPPUZHA.** **2. THE STATE OF KERALA, REPRESENTED BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM.** **BY GOVERNMENT PLEADER SRI.C.K.GOVINDAN - R2** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 26052008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **W.P.(C) NO.11888/2005** ## **APPENDIX** ## **PETITIONERS EXHIBITS** ## **EXT.P1:- COPY OF THE AMENDMENT CONTAINING THE ERRATUM.** **EXT.P2:- COPY OF THE EXTRACT OF FINANCE BILL 2002.** **EXT.P3:- COPY OF THE LETTER DT. 2.4.02.** **EXT.P4;- COPY OF THE APPLICATION IN FORM NO.21 DT. 2.4.02.** **EXT.P5;- COPY OF THE WITHDRAWL LETTER DT. 29.4.02.** **EXT.P6:- COPY OF THE FROM NO.21 AND 22 AS PER THE KGST RULES.** **EXT.P7:- COPY OF THE NOTICE DT. 10.3.2003 DEMANDING TAX UNDER SECTION 5.** **EXT.P8SERIES:- COPY OF THE ANNUAL RETURN FILED ALONG WITH SAMPLE COPIES OF MONTHLY RETURNS FOR THE MONTH OF APRIL 2002 TO MARCH 2003.** **EXT.P9 SERIES:- COPIES OF ASSESSMENT ORDER AND DEMAND NOTICES DT. 31.1.2005.** **EXT.P10:- COPY OF THE OBJECTION DT. 3.1.2005.** **EXT.P11:- COPY OF THE STATEMENT SHOWING THE PAYMENT FOR THE YEAR 2002-03.** _**/**_ **TRUE COPY/** **P.S. TO JUDGE** **tss** ## **K. M. JOSEPH, J.** **-------------------------------------W.P.C. NO. 11888 OF 2005 M -------------------------------------Dated this the 26th May, 2008** ## **JUDGMENT** Case of the petitioner, in brief, is as follows: Petitioner is a registered dealer in gold and silver ornaments under the KGST Act. Petitioner filed return for the assessment year 2002 - 2003. He submitted Ext.P4 application for compounding in Form 21 on 2.4.2002. According to him, it was done, thinking that the rate of tax applicable was only One hundred & twenty per cent. There was an amendment by way of Ext.P1 Erratum. According to petitioner, he was not aware of the same. However, before granting permission in terms of Rule 30 of the KGST Rules, petitioner came to know that the enhanced rate of two hundred per cent will be demanded from him based on Ext.P1 Erratum. As the enhanced rate was not in the contemplation of the petitioner, it is the case of petitioner that he withdrew the option by Ext.P5 dated 29.4.2002. It is his further case that tax under Section 5 of the Act has been paid as _**WPC. 11888/05 M**_ _**2**_ per returns. There was no objection noted by the assessing authority at that time. No provisional demand for tax was also made. Ext.P7 notice dated 10.3.2003 was issued demanding advance tax under Section for the month of March, which was paid. Petitioner filed Ext.P8 annual returns and paid the tax under Section 5 of the Act. However, by Ext.P9 series, the assessment was completed for the year 2002 - 2003 on the basis that the petitioner is liable to pay the amount payable as if it were a case of compounding. Accordingly, tax has been calculated as Rs.14,25,132/= being two hundred per cent of the tax liability for the assessment year 2001 - 2002. Petitioner challenges Ext.P9 and seeks to quash Ext.P9 series. 2. I heard Dr.K.B. Muhammed Kutty, learned senior counsel appearing for the petitioner and also the learned Government Pleader. Senior counsel for petitioner points out that this is a case where the petitioner had filed the application for compounding for the assessment year 2002 - 2003 on 3.4.2002 under the belief that tax liability is limited to 120 per _**WPC. 11888/05 M**_ _**3**_ cent for the previous year. Upon coming to know that there was an amendment under which the liability was enhanced to two hundred per cent, he decided to withdraw the application for compounding. Accordingly, Ext.P5 was filed on 29.4.2002. He would submit that the law is that once compounding is permitted by way of an order under Rule 30 of the Rules, it cannot be withdrawn as it was a bilateral contract from which one party cannot unilaterally resile. He would submit that, that stage has not been reached and even before granting permission under Rule 30 of the Rules, petitioner has decided to withdraw the application. Rule 30 of the KGST Rules, which is relevant, is extracted hereunder: ## _"_ _**30. Payment of tax at compounded rates:-**_ _(1) Every dealer who is eligible to pay tax at compounded rate under Section 7 of the Act and who desires to exercise the options provided for under the said section may apply to the assessing authority concerned for permission to pay tax at the rates specified therein in Form 21 or before the first day of May of the year to which the option_ _**WPC. 11888/05 M**_ _**4**_ _relates:_ _Provided that the assessing authority may admit an application filed after the prescribed date for good and sufficient reasons to be recorded in writing._ _(2) On receipt of the application, the assessing authority shall conduct necessary enquiries and shall pass such order granting or rejecting the application, as the case may be. No application shall be rejected unless the dealer is given an opportunity of being heard._ _(3) On the application being allowed, the assessing authority shall serve on the dealer a notice of demand in Form No.22._ _(4) If any dealer executing works contract or any dealer in arrack claims deduction of any amount as tax paid on his purchase within the State, such claim shall be accompanied by a statement in the following form:_ **==> picture [256 x 9] intentionally omitted <==** _(5) Every dealer permitted to pay tax at the compounded rates under this rule shall submit an annual return in Form 9 on or before the first day of May of the succeeding year along with the proof_ _**WPC. 11888/05 M**_ _**5**_ _of payment of tax or other amount due under the Act._ _(6) Notwithstanding anything contained in sub-rule (1), in the case of works contract where an express provision is made in the agreement for payment of tax in accordance with the provisions of sub-section (7) of Section 7, instead of making application in accordance with sub-rule (1) above, a copy of such agreement shall be filed before the assessing authority._ _(7) The tax due in respect of contracts falling under the proviso to sub-section (7A) of Section 7 shall be paid in full after deducting the payments already made by the contractor and the amount deducted by the awarder:_ _Provided that deduction in respect of the amounts deducted by the awarder shall be allowed only on production of certificate obtained from the awarder showing the amount and nature of contract, amount deducted and the mode of remittance of the amount to the Government."_ 3. The assessing authority has in the order under attack taken note of the submission that the petitioner had withdrawn _**6**_ _**WPC. 11888/05 M**_ the application. There is no case for the respondents that the petitioner had not submitted Ext.P5 application seeking withdrawal of the application. It is stated that there is no provision for giving such a right to the dealers under the Act and Rules and there is no jurisdiction for the assessing authority to entertain such withdrawal application. It is stated that this Court has already discussed the issue in Udaya Traders v. Sales Tax Officer ((99( STC 41 Ker.) and, therefore, the legal position is settled. Thereafter, reference is made to various other cases for the proposition that once compounding has resulted in an order granting permission, there cannot be unilateral withdrawal from the same. 4. There is no reference to any order granting permission to accept the application for compounding filed by the petitioner. As far as the decision in Udaya Traders v. Sales Tax Officer ((99) STC 41 Ker), it is submitted by the learned senior counsel for petitioner that, that was a case where the application for compounding had culminated in an order under Rule 30 of _**WPC. 11888/05 M**_ _**7**_ the Rules granting permission. There is no order granting permission under Rule 30 of the Rules. Till the permission is granted, it cannot be said that there was a binding contract between the parties. Once there is a binding bilateral contract, it cannot be gainsaid that one party cannot unilaterally resile. I would think that in the facts of this case, admittedly when the petitioner has given Ext.P5 and what is more, when there was no order granting permission under rule 30, it was not open to the authority under Ext.P9 series issued in the year 2005 to take the view that the petitioner must be held to the earlier application for compounding. All the more so, the unrebutted allegations in the Writ Petition would show that the petitioner was filing monthly returns and paying tax which were being accepted. I would think that there is considerable force in the contention taken by the petitioner and the petitioner is entitled to succeed. It is submitted by the senior counsel for petitioner that in fact the petitioner has already paid the amount due under Section 5(1) of the Act. in view of the fact that there is no order permitting _**WPC. 11888/05 M**_ _**8**_ compounding the assessment, it is to be completed under Section 5. Accordingly, the Writ Petition is disposed of as follows: Ext.P9 is quashed and there will be a direction to the first respondent to complete the assessment against the petitioner under Section 5(1) of the KGST Act in accordance with law in respect of the assessment year 2002 - 2003. **K. M. JOSEPH, JUDGE** ## **kbk.**