M/S Milano Ice Cream Private Limited v. Commercial Tax Officer, KVAT

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR** **MONDAY, THE 13TH DAY OF NOVEMBER 2017/22ND KARTHIKA, 1939** ## **WP(C).No. 12649 of 2017 (E)** **----------------------------** **PETITIONER:** **------------------** **M/S.MILANO ICE CREAM PRIVATE LIMITED SEVIKA HALL, NO.39/4304(1), PALLIMUKKU, M G ROAD P.O., KOCHI 16 REPRESENTED BY ITS MANAGING DIRECTOR, GIANCARLO SEGALINI.** ## **BY ADV. SRI.JOSE JACOB** **RESPONDENT:** **--------------------** **COMMERCIAL TAX OFFICER OFFICE OF THE COMMERCIAL TAX OFFICER, KVAT 4TH CIRCLE, ERNAKULAM 682 018.** **BY GOVERNMENT PLEADER SMT. JASMINE. M. M.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 13-11-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **sdr/-** ## **WP(C).No. 12649 of 2017 (E)** **----------------------------** ## **APPENDIX** ## **----------------------** ## **PETITIONER(S)' EXHIBITS** **---------------------------------------EXHIBIT P1 TRUE COPY OF THE COMPOUNDING APPLICATION UNDER SECTION 8 OF THE KVAT ACT** - **EXHIBIT P2 TRUE COPY OF THE NOTICE UNDER SECTION 8(C)(1) OF THE KVAT ACT** - **EXHIBIT P3 TRUE COPY OF REPLY TO NOTICE UNDER SECTION 8(C) (I) OF THE KVAT ACT** - **EXHIBIT P4 TRUE COPY OF QUARTERLY RETURNS FILED FOR THE YEAR 2015-2016** - **EXHIBIT P5 TRUE COPY OF THE COMPOUNDING APPLICATION UNDER SECTION 8 OF THE KVAT ACT** - **EXHIBIT P6 TRUE COPY OF NOTICE UNDER THE KVAT ACT EXHIBIT P7 TRUE COPY OF REPLY TO NOTICE DATED 5/1/2017** - **EXHIBIT P8 TRUE COPY OF DEFECT NOTICE ISSUED UNDER SECTION 67 OF THE KVAT ACT** - **EXHIBIT P9 TRUE COPY OF REPLY TO NOTICE UNDER SECTION 67 OF THE KVAT ACT** - **EXHIBIT P10 TRUE COPY OF NOTICE ISSUED UNDER SECTION 25(1) OF THE KVAT ACT FOR THE YEAR 2015-2016** - **EXHIBIT P11 TRUE COPY OF EXTENSION LETTER** - **EXHIBIT P12 TRUE COPY OF REPLY TO NOTICE ISSUED UNDER SECTION 25(1) OF THE KVAT ACT** - **EXHIBIT P13 TRUE COPY OF NOTICE ISSUED UNDER SECTION 25(1) OF THE KVAT ACT** - **EXHIBIT P14 TRUE COPY OF NOTICE ISSUED UNDER SECTION 25(1) OF THE KVAT ACT FOR THE PERIOD JULY 2016 TO SEPTEMBER 2016** - **EXHIBIT P15 TRUE COPY OF NOTICE ISSUED UNDER SECTION 25(1) OF THE KVAT ACT FOR THE PERIOD OCTOBER 2016 TO DECEMBER 2016** - **EXHIBIT P16 TRUE COPY OF ORDER ISSUED UNDER SECTION 25(1) OF THE KVAT ACT FOR THE YEAR 2015-2016** ## **WP(C).No. 12649 of 2017 (E)** **----------------------------** - **EXHIBIT P17 TRUE COPY OF ORDER ISSUED UNDER SECTION 25(1) OF THE KVAT ACT FOR THE PERIOD APRIL 2016 TO JUNE 2016** - **EXHIBIT P18 TRUE COPY OF ORDER ISSUED UNDER SECTION 25(1) OF THE KVAT ACT FOR THE PERIOD JULY 2016 TO SEPTEMBER 2016** - **EXHIBIT P19 TRUE COPY OF ORDER ISSUED UNDER SECTION 25(1) OF THE KVAT ACT FOR THE PERIOD OCTOBER 2016 TO DECEMBER 2016** - **EXHIBIT P20 TRUE COPY OF DETAILED WRITE UP OF PROCESS OF MANUFACTURE** - **EXHIBIT P21 TRUE COPY OF SCREEN SHOT SHOWING STATUS OF COMPOUNDING APPLICATION** **RESPONDENT(S)' EXHIBITS NIL** **-----------------------------------------** **/TRUE COPY/** **PA TO JUDGE** **sdr/-** **'CR'** ## **A.K.JAYASANKARAN NAMBIAR, J.** =========================================== **W.P.(C). Nos. 12649 & 23157 of 2017** ===================================================== **Dated this the 13[th] day of November, 2017** ## **JUDGMENT** As both these writ petitions involve a common issue, they are taken up for consideration together and disposed by this Common judgment. 2. The petitioner in both these writ petitions is a Company engaged in the manufacture and sale of ice cream. It is a dealer under the respondent for the purposes of the Kerala Value Added Tax Act, _(KVAT Act for short)._ It would appear that, for the assessment years 2015-2016 and 2016-17, the petitioner applied for payment of tax on compounded basis, by taking the view that the ice cream that was manufactured and sold by it, was an item of cooked food which was one of the items in respect of which an assessee could discharge tax on compounded basis under Section 8 of the KVAT Act. Accordingly, the petitioner preferred an application dated 22.04.2015 for the assessment year 2015-16 and a similar application dated 30.04.2016 for the assessment year 2016-17, before the respondent. For the year 2015-16, there was no -2- W.P.(C). Nos. 12649 & 23157 of 2017 response from the department intimating the petitioner of the acceptance or rejection of the application submitted for payment of tax on compounded basis. The petitioner therefore, commenced payment of tax on compounded basis in accordance with the provisions of Section 8 of the KVAT Act, and the tax paid by the petitioner during the various quarters in the assessment year, was accepted without demur by the respondents. By a notice dated 11.01.2016, the respondent for the first time, took objection to the payment of tax on compounded basis for the assessment year 2015-16 and put the petitioner on notice of a proposal to reject the application seeking payment of tax on compounded basis, and to assess the petitioner on regular basis for the said assessment year. Although the petitioner preferred a detailed reply to the said notice, the objections of the petitioner were overruled and the proposal to subject the petitioner to tax under the regular provisions, was confirmed by Ext.P16 order, that is impugned in WP(C) No.12649 of 2017. Similar orders, Exts.P17, P18 and P19 were passed assessing the petitioner under the regular provisions of the KVAT Act for the 1[st] , 2[nd] and 3[rd] quarters of 2016-17 in respect of which, the petitioner had submitted an application dated 30.04.2016 for payment of tax on compounded basis, which as already stated, had not been rejected or cancelled by the -3- W.P.(C). Nos. 12649 & 23157 of 2017 respondent. Exts.P17, P18 and P19 orders are also impugned in WP(C) 12649 of 2017 on the contention that, it was not open to the respondent to confirm the demand of differential tax on the petitioner under Section 25(1) of the KVAT Act, when they had not expressly rejected the application preferred by the petitioner for payment of tax on compounded basis, within the time contemplated under the Statute, and further, had permitted the petitioner to pay tax on compounded basis without any objections at the appropriate time. In WP(C) 23157 of 2017, Ext.P22 order of the respondent, subjecting the petitioner to tax under Section 25 (1) in accordance with the regular provisions for payment of tax, under Section 6 of the KVAT Act, for the 4[th] quarter of the assessment year 2016-17, is impugned on the same line of reasoning as stated above in connection with WP(C) 12649 of 2017. 3. I have heard the learned counsel appearing for the petitioner as also the learned Government Pleader appearing for the respondents in both the writ petitions. 4. On a consideration of the facts and circumstances of the case as also the submissions made across the bar, I find from a -4- W.P.(C). Nos. 12649 & 23157 of 2017 perusal of the impugned orders in both these writ petitions that, the demand of differential tax is based on notices issued to the petitioner under Section 25(1) of the KVAT Act, proposing an assessment on regular basis, as contemplated under Section 6 of the KVAT Act. The notices under Section 25(1) were in turn issued, after the petitioner was put on notice of the proposal by the respondent to deny the permission, sought for by the petitioner, to pay tax on compounded basis under Section 8 of the KVAT Act. As already noted, the petitioner had, through applications dated 22.04.2015 and 30.04.2016, sought for payment of tax on compounded basis under Section 8 of the KVAT Act, during the assessment years 2015-16 and 2016-17 respectively. The applications submitted by the petitioner were not rejected by the respondent before the expiry of the first quarter of the relevant assessment year, when the petitioner was to discharge his liability to tax in terms of Section 8 of the KVAT Act. The first notice indicating a proposal to reject the application for payment of tax on compounded basis came only in January/February of the following year, which was the last quarter of the assessment year in question. The issue to be considered is; whether it was open to the respondent to propose a rejection of an application submitted by an assessee for payment of tax on compounded basis, at the fag -5- W.P.(C). Nos. 12649 & 23157 of 2017 end of the assessment year, in respect of which the compounding application was preferred? In my view, when the statutory provisions detailing the procedure to be followed by an assessee, for the purpose of payment of tax on compounded basis, contemplate the consideration, by the department, of an application preferred by an assessee, and an intimation to be given to the assessee as to whether or not his application was accepted, for the purposes of enabling the assessee to discharge his liability on compounded basis, the respondent cannot, by a delayed action on its part, prevent an assessee from discharging the liability on compounded basis. In the instant case, since the assessee , after opting to pay tax on compounded basis, had to commence payment of tax on the said basis in the first quarter of the assessment year in question, any communication rejecting the request of the assessee for payment of tax on compounded basis ought to have been served on the assessee before the expiry of the said quarter. Only in such an event, would the assessee have had an opportunity to pay tax in accordance with the regular provisions of tax, as against the provisions of Section 8 of the KVAT Act. The non communication of any such rejection order by the respondent, effectively estopped it from subsequently issuing an order rejecting the application, since by that time the assessee was -6- W.P.(C). Nos. 12649 & 23157 of 2017 justified in discharging its liability in accordance with Section 8 of the KVAT Act, for which he had opted. The decision of the Division Bench of this Court in _Johnson & Johnson Ltd., v. Assistant Commissioner_ **[2009 23 VST 274]** is authority for the proposition that, when an assessee opts for payment of tax on compounded basis, and discharges his liability on the said basis, and the amounts are accepted by the department without demur, then the department cannot subsequently turn around and subject the assessee to tax under the regular provisions of the Act. Taking cue from the said judgment and finding that it would be unconscionable for the respondent to now take a stand that the petitioner should pay tax on regular basis under Section 6 of the KVAT Act, I am of the view that the assessment orders impugned in these writ petitions cannot be legally sustained. The delayed action on the part of the respondent would, under the circumstances, amount to a mere change of opinion by the assessing officer and, it is trite, that in exercise of powers under Section 25(1) of the KVAT Act, a change of opinion by an assessing officer cannot be the basis of a reassessment against the assessee. I therefore, quash Exts.P16 to P19 orders in WP(C) 12649 of 2017 and Ext.P22 of WP(C) 23157 of 2017 with consequential reliefs to the petitioner. -7- W.P.(C). Nos. 12649 & 23157 of 2017 6. Before parting with these cases, it would be apposite to observe that the facts in these writ petitions present quite a disturbing picture with regard to the nature of functioning of the Commercial Taxes Department in our State. As already noted, the assessee in these cases, had by an application dated 22.04.2015, opted to pay tax on compounded basis for the assessment year 2015-16. While there was no response from the department, on the application seeking permission for payment of tax on compounded basis, within a reasonable time from the date of application, the first notice issued to the assessee proposing a rejection of the application was dated 11.01.2016. Notwithstanding the said proposal issued to the assessee for the assessment year 2015-16, when the assessee applied for a similar permission for paying tax on compounded basis for the next assessment year (2016-17) on 30.04.2017, the respondent still did not act on the said application and communicate any rejection of the application to the assessee within the first quarter of the said assessment year. Even for the assessment year 2016-17, the proposal to reject the application submitted by the assessee was served on the assessee only on 06.02.2017, which is in the last quarter of the assessment year 2016-17. In my view, this amounts to a serious lapse on the part of the department in the matter of -8- W.P.(C). Nos. 12649 & 23157 of 2017 issuing notices to an assessee, who in their opinion, was not entitled to opt for payment of tax on compounded basis, in respect of the product dealt with by him during the previous assessment year. In my view, it is for the Commercial Tax Department in the State to look into this lapse on the part of the officers under the department and take appropriate action against the said officers, in the event of a finding that there was negligent conduct on the part of the officers in permitting the assessee to pay tax on compounded basis. The registry shall sent a copy of this judgment to the Commissioner of Commercial Taxes for follow up action based on the observations in this judgment. sd/- ## **A.K.JAYASANKARAN NAMBIAR JUDGE** das/ 13.11.2017