High Court of KeralaSingle Judge2017-01-20WP(C) No. 486 of 2017 (I) – Dismissed. WP(C) No...

M/S. PULIYANANICKAL GRANITES v. COMMERCIAL TAX OFFICER, SECOND CIRCLE, THODUPUZHA; INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, IDUKKI, KATTAPPANA; VILLAGE OFFICER, KUDAYATHOOR, IDUKKI; ADDITIONAL DISTRICT MAGISTRATE, IDUKKI AT PAINAVU

Case / Petition Number:WP(C).No. 486 of 2017 (I)

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: K. Vinod Chandran
Judgment Date: 2017-01-20
Court Decision / Holding: In WP(C) No. 486 of 2017, the petition is dismissed. In WP(C) No. 455 of 2017, penalty proceedings (Exhibit P13 series) are set aside; the petitioner shall be given a fresh opportunity and the authority shall consider the withdrawal application specifically pointed out by the Court. Ordered accordingly.
Final Disposition: WP(C) No. 486 of 2017 (I) – Dismissed. WP(C) No. 455 of 2017 – Allowed; penalty orders set aside; fresh opportunity to consider withdrawal from compounding.

Parties to the Case

Appellants / Petitioners

M/S. PULIYANANICKAL GRANITES, KP II/26, Arakulam P.O., Moolamattom, represented by Managing Partner Smt. Betty Biju

Respondents

Commercial Tax Officer, Second Circle, Thodupuzha-685 584
Inspecting Assistant Commissioner, Commercial Taxes, Idukki (Kattappana)-685 508
Village Officer, Kudayathoor, Idukki District-685 590
Additional District Magistrate, Idukki at Painavu-685 603

Legal Representation & Advocates

Counsels for Petitioners

• Adv. Aji V. Dev

Counsels for Respondents

• Sri. V.K. Shamsudheen

Case Synopsis & Summary

This writ petition concerns the legality of withdrawing from a compounding under Section 8 of the Kerala Value Added Tax Act, 2003 (KVAT). The petitioner, M/S. Puliyananikal Granites, a metal crusher unit, sought withdrawal from its compounding arrangement after a department order granted permission on 17 May 2016. An application for withdrawal (Exhibit P2) was filed in July 2016, during which two stop memos were issued and there were delays in transferring an explosives license, complicating compliance. The petitioner had filed a return for April 2016 and paid tax under the compounding scheme; tax for May–August 2016 was paid under Section 6 KVAT. The petitioner argues that compounding is a contract that is concluded only upon an order, and since the withdrawal was not allowed, it should be permitted to resile from the compounding agreement, citing M/s. AVJ Emporium. The respondents contend that once compounding was approved on 17 May 2016, a concluded contract existed, and withdrawal cannot be entertained. The court relies on the Panthalookkaran Granites decision (W.P.(C) No. 35496 of 2015) as more apposite and dismisses WP(C) No.486 of 2017, while in WP(C) No.455 of 2017 it sets aside penalty orders and directs fresh consideration of withdrawal. The judgment emphasizes that withdrawal from a granted compounding is not automatic and requires a proper order.

Provisions of Law Cited

KVAT Act, 2003 - Section 8KVAT Act, 2003 - Section 8(B)KVAT Act, 2003 - Section 6

Legal Doctrines & Maxims

Compounding under tax law is a contract between the dealer and the department and would be concluded only by an order.
Withdrawal from compounding depends on the existence of a concluded contract and the presence or absence of a final order.

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioner contends that withdrawal from the compounding arrangement should be allowed since the compounding is a contract that is concluded only on an order; reliance is placed on AVJ Emporium (2008) 16 KTR 441 (Ker), where withdrawal was permitted where no final order had been issued and a concluded contract did not exist. The petition asserts that the compounding approval dated 17.05.2016 was not followed by a withdrawal order; the department’ s stop memos and delays in license transfers impeded continued compliance; the petitioner paid tax under the compounding scheme for April 2016 and under section 6 KVAT for May–August 2016; the petitioner seeks permission to resile from the contract.

Contentions of Respondents

The respondents submit that once compounding was approved on 17.05.2016, a concluded contract existed and withdrawal should not be entertained; the assessees had filed returns and paid taxes under the compounding scheme and the penalties were being pursued for nonpayment; reliance is placed on Panthalookkaran Granites (W.P.(C) No. 35496 of 2015) to show that withdrawal is not permissible after a grant and that the petition should be dismissed.

Cited Precedents (2)

Case Name	Citation	Treatment	Explanation
M/s.A.V.J. Emporium v. Assistant Commissioner & Another	[(2008) 16 KTR 441 (Ker)]	Distinguished	AVJ Emporium was noted but held not applicable to the present facts since withdrawal there occurred without a concluded contract due to lack of final order.
M/s Panthalookkaran Granites v. The Commercial Tax Officer	W.P.(C) No. 35496 of 2015, dated 22.12.2015	Positive	Panthalookkaran Granites was found to be more apposite and supported the court’s conclusion to dismiss the withdrawal petition after compounding was granted.

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Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **FRIDAY, THE 20TH DAY OF JANUARY 2017/30TH POUSHA, 1938** **WP(C).No. 486 of 2017 (I) --------------------------** **PETITIONER(S): -------------** **M/S. PULIYANANICKAL GRANITES, KP II/26, ARAKULAM P.O., MOOLAMATTOM, REPRESENTED BY IT'S MANAGING PARTNER SMT.BETTY BIJU.** **BY ADV. SRI.AJI V.DEV** **RESPONDENT(S):** **--------------** **1. COMMERCIAL TAX OFFICER, SECOND CIRCLE, THODUPUZHA-685 584.** **2. INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, IDUKKY OF KATTAPPANA-685 508.** **3. VILLAGE OFFICER, KUDAYATHOOR, IDUKKI DISTRICT, PIN-685 590.** **4. ADDITIONAL DISTRICT MAGISTRATE, IDUKKY AT PAINAVU-685 603.** **BY GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 20-01-2017 ALONG WITH WPC.455/2017 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **msv/** ## **WP(C).No. 486 of 2017 (I) -------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS** **-----------------------** **EXHIBIT P1 TRUE COPY OF THE PARTNERSHIP DEED DATED 07/06/2016.** - **EXHIBIT P2 TRUE COPY OF THE APPLICATION FOR COMPOUNDING FILED IN FORM 1B DATED 04/05/2016.** **EXHIBIT P3 TRUE COPY OF THE STOP MEMO DATED 20/06/2016 ISSUED BY THE 3RD RESPONDENT.** - **EXHIBIT P4 TRUE COPY OF THE ORDER DATED 16/07/2016 ISSUED BY THE FOURTH RESPONDENT.** **EXHIBIT P5 TRUE COPY OF THE INTIMATION DATED 26/07/2016 ISSUED BY THE 3RD RESPONDENT.** - **EXHIBIT P6 TRUE COPY OF THE LETTER DATED 22/07/2016 FILED BY THE PETITIONER WITHDRAWING EXT.P2 APPLICATION.** **EXHIBIT P7 TRUE COPIES OF THE PERMISSION GRANTED IN FORM 1E DATED 17/05/2016 BUT RECEIVED ON 31/10/2016.** **EXHIBIT P7(A) TRUE COPY OF THE ORDER ISSUED GRANTING PERMISSION FOR COMPOUNDING DATED 17/05/2016 BUT RECEIVED ON 31/10/2016.** **EXHIBIT P8 TRUE COPY OF THE MONTHLY RETURN FILED FOR MAY 2016 DATED 07/10/2016.** **EXHIBIT P8(A) TRUE COPY OF THE MONTHLY RETURN FILED FOR JUNE 2016 DATED 07/10/2016.** **EXHIBIT P8(B) TRUE COPY OF THE MONTHLY RETURN FILED FOR JULY 2016 DATED 08/10/2016.** **EXHIBIT P8(C) TRUE COPY OF THE MONTHLY RETURN FILED FOR AUGUST 2016 DATED 28/10/2016.** - **EXHIBIT P9 TRUE COPY OF THE NEWLY ISSUED REGISTRATION CERTIFICATE UNDER THE KVAT ACT DATED 21/07/2016.** **EXHIBIT P9(A) TRUE COPY OF THE NEWLY ISSUED D & O LICENSE ISSUED BY THE GRAMA PANCHAYATH DATED 18/10/2016.** **EXHIBIT P9(B) TRUE COPY OF THE NEWLY ISSUED THE LICENSE TO POSSESS EXPLOSIVES DATED 29/11/2016.** **msv/** **-2-** **-2-** **WP(C).No. 486 of 2017 (I)** **-------------------------** **EXHIBIT P10 TRUE COPY OF THE LETTER REJECTING THE OPTION U/S.8(B) OF THE ACT, DATED 18/08/2016 ISSUED BY THE 1ST RESPONDENT.** **EXHIBIT P10(A)- TRUE COPY OF THE DEMAND NOTICE ISSUED FOR THE MONTH OF MAY 2016 DATED 18/08/2016. EXHIBIT P10(B)- TRUE COPY OF THE DEMAND NOTICE ISSUED FOR THE MONTH OF JUNE 2016 DATED 18/08/2016. EXHIBIT P10(C)TRUE COPY OF THE DEMAND NOTICE ISSUED FOR THE MONTH OF JULY 2016 DATED 18/08/2016.** **RESPONDENT(S)' EXHIBITS** **-----------------------** ## **NIL** **//TRUE COPY//** **P.S.TO JUDGE** **msv/** ## K. Vinod Chandran, J ------------------------------------------------------------- W.P.(C).Nos.486 of 2017-I & 455 of 2017-F -------------------------------------------------------------Dated this the 20[th] day of January, 2017 ## **JUDGMENT** In W.P.(C) 486 of 2016, the petitioner is aggrieved with the fact that Exhibit P6 application for withdrawal of compounding has not been allowed. The petitioner relies on the decision reported in _**M/s.A.V.J. Emporium v. Assistant Commissioner & Another**_ **[(2008) 16 KTR 441 (Ker)]** . 2. At the beginning of the assessment year 2015-2016, the Managing Partner, who represents the petitioner firm and her husband were partners of the firm carrying on a metal crusher unit. They had applied for compounding under Section 8 as per Exhibit P2 dated 04.05.2016. Subsequently, the husband died on 01.06.2016 and there was a re-constitution of the firm inducting the son of the earlier partners. 3. The firm was continued and the petitioner is said to have filed an application for withdrawing from the compounding. This was due to two stop memos issued by the revenue authorities and the time taken by the wife to get transferred the explosive license etc. WP(C) Nos.486 of 2017 & - 2 - 455 of 2017. in her name. They had also filed the return for one month, April 2016 and paid tax under the compounding scheme ie: under Section 8 (b). The petitioner also paid tax under Section 6 of the Kerala Value Added Tax Act, 2003 [for brevity “KVAT Act”] for the months May to August 2016. The petitioner's contention is that since the compounding has not been accepted and an order passed, the petitioner cannot be asked to continue compounding and the petitioner is entitled to resile from the compounding scheme, which, as held by the Hon'ble Supreme Court, is a contract between parties which would be concluded only on an order being issued. 4. The petitioner herself has produced Exhibit P7 and P7 (a), the permissions issued by the Department dated 17.05.2016. The petitioner's contention is that the petitioner received it only on 31.10.2016. _**M/s.A.V.J. Emporium**_ is not applicable insofar as the dealer therein had filed a compounding application on 02.04.2002, on the mistaken impression that the rate of tax applicable was 120% which already stood amended and increased to 200%. The dealer on realising the mistake immediately filed an application to withdraw from WP(C) Nos.486 of 2017 & - 3 - 455 of 2017. compounding on 29.04.2002, before the expiry of the first month. He also paid the tax under the regular scheme from the first month and the demand under the compounding scheme was made after the close of the assessment year. It was on such facts that the Court held that the dealer was entitled to resile from the compounding scheme. In the said case there was no concluded contract for reason of the permission having not been granted till the application for withdrawing from the compounding was filed. 5. In the present case, evidently the compounding application was allowed by the Department on 17.05.2016. The application for withdrawal was made on 22.07.2016, received by the authority on 25.07.2016. It is also evident from the facts disclosed that the partnership firm had filed a return for one month ie: April 2016 and paid tax as per the compounding scheme. The contention of the stoppage of the unit also cannot be believed since even as per the returns filed by the assessee for the months of May to August, 2016, there was tax payable on conceded turnover and the same paid under Section 6 as evidenced from Exhibit P8 series of returns. WP(C) Nos.486 of 2017 & - 4 - 455 of 2017. 6. More apposite on the facts of this case would be the decision of a learned Single Judge in W.P.(C) No.35496 of 2015 dated 22.12.2015 **[** _**M/s.Panthalookkaran Granites v. The Commercial Tax Officer**_ **].** Hence W.P.(C) No.486 of 2017 would stand dismissed. 7. W.P.(C) No.455 of 2017 is filed against the penalty proceedings at Exhibit P13 series, which were issued on the reasoning that the petitioner had purposefully evaded payment of tax. The petitioner was issued with notice of penalty for reason of the petitioner having not paid the compounded tax. On receipt of notice of penalty, the petitioner had paid the tax under Section 6 and had requested the Assessing Officer to consider the application filed for withdrawal from compounding. As of now this Court has found that there is no reason for the Assessing Officer to consider the withdrawal application, since the assessee has already acted in accordance with the compounding application made and remitted the tax due under the scheme. The order granting permission to compound was also made on 17.05.2016. Based on it, the assessee WP(C) Nos.486 of 2017 & - 5 - 455 of 2017. could be considered to have not paid the tax; but, however, this Court is of the opinion that there can be no penalty imposed for reason of there being no evasion attempted by the petitioner. The issue is one of non-payment or default in payment and not an evasion. This aspect has not been looked into by the Assessing Officer. In such circumstance, Exhibit P13 series of orders in W.P.(C) No.455 of 2017 are set aside. The petitioner shall be given fresh opportunity and the authority shall answer the question specifically pointed out by this Court in the order. W.P.(C) No.455 of 2017 is allowed. Ordered accordingly. **Sd/-** K.Vinod Chandran Judge. vku/- [ true copy ]