State of Kerala v. M/S Divya Gold Palace Jewellery (P) Ltd

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN** **MONDAY, THE 8TH DAY OF DECEMBER 2014/17TH AGRAHAYANA, 1936** ## **OT.Rev.No. 139 of 2014 ()** **--------------------------** **AGAINST THE ORDER IN T.A.(VAT) No. 891/2013 of KERALA VALUE ADDED TAX ADDITIONAL APPELLATE TRIBUNAL,PALAKKAD DATED 27-01-2014** **-----------------------------** ## **REVISION PETITIONER/APPELLANT/REVENUE** **--------------------------------------------** ## **STATE OF KERALA** ## **BY SR. GOVERNMENT PLEADER, LIJU STEPHEN** ## **RESPONDENT/RESPONDENT/ASSESSEE:** **----------------------------** **M/S.DIVYA GOLD PALACE JEWELLERY (P) LTD, PERAMBRA, KOZHIKODE - 673 525 REPRESENTED BY ITS DIRECTOR, SHAFEEQUE** **R. BY ADV. SRI.K.M.FIROZ** ## **R. BY ADV. SMT.M.SHAJNA** ## **R. BY ADV. SRI.S.KANNAN** **THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 08-12-2014, ALONG WITH OTRV. 168/2014, OTRV. 170/2014, OTRV. 173/2014, OTRV. 174/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **ANTONY DOMINIC & ANIL K. NARENDRAN, JJ.** - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ## **O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014** - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 8[rd] day of December, 2014 ## **ORDER** ## _**Antony Dominic, J.**_ These revisions are filed by the Revenue challenging the common order passed by the Tribunal in T.A.(VAT)Nos.890, 891, 892, 893 and 894 of 2013 dated 27[th] January, 2014. 2. Briefly stated the facts of the case are that the respondent, a dealer in gold, is an assessee under the Kerala Value Added Tax Act. They applied for compounding as provided under Section 8 of the KVAT Act. The application was accepted and tax was paid for the assessment years 2006-2007, 2007-2008, 2008-2009, 2009-2010 and 2010-2011. Subsequently, the assessing officer found that the highest turn over conceded by assessee which lead to the compounding allowed for the assessment year 2006-2007 was wrong. 3. This factual finding lead to initiation of proceedings under Section 25(1) of the Kerala Value Added Tax Act. Accordingly O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014 : 2 : assessment under Section 25 was completed for the aforesaid assessment years by order dated 28.10.2011. Appeals filed by the assessee before the first appellate authority were dismissed. These orders were again challenged before the Tribunal and the Tribunal by a common order, allowed the appeals following the judgment of this Court in _**Zodiac Regency (M/s.) v. Commissioner of Commercial Taxes, Tvm. and another [2011 (3) KHC 334 (DB)].**_ It is this common order which is under challenge before us. 4. We heard the Government Pleader appearing for the petitioner and the learned counsel appearing for the respondent assessee. 5. The common order passed by the Tribunal discloses the reasons which persuaded it to allow the appeals and the relevant part of the order reads thus: _“Thus the position of law is beyond doubt that once the compounded scheme of payment of tax is accepted by the assessee and the department any assessment done should be within the frame work of the scheme itself. If any mistake or irregularity is noticed that also has to be rectified or regularised while remaining within the compounding scheme itself. Thus the position of law as enunciated in the above Rulings being very clear we find it difficult to sustain the order under challenge as legally valid. The_ O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014 : 3 : _compounding scheme of payment of tax was accepted by both the parties and a deviation from the above by assessing the dealer under Section 25 of the KVAT Act in the given circumstances of the case is not tenable. If a mistake or irregularity or adoption of a different rate than the one stipulated under the statute is noticed it has to be cured but still remaining within the compounding scheme only. Such a situation cannot bestow the assessing authority with the power to take the assessment outside the scheme of compounding. On the above reasoning we allow the appeal by setting aside the order passed by the assessing authority under Section 25 of the KVAT Act. However we make it clear that the assessing authority shall be at liberty to rectify or otherwise cure any defect or anomaly in the compounding proceedings already passed so as to ensure compliance with the statute itself. The appeal is therefore allowed.”_ 6. However, having considered the submissions made by both sides, we are unable to endorse the view taken by the Tribunal. This is mainly for the reason that the Tribunal has concluded the issues without adverting to the principles laid down by the this Court in _**M/S Joy Alukkas Traders (I) Pvt. Ltd. v. State of Kerala [2010 (1) KHC 844]**_ and judgment in _**STR 92/2011**_ . In the case of Joy Alukkas (supra), compounding was allowed only for two branches of the assessee. The O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014 : 4 : Deputy Commissioner who scrutinised the assessments, noticed that the assessment was not in accordance with the charging provisions of Sections 5 and 7 of the KGST Act. He, therefore, initiated proceedings under Section 35 and ordered revision of assessment under Section 7(1)(a) of the Act by including the business of all branches of the assessee. In that factual background, the competence of the authorities to revise an assessment under the compounding scheme was considered and upheld by this Court by holding thus: _“The next contention raised by counsel for the petitioner is that the mistake, if any, is in the approval granted by the assessing officer in Form No.21A permitting the payment of tax at compounded rate only for two branches and simultaneously, permitting the assessee to pay tax under Section 5(1) for the head office and another branch and so much so, the order prejudicial to the interest of the revenue requiring correction through revision under Section 35 is Form No.21A. According to counsel, since the Deputy Commissioner has not revised the said order, he has no jurisdiction to revise the regular assessment made in consonance with the compounding scheme approved by the assessing officer. The Government Pleader, on the other hand, contended that Form No.21A is only an approval granted on application filed under Rule 30 and in such case, the dealer is permitted to file return under sub-clause (5) of Rule 30 in Form No.9 on which the assessment_ O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014 : 5 : _has to be made by the assessing officer under Section 17(1) or 17 (3) of the Act. It is clear from Form No.21A and Form No.22 issued under Rule 30 that the payment of tax based on the approval and the demand notice are only provisional and the same has to find acceptance in a regular assessment. In other words, even if there is a mistake or omission in the approval granted by the assessing officer, it is within his powers to modify such order and demand the tax escaped under the compounding scheme in regular assessment or later by revising assessment under Section 19(1). The power of the Deputy Commissioner under Section 35, of course, can be exercised in respect of any order passed by the assessing officer which is prejudicial to the interest of the revenue. Therefore, the approval granted in Form No.21A and the demand notice issued under Form No.22 also could be corrected by initiating proceedings under Section 35 if the Deputy Commissioner is of the view that approval granted and the demand tax are detrimental to the interest of the revenue. However, failure or omission on the part of the Deputy Commissioner in interfering at that stage does not bar him from scrutinizing the correctness of the regular assessment completed under Section 17(3). We have already found that the monthly payment of tax based on the approval for compounding granted by the assessing officer in Form No.21A and the demand notice issued under Form No.22 are only provisional and the same should find acceptance in a regular assessment. When a regular assessment is completed by the assessing officer, his earlier orders issued in Form No.21A and Form No.22 for payment of tax under compounding scheme do not survive any_ O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014 : 6 : _longer because the final assessment supersedes all those proceedings. No purpose will be served by modifying those orders which have lost significance once assessments are made. Therefore, we are of the view that the Deputy Commissioner is competent to revise an assessment prejudicial to the interest of the revenue, no matter, such assessment is completed based on an erroneous compounding order passed by the officer in Form No.21A which was not cancelled or revised by the Deputy Commissioner. There is no dispute that the order issued by the Deputy Commissioner under Section 35 is within the time for revision of regular assessment passed by the assessing officer under Section 17(3). So much so, the Tribunal rightly rejected the assessee's challenge against the order of the Deputy Commissioner on the ground of limitation._ ## 7. Following this judgment, STR 92/11 was disposed of and paragraph 1 of this judgment reads thus: _Question raised is whether reassessment completed under Section 19(1) of the Kerala General Sales Tax Act (hereinafter referred to as the Act for short) was rightly held to be invalid by the Tribunal for the reason that the original assessment was based on compounding. This issue stands decided in favour of the Revenue vide the Division Bench judgment of this Court in M/S Joy Alukkas Traders (I) Pvt. Ltd. v. State of Kerala, reported in 2010(1) KHC 844. Even though learned counsel for the respondent assessee_ O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014 : 7 : _submitted that the decision of this Court is rendered in the context of supervisory jurisdiction of the Deputy Commissioner under Section 35, we do not think there is any difference between the powers of the Officer under Section 19(1) of the Act and the powers of the Deputy Commissioner under Section 35 of the Act. In fact in the judgment, we have held that Section 19 (1) also applies to an assessment completed based on compounding. So much so in principle, we allow the revision by reversing the orders of the Tribunal and by holding that Section 19(1) is validly initiated._ 8. Obviously, these two judgments were not noticed by the Tribunal and if these judgments were followed, it can be seen that the authorities under the KVAT Act were well within their powers to initiate proceedings under Section 25 of the KVAT Act. 9. In so far as the _Zodiac Regency_ case, followed by the Tribunal is concerned, reading of the judgment itself shows that the compounding allowed therein was not vitiated for reasons such as in this case and it was, therefore, that this Court decided the case in favour of the assessee. Thus, on facts, the judgment in case of Zodiac Regency is clearly distinguishable and, in our view, principles applicable in so far as this case are those laid down in _Joy Alukkas_ case and STR 92/2011. O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014 : 8 : 10. Relying on the judgment of this Court in _**Prakash Jewellery and another v. State of Kerala [2004 (12) KTR 543],**_ counsel for the respondent assessee contended that even if the assessment is to be revised, the same can be only in terms of the powers under Section 66 of the KVAT Act and an assessment under Section 25 is illegal. We are unable to agree. First of all, the facts of the case in _Prakash Jewellery (supra)_ show that after accepting the application for compounding and permitting remittance of tax on that basis, change had occurred on account of the Finance Act that was introduced. Subsequently it was in that context that this Court held that the power of the assessing officer is under Section 35 of the KGST Act and that it should be exercised within the framework of compounding scheme. However, that principle cannot be imported into the facts of this case as the proceedings under Section 25 were initiated for the reason that the highest turn over conceded by the assessee himself was wrong. Such being the case, it cannot be compared with a change that occurred as in the case of _Prakash Jewellery (supra)_ following the introduction of the Finance Act. Therefore, the principles laid down in _Prakash Jewellery (supra)_ cannot be made applicable to the facts of this case. O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014 : 9 : 11. Even otherwise, power of rectification provided under Section 66 of the KVAT Act can be invoked only when apparent error is found on the face of the record. This, therefore, necessarily means that the error sought to be rectified is that committed by the assessing officer and is not an error on account of a wrong declaration made by the assessee. We do not find any substance in the contention raised. 12. Referring to the provisions of Section 25, counsel contended that the assessment under this Section has to be based only on turn over and that in a case of compounding the said power under Section 25 cannot be invoked. This contention also cannot be accepted. We have already seen that the assessing officer has found that the compounding allowed was vitiated for the reason that the turn over based on which compounding was allowed as conceded by the assessee was wrong and hence compounding itself is erroneous. Once it is so found, the entire turn over of the assessee has to be treated as escaped turn over. In such a situation, the entire turn over has to be treated as escaped turn over available for assessment and if so the power under Section 25 can be invoked. O.T.Rev.Nos.139, 168, 170, 173 & 174 OF 2014 : 10 : 13. Though the order passed by the Tribunal cannot be sustained for the aforesaid reasons, we notice from the order that the assessee had other legal contentions which were not considered by the Tribunal as according to the Tribunal the fundamental issue to be decided was if the assessing authority was within his powers to assess the dealer under Section 25. Once we uphold the competence of the assessing officer, we have to necessarily remit the cases back to Tribunal, with a direction to consider the other contentions raised by the assessee and to dispose of the appeals according to law. 14. We set aside the orders impugned and remit the appeals to the Tribunal with a direction to consider the other contentions that are urged by the assessee. The revisions are allowed as above. _Sd/-_ **ANTONY DOMINIC, Judge** _Sd/-_ **ANIL K. NARENDRAN, Judge** _jes_