T.P. Rajagopalan v. Assistant Commissioner (Assessment), State GST Department, Special Circle, Palakkad; Commissioner of Commercial Taxes, SGST Department, Tax Towers, Killippalam, Karamana, Thiruvananthapuram

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE ALEXANDER THOMAS** **WEDNESDAY, THE 22ND DAY OF JANUARY 2020 / 2ND MAGHA, 1941** ## **WP(C).No.34910 OF 2019(K)** ## **PETITIONER/S:** **T.P.RAJAGOPALAN, AGED 68 YEARS EX-PROPRIETOR, M/S. KAVITHA JEWELLERY, MAIN ROAD, OTTAPALAM, PALAKKAD DISTRICT.** **BY ADVS. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON** ## **RESPONDENT/S:** **1 THE ASST. COMMISSIONER (ASSESSMENT), STATE GST DEPARTMENT, SPECIAL CIRCLE, PALAKKAD678001. 2 THE COMMISSIONER OF COMMERCIAL TAXES, SGST DEPARTMENT, TAX TOWERS, KILLIPPALAM, KARAMANA, THIRUVANANTHAPRUAM-695002.** ## **OTHER PRESENT:** ## **SMT.THUSHARA JAMES, GOVT.PLEADER** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 22.01.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **ALEXANDER THOMAS, J.** ================== W.P.(C).No. 34910 of 2019 ================== Dated this the 22[nd] day of January, 2020 ## **J U D G M E N T** The facts projected in this Writ Petition (Civil) are as follows: - That the petitioner was running a jewellery and was an assessee under the Kerala Value Added Tax Act, 2003 (KVAT Act) on the roles of the 1[st] respondent Assistant Commissioner (Assessment), State Goods & Services Tax (GST) Department, Special Circle, Palakkad, and that the petitioner had opted to pay tax at the compounded rates for the year 2016-17. It is further stated that the monthly tax payable was satisfied for the months of April to June, 2016. Further it is averred that as on 30.6.2016, the petitioner had in fact closed his business and this was duly intimated to the 1[st] respondent and the registration under the KVAT Act was also got cancelled. That however, by the impugned Ext.P-3 proceedings as per order No. 32091082132/2016-17 dated 29.11.2016 issued by the 1[st] respondent, as per which the 1[st] respondent has now demanded compounded tax for the periods from July, 2016 to March 2017, as according to the 1[st] respondent, the compounding tax has to be paid for the year concerned irrespective of the closure of the business. That this W.P.(C)34910/19 - : 3 :- Ext.P-3 order has been issued by the 1[st] respondent in spite of the undisputed fact of the matter that the petitioner has in fact closed his business on 30.6.2016, which was duly intimated to the 1[st] respondent, upon which the registration of the petitioner was also got cancelled. The petitioner would specifically contend that the said impugned action of the 1[st] respondent is flagrant violation of the well settled principle laid down by this Court in various cases as in Ext.P-4 judgment dated 17.7.2017 rendered in W.P.(C).No. 11326/2017 and in the case in _**Kairali Jewellery v. Asst. Commissioner**_ [2019 (4) KLT 593], etc. It is in the above averments and contentions that the petitioner has filed the instant Writ Petition (Civil) with the following prayers: - _“(i) To quash Ext.P-3 issued by the 1[st] respondent by the issue of a writ of certiorari or such other writ or order or direction._ - _(ii) To grant the petitioner such other incidental reliefs including the costs of these proceedings.”_ 2. Heard Sri.Harisankar.V.Menon, learned counsel appearing for the petitioner and Smt.Thushara James, learned Government Pleader appearing for the respondents. 3. From a reading of Ext.P-3 order it is seen that there is no serious dispute to the factual aspect that the petitioner had in fact closed his business on 30.6.2016 and further that consequent thereto, W.P.(C)34910/19 - : 4 :- after due intimation the registration was also got cancelled. The specific stand of the 1[st] respondent appears to be that the compounding tax has to be paid by an assessee like the petitioner for the year concerned, irrespective as to the closure of the business. In Ext.P-4 W.P.(C).No.11326/2017, this Court dealt with a case of a trader, who was an assessee under the Value Added Tax Act, who was engaged in the business of trade in jewellery and for all the assessment years from 2006-2007 upto 31.3.2010 (assessment year 2009-2010), the assessee was paying tax on the compounded basis under Sec.8 of the KVAT Act and further that on 31.3.2010, the assessee therein had closed the branch concerned at Thiruvalla and this was duly intimated to the respondents and after the commencement of the assessment year 2010-2011, the assessee had functioned only through his head office at Kottayam branch and it was an admitted fact that Thiruvalla branch after its closure on 31.3.2010, had never done any business thereafter. At the said relevant time, the provision in Sec. 8(f) of the KVAT Act, provides as follows: _“Section 8(f) (i) any dealer in ornaments or wares or articles of gold, silver or platinum group metals including diamond may at his option, instead of paying tax in respect of such goods in accordance with the provisions of section 6, pay tax at,-_ W.P.(C)34910/19 - : 5 :- _(a) one hundred and fifteen percent, in case their annual turnover for the above goods for the preceding year was rupees ten lakhs or below;_ _(b) one hundred and twenty percent, in case their annual turnover for the above goods for the preceding year was above rupees ten lakhs and upto rupees forty lakhs;_ _(c) one hundred and thirty-five percent; in case their annual turnover for the above goods for the preceding year was above rupees forty lakhs and upto rupees one crore; and at_ _(d) one hundred and fifty percent; in case their annual turnover for the above goods for the preceding year exceeded rupees one crore;_ _of the highest tax payable by him as conceded in the return or accounts, or tax paid by him under this Act, whichever is higher, for a year during any of the three consecutive years preceding that to which such option relates._ _Explanation 1:- xxxxx Explanation 2:- xxxxx Explanation 3:- xxxxx Explanation 4:- xxxxx Explanation 5:- xxxxx Explanation 6:- xxxxx Explanation 7:- xxxxx_ _Explanation 8:- Where a dealer who had opted and paid tax under this clause during previous years with respect to a branch that had remained closed during the whole of the year 2009-10, for the purpose of determining the compounded tax payable for 2010-2011, the tax paid in respect of that branch shall not be reckoned._ 4. Later, the provision contained in Sec. 8(f) of the KVAT Act, was amended w.e.f. 1.4.2013 and Explanation appended thereto provide as follows: _'”Explanation 1. xxxxx Explanation 2. xxxxx Explanation 3.- Where a dealer paying tax under this clause, closes a branch during the year under option, proportionate reduction considering the number of business places, in the payment shall be granted in the next monthly instalment onwards, for the remaining months of the year.”_ 5. It was specifically argued before this Court that the said W.P.(C)34910/19 - : 6 :- amended provision clearly clarified the ambit of substantive provision with regard to payment of tax on compounded basis and that said Explanation No.3 appended to Sec. 8(f) introduced as per the said amendment should be seen as an act on the part of the Legislature in curing the defect that existed previously in the statutory provision and therefore, the said provision should relate back to the date from which the option for payment of tax on compounded basis was extended to dealers under the statute. This Court after referring to series of the judgments of the Apex Court in the cases as in _**Allied Motors (P.) Ltd. v. Commissioner of Income-tax**_ [(1997) 224 ITR 677(SC)] and _**Commissioner of Income-tax v. Alom Extrusions Ltd**_ [(2009) 319 ITR 306 (SC)] held that, though the said amended provision came into force only w.e.f. 1.4.2013 (which is much after the closure of the business of the branch concerned in that case on 31.3.2003), in the light of legal principles laid down by the Apex Court in the aforecited judgments, which led to the similar situation in respect of income tax Act, the assessee should be given the benefit of the amended provision of the said Explanation appended as it is essentially only one which is clarifying the legal position and curing the existing lacuna in the provision concerned. W.P.(C)34910/19 - : 7 :- Accordingly, this Court held in Ext.P-4 judgment that the petitioner therein should be given the benefit of excluding the tax attributable to the Thiruvalla Branch (where the business was closed w.e.f. 31.3.2010), although the said tax was taken for the purpose of paying tax on compounded basis for the assessment year 2010-11 while assessing the liability of the assessee therein under Sec. 8(f) for the assessment year 2011-12, etc. It was further ordered that the impugned assessment orders therein to the extent holding to the contrary cannot be legally sustained and this Court quashed the impugned assessment proceedings. 6. In the decision in _**Kairali Jewellery v. Assistant Commissioner-III**_ [2019(4) KLT 593] this Court dealt with a case where the new branch of the assessee was opened only in 2012 and therefore, it functioned business as a business entity only for 4 months (December, 2012 to March, 2013) in the assessment year 2012-13 and it was contended therein by the assessee that if levy of tax under Section 8(f) of the KVAT Act is made applicable to the said branch for that year, it can be so made applicable only for the period during which the said branch actually functioned as a business entity during the assessment year concerned and not for the whole year. W.P.(C)34910/19 - : 8 :- This Court in para 5 of the said judgment in _**Kairali Jewellery's case**_ supra has held that payment of tax under Section 8(f) of the KVAT Act, in respect of the category of dealers enumerated therein, is in lieu of payment of tax in terms of Sec.6 of the KVAT Act and, therefore, it follows, that an assessee opting to pay tax on compounded basis must necessarily accept the statutory mandate for payment of tax in accordance with the formula prescribed in Sec. 8(f) and cannot choose to pay tax on a different basis. The pointed issue considered by this Court in that decision was as to whether or not the assessee therein is obliged to pay tax on compounded basis in respect of the newly opened branch for the whole year or only for that portion of the year, when it had actually functioned as a business entity. This Court held that the interpretator of Sec.8 must clearly bear in mind the mandate of Article 265 of the Constitution of India, which stipulates that there can be no levy or collection of tax, except in accordance with law. It was noted that as per the charging section contained in Sec. 6 of the KVAT Act, there can be a levy of tax under the Act only when the taxable event of sale or purchase of goods occurs and in other words, there cannot be a levy of tax under the KVAT Act, either actual or notional, for the period when the assessee W.P.(C)34910/19 - : 9 :- did not occasion a taxable event. It was noted therein that although the petitioner had exercised his option to pay tax on compounded basis, in lieu of the regular method of payment of tax under the Act, the assessment and consequential collection of tax from him could only have been for the period during which he carried on a business of sale or purchase of goods, that attracted the levy of tax, in his newly opened branch. Thus it was held that while he opted to pay tax in respect of the principal place of business, in accordance with the formula under Sec. 8(f), and the tax liability in respect of the branch that was opened during the year had to be worked out on the basis of the tax paid in respect of the principal place of business and the levy of tax had to be confined to the period, during which the branch actually existed for carrying on the business. Accordingly, it was held by this Court that the tax liability of the branch of the assessee therein that was opened in December 2012 had to be computed on the basis of the tax paid in relation to the principal place of business, but for the period during which the branch functioned as a business entity during the relevant assessment year in question. It will be profitable to refer to paragraph 5 of decision of this Court in _**Kairali Jewellery's case**_ supra [2019 (4) KLT 593, p.596], which reads as W.P.(C)34910/19 - : 10 :- ## follows: _“5. On a consideration of the facts and circumstances of the case and the submissions made across the Bar, I find that the payment of tax under Section 8(f) of the KVAT Act, in respect of the category of dealers enumerated therein, is in lieu of payment of tax in terms of Section 6 of the KVAT Act. It follows, therefore, that an assessee opting to pay tax on compounded basis must necessarily accept the statutory mandate for payment of tax in accordance with the formula prescribed in Section 8(f) and cannot choose to pay tax on a different basis. The issue that arises in the instant case, however, is whether or not the petitioner herein is obliged to pay tax on compounded basis, in respect of the newly opened branch, for the whole year or only for that portion of the year when it was functioning as a business entity. The provisions of S.8(f) do not expressly provide for such a situation. In my view, an interpretation of the statutory provision must bear in mind the mandate of Article 265 of our Constitution which states that there can be no levy or collection of tax except in accordance with law. As per the charging section under the KVAT Act (Section 6), there can be a levy of tax under the Act only when the taxable event of sale or purchase of goods occurs. In other words, there cannot be a levy of tax under the Act, either actual or notional, for the period when the assessee did not occasion a taxable event. In the instant case, although the petitioner had exercised his option to pay tax on compounded basis, in lieu of the regular method of payment of tax under the Act, the assessment and consequential collection of tax from him could only have been for the period during which he carried on a business of sale or purchase of goods, that attracted the levy of tax, in his newly opened branch. Thus, while he opted to pay tax in respect of the principal place of business, in accordance with the formula under Section 8(f), and the tax liability in respect of the branch that was opened during the year had to be worked out on the basis of the tax paid in respect of the principal place of business, the levy of tax had to be confined to the period during which the branch existed for carrying on the business. Accordingly, the tax liability of the branch that was opened in December 2012 had to be computed on the basis of the tax paid in relation to the principal place of business, but for the period during which the branch functioned as a business entity during the relevant assessment year. The assessment of the petitioner for the year 2012-13 would, therefore, have to be completed by adopting the figure of Rs.23,07,180/- as the compounded tax payable for the principal place of business and adding to the said sum, an amount of Rs.7,67,269/- [(2307180/12) x 4] as the compounded tax payable for the newly opened branch. Inasmuch as in Ext.P3 assessment order, the assessment has not been completed in the manner indicated above, I allow this Writ Petition by quashing Ext.P3 and direct the 1st respondent to pass a fresh order of assessment, in line with the directions in the judgment, within one month from the date of receipt of a copy of this judgment.”_ 7. In the instant case, the amended provision contained as per Explanation No.3 of Sec. 8(f) had come into force w.e.f. 1.4.2013. W.P.(C)34910/19 - : 11 :- The disputed period is at the time when the petitioner is said to have closed his business on 30.6.2016. At that time, Explanation No.3 appended to Sec. 8 of the said Act had admittedly come into force and so the issue decided by this Court in Ext.P-4 may not be relevant at all for the simple reason that in the said decision it pertains to a period when the said provision had not come into force and still this Court held that the said benefitial provision should be seen only as an attempt by the Legislature to cure the glaring defect and fill up the lacuna and that therefore the benefit thereof should be extended even to assessees faced with situations as the one dealt in Ext.P-4 judgment. In the instant case, since the amended provision had come into force much before the period in question covered in this case, it is only to be held that the matter in issue raised in this case is fully covered in favour of the petitioner as per the dictum laid down by this Court in _**Kairali Jewelery's case**_ supra. The real substance of the matter is as to the mandatory effect of Art.265 of the Constitution of India, which mandates that there can be no levy or collection of tax except in accordance with law. Sec. 6 of the KVAT Act, which is the charging section, clearly stipulates that there can be levy of tax under the Act only when the taxable event of sale or W.P.(C)34910/19 - : 12 :- purchase of goods occurs and therefore, there cannot be any levy of tax under the said Act either actual or notional, for the period when the assessee did not occasion a taxable event and therefore, although the petitioner had exercised his option to pay tax on compounded basis in lieu regular method of payment of tax under the Act, the assessment and consequential collection of tax from him could have been only for the period during which he actually carried on his business of sale or purchase of goods that attracted levy of tax in his newly opened branch. Therefore it is only to be held that the view taken by the 1[st] respondent in impugned Ext.P-3 order is illegal, unreasonable and ultra vires. In that view of the matter, the impugned Ext.P-3 order will stand set aside and the matter in relation to the assessment for the year in question will stand remitted to the 1[st] respondent for consideration and decision afresh in the light of the legal principles noted herein above. Suffice to say that the 1[st] respondent will afford a reasonable opportunity of being to the petitioner through authorised representative/counsel if any, and then will consider the matter and pass fresh orders of assessment without much delay and within a reasonable time limit that may be appropriately fixed by the 1[st] respondent. In that regard, it has to be W.P.(C)34910/19 - : 13 :- borne in mind that the assessment and consequential collection of tax from the petitioner assessee could have been only for the period during which he actually carried on business of sale or purchase of goods that attracted levy of tax in the branch concerned. With these observations and directions, the Writ Petition (Civil) stands finally disposed of. Sd/sdk+ **ALEXANDER THOMAS, JUDGE** W.P.(C)34910/19 - : 14 :- ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1 COPY OF NOTICE ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2016-17 DATED 11.11.2019.** **EXHIBIT P2 COPY OF REPLY FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT DATED 28.11.2019** **EXHIBIT P3 COPY OF ORDER ISSUED BY THE 1ST RESPONDENT DATED 29.11.2019.** **EXHIBIT P4 COPY OF JUDGMENT IN WP(C) NO.11326/2017 OF THIS HON'BLE COURT DATED 17.07.2017.**