TMI Blog2019 (2) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee cannot claim to be assessed under Section 17, determining tax under Section 5. Nor can the Department resort to such an assessment, based on the turnover of that particular year. However, it cannot at all be said that there is no assessment contemplated insofar as a dealer opting for the compounding provision - The dealer who opts for payment of tax under Section 7 cannot be said to have been absolved of the liability for all the consequences arising from such an assessment made for the previous three years which is the reference point for determining the tax payable in the relevant year under clause (b) of Section 7. The assessees would appear before the AO and necessarily adjustments would be made insofar as the compounding tax computed for the subject assessment years - appeal allowed. - W. A. Nos. 121, 163, 220, 229 & 413 of 2015 And WP(C)No. 34002 of 2016 - - - Dated:- 24-1-2019 - MR K. VINOD CHANDRAN AND MR MR ASHOK MENON, JJ. For The Appellant : ADV. V. K. SHAMSUDHEEN, SR. GOVERNMENT PLEADER For The Respondent : ADVS. SRI. K. T. POULOSE (KORATTY), SRI. K. T. POULOSE (KORATTY) AND SRI. RAJU JOSEPH (SR. ) JUDGMENT/ORDER Vinod Chandran, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax payable based on the purchase cost of liquor sold in the year. 4. The learned Senior Counsel Sri.Raju Joseph appearing for the assessee-respondents relied first on the decision of the Hon'ble Supreme Court in Bhima Jewellery v . Assistant Commissioner [ ( 2014) 16 SCC 402 ] . It is his contention that on the composition of tax; by an option exercised by the assessee and permission granted by the Department, there is a bilateral agreement between the parties and there is no question of a re-opening or re-computation of the liability cast on the dealer by the compounding provision. If at all any computational exercise has to be carried out, it can only be under Section 43 of the KGST Act, invoking the power for rectification. The limitation for invoking Section 43 being three years, that too the provision having stipulated passing of an order within that period; the notice issued under Section 7 within a period of four years cannot at all be accepted, even as one under Section 43. Further, it is pointed out that even if the permission granted and the computation made at the beginning of the year is considered to be provisional, a difference as to the liability on com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file such a return. Hence, Section 17 can be resorted to, according to Sri. Shamsudheen, for modifying the computation as arrived at in the commencement of the year. The provision is specifically read to advance the contention that the permission granted and the tax payable under the compounding provision for each month is provisional insofar as the final determination being made only after the close of the year. The final determination is possible only after the tax payable under clause (a) of Section 7 is known to the AO, which can only be at the close of the year. Further it is argued that the tax paid as seen from the provision would definitely include the assessed tax, the liability to which is on the assessee irrespective of the fact that it is not conceded in the returns or the books of accounts. Reliance is placed on yet another Division Bench decision of this Court in Kalika Hotel and Bar, Amballur (M/s.) v. State of Kerala [2012 (3) KHC 85] . 8. The learned Single Judge, in the impugned judgment noticed that the payment of tax at the compounded rate is an alternative to the regular method of payment and when an option is exercised by the assessee and accepted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 35 to revise the assessment, holding that there can be no piece-meal compounding of an assessee's turnover and directed the entire business to be assessed under Section 7. The, contention raised of no interference to the compounding granted, especially for reason of there being a bilateral contract, from which the State cannot resile unilaterally was negatived on the facts. 11. The Division Bench held so in paragraph 7 of the decision thus: 7. ... 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). xxx ... 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 longer because the final assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed tax payable, are permissible. 15. M/s.Divya Gold Palace Jewellery was under the Kerala Value Added Tax Act, 2005 ('KVAT Act' for short), wherein similar provisions of compounding came up for consideration. Therein also, the respondent-assessee, a dealer in Gold, applied under the compounding provision and tax paid for five years, on the basis of the highest turnover conceded in the prior years. Subsequently, the AO found the highest turnover conceded to be of a different year from that adopted for granting permission for compounding.This led to a proceeding under Section 25(1) of the KVAT Act for assessment of escaped turnover, which was challenged before the Tribunal. The Tribunal allowed the same following a judgment of this Court in (2011) 3 KHC 334 (DB) [Zodiac Regency (M/s.) v. Commissioner of Commercial Taxes, Tvm.]. Zodiac Regency (M/s.) was distinguished and M/s .Joy Alukkas Traders and Georg e Thomas relied on to find the re-assessment under Section 25 to be imminent and possible, going by the provisions under Section 8 of the KVAT Act, which is in pari materia with Section 7 of the KGST Act. 16. We also have to notice Zodiac Regency Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 7. As was pointed out by Sri. Shamsudheen, the Division Bench decisions above referred specifically held that even in a case in which the dealer opts for payment of tax under the compounding provision, there is an assessment contemplated by the statute and there could also be modifications made on the computation. 19. We have to express our respectful agreement with the Division Bench decisions above referred based on which the reference order has also been made. We notice that Section 7 is in lieu of the tax payable under Section 5. A dealer desirable of exercising an option under Section 7 has to make an application at the commencement of the year. The application has to be considered and payment of compounded tax permitted by the Department. On such permission being granted, as held by the Honourable Supreme Court in Bhima Jewellery , there is a bilateral agreement between the parties from which neither can resile from. The assessee cannot claim to be assessed under Section 17, determining tax under Section 5. Nor can the Department resort to such an assessment, based on the turnover of that particular year. 20. However, it cannot at all be said that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd higher than that under clause (b), based on the purchase value of liquor of the subject assessment year. It could also be due to revision of tax paid in any of the prior years, which becomes the highest in the three years referred under Clause (b). This results in enhancement of the compounded tax permitted to be paid; under an assessment under Section 17 which has been upheld by the decisions afore cited. The restriction in withdrawing from the bilateral agreement, is only in the Department or the assessee claiming levy under any other mode other than compounding. 23. An assessment under Section 17, which does not levy tax under Section 5, all the same is a valid procedure, even when it correctly computes the tax payable under Section 7. This could be based on the returns filed in the subject year resulting in re-determination of purchase value under clause (a) or an enhancement of the tax paid in the prior years, under reference in clause (b). Though herein the notice is one issued under Section 7, that provision does not contemplate such a procedure. The notice could only be under Section 17 and the mere wrong quoting of a provision would not vitiate the proceeding. It mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made for the previous three years which is the reference point for determining the tax payable in the relevant year under clause (b) of Section 7. 26. Now we come to the issue of what is the tax paid' as discernible from clause (b) of Section 7. Earlier, we noticed that the learned Single Judge relied on Malabar Ornaments to find that tax assessed is not included in the formula prescribed under clause (b) which is confined to the highest tax conceded in the return or accounts or the tax paid in the three consecutive years. The judgment in Malabar Ornaments was distinguished in Kalika Hotel and Bar, Amballur (M/s.) . The provisions interpreted in Malabar Ornaments , specifically Section 8(f)(i) of the KVAT Act, used the words highest tax payable by him as conceded in the return or accounts . Section 7 relevant to the subject years, as found from the KGST Act, has in addition, the words or the turnover tax paid . The Division Bench after noticing this, held so in para 7 in Kalika Hotel and Bar, Amballur (M/s.) thus : 7. ... The legislature could not have assumed that the assessment of the previous years would not be completed before grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake, even if assessment as contemplated under Section 17 is found to have been not made in the present cases, there is a computation made determining actual tax payable under Section 7 based on the assessment of the previous year which enhanced the tax payable by the assessee. Proceedings have been initiated within the four year period. The reasonable period of limitation when there is no specific period provided under the statute, as has been held by the Honourable Supreme Court in (2007) 11 SCC 363 [State of Punjab and Others v. Bhatinda District Cooperative Milk Producers Union Ltd.] , has to be found out from the general scheme of the Act and the limitation provided for various proceedings as available under the Act itself. Under the KGST Act, limitation for assessment is within four years of the close of the assessment year. There is a computation made determining actual tax payable under Section 7, within that period, based on the assessment of the previous year which enhanced the tax payable by the assessee. Proceedings having been initiated within the five year period, we are of the opinion that the same cannot be set aside for reason only of a delay having occurred, fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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