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TMI Blog2018 (5) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... .04.2012, and the business was taken over by a private limited company, the petitioner in W.P.(C).No.14233/2017. Pursuant to an inspection of the premises of the private limited company on 24.08.2012, certain documents and a computer hard disk were seized from the business premises. The respondents also recovered details of certain purchases and sales effected by the partnership firm, and later the private limited company. Ext.P1 is the mahazar which evidences the search in the business premises of the company, as also the details of the documents seized from the petitioners. By Ext.P2 notice dated 20.03.2014, the petitioner was asked to show cause as to why penalty proceedings should not be initiated under Section 67 of the Kerala Value Added Tax Act (hereinafter referred as "KVAT Act") and the penalty proposed was quantified in the notice. In the notice, the petitioner was also given an option to compound the offence, if he chose to do so in terms of Section 74 of KVAT Act. On receipt of Ext.P2 notice, the petitioner submitted Ext.P3 reply, and there upon, the respondents, by Ext.P4 revised notice dated 29.03.2014, reduced the amount proposed as penalty in Ext.P2 notice to a figu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the respondents, after issuing a notice to the petitioner, proceeded to pass Ext.P15 order dated 18.03.2017, canceling Ext.P6 order, by which, the petitioner was permitted to compound the offence that was alleged against him under Section 67 (1) of the KVAT Act. In the writ petition, Ext.P15 order is impugned inter alia on the contention that, having permitted the petitioner to compound the offence, in terms of Section 74 of the KVAT Act, it was not open to the respondents to exercise the power under Section 56 of the KVAT Act to re-open proceedings that had been concluded by the compounding order. 4. In W.P.(C).No.14233/2017, the factual position is almost identical and pertains to the private limited company that had taken over the business of the partnership firm which conducted the business during the immediate preceding assessment year (2011-12). The assessment year in question in this writ petition is 2012-2013. As in the case of the petitioner in W.P.(C).No.14220/2017, the petitioner herein was also permitted to compound an offence that was alleged against him under Section 67 of the KVAT Act, by Ext.P6 order. Thereafter, a notice was issued to the petitioner under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later part of Section 56 of the KVAT Act. Inasmuch as an order passed under Section 74 is not specifically referred to, in the later part of the Section 56 of the KVAT Act, the contention is that the said order is not immune from the exercise of power under Section 56 of KVAT Act. With regard to the decisions relied upon by the petitioner in the writ petition to contend that compounding proceedings under Section 74 cannot be re-opened under any circumstances, the counter affidavit of the respondents states as follows in paragraphs 43 and 44: "With regard to the averments made in paragraph 21, it is submitted that the decision relied on by the petitioner is not applicable to the facts of this case. In that case the revisional authority itself has sit in judgment on the compounding fee payable, which is excessive exercise of jurisdiction. In this case the order has been cancelled, the authorized officer can independently take decision on the tax payable and the petitioner is also free to produce all the documents to prove his case. Regarding the quantum of suppression, no decision has been taken by the revisional authority. More over in a Full Bench decision of this Hon'ble co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope of Section, 35 of the Act. No question of trenching upon the assessment of escaped turnover arises in this tax revision." Similarly in a decision reported in Joy Alukkas Traders (India) Pvt.Ltd Vs. State of Kerala 2010 (1) KHC 844 a Division Bench of the Kerala High Court was pleased to hold that the power of the Deputy Commissioner u/s.35 can be exercised in respect of any order passed by the assessing officer which is prejudicial to the interest of revenue and therefore even the approval granted in Form No. 21A and the demand notice issued under form No. 22 also could be corrected by initiating proceedings under S.35 if the Deputy Commissioner is of the view that approval granted and the tax demanded are detrimental to the interest of the Revenue and that even failure or omission on the part of the Deputy Commissioner in interfering at that stage does not barred him from scrutinizing the correctness of the regular assessment completed under S.17(3). Thus, it is clearly held 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. It was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aximum compounding fee collectable against a single offence spread over several return periods in a financial year shall be two lakh rupees] (b) in other cases, a sum of money not exceeding ten thousand rupees: Provided that the Commissioner may by order authorize any officer to compound the offence under this section on payment of a reduced amount. (2) On payment of such amount under sub-section (1), no further [penal or prosecution] proceedings shall be taken against such person, in respect of that offfence." 9. It will be seen from the perusal of the aforequoted provision that upon an option being exercised by an assessee, to compound an offence, the assessing authority or other officer authorised by the Government under the said Section, has a discretion to accept the offer of compounding from an assessee. On the offer of the assessee being accepted, a binding contract comes into existence between the assessee on the one hand and Department on the other, by which, the assessee is obliged to pay an amount by way of compounding fee over and in addition to the tax payable under the Act. Once the said amounts are paid, no further penal or prosecution proceedings can be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prejudice that is caused to the revenue on account of an erroneous order passed by the Intelligence Officer, limiting the tax liability of the petitioner to an amount stated to be substantially lower than what ought to have been assessed, if the turnover had been correctly determined. It is necessary to note in this connection, that the tax liability of an assessee, under the KVAT Act, is to be determined not by the Intelligence Officer but by the Assessing officer in assessment proceedings under the Act. In the instant cases, although in the penalty proceedings which were initiated against the assessee, and which were subsequently compounded by the assessee, there was a determination of the tax liability of the assessee for the purposes of completing the compounding proceedings, the said determination of tax liability cannot, by any stretch of imagination, be said to be final and binding on the Department for the purposes of assessment. This legal position has also been settled through a line of decisions of this Court including the decision of a Division Bench in State of Kerala v. Molly Babu[(2010) 29 VST 75 KER]. In other words, despite the determination of tax liability by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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