TMI Blog2018 (1) TMI 1434X X X X Extracts X X X X X X X X Extracts X X X X ..... ell Whether Section 7(a) and 7(b) of the 1963 Act operate in different spheres and if not, would the said amended provision violate Article 14 and Article 19(1)(g) of the Constitution of India as contended in the Writ Petition? - Held that:- The term 'whichever is higher' used in S. 7(b) is not in respect of the three instances of the tax shown payable in the return, shown in the accounts or the tax paid in respect of the previous three consecutive years, but something else, which has to be dealt with more meticulously. It is in this context that the expression used- 'the highest turnover in the very same provision requires consideration. Even going by the grammatical peculiarities and interpretations, 'super relative degree' is used in the first limb of the provision, qualifying the same with the word the . In English language, 'comparative degree' is used only to compare between two instances, whereas super relative degree is to be used when there are more instances than two. For the very same reason, usage of the expression 'the highest Turn Over Tax payable' as conceded by the assessees in the return or the accounts or the turnover ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1963 Act operate in different spheres and if not, would the said amended provision violate Article 14 and Article 19(1)(g) of the Constitution of India as contended in the Writ Petition? These are the two questions framed by the Apex Court, while disposing of Civil Appeal No. 2936 of 2009(arising from S.LP.(C)19982 of 2007) and connected matters as per the order dated 23.04.2009, while setting aside the verdict dated 28.09.2007 passed by a Division Bench of this Court, for fresh consideration in accordance with law. W.A. No. 1865 of 2007 (arising from W.P.(C) No. 8711 of 2007) is treated as the lead case. Mr. Sudhi Vasudevan, the learned Sr. Counsel led the arguments on behalf of the appellants/writ petitioners, supported by other learned lawyers appearing for the other appellants/writ petitioners. The arguments on behalf of the State/Department were put forth by Mr. Govindan, the learned Spl. Government Pleader (Taxes). 2. The pleadings and proceedings are referred to as given in W.A. No. 1865 of 2007, except where it is separately dealt with, based on the context. At the very outset, it is to be noted that there is not much controversy on the facts. The issue involves p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were found eligible to pay tax in accordance with the pre-amended provisions only upto 30.06.2006, (observing that there could be no promissory estoppel against the statute); however giving a chance to the said dealers to opt out of the new compounding Scheme, in accordance with the amended provision effective from 01.07.2006 by filing fresh option. 5. Based on the above Circular, Ext. P1 notice was issued to the appellant/assessee, pointing out that there was some deficit in the compounded tax satisfied by the assessee and hence the differential portion was required to be satisfied; to be in conformity with the amended provisions of the Statute. This made the assessee to feel aggrieved, who approached this Court by filing W.P.(C) No. 8711 of 2007 with the following prayers: i) to call for the records leading to Exhibit P2 circular and quash the same by issuing a writ of certiorari or any other appropriate writ, direction or order, ii) to call for the records leading to Exhibit P1 Notice and quash the same by issuing a writ of certiorari or any other appropriate writ, direction or order; iii) to declare that the petitioners are entitled to pay tax at the rate prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at day and thereafter, it shall be as modified by the amendment from 01.07.2006. 7. Interpreting the scope of the S. 7(a) and 7(b), the learned Single Judge illustrated the manner of calculation to be pursued, in paragraph 2 of the verdict, which is extracted below: (1) Find out the purchase turnover of liquor of the bar hotel and determine the turnover tax liability at the rate provided under S. 5(2) of the Act on 140% or 135% of the purchase price depending on whether the bar hotel is located in a Municipal area or in a non-Municipal area. (2) Verify the returns and details of payment of turnover tax on liquor by the bar hotel in the three years immediately preceding 2006-2007 and find out the highest turnover tax payable or paid in any of the said preceding years. (3) Compare the amount of tax determined under Clause (1) with 115% of the turnover tax payable or paid as found in clause (2) and adopt the higher amount as the turnover tax liability for payment for the year 2006-2007. 8. It was in the said circumstance that the learned Single Judge held that the clarification issued by the Commissioner, as per Ext. P2 Circular was not necessary to determine the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. It is seen that the assessees were still aggrieved, who sought to challenge the said verdict by approaching the Apex Court by filing SLPs and on granting leave, the matters were numbered as Civil Appeals, which were heard and remanded, referring to the course pursued in a similar matter (M/s. Varkisons Engineers v. State of Kerala Anr. (2009(2) KLT 1101 (SC) : S.LP.(C) No. 1471 of 2008) for re-consideration, as per order dated 23.04.2009. It was accordingly, that the common judgment passed by the Division Bench on 28.09.2007 was set aside, framing the two questions to be dealt with by this Court, as mentioned in the opening paragraph of this judgment. 11. The main contention raised on behalf of the appellants/petitioners is that the assessees had opted for compounding, based on the provision as it was existing on the first day of the commencement of the assessment year, i.e., on 01.04.2006, which was accepted by the Department. As it stands so, the subsequent amendment brought about w.e.f. 01.07.2006 cannot in any manner be applied to the case of the assessees for the year 2006-07. It is further contended that Clause (b) of S. 7 operates in a different sphere, than the fie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f and it does not enable the State/Department to make a comparison with the figures worked out under S. 7(a). 13. Another argument put forth on behalf of the assesses is that the alternate method of satisfaction of tax under the 'compounding scheme' is on the basis of a fiction as to the turnover introduced by the statute/KGST Act. Such a provision cannot be changed by the Finance Act, it being a substantial provision. According to the assessees, only the rate of tax alone can be changed by the Finance Act. According to the learned counsel, two fictions have been brought about by way of S. 7(a) and 7(b) and the latter has been introduced as per the Finance Act, 2006, which is not permissible. The fiction created by the statute/KGST Act under S. 7(a) is definite and workable which can immediately/easily be understood by the assessees; whereas the fiction now created as per the amendment by way of S. 7(b) is not clearly understandable and is quite obscure. When fiction is created, only one fiction can be there, which cannot be enlarged by another fiction. Support is sought to be drawn from the observations of the Apex Court in Commissioner of Income tax (Central), Calcutta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... points out that the 'compounding' opted by the assessees is on the basis of a contract governed by the provisions of the Indian Contract Act (Central Legislation). Since the proposal has been accepted, the terms cannot be changed thereafter unilaterally, in view of the mandate under S. 5 or 6 of the Contract Act (which provide the circumstances under which modification is possible). By virtue of the amendment brought about by the State, inconsistency has been resulted between the Central Statute and the State enactment, resulting in violation of the Article 251 of the Constitution of India. It is also pointed out that the amendment/course pursued by the State/Department is not sustainable on equity as well and that the same has got a cascading effect, which requires to be intercepted by this Court. 15. The main argument advanced by the learned Spl.Govt.Pleader (Taxes) is that, satisfaction of tax by way of 'compounding' is only optional and that there is no compulsion at all, by virtue of which, the provisions for compounding cannot be challenged by the assessees. Since the compounding provision was introduced only as per the Finance Act 2005, the assessees, till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be maintained by every dealer. On compounding, the ordeal of regular assessment can be avoided by the dealer, which does not mean that the dealer is not bound to maintain accounts or file returns or that he can satisfy tax without any regard to the actual facts and figures. It is pointed out by the learned Govt. Pleader that, by virtue of the verdict passed by a learned Judge of this Court in Prakash Jewellery Anr. v. State of Kerala (2014 (12) KTR 543) (paragraph 3), the rate of tax means, as modified by the Finance Act, which dictum has been approved by a Division Bench of this Court in the Writ Appeal preferred therefrom. It is also pointed out that, as per the verdict passed by another learned single Judge in Sasi v. The Commercial fax Officer (2010 (1) KLT 661) (para 4), rate fixed for compounding can be varied during the middle of the year in view of the Circular issued in this regard, which has been upheld by a Division Bench of this Court in W.A. No. 284 of 2010. Once the dealer has opted for compounding, he cannot turn back to have regular assessment, in view of the law declared by a Division Bench of this Court in Zodiac Regency v. Commissioner of Commercial Taxes (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gular, much less illegal. No prejudice has been caused to the assessees, as chance for 're-option' is given even as per Clause (5) of Ext. P2 Circular and also by the learned Single Judge, which was extended by the Division Bench as well. Referring to paragraph 4 of the Statement dated 16.08.2007 filed in the Writ Appeal, the learned Govt. Pleader submits that the circumstance under which the amendment was brought about is clear from the 'Budget Speech' and as such there is nothing wrong in having issued Ext. P2 Circular, to explain what was intended under S. 7(b) of the Act (brought in as per the amendment). Reliance is sought to be placed on 1994 (104) STC 134 (cited supra) as well, pointing out that the provision for compounding is only 'optional' and that there is no basis for the challenge with reference to the option to be exercised. 19. The learned counsel for the assessees submits in reply, that the verdicts passed by the Division Bench of this Court in W.A. No. 284 of 2010 (affirming 2010 (1) KLT 661), in STR 33 of 2014, in W.P.(C) No. 12429 of 2014 and in STR 59 of 2012 are having no application to the case in hand. It is reiterated that the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provinces had by notification dated 8/06/1948, altered the rate of tax in the matter of various commodities including non-edible oils with effect from 9/06/1948. The Sales Tax Officer was right in his view that the levy of tax at the altered rate was not to operate on sales effected before 9/06/1948. Initially, when the liability of the assessee to pay tax on edible oils for the assessment year arose, the rate was undoubtedly 3 pies per rupee on the turnover, and the question which falls to be determined is whether by reason of the alteration of the rate and its incidence in the course of the year, the assessee became liable to pay tax at the higher rate on a part of the turnover of the previous year and if so, on what basis. A tax payer who adopted the previous year's turnover had under S. 7 and RAO to submit his return within sixty days of the commencement of the assessment year, and no provision for submission of any supplementary returns in the case of alteration of rates in the course of the year was made in the Act or the Rules: nor was any method provided for retrospective modification of an assessment once made. There were under the Act and the Rules two distinct and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of the assessment year before the alteration of the rate and after such alteration though prospective, must be deemed to have been made retrospectively in the previous year, and on a day which is removed from the commencement of the year of account by the number of days by which the date of alteration of rate is removed from the commencement of the year of assessment. But the adoption of the turnover of the previous year as the taxable turnover for the year of assessment is itself based on a fiction and in the absence of any express provision either in the Act or the Rules or even in the notification setting out machinery for such a division of the year, we are unable to hold that this scheme of a fictional division may be projected into the previous year to make an artificial division of the turnover for imprinting thereon the altered rate of assessment as from the date of the division. Counsel for the State of Uttar Pradesh submitted several hypothetical cases suggesting that by refusing to adopt this method of division of the previous year of assessment for the application of the altered rate, several anomalies may arise in working out the liability to tax. He submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view expressed by the 'majority', that the appeal preferred by the State/Department came to be dismissed. 22. A subsequent Constitution Bench, as per the decision in AIR 1966 SC 1385 (cited supra), was dealing with a case, which went up from this Court. The appellant Company was assessed to Agricultural Income tax under the Kerala Agricultural Income Tax Act 1950. Surcharge at the rate of 5% on the Agricultural Income Tax and Supertax were levied and collected for the year 1957 and 1958. The appeal preferred before the first appellate authority and before the Tribunal did not turn to be fruitful, which ended up in a Reference to the High Court, to decide the question of law framed by the Tribunal as to whether any surcharge could be levied as above, for the assessment year 1957-58. The contention of the appellant was that the Kerala Surcharge on Taxes Act had come into force only on 01.09.1987 and it had no retrospective operation. The tax liability was to be fixed only with reference to the position as it existed on 01.04.1957, i.e., the date of commencement of the assessment year, in conformity with the provisions of the Income Tax Act, by virtue of which, the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to have been received during that year. It was accordingly held that the compensation (to the extent mentioned in the proviso) received only in the accounting year was by fiction treated as profit and therefore there was no scope for holding that the expression received meant receivable , in turn declaring that the amount received in the accounting year could not be assessed during the assessment year. 25. In support of the contention of the appellant/assessee that the Finance Act is only to prescribe the rate and it cannot bring in any substantive assessment with regard to the statutory provision, reliance is sought to be placed on (1966 KLT 1202 (SC) : AIR 1966 SC 1370 : 1966 KHC 616) [cited supra]. Correctness of 'three' questions referred to the High Court of Calcutta under S. 27 of the Wealth Tax Act was the subject matter of consideration. The three questions referred were the following: (1) Whether, on the facts and in the circumstances of the case, the Wealth Tax Officer was justified in taking the value of the assets of the assessee as shown in its balance-sheet on the relevant valuation date. (2) Whether, on the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the relevant provisions of law, the Division Bench of this Court had held that the assessees were liable to be taxed for the assessment year 1987-88 on the basis of the rates specified in Schedule I as on 01.04.1987 and as such, the liability to pay the tax had got crystallised on that date as mentioned in S. 3(2) of the Act, by virtue of which the amendment of the Schedule could be given effect to only from the next year onwards. It was in the said circumstance, that the Apex Court observed that in (1966 KLT 1202 (SC) : AIR 1966 SC 1370 : 1966 KHC 616) (cited supra) that the chargeability was independent of passing of the Finance Act and further that the Finance Act had to be read in consonance with the provisions of the charging section; besides holding that the State can always revise the rates in the middle of the financial year; provided the assessable extent of the lands comprised in the plantation as on 1st of April of each year was not altered. Reference was also made to AIR 1966 SC 1385 (cited supra), holding that imposition of different tariffs in the course of the year could be altered by the Legislature, provided the Legislature had devised the 'machinery&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 3640 (cited supra), it was a case involving validity of S. 7 (compounding provision) under the KGST Act 1963 in relation to 'works contract'. The Apex Court observed that the said provision is applicable only to the contractor who elects to be governed by it and that there is no compulsion. Validity of subsections 7, 7A, 7B of S. 7 and Rule 22 A and 30A of the KGST Act/Rules was challenged in a batch of Writ Petitions filed before this Court by several builders/contractors. A learned Judge of this Court dismissed the Writ Petitions, but on appeal, the Division Bench struck down the aforesaid provisions on the ground that they were violative of Clause (29A) of Article 366 of the Constitution, which was taken up in appeal before the Apex Court by the State. The change in stand taken by the assessee, pointing out that they were not pressing the challenge against the validity of the above provisions before the Apex Court was noted, but it was observed that since the provisions were struck down by the High Court, the correctness thereof was to be examined. After referring to the relevant provisions of law and also the verdicts passed by the Apex Court on earlier occasions, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act and whether the wordings therein are adequate enough to have the decision rendered by the learned Single Judge sustained. Or else, is there any element of confusion making the provision unworkable, necessitating to have something else supplied into the above provision. So also it is to be considered whether the words appearing as whichever is higher under S. 7(b) have to be confined to the said provision or whether it is in relation to have a comparative exercise between the amounts workable under S. 7(a) and separately under S. 7(b), to take out the 'higher one' to be reckoned as the compounded tax payable for the year in question. 32. At the very outset it is to be noted that the earlier provision (prior to amendment brought about w.e.f., 01.07.2006) contained two separate rates mentioned for the different areas (in the Municipal/Corporation Area/Cantonment area) under S. 7(a) with 140% tax and a lesser extent of 135% in respect of other areas as mentioned under S. 7(b). By virtue of the amendment, the above two different rates for different areas were put together without any change and bringing it as S. 7(a), while another provision was introduced as S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction of tax by way of alternate method, i.e., by compounding. Even if the dealer/assessee seeks to satisfy the tax under the compounding system, he is bound to maintain the accounts and file proper returns on time, also satisfying the tax as worked out in terms of the relevant provisions under the Act and supported by the rules prescribed. 35. As mentioned already, the compounding application has to be submitted in Form No. 21; on receipt of which, the procedure as contemplated under Rule 30(2) has to be pursued. Rule 30(2)(iii) reads as follows: 30. Payment of tax at compounded rates:- Every dealer eligible to pay turnover tax at compounded rate under S. 7, who desires to exercise the option provided for under the said section may apply to the assessing authority concerned for permission to pay turnover tax at the rates specified therein in Form No. 21 or or before the 30th day of April of the year to which the option relates or along with the application for registration under the Act, whichever is later; xx xx xx (2)(i)xx xx (ii) xx xx (iii) The dealer to whom permission is granted under sub-rule (2) shall submit along with the monthly return in For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three consecutive years, but something else, which has to be dealt with more meticulously. It is in this context that the expression used- 'the highest turnover in the very same provision requires consideration. Even going by the grammatical peculiarities and interpretations, 'super relative degree' is used in the first limb of the provision, qualifying the same with the word the . In English language, 'comparative degree' is used only to compare between two instances, whereas super relative degree is to be used when there are more instances than two. For the very same reason, usage of the expression 'the highest Turn Over Tax payable' as conceded by the assessees in the return or the accounts or the turnover tax paid, definitely refers to more than two instances and as such it, evidently, is in respect of the three previous consecutive years, i.e., the amount which is the highest in respect of three different consecutive years has to be reckoned for working out the quantum of 115%. The expression 'whichever is higher'\s only an instance using 'comparative degree'. It cannot be with reference to the three different instances of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
