K V PAUL Vs. STATE OF KERALA

JUDGEMENT

(1.) Connected Revisions are filed against the orders of the Tribunal confirming assessments under the Kerala Value Added Tax Act, 2003 (hereinafter called the 'Act") for two assessment years, 2007-08 and 2008-09, and modifying penalty for the assessment year 2008-09. We have heard Advocate Sri. E.P. Govindan appearing for the petitioner and Government Pleader Sri. Mohammed Rafeeq, appearing for the State. Petitioner, a dealer in paints, hardwares, etc. was claiming the benefit of lower rate of tax at 0.5 per cent under Section 6(5) of the Act on the ground that its turnover for the year would be below Rs. 50 lakhs. The payment of tax under Section 6(5) continued by the petitioner for 2008-09 until the assessing officer issued notice on 3.11.2008 pointing out that petitioner is not eligible for payment of tax at 0.5 per cent of the turnover under Section 6(5) of the Act, because petitioner's turnover, even according to the petitioner's accounts, exceeded Rs. 50 lakhs on 1.1.2008 itself. In other words, petitioner ceased to be a dealer eligible for the benefit under Section 6(5) from 1.1.2008 onwards and as required under Rule 12(7) of the Kerala Value Added Tax Rules, hereinafter called the "Rules", petitioner ought to have, within 15 days therefrom, started paying tax at the rate provided under Section 6(1) of the Act. Petitioner not only did not start paying tax at the rate provided under Section 6(1) from 1.1.2008 onwards, that is even for part of the assessment year 2007-08, but continued to avail the benefit under Section 6(5) by tiling quarterly returns and paying tax even for the assessment year 2008-09, until the assessing officer issued notice proposing assessment and levy of penalty. It is only after receipt of notice, petitioner filed revised returns and remitted tax, that too after availing input tax credit, to which petitioner was not entitled. Therefore the assessing officer made assessments by disallowing input tax credit claimed and demanded differential tax and also levied penalty at three times the amount of tax sought to be evaded in the regular returns filed as provided under Section 22(7) of the Act. First Appeals filed against the assessments and penalty orders were dismissed, against which Second Appeals were filed before the Tribunal. Before the Tribunal, petitioner challenged the assessments with regard to disallowance of input tax credit. So far as penalty is concerned, petitioner contended that no penalty could be levied because accounts disclosed turnover, though petitioner did not file returns and remit tax at the appropriate rate. The Tribunal, however, rejected the petitioner's claim for input tax credit for the periods upto filing of revised returns, that is upto November, 2008, thereby first appellate authority's orders confirming the assessments were upheld. So far as penalty is concerned, the Tribunal substantially allowed the appeals by holding that penalty could not be levied under Section 22 (7) , but at the same time, the Tribunal sustained the penalty at equal the amount of tax under Section 67 of the Act, as against three times the tax levied towards penalty by the assessing officer under Section 22(7) of the Act. It is against these orders these revisions are filed by the petitioner-assessee.

(2.) The first question raised pertains to disallowance of input tax credit which is claimed by the petitioner for the period commencing from 1.1.2008 onwards because petitioner's annual turnover exceeded Rs. 5 lakhs disentitling the petitioner for the benefit of payment of tax at 0.5 per cent under Section 6(5) of the Act from 1.1.2008 onwards. While the case of the petitioner is that input tax credit is an entitlement of the dealer who starts paying tax under Section 6(1) of the Act, the contention raised by the Government Pleader is that so far as a dealer claiming benefit of payment of lower rate of tax at 0.5 per cent under Section 6(5) is concerned, the provisions in the Rules have to be strictly followed for change over to the scheme of payment of tax under Section 6(1) and input tax credit can be claimed strictly in accordance with Rules. Since the VAT Act is a recent legislation, High Court decisions are lacking on all these matters, and therefore we have to refer to statutory provisions.

(3.) Admittedly petitioner was remitting tax under Section 6(5) at the lower rate of 0.5 per cent of the turnover from the beginning of the financial year 2007-08 because as estimated by the petitioner, petitioner's annual turnover in the year would be below Rs. 50 lakhs. However, the question to be considered is as to how the petitioner should switch over from the scheme of payment of tax under Section 6 (5) to payment of tax under Section 6(1) on petitioner's turnover exceeding Rs. 50 lakhs in the course of a year. As on 31.12.2007, petitioner had crossed the turnover of Rs. 50 lakhs and trierefore from 1.1.2008 onwards petitioner ceased to be eligible to pay tax under Section 6(5) and under the statute petitioner should pay tax on various goods sold by it at the appropriate rate as provided under various Schedules and notifications to the Act, subject of course to the petitioner's entitlement for input tax credit. Even though the Act does not specifically provide the procedure for switching over from payment of tax under Section 6(5) to Section 6(1) , on the dealer exceeding turnover of Rs. 50 lakhs, in the course of a year, Rule 12 (7) and (8) provide the procedure to be followed by a dealer and the assessing officer for such switching over. For easy reference Rule 12(7) and (8) is extracted hereunder: