STATE OF KERALA Vs. DESIRE DIAMOND JEWELLERY

JUDGEMENT

(1.) The revision is filed against the order of the Tribunal declining to entertain appeal filed by the Department against first appellate authority's order setting aside assessment and remanding the matter for reconsideration. We have heard Government Pleader for the petitioner and advocate Sri. R. Muralidharan appearing for the respondent-assessee. The facts leading to the controversy are the following : The respondent is a dealer in gold jewellery, which applied for payment of tax at compounded rate for the year 2007-2008 as provided under section 8(f) of the Kerala Value Added Tax Act. After submission of the application on due date in terms of rule 11(1), the respondent started paying tax at compounded rate. However, instead of paying tax at 200 percent of the highest tax paid for the turnover conceded in any of the three preceding years, the respondent offered to pay tax only at 150 percent of the highest tax paid for the three preceding years. This is because the respondent made application without taking into account the amendment made to section 8(f). When the assessment was made on January 4, 2008, the assessing officer accepted the compounding application, but applied rate of tax in terms of the statute. It is seen from the assessment order that the assessing officer considered tax payment for the immediate three preceding years in terms of section 8(f) of the Act and it was noticed that among the three assessment years 2004-05, 2005-06 and 2006-07, the highest tax paid by the assessee was for the year 2006-07 which is Rs. 2,36,797. The amount of tax found due as payable under the compounding scheme was, therefore, fixed at double this amount. When this assessment was challenged by the respondent before the first appellate authority, the first appellate authority set aside and remanded the assessment for giving opportunity to the assessee. Since the assessment was made in terms of compounding application made by the assessee, the Department challenged the first appellate authority's order stating that the respondent has no right of appeal. However, the Tribunal declined to interfere with the first appellate authority's order against which revision is filed.

(2.) Before us the Government Pleader has relied on the Division Bench decision of this court in State of Kerala v. T.S. Kalyanaraman,2009 26 VST 661, wherein this court held that the assessee has no right to backtrack from agreement for payment of tax at compounded rate. According to the Government Pleader, following this decision revision has to be allowed by vacating the orders of the two lower authorities and by sustaining the assessment which is based on request of the assessee accepted by the assessing officer. Before us counsel for the respondent contended that the decision rendered in the context of the KGST assessment is not applicable in the KVAT assessment because rule 11(2) of the Kerala Value Added Tax Rules provides for acceptance or rejection of compounding application. This is a case where the assessee offered to pay tax at compounded rate only at 150 percent of the previous year's tax and not at 200 percent as assessed by the officer. So much so, according to the assessee, the application should have been rejected. However, the Government Pleader submitted that a compounding application is only an application filed for payment of tax at compounded rate in accordance with the statute and not at rate prescribed by the party because the Act does not visualise any such compounding on party's own terms. We are in complete agreement with this argument because compounding is possible only in accordance with the statute which provides for payment of increased tax at the rate provided in the section. It is seen from the assessment order that the assessee has also achieved turnover progressively from 2004-05 to 2006-07 and so much so, the compounding application when made by the assessee should be taken as an application made under section 8(f) which provides for payment of tax at 200 percent of the highest tax paid in the three preceding years. The assessment is made strictly in accordance with the compounding application but with the correct percentage of increase under the statute. The only deviation is the increase from 150 percent to 200 percent, which in our view, is only a mistake committed by the assessee as a result of failure to take note of amendment to statute. We could have permitted regular assessment on turnover of the assessee, if the assessee did not follow up compounding application and paid tax every month based on the turnover declared. However, the assessee has been paying tax only at compounded rate which cannot be anything other than the tax payable under section 8(f) of the Act. We do not think the assessee can now revert back for turnover based assessment because returns filed every month were not accompanied by payment of tax on the taxable turnover but tax payment was under the compounding scheme, though by mistake at 150 percent of previous years' tax as against correct rate of 200 percent. We do not find any justification for the Tribunal or the first appellate authority to interfere with the assessment which is made based on application filed by the assessee but by adopting the correct percentage of tax payable under the compounding scheme under the amended provisions of section 8(f) applicable for the year 2007-2008. We, therefore, allow the revision case by setting aside the orders of the Tribunal and that of the first appellate authority and restore the assessment. However, we feel the officer will not be justified in demanding interest because no orders were passed on compounding application within a reasonable period and monthly returns filed were accepted without verifying the correctness of it. Further, the assessments stood cancelled by virtue of first appellate authority's order. So much so, there will be direction to the assessing officer not to recover any interest from the assessee for any period, if arrears of tax are paid within two weeks from the date of receipt of copy of this judgment.