KUNNEL ENGINEERS&CONTRACTORS PRIVATE LIMITED Vs. ASSISTANT COMMISSIONER

JUDGEMENT

(1.) The petitioner, a Private Limited Company, was a registered dealer under the Kerala Value Added Tax Act, 2003 ('the KVAT Act'). It is engaged in the execution of consultancy, design, civil construction and mechanical works. For the year 2014-15, the petitioner filed an annual return under the KVAT Act declaring a turnover of Rs.22,49,70,407.00 (Twenty-two crores forty-nine lakhs seventy thousand four hundred and seven only) and discharged value added tax at Rs.20,31,634.00 (Twenty lakhs thirty-one thousand six hundred and thirty-four only). While completing the audit in terms of the provisions contained in Sec. 42 of the KVAT Act it was noted that the petitioner was also liable to pay tax on the work in progress. The petitioner had declared and discharged tax only on the amounts that had been actually billed in the year 2014-15. According to the petitioner, in order to avoid any disputes, the petitioner sought permission to revise the quarterly returns for the quarter ending 31-03- 2015. On permission being granted, the petitioner revised the returns and paid differential tax amounting to Rs.41,52,843.00 (Forty-one lakh fifty-two thousand eight hundred and forty-three only) and interest of Rs.4,84,070.00 (Four lakh eighty-four thousand seventy only). The petitioner was thereafter served with Ext.P5 notice dtd. 20/4/2016 calling upon the petitioner to remit Rs.9,68,140.00 (Nine lakh sixtyeight thousand one hundred and forty) as 'settlement fees'. Though, in Ext.P5 the amount is stated as the amount towards 'settlement fees', it appears that the demand was on the basis of the provisions contained in Sec. 42 (2) of the KVAT Act, where the petitioner was required to pay twice the amount of interest as penal interest owing to an increase in the tax liability following the revision of return. This writ petition has been filed challenging the constitutional validity of the provisions of Sec. 42 (2) of the KVAT Act as also identical provisions in Sec. 21 (2) of the same enactment to the extent they provide for the levy of penal interest at twice the rate of interest, even in cases where the assessee himself comes forward and files a revised return on noticing mistakes in the returns already filed.

(2.) Sri. Jose Jacob, the learned counsel appearing for the petitioner submits that the provisions of Sec. 42 (2) apply in the case of an assessee who is subjected to an audit while the provisions of Sec. 21 (2) apply in the case of other assessees who are not required to be subjected to audit. It is submitted that both these provisions provide for levying penal interest at twice the rate of interest payable when the assessee comes forward and seeks permission to file a revised return after noting a defect in the returns already filed. He submits with reference to the provisions of Sec. 22 (2) of the KVAT Act that where any defect in the returns filed by an assessee is noted by the Department and the same is rejected, the assessee is permitted to file a revised return and then the assessee required only to pay tax and interest. In other words, it is the submission of the learned counsel that the provisions of Ss. 21 (2) and 42 (2) of the KVAT Act to the extent they call upon an assessee who comes forward on his own to file a revised return to pay penal interest at two times the amount of interest payable is arbitrary and unconstitutional. It is submitted that, in the facts of the present case, the petitioner discharged the tax liability and also paid interest of Rs.4,84,070.00 and that would have been the only liability of the petitioner, had the Department noticed the defect in the returns filed by the petitioner. It is pointed out that on account of the petitioner itself coming forward and filing a revised return, it is now mulcted with the liability to pay an additional amount of Rs.9,68,940.00 as penal interest in terms of the provisions contained in Sec. 42 (2) of the KVAT Act.

(3.) Smt. Thushara James, the learned Senior Government Pleader appearing for the respondents referred to the provisions of Sec. 21, 22, 31 and 42 of the KVAT Act and Rule 22 of the Kerala Value Added Tax Rules, 2005 (hereinafter referred to as 'the KVAT Rules ') to contend that there is absolutely no arbitrariness in the provisions of Sec. 22 (2) or in the similar provisions of Sec. 42 (2) of the KVAT Act. It is submitted that the provisions of Sec. 22 (5) of the KVAT Act indicate that where the assessee does not file a revised return after the return filed is rejected by the Department, the assessee is called upon to pay double the amount of interest as a penalty. It is submitted that when the legitimate tax due to the State has been denied to it on account of a mistake in the returns submitted by the assessee, the State was entitled to penalise the assessee by requiring the assessee to pay some amount as penal interest. It is submitted that such provisions contained in Sec. 22 (2) and Sec. 42 (2) of the KVAT Act cannot be said to be arbitrary or unconstitutional. The learned Senior Government Pleader also placed reliance on the judgment of a learned single Judge of this Court in Alwaye Sugar Agency (M/s) v. Assistant Commissioner (Assessment), Commercial Taxes Special Circle, Mattanchery and others; 2017 (5) KHC 638 and in particular to paragraph 6 thereof to contend that after noticing the provisions contained in Sec. 21, Sec. 22, Sec. 31 and Sec. 42 of the KVAT Act and also Rule 22 of the KVAT Rules, this Court found no arbitrariness in the provisions and only observed that assessees who come forward on their own to revise the returns must be rewarded for their honesty by permitting them to revise the returns after payment of tax and interest as provided for in the provisions of Ss. 21 (2) and 42 (2). The learned Government Pleader also submits that there is a clear distinction between the scheme of assessment under Sec. 42 and the scheme of self-assessment under Sec. 21 of the KVAT Act and both these cases therefore stand on a different pedestal.