HOTEL ZODIAC Vs. STATE OF KERALA

JUDGEMENT

(1.) Revision Petitioner is a bar attached hotel engaged in retail sale of liquor in the bar hotel. During the assessment year 2007-2008 petitioner applied for payment of tax at compounded rate under S.7 of the KGST Act before the 1st May of the year. Since no orders were passed on application filed in Form 21, petitioner started filing monthly returns and went on remitting tax based on the returns so filed. However, the Assessing Officer issued orders on Form 21 application filed by the petitioner only vide AnnexureA order dated 15/10/2007. The said order along with demand notice in Form No. 22 was served on the petitioner on 02/11/2007. After service of the said proceedings and demand notice, the petitioner wrote a letter to the Assessing Officer on 12/11/2007 stating among other things that in the changed circumstances petitioner will not be able to pay the tax at compounded rate as demanded by the Assessing Officer. In the said letter produced as AnnexureC, the petitioner has offered to pay turnover tax at compounded rate at 135% of the purchase value of Indian made foreign liquor. The Assessing Officer who obviously does not have the power to vary the scheme of compounding, has not accepted petitioner's request for variation of the demand of tax from compounding scheme. The petitioner thereafter filed an appeal against AnnexureA proceedings before the appellate authority who dismissed the same and the same is confirmed in second appeal by the Tribunal. It is against this order of the Tribunal the petitioner has filed this revision case. We have heard Senior counsel Dr. K. B. Mohamed Kutty appearing for the petitioner and Government Pleader appearing for the respondent.

(2.) The main question raised in the revision is whether the belated order issued by the Assessing Officer on 15/10/2007 produced as AnnexureA is beyond his jurisdiction and against the scheme of compounding provided under S.7 of the Act. Senior counsel appearing for the petitioner contended that order on compounding application filed in Form 21 along with demand notice in Form 22 should be served on the assessee before the due date for filing return for the first month of the year i.e. 10th May, 2007. His further contention is that since no orders on compounding application was received, the assessee went on filing regular monthly returns and paid the turnover tax due thereof along with monthly returns and therefore, regular assessment based on return should be completed. In other words, assessee is not bound by the compounding application filed by him in Form 21. Government Pleader on the other hand contended that there is no time limit for passing orders on compounding application filed and so long as petitioner's application for compounding was not withdrawn by him, the officer was bound to pass orders thereon and the order passed on 15/10/2007 is binding on the assessee. He further referred to AnnexureC issued by the assessee on 12/11/2007 and contended that assessee has never withdrawn the compounding application and he pressed for the compounding facility but with the deviation with regard to the tax payable, which the officer was not free to grant. Therefore, according to him, once an application for compounding is accepted, tax in accordance with the scheme of compounding under S.7 is recoverable and for default, interest and penalty were also levied on the assessee. Both sides have cited a recent Division Bench judgment of this Court in State of Kerala v. T. S. Kalyanaraman reported in 2009 (2) KHC 509 (DB) : 2009 (3) KLT SN 34 in which one of us is party, wherein this Court held that the failure to pass orders on compounding application before due date for filing of monthly return is not fatal to the application. Of course in the above case decided by this Court, assessee after filing compounding application continued to pay tax along with monthly return in accordance with the scheme of compounding, whereas in this case the assessee paid tax on the taxable turnover along with monthly return filed by them.Before proceeding to decide the issue, we notice that assessee has raised an objection before the lower authorities and before us that along with AnnexureA issued on 15/10/2007 the Assessing Officer did not issue notice of demand in Form No. 22 which is fatal to the proceeding itself. However, on going through the records produced in Court and after going through the assessee's reply filed after receipt of AnnexureA, we do not find any substance in this because assessee has endorsed receipt of notice which obviously is demand notice in Form 22 and besides this, another letter written after receipt of AnnexureA vide AnnexureC, assessee has not raised any objection about the failure of the officer to serve demand notice in Form 22. Therefore, this objection raised by the assessee to challenge the validity of the order is rejected as not maintainable.

(3.) As already stated, the main question to be considered is whether belated proceedings issued as AnnexureA on 15/10/2007 on the compounding application filed by the assessee is tenable or not. The learned Senior counsel appearing for the assessee contended that the scheme of payment of tax under compounding scheme and the requirement of filing of application in Form 21 before the Assessing Officer as provided under R.31 makes it clear that the Assessing Officer should complete the enquiry and pass orders on application for compounding before due date for filing first monthly return for the year i.e. before 10th May of the year, to enable the assessee to start filing monthly returns and for remitting tax in accordance with the compounding scheme as approved by the officer by issuing Form 22. The contention raised by the Government Pleader is that no time limit is specifically provided for issuing orders on Form 21 and according to him, belated passing of orders and issue of demand notice are contemplated in the form provided in Form 22 itself. We are in agreement with this proposition for many reasons. In the first place, proviso to R.30(1) provides for belated filing of application for compounding and the officer is bound to accept it, if the assessee produces good and sufficient reason for the delay in filing the application. There is nothing to indicate that no belated application could be filed beyond 10th of May of the year. If a belated application is entertainable for payment of tax under compounding scheme, then certainly we cannot assume that the Legislature intended an absolute timeframe for the officer to pass the order and along with it raise notice of demand before due date for filing first monthly return for the year i.e. on or before 10th of May. Further, it is clear from Form 22 itself that an assessee served with a demand notice in Form 22 demanding tax at compounded rate, should be provided 30 days' time for paying arrears of tax due until date of demand or till 15th of the next month following the month in which the order is issued. It is pertinent to note that the tax at compounded rate in terms of demand for the later months should be paid on or before 10th of the succeeding month along with monthly return. Form 22 obviously indicates that an assessee who has made an application for compounding can wait for payment of tax until orders are issued on his application for compounding and demand notice accompanying thereto is issued in Form 22. Going by proviso to R.30(1) providing for filing of belated application for compounding and going by the time granted for payment of tax based on orders on compounding application provided in Form 22, it is clear that the Legislature expects filing of belated application for compounding and passing of orders on compounding application at any time during the relevant year.