KAIRALI JEWELERY Vs. ASSISTANT COMMISSIONER-III, SPECIAL CIRCLE

JUDGEMENT

(1.) The petitioner is a partnership business engaged in sale of gold and silver jewellery and registered as an assessee under the KVAT Act. It is not in dispute that since 2005-2006 the business has been paying tax on compounded basis in lieu of the regular method of paying tax under Section 6 of the KVAT Act. While so, in December 2012, the petitioner decided to open a new branch for their business. The issue then arose as regards the basis for payment of tax for the business carried on in the new branch. As per the provisions of Section 8(f), as it stood during the relevant time, an assessee who had opted to pay tax on compounded basis in respect of the principal place of business, had necessarily to pay tax on compounded basis in respect of all branches that existed in the year to which the option related. This meant that in the case of the petitioner, who was paying tax on compounded basis at the principal place of business, payment of tax in relation to the branch for the year 2012-2013 had also to be on compounded basis. The case of the petitioner, however, is that the new branch was opened only in December 2012 and therefore functioned as a business entity only for four months (December 2012 - March 2013) in the assessment year 2012-2013. He therefore contends that if the levy of tax under Section 8(f) of the KVAT Act is made applicable to his branch for that year, it can only be for the period during which the branch functioned as a business entity during the assessment year, and not for the whole year. The return filed by the petitioner for that year, in relation to the newly opened branch, was in connection with an assessment under Section 6(1) of the Act, and payment of tax in respect of the business done by the branch was also on that basis. While completing the assessment of the petitioner's business for the assessment year 2012-2013, however, the assessing authority found that the petitioner was obliged to pay tax on compounded basis even in respect of the newly opened branch, and further that the tax payable on compounded basis in respect of the newly opened branch had to be the same as what was paid in respect of the principal place of business for the said year. Accordingly, the compounded tax payable for the newly opened branch was fixed at Rs. 23,07,180/-, which is the same amount that was fixed as compounded tax for the principal place of business, and a demand notice was issued to the petitioner for the differential tax payable. The said assessment is impugned in this writ petition.

(2.) A statement has been filed on behalf of the respondents wherein reference is made to the provisions of Section (8)(f) of the KVAT Act and in particular, Explanation 3 and Explanation 5 thereof, which read as under:

(3.) It is contended that a reading of Section 8(f) of the Act and the Explanations thereunder would clearly reveal that the payment of tax on compounded basis is based on a formula that is enumerated in the Section. Consequently, when an assessee opts to pay tax on compounded basis, in lieu of the payment of tax on regular basis under Section 6 of the KVAT Act, then he has to pay tax strictly in accordance with the formula provided in Section 8(f). It is contended that when the statutory provision clearly indicates that the payment of tax by a newly opened branch has to be on compounded basis, in cases where the payment of tax in respect of the principal place of business is on compounded basis, then the assessee has to pay the same tax as is paid in respect of the principal place of business, in respect of the branch as well. The contention, in other words, is that where the payment of tax on compounded basis is pursuant to an option exercised by an assessee, then the assessee has to strictly comply with the statutory provisions with regard to payment of tax and cannot contend for an alternate formula for payment of tax in respect of the branches.