Wp(C)/18043/2010 Of M/S.baniyas Granite Industries v. Agricultural Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE A.K.JAYASANKARAN NAMBIAR MONDAY, THE 27TH DAY OF OCTOBER 2014/5TH KARTHIKA, 1936 WP(C).No.18043 of 2010 (E) ------------------------------------- PETITIONER: ------------------- M/S.BANIYAS GRANITE INDUSTRIES,THANIYAPPAN KUNNU,KADAMPUZHA, MALAPPURAM DISTRICT,REPRESENTED BY ITS MANAGING PARTNER,K.C.KAMMUKUTTY. BY ADVS.SRI.N.MURALEEDHARAN NAIR SRI.T.G.ABHILASH RESPONDENTS: ------------------------ 1. AGRICULTURAL INCOME TAX & COMMERCIAL TAX OFFICER, KOTTAKKAL,MALAPPURAM DISTRICT. 2. STATE OF KERALA,REPRESENTED BYSECRETARY TO GOVT.,TAXES DEPARTMENT, SECRETARIAT,THIRUVANANTHAPURAM. 3. INSPECTING ASSISTANT COMMISSIONER,DEPARTMENT OF COMMERCIAL TAXES,MALAPPURAM AT MANJERI. BY GOVT. PLEADER SMT.LILLY K.T. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 27-10-2014, ALONG WITH WP(C).18028/2010 AND WP(C) 18492/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P(C)NO.18043/2010 APPENDIX PETITIONERS EXHIBITS: EXT.P1:TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2009-10 DATED 8.7.2009. EXT.P2:TRUE COPY OF THE REVISED ORDER FOR THE YEAR 09-10 ISSUED BY 1ST RESPONDENT DATED 30.09.2009. EXT.P3:TRUE COPY OF THE APPLICATION GIVEN BY THE PETITIONER TO THE 1ST RESPONDENT DATED 13.11.2009. EXT.P4:TRUE COPY OF THE DEMAND NOTICE ISSUED BY 3RD RESPONDENT FOR THE YEAR 2009-10. RESPONDENTS EXHIBITS: NIL //TRUE COPY// P.S. TO JUDGE A.K.JAYASANKARAN NAMBIAR, J. ------------------------------------ W.P.(C).Nos.18028, 18043 & 18492 of 2010--------------------------------------------------- Dated this the 27[th] day of October 2014 J U D G M E N T The issues involved in these three writ petitions beingsimilar, they are taken up together for consideration anddisposed by this common judgment. The petitioners in thewrit petitions, who are conducting business in Granite Metals,are assessees under the Kerala Value Added Tax Act(hereinafter referred to as “the KVAT Act”). As per theprovisions of Section 8(b) of the KVAT Act, any dealerproducing granite metals with the aid of mechanized crushingmachines may, at his option, instead of paying tax as per theregular mode of assessment under the KVAT Act, pay tax atthe compounded rate envisaged under that Section. Thecompounding provision, as it stood in the Assessment Year2008-09, reads as follows: 8. Payment of tax at compounded rates:-Notwithstanding anything contained in Section 6,- (a) ................................... (b) Any dealer producing granite metals withthe aid of mechanized crushing machine may, at hisoption, instead of paying tax in accordance with theprovisions of the said sections, pay tax at thefollowing rates, namely:-[(i) for each crushing machine of size notexceeding 30.48 cm x 22.86 cm = Rs.50,000 perannum; (ii) for the each crushing machine of sizeexceeding 30.48 cm x 22.86 cm but not exceeding 40.64 cm and 25.40 cm = Rs.1,60,000 per annum;(iii) for the each crushing machine of sizeexceeding 40.64 cm x 25.40 cm = Rs.3,20,000 perannum;](iv) for each cone crusher Rs.7,50,000 perannum: Provided that in the case of dealers, who opted topay compounded tax under this clause, no separateassessment shall be made in respect of m-sandproduced by them.] [Explanation:- For the purposes of thisclause, primary crusher shall also be reckoned forthe purpose of computation of the quantum ofcompounded tax and the rate applicable for primarycrusher shall be fifty per cent of the rates mentionedin items (i), (ii) and (iii) above.]” (ii) for the each crushing machine of sizeexceeding 30.48 cm x 22.86 cm but not exceeding 40.64 cm and 25.40 cm = Rs.1,60,000 per annum;(iii) for the each crushing machine of sizeexceeding 40.64 cm x 25.40 cm = Rs.3,20,000 perannum;](iv) for each cone crusher Rs.7,50,000 perannum: Provided that in the case of dealers, who opted topay compounded tax under this clause, no separateassessment shall be made in respect of m-sandproduced by them.] [Explanation:- For the purposes of thisclause, primary crusher shall also be reckoned forthe purpose of computation of the quantum ofcompounded tax and the rate applicable for primarycrusher shall be fifty per cent of the rates mentionedin items (i), (ii) and (iii) above.]” By the Finance Bill 2009, the said provision was amended byinserting the following proviso, after the existing provisounder Section 8(b)(iv), as follows: “Provided further that dealers with a single crusherother than cone crusher shall pay rupees twenty-fivethousand only per annum as tax under this clause.” This amendment through the Kerala Finance Bill 2009, wasmade effective from 1[st] April 2009 and the collection of tax onthe basis of the said provisions was authorised through adeclaration made in terms of the Kerala Provisional Collectionof Revenues Act, 1985. Thereafter, when the Kerala FinanceAct 2009 came into force, the proviso was amended to read asfollows: “Provided further that notwithstandinganything contained in this clause, dealers with asingle crushing machine of size not exceeding30.48 cm x 22.86 cm. shall pay rupees twenty fivethousand only per annum as tax under thisclause.” Explanation- For the purpose of this clause,primary crushers shall also be reckoned for thepurpose of computation of compounded tax, andthe rate applicable to primary crushers shall be atfifty per cent of the aggregate of the tax payableon secondary crushers. The petitioners in the above writ petitions opted for payment of tax at the compounded rate, as envisaged inSection 8(b) of the KVAT Act, under the belief that the rateapplicable to them, insofar as they owned only a singlecrushing machine, would be only an amount of Rs.25,000/-,which was the figure indicated in the proviso to Section 8(b)(iv) of the KVAT Act at the time when they were called upon toexercise their option. The applications preferred by thepetitioners, opting to pay tax at compounded rate, were onthis assumption regarding the amount to be paid. In the caseof the petitioner in W.P.(C).No.18043/2010, Ext.P1 is thepermission dated 08.07.2009, given to the petitioner by thefirst respondent, to pay tax at the compounded rate for anamount of Rs.25,000/- as envisaged in the proviso as it thenstood. It is seen from Ext.P1 permission that the application of the petitioner, that was considered by the first respondent,was the one dated 29.04.2009. In the case of the petitionersin W.P.(C).Nos.18028/2010 and 18492/2010, although theyhad also submitted their applications for payment of tax atcompounded rates, on 30.04.2009 and 05.05.2009respectively, based on the proviso to Section 8(b)(iv) thatcontemplated a payment of Rs.25,000/- as the tax amount tobe paid, the orders permitting them to pay compounded taxwere passed only on 03.11.2009 and 30.11.2009 respectively.Thus, in the last mentioned two writ petitions, while theapplications for permission to pay tax at compounded ratewere filed at a point in time when the proviso envisaged thepayment of tax of Rs.25,000/- for units having a singlecrushing machine, the formal orders permitting thepetitioners to pay tax at compounded rate were passed only inNovember 2009, by which time, the Kerala Finance Act, 2009had come into force, altering the very basis on which theapplication for compounding had been preferred by thepetitioners. As already noted, by virtue of the Kerala FinanceAct 2009, the units having a single crushing machine of a sizeexceeding 30.48 cms. x 22.86 cms. were required to pay anamount of Rs.1,50,000/- as compounding fee. It is relevant to note that, during the interim period between the date of filingof their applications for permission to pay tax at compoundedrate and the date of the orders permitting them to pay tax atcompounded rates, the petitioners had started remitting thetax at the rate of Rs.25,000/-, that was envisaged in theproviso to Section 8(b)(iv) pursuant to the Kerala Finance Bill,2009, but before the amendment brought about by the KeralaFinance Act, 2009. 3.The issue that arises in the writ petitions is whetherpursuant to the enactment of Kerala Finance Act, 2009, whichhad the effect of amending the proviso with effect from01.04.2009, to make the tax payable at compounded rate inrespect of crushing machines of size exceeding 30.48 cms. x22.86 cms., Rs.1,50,000/-, the respondent assessingauthorities were justified in either rectifying the earlier ordersgranting permission to the assessee to pay tax at the reducedrate of Rs.25,000/- or passing orders granting permission tothe assessee to pay tax at compounded rates at the enhancedrate of Rs.1,50,000/-, taking note of the amendment broughtabout by the Kerala Finance Act, 2009. It is the case of thepetitioners that, insofar as the applications for permission topay tax at compounded rates were preferred taking into account the provisions of Section 8(b)(iv) as it stood pursuantto the Kerala Finance Bill 2009, but before the Kerala FinanceAct of 2009, it was not open to the respondents to change thevery basis on which the option was exercised and compel themto opt for payment of tax at compounded rates taking intoaccount the higher amount brought in by the Kerala FinanceAct, 2009. 4.A Counter affidavit has been filed on behalf of therespondents wherein, the stand taken is that the petitionershaving exercised their option to pay tax at compounded rate, itwas not open to them to resile from the said option and chooseto pay tax at regular rates on finding that the rate of tax hasbeen enhanced. It is pointed out, by referring to the variousdecisions of this Court, that a compounding option onceexercised is binding on the assessee as well as theGovernment and neither are allowed to resile from the same.It is also contended that, merely because the Kerala FinanceAct 2009 had the effect of changing the rate of tax that had tobe paid in terms of the compounded provisions, the assesseewho had opted for the compounding scheme could not resiletherefrom by citing the enhancement of rate of tax. 5.I have heard Sri.Muralidharan Nair and W.P.(C). Nos. 18028, 18043 & 18492 of 2010 7 5.I have heard Sri.Muralidharan Nair and W.P.(C). Nos. 18028, 18043 & 18492 of 2010 7 Sri.Sathyanatha Menon, the learned counsel appearing onbehalf of the petitioners in the writ petitions andSmt.Lilly.K.T., the learned Government Pleader appearing onbehalf of the respondents in all the writ petitions. 6.On a consideration of the facts and circumstancesof the case as also the submissions made across the Bar, I findthat the petitioners in these writ petitions are persons whoexercised the option in accordance with the provisions ofSection 8(b) of the KVAT Act for payment of tax atcompounded rates. Towards that end, they had preferredapplications seeking permission from the assessing authoritiesfor payment of tax at compounded rates. Under normalcircumstances, the assessing authorities are expected to acton the application and issue prompt orders, either permittingthe assessee to pay tax at compounded rates or refusing suchpermissions. The urgency, in the matter of acting on anapplication preferred by the assessee, is on account of the factthat an assessee has to know, before the regular date ofpayment of tax envisaged under the KVAT Act, as to whetherhe is obliged to pay tax on regular basis in accordance withthe provisions of the KVAT Act or on compounded basis interms of Section 8(b) of the KVAT Act. Unless he knows the fate of his application, he will not be in a position to file areturn and pay tax, in the manner contemplated under theKVAT Act. Thus, under normal circumstances, the assessingauthorities, before whom applications for permission to paytax at compounded rates are pending, pass orders on the saidapplications immediately or at any rate before the assessee iscalled upon to pay tax on regular basis in terms of the KVATAct. In the instant writ petition, it is seen that while in W.P.(C).No.18043/2010, the application for permission to pay taxat compounded rates was acted upon expeditiously and theorder permitting the assessee to pay tax at compounded ratepassed within a couple of weeks, in the other two writpetitions, the orders permitting the petitioners to pay tax atcompounded rates was passed only after a gap of almost sixmonths. The delay on the part of the assessing officer in thelast mentioned cases assumes significance because, by thetime the assessing officer passed orders permitting theassessee to pay tax at compounded rates, there had been anamendment to the provision prescribing the amount to be paidas compounded tax by enhancing the same from Rs.25,000/- toRs.1,50,000/-. While under normal circumstances, a change inthe rate of tax payable, consequent to an amendment that was effected midway during an assessment year, will not alter theliability of the assessee to pay tax at the amended rates, theamendment does have an impact in the instant case because itchanges the very basis of the understanding of the assesseewhile opting for a payment of tax at compounded rates. Inthese writ petitions, it is seen that the basis on which theassessees acted, while exercising their option, was theassumption that the tax payable at compounded rates wouldonly be an amount of Rs.25,000/-. That understanding waschanged and, by virtue of the amendment brought in by theKerala Finance Act, 2009 with retrospective effect from01.4.2009, the assessee was called upon to pay an amount ofRs.1,50,000/- in lieu of Rs.25,000/- The learned GovernmentPleader would place reliance on the decisions of this Court inSasi V.V v. Commercial Tax Officer-III, Department ofCommercial Taxes, Aluva (2010 (1) KHC 636)as affirmedin the judgment dated 19.02.2010 in W.A.No.284/2010,wherein, this Court found that, where a compoundingapplication had been permitted on the basis of the rate of taxprovided in the Kerala Finance Bill, 2009 and the said rate oftax was enhanced by the Kerala Finance Act, 2009, which wasenacted subsequently, it could not be said that there was an enhancement of tax prejudicial to the interest of the assesseesince, the permitted rate of compounded tax had not existed inthe statute book at any point of time. It was held that thepayment of tax by the assessee on the basis of the provisionsof the Kerala Finance Bill, 2009 could only be viewed as oneeffected under mistake of law and hence, the enhanced taxconsequent to the enactment of the Finance Act could bevalidly collected from the assessee. In this connection, I haveto note that the said decision does not consider the issue as tothe effect of the enhancement, brought about by the KeralaFinance Act, 2009, on the exercise of option by the assessee.No doubt, in a case where the assessee continues to opt forthe facility of payment of tax at compounded rate, it may notbe open to him to contend that he should be permitted to payonly the tax at the lower rate and not at the enhanced rateintroduced through the Kerala Finance Act, 2009. Theposition would be slightly different, however, in the case of anassessee, who does not wish to pursue the option exercised byhim for payment of tax at compounded rate. The latter wouldbe a case where the assessee is essentially contending that thevery basis, that informed his choice of opting for payment oftax at compounded rate, was removed through the enhanced rate that was introduced through the Kerala Finance Act,2009. In my view, where the choice of an assessee, as to themanner of payment of tax, is based on a particular provisionof law as it stood at the time of the exercise of his option, andthat basis is thereafter changed, the assessee must necessarilybe given an opportunity to reconsider his option for thepurposes of payment of tax in terms of the KVAT Act. In theinstant cases, the orders passed by the assessing authoritieshave the effect of forcing upon the assessee, an option that henever contemplated, and in that sense, it affects the veryunderstanding between the assessee and the department withregard to the payment of tax on compounded basis. Theorders impugned in these writ petitions viz., Ext.P4 in W.P.(C).No.18028/2010, Exts.P2 and P4 in W.P.(C).No.18043/2010 andExts.P1 and P3 in W.P.(C).No.18492/2010 are hence quashed.As the petitioners in all the writ petitions have clearlyexpressed that they do not wish to opt for payment of tax atthe revised compounded rates for the assessment year inquestion, the respondent assessing authorities in all thesecases shall proceed to complete the assessment on thepetitioners, for the assessment years in question, as per theregular provisions of the KVAT Act and not in accordance with the provisions of Section 8 of the said Act. The assessmentorder with regard to each of the petitioners, for theassessment years in question, shall be passed by therespective Assessing Authorities within a period of threemonths from the date of receipt of a copy of this judgment,after affording the petitioners an opportunity of being heard inthe matter. The writ petitions are disposed as above. lsn Sd/-A.K.JAYASANKARAN NAMBIAR JUDGE