IN THE HIGH COURT OF KERALA AT ERNAKULAM
ST.Rev..No. 79 of 2008()
1. STATE OF KERALA, REP. BY JOINT
... Petitioner
Vs
1. SRI.T.S.KALYANARAMAN, KALYAN JEWELLERS,
... Respondent
For Petitioner :GOVERNMENT PLEADER
For Respondent :SMT.S.K.DEVI
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice K.SURENDRA MOHAN
Dated :13/02/2009
O R D E R
C.R.
C.N.RAMACHANDRAN NAIR &
K.SURENDRA MOHAN, JJ.
....................................................................
S.T. Rev. No.79 of 2008
....................................................................
Dated this the 13th day of February, 2009.
JUDGMENT
Ramachandran Nair, J.
This is a revision filed by the State against the order of the
Tribunal rejecting an application for review filed by the Revenue under
Section 39(7) of the KGST Act to review an order in appeal issued by
the Tribunal. Respondent-assesee, a dealer in gold jewellery, filed an
application for payment of tax at compounded rate as provided under
Section 7(1)(a) of the KGST Act read with Rule 30(1) of the KGST
Rules for the assessment year 2000-2001. Even though application for
payment of tax at compounded rate was furnished in Form 21 on due
date, the Assessing Officer did not pass any orders or issued Form 21A
or demand in Form 22 as required under the provisions of the Act and
Rules. However, the respondent-assessee started remitting tax along
with monthly returns in terms of the compounding application filed by
him. The Assessing Officer did not raise any objection in the monthly
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returns filed by the respondent-assessee for the whole year whereunder
tax payment was strictly in terms of the compounding application and
the monthly tax paid for the 12 months was at a uniform rate of
Rs.61,344/- which was the tax payable at compounded rate as conceded
in the Form 21 application filed by the respondent-assessee. However,
when the assessment was taken up, the Assessing Officer noticed that
there was deficiency in payment of tax at compounded rate in as much
as the tax determined by the respondent-assessee for the year 1998-99
which also constitute the basis of payment of tax at compounded rate
for 2000-2001 was incorrect. At this stage, the assessee raised
objection to the pre-assessment notice issued contending that he does
not want an assessment at the compounded rate under Section 7(1)(a)
and the assessment should be completed on the taxable turnover
returned or to be determined by the Officer. The Assessing Officer,
however, completed the assessment in terms of the compounding
3
application under Section 7(1)(a) and issued assessment and demand
notice demanding differential tax at compounded rate with interest
thereon. The first appeal filed against the assessment was dismissed
by the Deputy Commissioner(Appeal) and in second appeal, the
Tribunal allowed the claim. However, State filed a review petition
stating that the Tribunal has not considered relevant facts particularly,
the follow-up action taken by the respondent-assessee by remittance of
tax at compounded rate. Even though Tribunal issued a detailed order
disclosing therein the additional new facts furnished by the department
which clearly establish that respondent-assessee acted upon the
compounding application filed by him by remitting the tax strictly in
terms of it, Tribunal dismissed the review application stating that the
same is not tenable. It is against this, the State has filed the revision
case. We have heard Government Pleader appearing for the petitioner
and counsel appearing for the assessee.
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2. During hearing of this revision, counsel for the respondent-
assesee pointed out that State has not filed separate revision against
original order of the Tribunal and so much so, merits of the case
cannot be considered by this court. However, Government Pleader
pointed out that the challenge against order in review application is
sufficient to redress the grievance of the State in as much as if this
court finds that review application was wrongly dismissed by the
Tribunal, then State will be entitled to relief against original order in
appeal. We are inclined to accept this contention because on going
through the impugned orders of the Tribunal disposing of the review
application, we find that new facts furnished by the department are
narrated by the Tribunal in the said order, whereas in the original order
in appeal they have not considered these facts which are crucial for
deciding the issue. In fact neither in the original order nor in the order
in the review application, the Tribunal has considered the effect of
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pendency of an application for compounding filed by the respondent-
assessee under Section 7(1)(a) read with Rule 30(1) of the KGST Rules
and the consequence of assessee acting upon the compounding
application that was pending by remitting tax along with monthly
returns strictly in terms of the pending application so filed and whether
the officer is entitled to pass orders accepting compounding along with
the assessment. These issues should have been considered by the
Tribunal because neither the Act nor the Rules prescribe the time limit
for the officer to pass order on compounding application filed by the
assessee. It is also seen that the proviso to Rule 30(1) entitles an
assessee to make a belated application in Form 21 for payment of tax at
compounded rate. We find that even after the department brought out
new facts before the Tribunal, it still did not choose to consider the
relevance of the same nor did it consider the effect of pendency of an
application filed in Form 21 which was not withdrawn by the
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respondent-assessee at any point of time, but continuously acted upon
the same by remitting tax for the all the year along with 12 monthly
returns filed strictly in terms of the compounding application originally
filed by him. It is a fact that the compounding application filed by the
assessee remained in force and the assessee acted upon the same by
remitting tax along with monthly returns strictly in terms of the
compounding application. At no point of time the Assessing Officer
rejected the compounding application and when assessment was take
up, he accepted the compounding application but made correction with
regard to the tax payable for the preceding year i.e. 1998-99, which
also constitutes the basis for payment of tax at compounded rate for
2000-2001. We notice that but for the correction that the Assessing
Officer made for the tax payable for the year 1998-99 which led to an
increase in the tax payable at compounded rate from the amount shown
by the assessee, the assessee would not have raised this objection.
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Even though there is no time limit prescribed for passing orders on
compounding application filed in Form 21, the right procedure for the
Assessing Officer was to pass an order and inform the assessee his
orders before due date for filing the first monthly return due for the
year. In other words, before 10th May of the relevant year, the assessee
is entitled to an order on the compounding application filed in Form 21.
However, so long as the application is not rejected, nothing bars the
assessee from proceeding to file monthly returns and remit tax at the
rate shown in the compounding application filed by him. It is seen
from the order of the Tribunal in the Review application that even
though assessee’s liability for payment of tax based on the taxable
turnover returned every month was much below the tax payable based
on the compounding application, assessee continued to remit tax for all
the 12 months at the uniform rate of Rs.61,344/- which is the tax
payable along with monthly returns in terms of the application for
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compounding furnished by the assessee in Form 21. The conduct of
the assessee obviously shows that the assessee insisted on the
Assessing Officer to accept the compounding application and the
Assessing Officer at no point of time acted against this request of the
assessee. It is clear from the order that application for compounding
was considered by the Assessing Officer while considering assessment
and after correcting the mistake with regard to tax payable for 1998-99,
the Assessing Officer in fact accepted the compounding application and
allowed the claim of the assessee. It is seen that assessee has not
withdrawn the application for compounding at any time and on the
other hand, assessee acted upon the said application and remitted the
tax for the whole year along with monthly returns strictly in terms of
the said application. We, therefore, hold that the assessee is not
entitled to back track and request the Assessing Officer to complete the
assessment based on the turnover returned by the assessee. It is to be
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noted that the offer to pay tax at compounded rate gives an immunity to
the assessee from inspection and other interference by the department
in the course of his business. Regular assessees who are not covered
by the scheme of payment of tax at compounded tax can be subject to
inspection at any time during the year and in cases where tax is
accepted based on application filed for compounding, the department
has no right to inspect or harass the assessees. After availing immunity
in these forms, the assessee cannot after the closure of the year go back
from the offer he made for payment of tax at compounded rate.
Therefore, we are of the view that the Tribunal thoroughly went wrong
in holding that the assessee is entitled to back out from his offer to pay
tax at compounded rate, which stands accepted by the officer while
passing the assessment order. Even though the normal procedure for
accepting offer of the assessee to pay tax at compounded rate is to
issue an order in Form 21A along with notice of demand in Form
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No.22, such procedure is an empty formality after the closure of the
assessment year when assessee has filed all the monthly returns and
even the final return. In cases where the application for compounding
is pending and monthly returns are accepted based on the same, the
Assessing Officer can consider acceptance of application for
compounding filed in Form 21 in the course of assessment itself. We,
therefore, find nothing irregular in the officer accepting the scheme of
payment of tax at compounded rate offered by the assessee in the
course of regular assessment. Therefore, the scope for appeal is only
limited to assessee’s challenge against modification of the tax payable
for earlier year namely, 1998-99. We also make it clear that since the
modification in the tax payable at compounded rate is made by the
officer only in the course of assessment, no interest could be demanded
from the assessee under Section 23(3) or Section 23(3A) of the KGST
Act for any period until default arises. In other words, interest should
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be payable on the differential amount for the default period i.e. for the
period after service of notice along with assessment order.
3. Even though in the normal course we should restore the matter
to the Tribunal after vacating the order in review, we do not think there
is any need for the same because in the course of considering the
revision against the order in review, we have considered the matter on
merits and decided all the issues arising from the order in appeal as
well which were also raised in the revision case filed by the State.
Further, when the review application was considered by the Tribunal
on merits, though rejected, there is merger of the appellate order in the
order in review and so much so, we allow the revision by vacating the
orders of the Tribunal both in the appeal as well as in the Review
Application by holding that the assessment at compounded rate is
perfectly justified. However, we direct the Assessing Officer to
reconsider the tax for the year 1998-99 which is one of the basis for
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determination of tax payable at compounded rate for 2000-2001 and
then rework interest by excluding liability for the differential amount
for the period noted above and issue a revised order to the assessee.
Fresh order should be passed after issuing a proposal to the respondent-
assessee, calling for their objection and only after hearing the
objections. If any issue survives with regard to determination of tax for
1998-99 for the purpose of payment of tax at compounded rate for
2000-2001, the assessee is free to file appeal.
C.N.RAMACHANDRAN NAIR
Judge
K.SURENDRA MOHAN
Judge
pms