Judgment
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH WEDNESDAY, THE 29TH DAY OF NOVEMBER 2023 / 8TH AGRAHAYANA, 1945 WP(C) NO. 13264 OF 2023 PETITIONER:
MS. HOTEL SAYOOJ, THRISSUR ROAD, NEAR SUKAPURAM HOSPITAL, SUKAPURAM, EDAPPAL, PIN – 679576, REP. BY MANAGING PARTNER LONAPPAN C. A.
BY ADVS.
SRI. RAGHUNATHAN SRI. PREMJIT NAGENDRAN SMT. M. SHYLAJA SRI. RISHAL K.
RESPONDENTS:
1 DEPUTY COMMISSIONER OF STATE TAX, SPECIAL CIRCLE, STATE GST DEPARTMENT, CIVIL STATION, MALAPPURAM, PIN – 676505.
2 DEPUTY COMMISSIONER, TAX PAYER SERVICE DIVISION ,STATE GST DEPARTMENT, MINI CIVIL STATION,TIRUR, PIN – 676101.
BY ADV.
SMT. RESHMITA RAMACHANDRAN – GP THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 29.11.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
WP(C) NO. 13264 OF 2023 2 DINESH KUMAR SINGH, J.
-------------------------- W.P.(C) No.13264 of 2023 ------------------------- Dated this the 29th day of November, 2023 JUDGMENT 1.
The petitioner is registered under the provisions of Kerala General Sales Tax Act and runs a Three Star Bar Attached Hotel at Edappal. The petitioner filed an application for remitting the compounded Turn Over Tax (TOT) for the financial year 2021-22 on 29.04.2021 under Section 7 of the KGST Act.
2.
As no decision was taken on the said application, the petitioner filed monthly return for April, 2021 to March, 2022 in Form – 10DA as prescribed under Rule 22 (1) of the Value Added Tax Rules. The requirements in the said Form are filed in respect of the compounding of tax under Section 7 of the KGST Act. The Authority, however, vide the impugned order dated 04.01.2023 allowed the said application filed by the petitioner for permitting him to compound the TOT liability for the financial year 2021-22. The petitioner has been directed vide the Exhibit P-2 order to pay the differential amount of tax paid by him and has approved vide Exhibit P-1 order under the compounding scheme as Rs. 31,33,609/- along with interest
WP(C) NO. 13264 OF 2023 3 @ 1% per month.
3.
The petitioner has challenged the order on compounding application dated 04.01.2023 in Exhibit P-1 and thereafter, the assessment order passed in Exhibit P-2 dated 15.03.2023 by the Deputy Commissioner, Tirur. The learned Counsel for the petitioner submits that when the petitioner’s application was not allowed or rejected, the returns filed by the petitioner within time should be treated as returns filed under the normal procedure and not under the compounding provisions. In absence of the order on the application though the petitioner has filed returns in the Form prescribed under the compounding scheme under the compounding provision but, the same should be treated as normal returns and not the compounding returns. It is therefore, submits that the assessment order in Exhibit P-2 treating the petitioner’s return under the compounding scheme is unsustainable and liable to be set aside.
4.
On the other hand, Ms. Reshmita Ramachandran, learned Government Pleader submits that the Section 7(1) (a) provides for filing the return for whole year along with monthly returns when the application for compounding is pending. There is no time limit prescribed under the provision for deciding the application. The
WP(C) NO. 13264 OF 2023 4 petitioner does not withdraw the application or it is not rejected after giving opportunity of hearing, it should be treated as the application has been granted for paying the Turn Over Tax at compounded rate and in fact, the petitioner acted upon the said application by filing his returns in Form 10-DA as mentioned above.
The petitioner cannot go back or deviate from his stand of filing the returns under the compounding provisions once he finds that he has to pay a little more tax under the compounding scheme inasmuch as the rate of tax was reduced for some period during Covid.
5.
The learned Government Pleader has placed reliance on the Judgment of this Court in the case of State of Kerala v. Kalyanaraman [2009 (3) KLT SN 31. considering the provisions of Section 7(1) (a) read with Rule 10 (1) of the Kerala GST Rules, the Division Bench of this Court in paragraph 2 of the aforesaid Judgment has held that when the assessee has not withdrawn the application for compounding at any time and on the other hand, the assessee has acted upon the said application and remitted the tax for the whole year along with monthly returns strictly in terms of the compounding application, the assessee is not entitled to back track and request the Assessing Officer to complete the assessment based on the turnover
WP(C) NO. 13264 OF 2023 5 returned by the assessee. Paragraph 2 of the aforesaid Judgment on reproduction would read as under;
“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 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.
WP(C) NO. 13264 OF 2023 6 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 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 Even though there is no time limit prescribed for
WP(C) NO. 13264 OF 2023 7 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 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
WP(C) NO. 13264 OF 2023 8 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 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 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
WP(C) NO. 13264 OF 2023 9 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 be payable on the differential amount for the default period i.e. for the period after service of notice along with assessment order.” 6.
The assessee has been filing his return under the compounding provision and it is not the first time that he has filed the returns under the compounding provision for the financial year 2020-21. This Court therefore, cannot believe the petitioner was not aware of the difference of filing of normal return and return under the compounding provision. In fact, the petitioner has remitted the tax as per the compounding scheme provided under the Act. Since the rate of tax has been reduced for certain period during which the Bar Attached Hotels were entitled for parcel sale of Indian made Foreign
WP(C) NO. 13264 OF 2023 10 Liquor, the petitioner found that the his returns filed under the compounding scheme should be treated as normal return and the Assessing Authority should proceed to complete the regular return.
7.
Such a contention cannot be accepted as the Division Bench Judgment stares on the face of such a request and therefore, I find no illegality in the impugned orders. This writ petition therefore has no merit and the same is hereby dismissed.
Sd/- DINESH KUMAR SINGH JUDGE Svn
WP(C) NO. 13264 OF 2023 11 APPENDIX OF WP(C) 13264/2023 PETITIONER’S EXHIBITS EXHIBIT P-1 PHOTOCOPY OF "COMPOUNDING APPLICATION APPROVAL AND COMPOUNDING TOT FIXATION DT.
04.01.2023 EXHIBIT P-2 PHOTOCOPY OF ORDER DATED 15.03.2023 PASSED BY RESPONDENT EXHIBIT P-3 PHOTOCOPY OF APPLICATION IN FORM 1B EXHIBIT P-4 PHOTOCOPY OF RETURN FOR APRIL 2021 EXHIBIT P-5 PHOTOCOPY OF ANNUAL RETURN FOR 2021.22 EXHIBIT P-6 PHOTOCOPY OF NOTIFICATION DATED 26.03.2022 EXHIBIT P-7 PHOTOCOPY OF NOTICE U/S 7(II) DT. 05.01.2023 EXHIBIT P-8 PHOTOCOPY OF REPLY TO EXT. P-7 NOTICE RESPONDENT’S EXHIBITS EXHIBIT R2(a) A TRUE COPY OF THE CIRCULAR NO. 5/2011 DATED 31.03.2011