T.C.Jose vs. The Commercial Tax Officer - Kerala High Court, 13 March 2020

DATED 4/10/19 IN I.A.1/19 IN WP(C).NO.33157/16. BY ADVS.SRI.HARISANKAR V. MENON SMT.MEERA V.MENON RESPONDENTS: 1 THE COMMERCIAL TAX OFFICER DEPARTMENT OF COMMERCIAL TAXES, THRISSUR-680004. 2 THE COMMISSIONER OF COMMERCIAL TAXES KILLIPPALAM, KARAMANA, THIRUVANANTHAPURAM-695002. 3 STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695001. R BY SRI.V.K.SHAMSUDHIN, GOVERNMENT PLEADER THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 28-10-2019, THE COURT ON 13-03-2020 DELIVERED THE FOLLOWING:

W.P.(C).No.33157/2016 :: 2 :: J U D G M E N T The petitioners 2 to 4 are the legal heirs of the 1st petitioner, who expired during the pendency of the writ petition. The said deceased 1st petitioner was engaged in the execution of works contract, and was an assessee under the Kerala Value Added Tax Act [hereinafter referred to as the 'KVAT Act'] on the rolls of the 1st respondent. For the assessment year 2014-15, the said assessee had opted to pay tax at compounded rates under Section 8 of the KVAT Act, and quarterly returns were also filed remitting the compounded tax as calculated under Section 8 of the KVAT Act. It is not in dispute that during the said year, the assessee declared a total contract receipt of Rs.1,45,69,447/- and discharged his tax liability under Section 8 of the KVAT Act on the said turnover. It would appear however that, pursuant to proceedings initiated by the Intelligence Wing, unaccounted receipts of Rs.3,06,87,954/- were unearthed for the said assessment year, as undisclosed turnover. The assessee admitted the offence of suppression and compounded the offence under Section 74 of the KVAT Act by paying the compounding fee.

W.P.(C).No.33157/2016 :: 3 ::

For the assessment year 2014-15, the respondents took the view that the total turnover for the year could not be assessed at the lower rate applicable under Section 8 of the KVAT Act, but that the turnover including the suppressed turnover, as also a further addition of 20% towards omission and suppression, would be assessed to tax at the higher rate of 14.5%. Although the assessee preferred an objection to the said proposal of the respondents, the assessment was completed on the lines proposed, and Ext.P3 order was served on the assessee demanding an amount of Rs.63,49,704/- as the tax amount payable with interest for the year in question. In the writ petition, Ext.P3 order is impugned inter alia on the contention that although there was a suppression with regard to the actual contract receipts obtained by the assessee during the year in question, the contract itself had been disclosed in the return filed by the assessee for the purposes of Section 8 of the KVAT Act. It is therefore contended, based on the decision of the Division Bench of this Court in Silver Line Villas & Apartments Pvt. Ltd. v. State of Kerala - [(2017) 25 KTR 279 (Ker)] that the entire turnover declared by the assessee under Section 8 must be subjected to the lower rate of tax applicable thereto. It is also pointed out that, through an amendment to the KVAT Act, by a notification dated 19.7.2019, Section 25AA came to be inserted in the KVAT Act, which

W.P.(C).No.33157/2016 :: 4 :: makes it clear that suppressed turnover of works contractors, who have paid compounded tax in terms of Section 8, would be assessed at the applicable compounded rate by adding 25% of the suppressed turnover, and in such cases, the option of compounding will not be cancelled. The learned counsel for the petitioner submits that although the Notification was in 2019, the same has to be seen as having retrospective effect since, admittedly, by 2019, the KVAT Act itself had ceased to have any applicability consequent to the introduction of the GST provisions.

A counter affidavit has been filed on behalf of the respondents, wherein, the stand taken is that, going by the decision of the Division Bench referred above, the assessee would be liable to the higher rate of tax at 14.5% on the turnover attributable to the suppression, including the estimated turnover on account of suppression.

I have heard the learned counsel for the petitioners as also the learned Government Pleader for the respondents.

On a consideration of the facts and circumstances of the case as also the submissions made across the bar, I find that while it

W.P.(C).No.33157/2016 :: 5 :: is true that, by virtue of the decision of the Division Bench referred above, the assessee would not be entitled to the benefit of the lower rate of tax in respect of suppressed turnover, inasmuch as the suppressed turnover did not find place in the return that was submitted for the purposes of availing the benefit of lower rate of tax under Section 8 of the KVAT Act, I find force in the contention of the learned counsel for the petitioner, placing reliance on the subsequent amendments to the KVAT Act, whereby, Section 25AA was introduced giving the benefit of the lower rate of tax under Section 8, even to suppressed turnover, on condition that the turnover is enhanced by 20% of the suppressed turnover. In my view, the said amendment to the KVAT Act has necessarily to be seen as having retrospective operation since, by the date of the amendment, the Scheme of taxation itself had been changed from a Value Added Tax to a Goods and Service Tax. The amendment brought about to the KVAT Act has therefore to be seen as clarificatory, and applicable to assessments that are yet to be completed under the erstwhile Act. Viewed thus, I am of the view that the impugned order deserves to be quashed, so as to enable the respondent Assessing Authority to re-do the assessment, by applying the lower rate of tax under Section 8 of the KVAT Act to the entire turnover of the assessee during the year 2014-15, comprising of the declared turnover, the suppressed

W.P.(C).No.33157/2016 :: 6 :: turnover and an additional 25% of the suppressed turnover. To the resultant amount, the rate of tax under Section 8 shall be applied and the demand of tax and interest made on the legal heirs of the assessee accordingly. The 1st respondent shall pass fresh orders, as directed, within one month from the date of receipt of a copy of this judgment, after hearing the petitioners. To enable the 1st respondent to do so, the petitioners or their representatives shall appear before the 1st respondent, at his Office, at 11.00 a.m. on 30.3.2020. The petitioners shall produce a copy of the writ petition, together with a copy of this judgment, before the 1st respondent, for further action. With the above direction, the writ petition is disposed. A.K.JAYASANKARAN NAMBIAR JUDGE prp/16/3/2020

W.P.(C).No.33157/2016 :: 7 :: APPENDIX PETITIONER'S EXHIBITS: EXHIBIT P1 COPY OF PRE-ASSESSMENT NOTICE ISSUED BY THE 1ST RESPONDENT DATED 23-08-2016. EXHIBIT P2 COPY OF OBJECTION FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT DATED 14-09-2016. EXHIBIT P2(A) COPY OF LOCAL DELIVERY BOOK EVIDENCING FILING THE OBJECTION DATED 23-09-2016. EXHIBIT P3 COPY OF ORDER ISSUED BY THE 1ST RESPONDENT DATED 20-09-2016. EXHIBIT P4 COPY OF RETURN FOR THE 1ST QUARTER OF 2014- 15 OF THE PETITIONER. EXHIBIT P5 RESPONDENTS EXHIBITS: COPY OF CLARIFICATION ISSUED BY THE 3RD RESPONDENT DATED 11-11-2015. NIL. //// P.S. TO JUDGE