M/S.Subash Auto Stores vs. The State Tax Officer

Held

The Court held that the requirement for an assessee under the composition scheme to inform the assessing authority within seven days of their turnover crossing the limit of Rs. 50 Lakhs is directory, not mandatory. This was based on the Court's previous decision in Tvl Shanmugamari Timbers Vs. The Commercial Tax Officer. The Court also held that the amendment made to Section 3(4)(b) of the TNVAT Act, 2006, by Tamil Nadu Act 27 of 2011, should be applied retrospectively, as it was construed as clarificatory in nature. Consequently, the assessee is liable to pay tax at the compounding rate of 0.5% up to Rs. 50 Lakhs and will come under regular assessment for the remaining turnover. The Court found that the original assessment order dated 25.02.2013, which followed this approach, was correct, and the impugned order dated 25.05.2018, which levied tax at the regular rate on the entire turnover, was contrary to the established legal position. The impugned order was quashed, and the respondent was directed to pass a fresh order after affording an opportunity of personal hearing to the petitioner. The ratio decidendi is that the procedural lapse of not reporting turnover exceeding the composition limit within seven days does not automatically disentitle an assessee from the benefits of the composition scheme for the initial turnover, and the amendment to Section 3(4)(b) is retrospective.

Facts

The petitioner, M/s.Subash Auto Stores, opted for the compounding tax regime under Section 3(4) of the Tamil Nadu Value Added Tax Act, 2006, for the assessment year 2011-12. This scheme required their annual taxable turnover not to exceed Rs. 50 Lakhs. The petitioner's turnover exceeded this limit in December 2011 but they failed to report it within seven days as stipulated. The respondent, the State Tax Officer, initially passed an order on 25.02.2013, taxing the turnover up to Rs. 50 Lakhs at the compounding rate of 0.5% and the balance turnover of Rs. 17,84,617/- at the regular rate of 14.5%. However, the impugned order dated 25.05.2018 levied tax on the entire turnover at the regular rate of 14.5%. The petitioner challenged this impugned order.

Key Issues

1. Whether the requirement for an assessee under the composition scheme to report their turnover exceeding Rs. 50 Lakhs within seven days is mandatory or directory, as per Section 3(4)(b) of the TNVAT Act, 2006? 2. Whether the amendment made to Section 3(4)(b) of the TNVAT Act, 2006, by Tamil Nadu Act 27 of 2011, which was construed as clarificatory, should be applied retrospectively? Petitioner's contentions: The petitioner argued that the impugned order, which taxed the entire turnover at the regular rate, was illegal and arbitrary. They relied on a previous High Court decision in W.P.(MD)No.3744 of 2015 (Tvl Shanmugamari Timbers Vs. The Commercial Tax Officer) which held that the seven-day reporting requirement is directory and can be rectified later. They also contended that the amendment to Section 3(4)(b) should be applied retrospectively. Respondent's contentions: The respondent argued that the petitioner failed to inform the assessing authority within the stipulated time after their turnover crossed the Rs. 50 Lakhs limit. They contended that the approach adopted in the impugned order was in consonance with the statutory scheme and did not warrant interference.