M/S.Oceanus Dwellings PVT. LTD. vs. State Of Kerala

Facts

The petitioner, M/s. Oceanus Dwellings Pvt. Ltd., engaged in construction and sale of apartments, opted to pay tax on a compounded basis under Section 8(a) of the Kerala Value Added Tax Act, 2003 (KVAT Act) for two of its projects from assessment year 2007-08. This arrangement continued for 2008-09. For assessment year 2009-10, the petitioner continued to pay tax on a compounded basis for these two projects. However, the assessing authority cancelled the permission for compounded payment on 29.10.2010. The assessment for 2009-10 was then completed under Section 6 of the KVAT Act. The petitioner's appeal to the First Appellate Authority was allowed, but the Revenue's further appeal to the Appellate Tribunal reversed this, confirming the regular assessment method. The Tribunal, however, remanded the matter for verification of factual aspects regarding labour deductions. The petitioner has filed this revision petition against the Tribunal's order.

Held

The Court held that the 6th proviso to Section 8(a)(ii) of the KVAT Act mandates that contractors who opted for compounded tax payment in previous years must continue to pay tax on that basis for the unfinished portion of the works as on 1st April 2009, at the rates applicable then. This statutory prescription prevails over the executive act of the assessing authority cancelling the permission. Therefore, the petitioner was obliged to pay tax on a compounded basis for the two projects in assessment year 2009-10, irrespective of the cancellation. The Court set aside the Tribunal's finding on the method of assessment and held that the petitioner should be assessed at the compounded rate. However, acknowledging the Tribunal's remand for factual verification, the Court directed the assessing authority to proceed with the assessment at the compounded rate after verifying if the projects are the same as those for which compounded tax was paid previously, and if the petitioner refrained from availing input tax credit and claiming special rebates and labour charges, which are impermissible for compounded tax payers. Questions of law a, b, and c were answered in favour of the assessee, while questions d and e were not answered due to the remand.

Key Issues

1. Whether the petitioner, having opted for compounded tax payment under Section 8(a)(ii) of the KVAT Act for specified projects in previous years, was statutorily obligated to continue paying tax on that basis for unfinished portions of those projects as on 1st April 2009, notwithstanding the cancellation of permission by the assessing authority for the assessment year 2009-10? The petitioner argued that the 6th proviso to Section 8(a) mandates continued payment on a compounded basis until project completion, overriding the assessing authority's cancellation. The Revenue contended that the cancellation order, not being challenged by the petitioner, was binding, and the assessment should be on a regular basis. 2. Whether the matter should be remanded for verification of factual aspects regarding deductions claimed for labour charges, as directed by the Appellate Tribunal?