Kgm Gold vs. The State Tax Officer

Facts

The petitioner, KGM Gold, a dealer in jewellery, was assessed under the Kerala Value Added Tax Act, 2003 (2003 Act) for the assessment year 2015-2016. The assessment order, Ext.P1, demanded reverse tax. The petitioner appealed to the Deputy Commissioner (Appeals), Kozhikode, which was disposed of by this Court's order dated 23.10.2019 (Ext.P2). During this period, the State Tax Officer initiated recovery action and recovered Rs. 5 lakhs from the petitioner. The petitioner filed a second appeal before the Kerala Value Added Tax Appellate Tribunal (Tribunal) along with a stay application (Ext.P3). The Tribunal, in Ext.P4, disposed of the stay application by directing payment of 30% of the demand within one month. The petitioner sought a reduction in this percentage and reasonable instalments due to business difficulties caused by the lockdown. A sum of Rs. 5 lakhs had already been recovered.

Held

The Court held that while the petitioner's eligibility for input tax credit and special rebate was a matter to be decided by the Tribunal in the second appeal, the immediate issue concerned the condition imposed for stay. The Court noted that the Tribunal ought to have imposed a condition of 20% deposit, as envisaged under Section 55(4) of the 2003 Act, even if strictly not applicable to the second appeal. This was particularly relevant given the complete lockdown, which severely impacted business and made it difficult to generate funds. The Court found that the petitioner did not prima facie require any concession regarding the stay itself, but the percentage imposed was excessive. Therefore, exercising powers under Article 226 of the Constitution, the Court reduced the deposit percentage from 30% to 20% of the demand. The petitioner was directed to deposit this amount in two instalments: the first by 25.06.2020 and the second by 25.07.2020. Upon compliance, the Tribunal was directed to decide the appeal. Failure to deposit would allow the respondents to initiate recovery.

Key Issues

1. Whether the demand of reverse tax against the petitioner, who is not a compounded dealer and is eligible for input tax credit and special rebate under the 2003 Act, is illegal? (Question of law, concerning Section 25(1) and Section 6(2) of the 2003 Act). 2. Whether the Tribunal's order directing payment of 30% of the demand as a condition for stay, in Ext.P4, is arbitrary and mechanical, especially considering the prevailing lockdown conditions and the petitioner's financial difficulties? (Question of mixed law and fact, concerning the exercise of discretion by the Tribunal and the impact of external circumstances). Petitioner's arguments: The demand of reverse tax is illegal as the petitioner is not a compounded dealer and is entitled to input tax credit and special rebate under Section 6(2) of the 2003 Act. The Tribunal's order for 30% payment is harsh and unworkable due to the lockdown, and a reduction in percentage and grant of instalments is necessary. Revenue's arguments: The provisions of Section 55(4) of the 2003 Act are not applicable for entertaining the appeal. The impugned order was passed before the lockdown, and the deadline for payment expired before the lockdown commenced. While more time might be granted due to attenuating circumstances, a reduction in the percentage is opposed.