Commercial Tax Officer vs. M/S. Milano Ice Cream Private Limited

Held

The Court held that ice-cream is specifically listed under the notified goods taxable at a higher rate (14.5%) and is treated differently from 'cooked food' in the KVAT Act. Therefore, the petitioner was not eligible to file a compounding application by treating ice-cream as 'cooked food'. The Court found that the learned Single Judge erred in setting aside the assessment orders. While the Court agreed with the Single Judge's criticism of the Department's lethargy, it stated that this could not absolve the assessee from the consequences flowing from the Act. The Court acknowledged that ideally, the Department should have initiated proceedings under Section 56 for revision. However, due to the absence of a formal order permitting compounding, they were disabled. The Court noted that a 'deemed permission' could be revised. Despite vacating the Single Judge's orders interfering with the cancellation of compounding and regular assessment, the Court set aside the assessments themselves. This was because a penalty was imposed along with the regular assessment, which was not permissible. The Court considered the petitioner's bonafide attempt and the Department's lethargy. It directed fresh assessment, allowing the assessee to produce purchase invoices for input tax credit, with tax paid under Section 8 to be credited. Interest on demanded tax was to run from one month after finalization, and no penalty was to be levied.

Facts

The petitioner, M/s. Milano Ice Cream Private Limited, engaged in the manufacture and sale of ice-creams, applied for compounding of tax in April 2015 and April 2016. The Assessing Officer did not act on these applications. The petitioner, assuming their applications were implicitly accepted, paid tax quarterly under the compounding scheme for three quarters in 2015-2016 and again for three quarters in 2016-2017. The Assessing Officer issued notices threatening cancellation of compounding and proposed regular assessment for both years. Regular assessments were completed, deviating from the compounding scheme. The petitioner challenged these orders, arguing that their continued payment and acceptance of tax under the scheme constituted a concluded contract. The learned Single Judge allowed the petitioner's claim, setting aside the assessment orders. The Commercial Tax Officer appealed this decision.

Key Issues

1. Whether the petitioner, engaged in the manufacture and sale of ice-creams, was eligible to opt for the compounding scheme under Section 8 of the Kerala Value Added Tax Act, 2003, by treating ice-cream as 'cooked food' or 'food' for the purpose of compounding? (Question of law turning on interpretation of statutory entries). Petitioner's arguments: The petitioner contended that their continued payment of tax under the compounding scheme, which was accepted by the Department without demur, created a concluded contract, and the Department could not subsequently revert to regular assessment. They also argued that ice-creams could be covered under 'sweets' or 'food' as mentioned in the compounding provisions. Revenue's arguments: The Revenue argued that ice-cream is not a 'cooked food' and is specifically listed under a different entry in the notified goods taxable at a higher rate (12.5% or 14.5% as per the judgment). They relied on decisions like Caravan Softies v. State of Kerala and Commissioner of Sales Tax, M.P. v. Gyanmal Kesharichand to support their contention that ice-cream is not cooked food. They also argued that even if an order permitting compounding was passed erroneously, it could be revised under Section 56 of the KVAT Act.