M/S.Anjanam Technologies vs. The Asst.Commissioner-Iii, Thrissur

Held

The Court held that the petitioner's conduct of paying tax on a compounded basis for four years (2013-14 to 2016-17) without objection from the respondents, and their relinquishment of input tax credit, established a de facto contract between the petitioner and the department regarding the mode of tax payment. The Court found that the reopening of assessments under Section 25(1) was based on a mere change of opinion by the assessing officer, which is impermissible. It would be unconscionable for the respondents to now demand tax on a regular basis after consenting to the compounded method. The Court quashed the impugned orders (Ext.P3 series), allowing the writ petition. The ratio is that a consistent practice of paying tax on a compounded basis, accepted by the department without demur, creates a binding arrangement, and reopening based solely on a change of opinion regarding the procedural formality of filing an application is not sustainable.

Facts

The petitioner, M/s. Anjanam Technologies, engaged in powder coating (works contract), opted to pay tax on a compounded basis for the assessment year 2012-13 under Section 8 of the Kerala Value Added Tax Act, 2003. They continued this practice for the subsequent years up to 2016-17, believing no fresh application was necessary. During this period, they relinquished input tax credit as required for compounded tax payers. The 1st respondent issued notices on May 10, 2017, citing the non-filing of formal compounding applications as grounds to reopen assessments for 2013-14 to 2016-17 and subject the petitioner's turnover to regular assessment under Section 6(1)(f). Despite objections filed by the petitioner, the 1st respondent issued orders on May 31, 2017, confirming demands for differential tax.

Key Issues

1. Whether the petitioner, having paid tax on a compounded basis for the assessment years 2013-14 to 2016-17 without filing fresh applications, is liable for differential tax upon reopening of assessments under Section 25 of the Kerala Value Added Tax Act, 2003, based on a change of opinion by the assessing officer? (Question of law) Petitioner's contentions: It is inequitable to demand differential tax solely for not filing a formal compounding application, especially when the department was aware of the compounded tax payment and accepted it without demur. The power to assess escaped turnover under Section 25 cannot be exercised based on a mere change of opinion. Reliance was placed on State of Kerala v. Kalyanaraman, Johnson & Johnson Limited v. Assistant Commissioner, and M/s. Surya Rock Products v. Additional Sales Tax Officer. Respondents' contentions: The petitioner failed to comply with the statutory condition of filing an application for compounded tax payment and thus was not entitled to its benefit. The impugned orders are justified. The apprehension of not getting input tax credit is misplaced as it was allowed. The decision in Johnson & Johnson Limited was distinguished in a subsequent Single Judge decision in WP(C) No.9770 of 2016.