'Closure Of Branch Irrelevant Where Assessee Chooses Determination Of Tax Liability Under Compounding Provision': Kerala HC [Read Judgment]

"Closure of branch is irrelevant where the assessee chooses determination of tax liability on a compounding basis", ruled the Kerala High Court on Friday. The assessee engaged in the business of jewellery had its Head Office at Changanacherry and three branches at Kottayam, Thiruvalla, and Chengannur. From the year 2006-2007 onward the assessee was paying tax under Section 8(f) of the Kerala Value Added Tax Act, 2003. The assessee on March 31, 2010, closed down the branch at Thiruvalla, and from the next assessment year, the business is carried on from the Head Office and two branches. The assessee for the year 2010-11 applied for compounding and the issue is said to be pending before the Tribunal in appeal. The Department maintains that the compounded tax to be paid by the assessee is at the percentage prescribed of the tax paid in the previous year, ie, 2009-10 which included the Head Office and three branches. In the years 2011-12 and 2012-13, the assessee again applied for compounding and the same was permitted. The assessee had made an application excluding that portion of the tax paid, attributable to the Thiruvalla Branch for the year 2009-10; in the year 2010-11. The assessee was permitted to pay tax under the compounded provision. Later notice was issued under Section 25(1) of the KVAT Act and orders were passed for the two consecutive years including that portion which was excluded in the previous year, for the purpose of determining the tax payable under the compounding scheme for the years under option. Setting aside the decision of the Single Judge, the High Court, in appeal, observed that in the present case, the taxable event insofar as the year under option is with respect to the Head Office and two branches which alone would have been assessed if the assessee had gone under regular assessment. However, the assessee chose to apply for compounding which alternate mode specifically provided for an enhanced percentage of the turnover for the previous year which took in the business of the 3rd branch also. The assessee had no escape from paying tax on the basis of the earlier turnover since that was an alternate mode available to the assessee for which the assessee had voluntarily opted with open eyes. "The option available was very clear insofar as the tax payable under the compounding scheme to be at a percentage above the tax liability of the previous year. The assessee with open eyes applied under the scheme and obtained permission. There was no cause for any exclusion since the closed down branch had business in the previous year for which tax was also paid at the compounded rate", held the Division Bench. Considering Section 8(f) as available in the subject assessment year and as amended in the year 2014, the bench found that the entire provision itself was substituted, on amendment, but however, sub-clause (i) in its effect remained the same. The tax payable under the year of option was dependent upon the turnover of the previous year and had to be at the rate of 115% of the tax paid or payable, if the turnover for the preceding year was Rs.10 lakhs or below, 120%, if it were above Rs.10 lakhs and up to Rs.40 lakhs, 135%, above Rs.40 lakhs and up to Rupees one crore and 150% above Rupees one crore. The percentage being determined on the highest tax conceded or paid in the three consecutive years preceding the year under option. The judgment extracts only the relevant explanations as it existed in the subject assessment years and that available in the amended section 8(f)(i) in 2014. As it existed in the subject assessment years: Explanation 8:- Where a dealer who had opted and paid tax under this clause during previous years with respect to a branch that had remained closed during the whole of the year 2009-10, for the purpose of determining the compounded tax payable for 2010-2011, the tax paid in respect of that branch shall not be reckoned. Explanation relied on as it existed after the amendment in the year 2014 Explanation 3. Where a dealer paying tax under this clause, closes a branch duringthe year under option, proportionate reduction considering the number of business places, in the payment shall be granted in the next monthly instalment onwards, for the remaining months of the year". "We are unable to agree with the learned Single Judge that Explanation 3 as available in the amended Section 8(f) is clarificatory...Clause (f) of Section 8 was substituted in its entirety with six explanations where as the original clause (f) had eight explanations. If Explanation 3 in the new clause (f), as introduced in 2014, is found to be clarificatory, it has to be bodily taken out of the amended provision and placed in the un-amended clause (f) which is not a permissible exercise", said the bench. The Court proceeded to state that the Explanation in the amended clause(f) applies to that provision and not to the earlier one. Clause (f) as amended in 2014 can only ...

'Closure Of Branch Irrelevant Where Assessee Chooses Determination Of Tax Liability Under Compounding Provision': Kerala HC [Read Judgment]

Mehal Jain

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