Compounding under sales tax law required business in each of the three preceding years; later proviso was only clarificatory.

Compounding under section 7(1)(a) of the Kerala General Sales Tax Act required the dealer to have carried on business throughout the three immediately preceding financial years, because the tax was computed by reference to a twelve-month period within that three-year block. Where business was not transacted for part of a year, the first proviso allowed proportionate computation, but it did not remove the basic requirement of business existence across the three years. The proviso inserted from 1 April 1998 was treated as clarificatory, not as creating a new substantive entitlement. On that basis, compounding for 1996-97 was unavailable.

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Issues: Whether, under section 7(1)(a) of the Kerala General Sales Tax Act, 1963, a dealer seeking compounding for 1996-97 had to have carried on business for all three preceding financial years, and whether the proviso introduced with effect from 1 April 1998 was clarificatory or substantive.

Analysis: The compounding provision fixed tax at 150 per cent of the maximum tax payable for a period of twelve months in any of the three financial years immediately preceding the assessment year. This necessarily presupposed that the dealer had carried on business during the three immediately preceding financial years. The first proviso merely permitted proportionate calculation where business was not transacted for some period in a financial year; it did not dispense with the requirement of business existence across the three-year block. The later proviso introduced in 1998 was treated as clarificatory, intended to remove confusion rather than create a new entitlement.

Conclusion: The dealer was not entitled to compounding for 1996-97, and the order denying that benefit was sustained.

Final Conclusion: The writ petition failed on merits because the statutory conditions for compounding were not satisfied for the relevant assessment year.

Ratio Decidendi: For compounding under section 7(1)(a) of the Kerala General Sales Tax Act, 1963, the dealer must have carried on business in each of the three immediately preceding financial years, though interruption for part of a year may be met by proportionate computation; a later explanatory proviso does not enlarge the substantive right.

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