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Issues: Whether Explanation 5 to section 8(f) of the Kerala Value Added Tax Act, 2003 applied to a branch that had already been in existence before the relevant year and whether the departmental circular could be used to compute compounded tax for the assessment year 2008-09.
Analysis: Explanation 5 by its wording applies only where a dealer opens a new branch in the current year. A branch that was already functioning from 2005 could not be treated as a new branch merely because compounding was sought for the first time in 2008-09. Explanation 3, which requires compounding for all existing branches, also showed that the earlier circular regime allowing branch-wise opt-out could not continue after 1 April 2008. Circular No. 42/2006 was framed for the 2006-07 year and was inconsistent with the statutory position after the amendment, so it could not govern the assessment for 2008-09.
Conclusion: The impugned computation based on Explanation 5 and Circular No. 42/2006 was unsustainable, and the assessee succeeded.
Final Conclusion: The tax demand basis adopted by the authority was quashed, fresh consideration was directed on the pending application, and interim payment at the stated rate was permitted until that decision.
Ratio Decidendi: A provision for compounding tax applicable to a dealer who opens a new branch in the current year cannot be extended to an already existing branch merely because compounding is first claimed for that branch in a later year, and a departmental circular inconsistent with the amended statute cannot govern the later assessment year.
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