Compounding election by conduct governs drugs and medicines, while other products remain under normal VAT assessment.

A taxpayer's conduct can amount to an effective election for compounding under section 8(e) of the Kerala Value Added Tax Act, 2003 even without filing the prescribed application, where tax has been billed and remitted in accordance with the scheme and purchasers have acted on that basis. For drugs and medicines covered by that election, the compounded rate based on maximum retail price applies. Other products not covered by the compounding arrangement remain taxable under the normal provisions of the Act. The clarification sustaining this treatment confirms that a party cannot accept the benefits of the compounding method for the relevant goods and later deny that election for the same category.

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Issues: (i) Whether the assessee, despite not filing the prescribed application for compounding, had opted for the compounding scheme under section 8(e) of the Kerala Value Added Tax Act, 2003 by its billing and payment practice; (ii) whether the compounded rate based on maximum retail price could be applied to sales of drugs and medicines in the company's other divisions, and whether such other products were outside the compounding scheme.

Issue (i): Whether the assessee, despite not filing the prescribed application for compounding, had opted for the compounding scheme under section 8(e) of the Kerala Value Added Tax Act, 2003 by its billing and payment practice.

Analysis: The Commissioner's clarification under section 94 of the Kerala Value Added Tax Act, 2003 proceeded on the basis that the assessee had, in substance, adopted the compounding method by collecting and remitting tax at four per cent on the maximum retail price in respect of drugs and medicines. The absence of a formal application in the prescribed form did not alter the legal effect of the assessee's own conduct, because the scheme had already been acted upon in practice and purchasers had claimed the corresponding exemption contemplated by the proviso to the Explanation to section 8(e).

Conclusion: The assessee must be treated as having opted for compounding under section 8(e), even without a formal application.

Issue (ii): Whether the compounded rate based on maximum retail price could be applied to sales of drugs and medicines in the company's other divisions, and whether such other products were outside the compounding scheme.

Analysis: Once the assessee had billed and collected tax in accordance with the compounding scheme for drugs and medicines, it could not disown that election for the same category of goods. The assessment of drugs and medicines was therefore liable to be made at four per cent on MRP under section 8(e). At the same time, the court accepted that compounding was not applicable to other products, and that those items had to be assessed under the normal provisions of the Act.

Conclusion: Drugs and medicines were correctly assessed at the compounded MRP rate, while other products remained subject to normal assessment.

Final Conclusion: The clarification issued by the Commissioner was sustained, and the appeal failed insofar as it challenged assessment of drugs and medicines at the compounded rate.

Ratio Decidendi: A taxpayer who has in substance adopted and acted upon a compounding scheme by billing and remitting tax accordingly cannot later deny that election merely because no formal application was filed, and the elected compounded rate will govern the goods covered by that scheme.

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