Compounding cancellation and best judgment assessment sustained where undisclosed purchases showed statutory non-compliance.

Under the Kerala Value Added Tax regime, cancellation of compounding was upheld where undisclosed purchases and non-payment of tax under the compounding scheme showed breach of the statutory conditions. Best judgment assessment was also sustained because filing a revised return with tax and interest after penalty proceedings did not neutralise substantial suppression already found in the accounts. A later beneficial provision, section 25AA, was held inapplicable to disturb a concluded cancellation and assessment, so no remand or further relief was warranted.

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Issues: (i) Whether compounding permitted under the Kerala Value Added Tax Act, 2003 could be cancelled on discovery of undisclosed purchases and failure to pay tax under the compounding scheme; (ii) Whether filing of a revised return with tax and interest after completion of penalty proceedings barred a best judgment assessment; (iii) Whether the later introduced section 25AA could be invoked to avoid cancellation of compounding and seek remand.

Issue (i): Whether compounding permitted under the Kerala Value Added Tax Act, 2003 could be cancelled on discovery of undisclosed purchases and failure to pay tax under the compounding scheme.

Analysis: Rule 11(6) of the Kerala Value Added Tax Rules, 2005 was applied to hold that failure to pay tax due under section 6(2) justified cancellation of the permission granted under section 8(c). The undisclosed purchases showed non-compliance with the conditions of compounding.

Conclusion: The cancellation of compounding was upheld and this issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether filing of a revised return with tax and interest after completion of penalty proceedings barred a best judgment assessment.

Analysis: Section 22(10) of the Kerala Value Added Tax Act, 2003 was relied on to sustain best judgment assessment. Filing a revised return after finalisation of penalty proceedings and payment of tax shortfall with interest did not wipe out the effect of substantial suppression, especially where suppression exceeding ten lakh rupees disclosed a pattern of suppression.

Conclusion: The best judgment assessment was upheld and this issue was decided against the assessee and in favour of the Revenue.

Issue (iii): Whether section 25AA could be invoked to avoid cancellation of compounding and seek remand.

Analysis: Section 25AA was held inapplicable because it was introduced after the KVAT regime had ended and could not be used to disturb an unassailable cancellation and concluded best judgment assessment. Since the substantive challenge failed, no remand was warranted for application of the beneficial provision.

Conclusion: The plea based on section 25AA was rejected.

Final Conclusion: The revisions failed in entirety because both the cancellation of compounding and the best judgment assessment were sustained, leaving no basis for remand or further relief.

Ratio Decidendi: Statutory cancellation of compounding and consequent best judgment assessment can be sustained where undisclosed purchases and substantial suppression establish non-compliance, and a later beneficial provision cannot be invoked to reopen a concluded and valid assessment.

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