Compounding under VAT law cannot be forced for a later year unless the governing proviso was already in force.

Under the Kerala Value Added Tax Act, a taxpayer could not be compelled to continue under the compounding scheme for assessment year 2016-17 unless the relevant proviso was operative for that year. The earlier continuation requirement had been altered by the Kerala Finance Act, 2014, and the fourth proviso relied on by the department came into force only on 18.07.2016, after the start of the assessment year. A prior year's compounding and the filing of a quarterly return did not, by themselves, establish a statutory obligation to remain in compounding, as the return reflected regular self-assessment. The assessment order was therefore not sanctioned by law and was set aside, subject to fresh proceedings if otherwise permissible.

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Issues: Whether the petitioner was bound to continue under the compounding scheme for the work in assessment year 2016-17 on the basis of the proviso to Section 8(a) of the Kerala Value Added Tax Act, 2003, and whether the assessment order was sustainable in law.

Analysis: The obligation to continue compounding depended on the proviso then in force. The earlier proviso required continued compounding for unfinished work, but that regime was altered by the Kerala Finance Act, 2014 and, for the relevant assessment year, there was no operative provision compelling continuance of compounding for the subsequent year. The fourth proviso relied on by the department came into force only on 18.07.2016, after the commencement of assessment year 2016-17. The petitioner had not applied for compounding for that year, and the mere fact that a connected work had been compounded in the preceding year did not, in the absence of an applicable statutory mandate, bind the petitioner to compounding for the later year. The filing of a quarterly return was also not treated as conclusive of an intention to continue compounding, since the return showed regular self-assessment rather than compounded tax.

Conclusion: The assessment order could not be sustained as it was not sanctioned by law, and the petitioner was not bound to continue compounding for assessment year 2016-17.

Final Conclusion: The writ petition succeeded and the assessment order was set aside, with liberty to the Assessing Officer to proceed afresh in accordance with the Kerala Value Added Tax Act, 2003 if permissible.

Ratio Decidendi: A compounding obligation cannot be imposed for an assessment year unless the governing proviso was in force for that year; a later amendment cannot compel continued compounding for a period preceding its commencement.

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