Compounding election under VAT law binds the dealer; best judgment suppression addition survives absent books and records.

A dealer who opts for and obtains permission under the compounding scheme under the Kerala Value Added Tax Act, 2003 cannot later resile from that election and claim a different tax treatment for the same turnover; the disclosed turnover was therefore taxable in accordance with the compounding option. Where the assessee failed to produce books of account and supporting records, a best judgment addition for probable omission and suppression was justified, and it could not be deleted without discrediting the factual basis of the estimate. For the estimated portion, tax was to be computed at the regular rate after the deductions under Rule 10 of the Kerala Value Added Tax Rules, 2005.

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Issues: (i) Whether the assessee, having applied for and obtained permission under the compounding scheme, could later resile from that election and claim exemption on the footing that the contracts were labour contracts. (ii) Whether the deletion of the addition made on account of probable omission and suppression was justified when the assessee failed to produce the books of account and supporting documents.

Issue (i): Whether the assessee, having applied for and obtained permission under the compounding scheme, could later resile from that election and claim exemption on the footing that the contracts were labour contracts.

Analysis: The assessee had opted for compounding under Section 8 of the Kerala Value Added Tax Act, 2003 and had been permitted to pay tax at the compounded rate. The assessee had filed returns and paid tax accordingly, but sought to disown that position only after the assessment year had concluded. The asserted character of the contracts as labour contracts was not substantiated by any material beyond a bare assertion. The election made under the compounding scheme bound the assessee, and the conceded turnover had to be assessed in accordance with that election.

Conclusion: The assessee could not resile from the compounding scheme, and the turnover disclosed in the returns was liable to be taxed under Section 8 of the Kerala Value Added Tax Act, 2003.

Issue (ii): Whether the deletion of the addition made on account of probable omission and suppression was justified when the assessee failed to produce the books of account and supporting documents.

Analysis: The Assessing Officer had called for the works contract agreement, work schedule and connected records, but the assessee failed to produce the books of account. In those circumstances, the Assessing Officer made a best judgment estimate of probable omission and suppression. The Tribunal deleted that addition merely on the footing that the compounding permission was not discredited, without examining the basis of the suppression estimate. An addition founded on non-production of books and estimation of suppression could not be deleted without adequate reasoning, and the estimate had to be sustained. For the estimated portion, tax was to be computed at the regular rate with the deductions contemplated under Rule 10 of the Kerala Value Added Tax Rules, 2005.

Conclusion: The deletion of the addition was unsustainable, and the addition for probable omission and suppression was restored, with consequential computation under the regular rate after deduction under Rule 10 of the Kerala Value Added Tax Rules, 2005.

Final Conclusion: The assessment was upheld under the compounding scheme for the conceded turnover, while the best judgment addition for probable omission and suppression was restored, leading to partial success for both sides.

Ratio Decidendi: A dealer who has elected and obtained permission under a compounding scheme cannot later disown that election after the assessment year, and an addition based on best judgment for probable suppression cannot be deleted unless the factual basis for the estimate is legally discredited.

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