2024 (1) TMI 78 - HC - VAT and Sales Tax

Petitioner Cannot Switch from Compounding Scheme to Normal Return for Tax Benefits After Consistent Usage

The Kerala HC dismissed a petition challenging an assessment order that treated the petitioner's return under the compounding scheme. The petitioner, who ... Compounding of turnover tax - effect of pendency of compounding application - returns filed under compounding scheme treated as final - assessee cannot backtrack after acting on pending compounding application - assessment while accepting compounding application - immunity from inspection on acceptance of compounding applicationCompounding of turnover tax - effect of pendency of compounding application - returns filed under compounding scheme treated as final - assessee cannot backtrack after acting on pending compounding application - Returns filed in Form 10DA while an application for compounding under Section 7 was pending must be treated as returns under the compounding scheme and the assessee cannot later treat them as normal returns to avoid the compounding assessment. - HELD THAT: - The Court applied the principle in State of Kerala v. Kalyanaraman that where an assessee files an application for payment of tax at a compounded rate and, while that application remains pending, files and acts upon monthly returns and remits tax in terms of the compounding application, the assessee cannot subsequently seek to convert those returns into normal returns. The judgment reasons that no time-limit for deciding the compounding application is prescribed; nevertheless, so long as the application is not withdrawn and the assessee has consistently filed returns and paid tax under the compounding offer, the Assessing Officer may consider and accept the compounding application in the course of assessment. Acceptance of the compounding scheme confers the practical consequence of immunity from departmental inspection and interference, and having availed that position the assessee cannot backtrack after the close of the year. Applying those principles to the facts, the petitioner had previously filed under the compounding scheme and remitted tax accordingly for the year in question; therefore the impugned orders treating the returns as compounding returns and completing assessment on that basis are sustainable. [Paras 5, 6, 7]The challenge to the orders accepting the compounding treatment of the returns and the consequent assessment is rejected; the impugned orders are upheld.Final Conclusion: Writ petition dismissed; the High Court upheld the assessment completed on the basis that the petitioner filed and acted upon returns under the compounding scheme for financial year 2021-22 and therefore could not convert them into normal returns after the year-end. Issues:The issues involved in the judgment are the application for remitting the compounded Turn Over Tax (TOT) for the financial year 2021-22, the treatment of returns filed under the compounding scheme, and the challenge to the assessment order passed by the Deputy Commissioner.Application for Remitting Compounded TOT:The petitioner, registered under the Kerala General Sales Tax Act, applied for remitting the compounded Turn Over Tax for the financial year 2021-22. The impugned order allowed the application and directed the petitioner to pay the differential amount of tax along with interest. The petitioner challenged this order on the grounds that in the absence of a decision on the application, the returns filed should be treated as normal returns and not under the compounding provisions.Treatment of Returns Under Compounding Scheme:The Government Pleader argued that as per Section 7(1)(a) of the KGST Act, when an application for compounding is pending, the returns filed should be considered under the compounding scheme. Citing a previous judgment, it was emphasized that once an application for compounding is filed and acted upon by the assessee, they cannot backtrack and request assessment based on normal returns. The petitioner's act of filing returns under the compounding scheme indicates acceptance of the application, and they cannot deviate from this position.Challenge to Assessment Order:The Court considered the petitioner's contention that due to a reduction in tax rates during a specific period, the returns filed under the compounding scheme should be treated as normal returns. However, the Court rejected this argument based on the previous Division Bench judgment, which held that once an assessee acts upon a compounding application by remitting tax as per the application, they cannot later request assessment based on normal returns. Consequently, the writ petition challenging the assessment order was dismissed for lack of merit.Separate Judgment:The judgment was delivered by the Honourable Mr. Justice Dinesh Kumar Singh.