Compliance with procedural requirements such as affording an opportunity to be heard and obtaining prior approval is essential before cancelling a compounding order under Section 8(f)(iv) of the KVAT Act.

JUDGMENT :

SHOBA ANNAMMA EAPEN, J.

1. The writ petition is filed with the following prayers:

“(i) To call for the records leading to the issuance of Exhibit P-4 notice dated 18-1-2016 issued u/s 25(1) by the 1st respondent for the year 2013-14 and to quash the same by issuing a writ of certiorari.

(ii) To call for the records leading to the issuance of Exhibit P6 notice dated 18-02-2016 informing the cancellation of compounding for the year 2013-14 as per order dated 12-2-2016 of the 2nd respondent; Deputy Commissioner and to quash the same by issuing a writ of certiorari.

(iii) to call for the records leading to the issuance of order No. B2-1016/16 dated 12-2-2016 by the 2nd respondent, the Deputy Commissioner, Commercial Taxes, Kannur (as mentioned in Exhibit P-6) and to quash the same by issuing a writ of Certiorari.”

2. Brief facts of the case are as follows:

The petitioner, a partnership firm, engaged in the manufacture and sale of gold jewellery under the name and style, “Pallithara Jewellers” is a registered dealer on the rolls of the first respondent. The petitioner opted for payment of tax at compounded rate as per Section 8(f) of the Kerala Value Added Tax Act, 2003 (for short “the KVAT Act”) for the assessment year 2013-14 and was paying tax accordingly. Ext.P1 compounding application of the petitioner was accepted by the first respondent. The petitioner also filed annual return for the year 2013-14 along with the Trading, Profit & Loss A/c and the audit report in Form 13 along with Form 13A. While so, the petitioner was served with Ext.P4 notice proposing to reject the book of accounts and to assess the petitioner under Section 25 of the KVAT Act. On receipt of Ext.P4 notice dated 18.01.2016, the petitioner filed Ext.P5 reply dated 03.02.2016, stating that the compounding was already allowed and the tax is being paid at the compounded rate under Section 8 of the KVAT Act. Thereafter, the petitioner was served with Ext.P6 notice dated 18.02.2016, stating that the second respondent-Deputy Commissioner, Kannur - cancelled the compounding order. The petitioner was also asked to appear for a hearing on 25.02.2016 before the first respondent. It is aggrieved by Exts.P4 and P6, the petitioner has come up before this Court.

3. The first respondent filed a counter affidavit, wherein it is admitted that the petitioner filed Ext.P1 application before the assessing authority for payment of tax at the compounding rate for the year 2013-14. It is contended that on completion of the audit of accounts as prescribed under the KVAT Act, the petitioner filed audit report in Form No. 13 and 13A, and on verification of the audit report, it was found that the petitioner has income under the head “other” which has to be assessed under the provisions of the KVAT Act and accordingly, Ext.P4 notice under Section 25(1) of the KVAT Act was issued to the petitioner. It is further contended that as per Ext.P6, the petitioner was intimated about the permission granted by the second respondent to cancel the compounding order for 2013-14 and the petitioner was also afforded a chance of hearing on 25.02.2016 and hence, there is no violation of natural justice in this case and the reason for the proposed cancellation of compounding order was clearly explained as per the pre-assessment notice dated 18.01.2016. It is further contended that even though an amount of Rs.1,39,82,082/- was shown as “other income” in the Trading, Profit & Loss A/c, this turnover was not reported in the self assessed returns filed by the petitioner and the assessing authority has good and sufficient reasons for cancellation of permission to pay tax at the compounding rate. According to the first respondent, the action of the assessing authority is strictly in accordance with the provisions under the KVAT Act.

4. Heard the learned counsel for the petitioner and the learned Government Pleader.

5. The learned counsel for the petitioner submits that the petitioner was permitted to pay tax