IMPORTANT POINT
The provisions imposing penal interest on assessees who voluntarily revise their returns are unconstitutional as they create an arbitrary distinction between honest taxpayers and those whose returns are rejected by the Department.

JUDGMENT :

(Gopinath P., J.)

The petitioner, a Private Limited Company, was a registered dealer under the Kerala Value Added Tax Act, 2003 ('the KVAT Act'). It is engaged in the execution of consultancy, design, civil construction and mechanical works. For the year 2014-15, the petitioner filed an annual return under the KVAT Act declaring a turnover of Rs.22,49,70,407/-(Twenty-two crores forty-nine lakhs seventy thousand four hundred and seven only) and discharged value added tax at Rs.20,31,634/-(Twenty lakhs thirty-one thousand six hundred and thirty-four only). While completing the audit in terms of the provisions contained in Section 42 of the KVAT Act it was noted that the petitioner was also liable to pay tax on the work in progress. The petitioner had declared and discharged tax only on the amounts that had been actually billed in the year 2014-15. According to the petitioner, in order to avoid any disputes, the petitioner sought permission to revise the quarterly returns for the quarter ending 31-03-2015. On permission being granted, the petitioner revised the returns and paid differential tax amounting to Rs.41,52,843/-(Forty-one lakh fifty-two thousand eight hundred and forty-three only) and interest of Rs.4,84,070/-(Four lakh eighty-four thousand seventy only). The petitioner was thereafter served with Ext.P5 notice dated 20-04-2016 calling upon the petitioner to remit Rs.9,68,140/-(Nine lakh sixty-eight thousand one hundred and forty) as 'settlement fees'. Though, in Ext.P5 the amount is stated as the amount towards 'settlement fees', it appears that the demand was on the basis of the provisions contained in Section 42 (2) of the KVAT Act, where the petitioner was required to pay twice the amount of interest as penal interest owing to an increase in the tax liability following the revision of return. This writ petition has been filed challenging the constitutional validity of the provisions of Section 42 (2) of the KVAT Act as also identical provisions in Section 21 (2) of the same enactment to the extent they provide for the levy of penal interest at twice the rate of interest, even in cases where the assessee himself comes forward and files a revised return on noticing mistakes in the returns already filed.

2. Sri. Jose Jacob, the learned counsel appearing for the petitioner submits that the provisions of Section 42 (2) apply in the case of an assessee who is subjected to an audit while the provisions of Section 21 (2) apply in the case of other assessees who are not required to be subjected to audit. It is submitted that both these provisions provide for levying penal interest at twice the rate of interest payable when the assessee comes forward and seeks permission to file a revised return after noting a defect in the returns already filed. He submits with reference to the provisions of Section 22 (2) of the KVAT Act that where any defect in the returns filed by an assessee is noted by the Department and the same is rejected, the assessee is permitted to file a revised return and then the assessee required only to pay tax and interest. In other words, it is the submission of the learned counsel that the provisions of Sections 21 (2) and 42 (2) of the KVAT Act to the extent they call upon an assessee who comes forward on his own to file a revised return to pay penal interest at two times the amount of interest payable is arbitrary and unconstitutional. It is submitted that, in the facts of the present case, the petitioner discharged the tax liability and also paid interest of Rs.4,84,070/-and that would have been the only liability of the petitioner, had the Department noticed the defect in the returns filed by the petitioner. It is pointed out that on account of the petitioner itself coming forward and filing a revised return, it is now mulcted with the liability to pay an additional amount of Rs.9,68,940/-as penal interest in terms of the provisions contained in Section 42 (2) of the KVAT Act.

3. Smt. Thushar