The court established that cancellation notices issued beyond statutory limitation are invalid, emphasizing compliance with procedural fairness in tax assessments.

JUDGMENT :

M.A. ABDUL HAKHIM, J.

1. Petitioner is a dealer in gold ornaments and jewellery registered under the Kerala Value Added Tax Act, 2003 (for short, ‘KVAT Act’) and CST. The Petitioner had been opting for payment of tax at compounded rates under Section 8 (f) of the KVAT Act since the year 2006. Exts.P1 and P2 are the Orders dated 18.02.2011 and 13.12.2011 allowing the Applications of the Petitioner for compounding and determining tax for the Assessment Years 2010-11 and 2011-12. Petitioner is challenging Exts.P4 and P5 Notices issued by the Respondent No.3 proposing to cancel Exts.P1 and P2 permissions to pay tax at compounding rate on the ground that the Intelligence Officer (IB), Thiruvananthapuram, has found that the Petitioner did not declare certain purchases in the Returns in Form 10DA filed during the relevant Assessment Years in which the compounding were opted. The Respondent No.3 issued Exts.P4 and P5 Notices invoking Section 8 (f)(iv) and/or Section 25 (1) of the KVAT Act.

2. The Special Government Pleader (Taxes) appearing for the Respondents filed a Memo dated 19.06.2018 producing the Counter Affidavit filed by the State in W.P.(C) No.11335/2018 stating that the issues involved in this Writ Petition and in W.P.(C) No.11335/2018 are identical and praying to adopt the said Counter Affidavit in the present case. It appears that Respondents adopted the Counter Affidavit filed by the State in W.P.(C) No.11335/2018, since in both W.P.(C) No.11335/2018 and this Writ Petition, there is a challenge against the constitutional validity of certain provisions of the Kerala State Goods and Services Tax Act, 2017.

3. I heard the learned Senior Counsel for the Petitioner, Sri. A. Kumar, instructed by Adv. Smt. G. Mini, and the learned Special Government Pleader (Taxes), Sri. Mohammed Rafiq.

4. The learned Senior Counsel for the Petitioner confined his arguments to the challenge against Exts.P4 and P5 Notices raising the following points:

1. Exts.P4 and P5 are time-barred as the proceedings are initiated beyond the time limit prescribed under Section 25 (1) of the KVAT Act.

2. Since Exts.P4 and P5 Notices under Section 8 (f)(iv) are issued as per the direction of the Deputy Commissioner in Exts.P9 and P10 Orders, the proceedings are initiated in a predetermined manner without any subjective satisfaction of the Assessing Authority as mandated under Section 8 (f)(iv).

3. The cancellation of the option of compounding is not permissible under Section 25AA (5) of the KVAT Act which provides that if any suppression of turnover of gold is detected with respect to dealers who have paid tax at the compounding rate, such suppressed turnover alone shall be assessed at the scheduled rate applicable to the goods and in such case the option of compounding for that year shall not be cancelled.

4. It is not legally permissible for the Assessing Authority to cancel the permission to pay tax at the compounded rate relying on the alleged suppression of the very same year in which the compounding was opted.

5. Since the Petitioner has opted to pay tax at compounded rate, he is not liable to submit a Monthly Return as required under Rule 22 of the KVAT Rules, 2005, and he needs to file only Quarterly Returns as required under Section 24 of the KVAT Act in Form 10D and there is no provision to declare purchases by the Petitioner in Form 10D.

5. At the outset, the learned Special Government Pleader challenged the maintainabil