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2021 Supreme(Online)(KER) 48119
HIGH COURT OF KERALA
S.V. BHATTI, BECHU KURIAN THOMAS, JJ
THE CTO, 3RD CIRCLE – Appellant
Versus
M/S. CHUNGATH JEWELLERY – Respondent
WA 2312 2015
ADV.MOHAMMED RAFIQ, SRI.S.ANIL KUMAR (TRIVANDRUM), SRI.K.S.HARIHARAN NAIR
The court established that the retrospective amendment to the tax rates was valid under the KVAT Act, and the acceptance of a compounded tax option created a contract that did not shield dealers from subsequent tax rate modifications.
Headnote:
Tax - Compounded Tax - KVAT Act Section 8(f) - The court examined the validity of retrospective amendments to the tax rates under the KVAT Act, discussing the authority to levy tax retrospectively and the contractual relationship created by opting for compounded tax, ultimately allowing the demand for differential tax by the state.
Fact of the Case:
Dealers challenged a retrospective amendment to the compounded tax rates under the KVAT Act for the assessment year 2011-12, arguing that they had established a contractual right when previously permitted to pay tax at a lower compounded rate.
Finding of the Court:
The court determined that the state had the authority to impose and collect differential tax retrospectively, as legislative power includes the capacity to legislate retrospectively, affirming the validity of the demand notices issued by the tax authorities.
Issues: Whether the retrospective operation of the amended compounded tax rates under the KVAT Act was valid and whether the dealers had a contractual right preventing the state from collecting differential tax.
Ratio Decidendi: The court held that once an option to pay tax at compounded rates was accepted, it constituted a contract, but this did not prohibit the state from subsequently amending tax rates retroactively, provided such amendments were legally valid.
Final Decision: The judgment of the learned Single Judge is set aside, and all writ appeals are allowed.
JUDGMENT
W.A.Nos.2312, 2316, 2334, 2337, 2338, 2347, 2355, 2362, 2363, 2365, 2384, 2391, 2438 of 2015 &
W.P.(C).Nos.9177 & 13336 of 2012 Dated this the 6th day of August, 2021 Bechu Kurian Thomas, J.
When the compounded tax for dealers in ornaments or articles of gold, or other metals were retrospectively amended for the year 2011-12, the dealers raised a challenge against the collection of differential tax. Several writ petitions were filed before this Court. The learned Single Judge allowed all the writ petitions after concluding that the differential tax attempted to be collected from the writ petitioners for the assessment year 2011-12 was legally unsustainable and accordingly quashed all the impugned orders/demand notices. The department has come up in these appeals contending that the retroactive operation of the compounded rate of tax was within the scope of the Government's authority and the consequential collection of differential tax was legally valid.
2. This batch consists of 13 writ appeals and two writ petitions. W.A.No.2312/2015 is treated as the main appeal. The questions arising for consideration are common and hence we heard all the writ appeals and the writ petitions together. Since the circumstances are similar in all these cases, we confine the factual narrative that too, briefly, to the circumstances pleaded in the leading case.
3. The writ petition was preferred when the dealer was directed to pay the balance tax due under the newly introduced compounded rate of tax. It was contended that the compounded tax being in the nature of a contract, the Government was estopped from demanding compounded tax at a higher rate after Ext.P1 sanction was granted by the assessing officer to pay tax under the compounded scheme, that too in instalments.
4. Section 8 (f) of the Kerala Value Added Tax Act, 2003 (for short 'the KVAT Act') provides for compounded tax for dealers in ornaments and articles of gold, etc. On 24-02-2011 a finance bill was presented before the 12th Kerala Legislative Assembly, as Bill No.426 (hereinafter referred to as the 'First Bill'). The Bill proposed a revision of the existing rates for compounded tax under section
8(f) of the KVAT Act from 01-04-2011. Even though the Bill was not passed by the legislative assembly, due to statutory prescriptions and declarations made in the Bill, the tax implications under the First Bill came into effect from the proposed date i.e: 01-04-2011. The year 2011 was the year of elections to the Kerala Legislative Assembly. The 12th Kerala Legislative Assembly was therefore dissolved on 14-05-2011 and a new Government took charge. Thereafter the new Government brought a fresh Finance Bill on 19.07.2011 as Bill No.20 (hereinafter referred to as the 'Second Bill') of the 13th Kerala Legislative Assembly. The second bill was passed on 08-11-2011 as Kerala Finance Act 16 of 2011 , (hereinafter referred to as 'Act 16 of 2011').
5. The 1st respondent is a dealer in ornaments and articles of gold. 1st respondent (hereinafter referred to as the dealer) had opted to pay tax at compounded rates from the year 2009-10 onwards. The dealer was permitted by Ext.P1 order of the assessing authority to pay tax at the compounded rate prevalent as on 01-04-2011 for the year 2011-12 on the basis of the rates prescribed under the First Bill. However, after the coming into force of the amended provisions, the assessing officer demanded the differential tax allegedly due from the dealer on the basis of the amended provisions. The demand was challenged by the dealer in the writ petition. A relief of declaration was sought for declaring that the provisions of the Second Bill which resulted in Finance Act 16 of 2011 shall not affect the vested rights accrued to the dealer on account of the order permitting it to pay tax at compounded rates on the basis of the First Bill.
6. By the judgment under challenge, the learned Single Judge held that once the assessee opts to pay tax at compounded rates and
