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2021 Supreme(Online)(KER) 42610
HIGH COURT OF KERALA
S.V. BHATTI, BECHU KURIAN THOMAS, JJ
STATE OF KERALA – Appellant
Versus
MALABAR GOLD – Respondent
WA 2347 2015
ADV.MOHAMMED RAFIQ, SRI.S.ANIL KUMAR (TRIVANDRUM), SRI.K.S.HARIHARAN NAIR
The retrospective application of tax legislation allows the state to recover differential tax irrespective of earlier compounding agreements.
Headnote:
Tax - Taxation Compounding - Kerala Value Added Tax Act, 2003 (KVAT Act) Sections 8(f)(i), 8(f)(v), and Act 16 of 2011 - The court interpreted the retrospective application of tax provisions and validation clauses, determining that the state could validly recover differential tax under the amended provisions despite prior compounding agreements.
Fact of the Case:
Dealers contested the retrospective application of a compounded tax rate for the assessment year 2011-12 after a new bill was introduced following the lapse of a previous bill. They sought to prevent the collection of differential tax implied by the retrospective amendments.
Finding of the Court:
The court concluded that once dealers opted for compounding and it was accepted, a binding agreement was formed. However, since the state is entitled to impose retrospective tax, recovery of differential amounts was lawful despite the previous agreement.
Issues: Whether the state could retrospectively impose a new compounded tax rate and recover differential amounts from dealers who opted for compounding under the earlier provisions.
Ratio Decidendi: The retrospective legislative power means that tax amendments could be applied to prior transactions, and any validation clause would not impede the state's right to collect differential tax due under the amended law.
Final Decision: The court set aside the Single Judge's order, allowing the recovery of differential tax.
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
