IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE ACTING CHIEF JUSTICE MRS.MANJULA CHELLUR & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON TUESDAY, THE 15TH NOVEMBER 2011 / 24TH KARTHIKA 1933 WA.No. 1706 of 2011 ---------------------------- (AGAINST JUDGMENT IN WP(C).36225 OF 2007) APPELLANT(S): PETITIONER ----------------------------------------- M/S.VNM JEWEL CRAFTS LTD, PALAYAM ROAD, KOZHIKODE, REPRESENTED BY ITS MANAGER, PRASANTH JOHN KUNDER. BY ADV. SRI.HARISANKAR V. MENON RESPONDENT(S): RESPONDENTS ------------------------------------------------ 1. SALES TAX OFFICER, SECOND CIRCLE, KOZHIKODE. 2. COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM. 3. STATE OF KERALA, REPRESENTED BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, KERALA GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. BY SPL.GOVT.PLEADER SRI.SOJAN JAMES. THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ALONG WITH WA.1708 OF 2011 ON 15/11/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: MANJULA CHELLUR, Ag.C.J & P.R.RAMACHANDRA MENON, J. ---------------------------------------------- W.A.No. 1706 of 2011 & W.A.No. 1708 of 2011 ---------------------------------------------- Dated this the 15th day of November, 2011 JUDGMENT Ramachandra Menon, J. These appeals arise from a common judgment in W.P(C). Nos.16750 and 36225 of 2007, whereby the challenge raised by the appellants against the assessment made and the demand raised has been rejected and the Writ Petitions have been dismissed as devoid of any merit. 2. The appellant is a Jeweller and the issue involved is as to the scope and extent of 'compounding benefit' by virtue of introduction of Section 8(f) as per the Finance Act, 2008. The case of the appellant is that the interpretations given by the learned Single Judge with regard to the relevant provision governing compounding of tax under Section 8(f) (i), (ii) & (iii) of the Kerala Value Added Tax Act (for short, 'the Act') virtually nullifying the effect of the provision is not correct and proper and hence requires to be intercepted by this Court. WA.1706 & 1708/11 2 3. There is no dispute with regard to the factual position. Hence, we do not require it to be dealt with much; but for the minimum extent as noted below. 4. The appellant started business in jewellery, setting up a Head Office at Kozhikode and a Branch at Tirur on 1.4.2005. The appellant paid tax in respect of the assessment year 2005-2006 under Section 6 of the Act on 'turnover basis'. By virtue of the Finance Act, 2008, Section 8(f) was introduced in the statute, providing for compounding for jewellers, which reads as follows: “8(f)(i) any dealers in ornaments or wares or articles of gold, silver or platinum group metals may at his option, instead of paying tax in respect of such goods in accordance with the provisions of section 6, pay tax at 200 per cent of the highest tax payable by him as conceded in the return or accounts, either under this Act or under the Kerala General Sales Tax Act, 1963 (15 of 1963), for a period of twelve months during any of the three consecutive years preceding that to which such option relates. (ii) A dealer who is not eligible for option under sub clause (i) may at his option instead of paying tax in accordance with the provisions of section 6, pay tax at four hundred per cent of the tax payable by him as conceded in the return or accounts, or tax paid by him under this Act, whichever is higher, for the previous year. WA.1706 & 1708/11 3 Explanation 1:- Where during any such preceding year the dealer had not transacted business for any period in that financial year, the tax payable for the twelve months shall be calculated proportionately on the basis of the tax payable for the period during which such dealer had transacted business. Explanation II:- A branch shall be treated as an independent place of business for the purpose of calculating the tax under this Section. (iii) where a dealer who has opted to pay tax under clause (i) or (ii), had opened any new branch subsequent to 31st day of March 2005, then the additional compounded tax payable with respect to any such branch shall be the average of the tax paid or payable by him in respect his principal place of business and all branches, as if such new branch had not been opened. Provided no additional tax is payable by a dealer covered by clause (ii) for the new branches opened during the year 2005-06.” 5. After satisfying the liability in respect of the assessment year 2005-2006 on turnover basis, the appellant opted to satisfy the tax in respect of the subsequent assessment year 2006-2007 at 400% of the previous year's figure, by virtue of the stipulation under sub-clause (ii) of Section 8(f) of the Act. The department assessed the tax in respect of the next assessment year 2007- 2008, at 115% and passed the impugned proceedings. The case WA.1706 & 1708/11 4 of the appellant/petitioner in the Writ Petition was that, they having started the Head Office as well as the Branch after 31.3.2005, the branch should be excluded from the purview of any tax liability, by virtue of 'proviso' to sub-section (ii) of Section 8(f) of the Act, whereas the department has taken a contrary stand contending that the exemption under the 'proviso' is for the tax payable over and above Section 8; which virtually defeats the very purpose of compounding and the benefit provided under the proviso. 6. After considering the merits involved, the learned Single Judge observed that the contention put forward by the appellant/petitioner was not palatable. The operative portion of the judgment of the learned Single Judge reads as follows: “4. I am unable to countenance the contention of the petitioner on the basis of the proviso to sub section (iii). I am of the opinion that sub section (iii) comes into play only in cases where an assessee opens a new branch after having opted to pay tax under clause (i) or (ii) that too subsequent to 31st March, 2005. Here the petitioner opted to pay tax under the compounded rates only one year after starting of the branch. As such, I am of the opinion that sub Section (iii) and the proviso thereto is not applicable to the petitioner's case. According to me, the petitioner is entitled to opt for compounded rates of tax only under section 8(f)(ii). Going by the said section WA.1706 & 1708/11 5 petitioner has to pay tax at 400% of the tax payable by him as conceded in the return of accounts or tax paid by him which ever is higher for the previous year. Under Explanation II of the said Sub Section, it is specified that a branch shall be treated as an independent place of business for the purpose of calculating tax under Section. If the petitioner's interpretation is accepted then the petitioner would be completely exempted from payment of any tax in respect of the branch, although, he had already paid tax in respect of that branch also for the year 2005-2006. I am of opinion that the intention of the section is not to exempt the petitioner from paying tax in respect of the branches which were already in existence. Going by sub section (ii), the petitioner has to pay tax at the compounded rates not only for the head office but also for the branch. That situation does not change because of the proviso to sub Section (iii) which applies only to a dealer who has opened a new branch after having opted to pay tax under clause (i) or (ii) and subsequent to 31st March 2005, which condition is not attracted in the petitioner's case. Therefore, I do not find any merit in these Writ Petitions and accordingly these Writ Petitions are dismissed.” 7. Learned counsel for the appellant submits that the observation made by the learned Single Judge that the proviso to sub-section (iii) of Section 8(f) of the Act will not come into play for the reason that the said clause (iii) will apply only to a dealer, who has opened a new branch after having opted to pay tax under clause (i) or (ii) and subsequent to 31.3.2005 is not correct. WA.1706 & 1708/11 6 The learned counsel submits that Section 8(f) itself was introduced only in the year 2006 and this being the position, there was no chance to have opted for payment of tax as stipulated thereunder. 8. Heard the learned Special Government Pleader appearing for the respondents as well, who submits that the very wording as given in the relevant provision contemplates opening of a new branch and this gives an idea that it is in respect of the running business. It is also stated that the course provided under Section 8(f) of the Act is only by way of 'option' and nothing prevents the appellant/petitioner from paying tax on the 'turnover basis'. This being the position, the proceedings taken by the department and the interference declined by the learned Single Judge are not assailable under any circumstance, submits the learned Special Government Pleader. 9. The appellants concede that their case does come under sub-section (ii) of Section 8(f) of the Act, which stipulates payment of tax in respect of the relevant year at 400% 'Explanation-II' therein, gives a clear idea that the 'Branch' shall be treated as an independent place of business for the purpose of calculating tax under the Section. Sub-section (iii) says that when WA.1706 & 1708/11 7 a dealer, who has opted to pay tax under sub-section (i) or (ii), has opened any new branch subsequent to 31.3.2005, then the 'additional compounded tax' payable with respect to any such Branch shall be the average of the tax paid or payable by him in respect of his principal place of business and all branches, as if the new branch had not been opened. 10. On reading the statue as a whole, it is discernible that the dealers in the field of jewellery were given an option to satisfy the tax, opting the compounding system, so as to settle the issues and to avoid any litigation to the possible extent. Of course, it was by way of an option, that the dealers, who wanted to have an assessment otherwise than as stipulated under Section 6 on turnover basis were given the liberty to avail the compounding system. That apart, Explanation-II is very much categoric, that the 'Branch' is to be treated as an independent place of business for the purpose of calculating the tax in respect of the transactions. This being the position, the reliance sought to be placed by the appellant on the 'proviso', to the effect that any Branch started after 1.4.2005 is liable to be excluded and that the transaction in the principal place of business alone shall be reckoned is quite wrong and misconceived; more so when, liability to pay the tax is WA.1706 & 1708/11 8 by virtue of the core provision and not by any 'proviso'. Further, if the proposition mooted by the appellant is accepted, then, it is always possible for a dealer who wants to avoid tax to have started a Branch after 31.3.2005, showing only a meagre business in the principal place of business (satisfying tax at 400% of the previous year under Section 8(f)(ii) in respect of such place) and doing bulk of the business through the 'Branch' and to get the Branch absolved/excluded stating that the 'proviso' to sub-section (iii) to Section 8(f) exempts the transaction in the Branch. This is not the scheme of the statute. In the above circumstances, we find it difficult to accept the proposition of the appellant. It is settled, that the law has to be interpreted giving a 'purposive interpretation' to the statute. We find that the provision is quite clear, unambiguous and not obscure in any manner and there is absolutely no scope for interference. Both the Writ Appeals are dismissed accordingly. MANJULA CHELLUR, ACTING CHIEF JUSTICE P.R.RAMACHANDRA MENON, JUDGE vgs