IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM MONDAY, THE 25TH MAY 2009 / 4TH JYAISHTA 1931 ST.Rev..No. 77 of 2009() ------------------------ TA.149/2008 of STAT ADDL.BENCH, KOTTAYAM .................... REVISION PETITIONER/ASSESSEE ------------------------------------------------ M/S.HOTEL ZODIAC UZHAVOOR, KOTTAYAM. PREPRESENTED BY ITS MANAGING PARTNER, SHAIJU JOSEPH BY ADV. DR.K.B.MUHAMED KUTTY, SENIOR ADVOCATE ADV. SRI.FIROZ.K.M. RESPONDENT(S): REVENUE ---------------------- THE STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT,TAXES DEPARTMENT SECRETARIAT, THIRUVANANTHAPURAM. BY G.P. SRI.MOHAMMED RAFIQ THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 25/05/2009, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & C.K.ABDUL REHIM, JJ. .................................................................... S.T. Rev. No.77 of 2009 .................................................................... Dated this the 25h day of May, 2009. ORDER Ramachandran Nair, J. Revision Petitioner is a bar attached hotel engaged in retail sale of liquor in the bar hotel. During the assessment year 2007-2008 petitioner applied for payment of tax at compounded rate under Section 7 of the KGST Act before the 1st May of the year. Since no orders were passed on application filed in Form 21, petitioner started filing monthly returns and went on remitting tax based on the returns so filed. However, the Assessing Officer issued orders on Form 21 application filed by the petitioner only vide Annexure-A order dated 15.10.2007. The said order along with demand notice in Form No.22 was served on the petitioner on 2.11.2007. After service of the said proceedings and demand notice, the petitioner wrote a letter to the Assessing Officer on 12.11.2007 stating among other things that in the changed circumstances petitioner will not be able to pay the tax at compounded 2 rate as demanded by the Assessing Officer. In the said letter produced as Annexure-C, the petitioner has offered to pay turnover tax at compounded rate at 135% of the purchase value of Indian made foreign liquor. The Assessing Officer who obviously does not have the power to vary the scheme of compounding, has not accepted petitioner's request for variation of the demand of tax from compounding scheme. The petitioner thereafter filed an appeal against Annexure-A proceedings before the appellate authority who dismissed the same and the same is confirmed in second appeal by the Tribunal. It is against this order of the Tribunal the petitioner has filed this revision case. We have heard Senior counsel Dr.K.B.Mohamed Kutty appearing for the petitioner and Government Pleader appearing for the respondent. 2. The main question raised in the revision is whether the belated order issued by the Assessing Officer on 15.10.2007 produced as Annexure-A is beyond his jurisdiction and against the scheme of compounding provided under Section 7 of the Act. Senior counsel 3 appearing for the petitioner contended that order on compounding application filed in Form 21 along with demand notice in Form 22 should be served on the assessee before the due date for filing return for the first month of the year i.e. 10th May, 2007. His further contention is that since no orders on compounding application was received, the assessee went on filing regular monthly returns and paid the turnover tax due thereof along with monthly returns and therefore, regular assessment based on return should be completed. In other words, assessee is not bound by the compounding application filed by him in Form 21. Government Pleader on the other hand contended that there is no time limit for passing orders on compounding application filed and so long as petitioner's application for compounding was not withdrawn by him, the officer was bound to pass orders thereon and the order passed on 15.10.2007 is binding on the assessee. He further referred to Annexure-C issued by the assessee on 12.11.2007 and contended that assessee has never withdrawn the 4 compounding application and he pressed for the compounding facility but with the deviation with regard to the tax payable, which the officer was not free to grant. Therefore, according to him, once an application for compounding is accepted, tax in accordance with the scheme of compounding under Section 7 is recoverable and for default, interest and penalty were also levied on the assessee. Both sides have cited a recent Division Bench judgment of this court in STATE OF KERALA V. T.S.KALYANARAMAN reported in 2009(2) KHC 509(DB) in which one of us is party, wherein this court held that the failure to pass orders on compounding application before due date for filing of monthly return is not fatal to the application. Of course in the above case decided by this court, assessee after filing compounding application continued to pay tax along with monthly return in accordance with the scheme of compounding, whereas in this case the assessee paid tax on the taxable turnover along with monthly return filed by them. Before proceeding to decide the issue, we notice that 5 assessee has raised an objection before the lower authorities and before us that along with Annexure-A issued on 15.10.2007 the Assessing Officer did not issue notice of demand in Form No.22 which is fatal to the proceeding itself. However, on going through the records produced in court and after going through the assessee's reply filed after receipt of Annexure-A, we do not find any substance in this because assessee has endorsed receipt of notice which obviously is demand notice in Form 22 and besides this, another letter written after receipt of Annexure-A vide Annexure-C, assessee has not raised any objection about the failure of the officer to serve demand notice in Form 22. Therefore, this objection raised by the assessee to challenge the validity of the order is rejected as not maintainable. 3. As already stated, the main question to be considered is whether belated proceedings issued as Annexure-A on 15.10.2007 on the compounding application filed by the assessee is tenable or not. The learned Senior counsel appearing for the assessee contended that 6 the scheme of payment of tax under compounding scheme and the requirement of filing of application in Form 21 before the Assessing Officer as provided under Rule 31 makes it clear that the Assessing Officer should complete the enquiry and pass orders on application for compounding before due date for filing first monthly return for the year i.e. before 10th May of the year, to enable the assessee to start filing monthly returns and for remitting tax in accordance with the compounding scheme as approved by the officer by issuing Form 22. The contention raised by the Government Pleader is that no time limit is specifically provided for issuing orders on Form 21 and according to him, belated passing of orders and issue of demand notice are contemplated in the form provided in Form 22 itself. We are in agreement with this proposition for many reasons. In the first place, proviso to Rule 30(1) provides for belated filing of application for compounding and the officer is bound to accept it, if the assessee produces good and sufficient reason for the delay in filing the 7 application. There is nothing to indicate that no belated application could be filed beyond 10th of May of the year. If a belated application is entertainable for payment of tax under compounding scheme, then certainly we cannot assume that the Legislature intended an absolute timeframe for the officer to pass the order and along with it raise notice of demand before due date for filing first monthly return for the year i.e. on or before 10th of May. Further, it is clear from Form 22 itself that an assessee served with a demand notice in Form 22 demanding tax at compounded rate, should be provided 30 days' time for paying arrears of tax due until date of demand or till 15th of the next month following the month in which the order is issued. It is pertinent to note that the tax at compounded rate in terms of demand for the later month should be paid on or before 10th of the succeeding month along with monthly return. Form 22 obviously indicates that an assessee who has made an application for compounding can wait for payment of tax until orders are issued on his application for compounding and demand 8 notice accompanying thereto is issued in Form 22. Going by proviso to Rule 30(1) providing for filing of belated application for compounding and going by the time granted for payment of tax based on orders on compounding application provided in Form 22, it is clear that the Legislature expects filing of belated application for compounding and passing of orders on compounding application at any time during the relevant year. 4. The next question to be considered is whether the filing of monthly return, declaration of taxable turnover and payment of tax along with monthly returns is sufficient inference of an assessee's withdrawal of an application filed for compounding and that the officer cannot pass orders on an application for compounding filed in Form 21 after the assessee started filing monthly returns declaring taxable turnover and paying tax thereon. Senior counsel appearing for the petitioner contended that once the assessee fails to get order on compounding application and demand notice in Form 22, the assessee 9 is entitled to file monthly returns, declare the turnover, taxable turnover and pay tax thereon. In other words, according to him, the application for compounding in Form 21 does not survive at all for orders to be passed by the officer. On facts, Government Pleader pointed out that the assessee has never withdrawn application for compounding until orders are passed thereon vide Annexure-A on 15.10.2007 and in fact, even after Annexure-A order was issued, the assessee vide Annexure-C wanted only modification of the demand of tax from the compounding scheme which was impermissible. The contention of the Government Pleader is that the application for compounding until withdrawal is valid and the officer is bound to pass orders thereon. Here again, we are in agreement with the contention raised by the Government Pleader because Rule 21(7) providing for filing of monthly returns requires an assessee opting to pay tax under Section 7 also to file regular returns and remit the tax thereon. In other words, even an assessee opting to pay tax under compounded rate is bound to file monthly returns, 10 declare details of turnover, taxable turnover etc. in terms of the return. A combined reading of the provisions on compounding and the filing of return indicate that an assessee who has opted to pay tax at compounding scheme is bound to file monthly returns like any other dealer but needs to start paying tax only after order and demand notice on compounding application are received by him. However, as and when orders are passed in the compounding application and notice of demand received in Form 22, arrears of tax for the preceding months of the year, if any, payable in accordance with the demand notice should be paid within the time provided in Form 22. Even though assessee is bound to continue to file monthly returns declaring turnover, taxable turnover etc. after receipt of Form No.22, the tax payable along with returns for succeeding months should be in accordance with demand served in Form 22. Necessary consequence in the delay in passing order on compounding application is delay in payment of tax which is attributable to the officer. Therefore, the asssesse cannot be called 11 upon to pay any interest under Section 23(3) or Section 23(3A) of the KGST Act. However, assessee is bound to clear the arrears of tax demanded under the compounding scheme in Form 22 within the time stated therein and so long as tax payable for the succeeding months of the year are concerned, payment has to be made along with monthly returns in accordance with the compounding scheme in terms of the demand in Form 22. We, therefore, uphold the validity of Annexure-A confirmed by two appellate authorities including the Tribunal. However, in view of our findings above, we hold that the assessee cannot be subjected to any interest for the arrears of tax due upto the time provided for payment under Annexure-A and the accompanying notice of demand and interest, if any, can be demanded for belated payment after the due date for payment of arrears provided therein and for delay in payment of monthly tax in accordance with the compounding scheme for the later months i.e. after service of Annexure-A. Even though we have held that application for 12 compounding can be filed with delay and the orders can be passed on compounding application, if pending, at any time during the year, we are of the view that these are exceptional cases and in the normal course, officer is bound to pass orders on or before due date for furnishing of first monthly return of the year. Since application for compounding was admittedly filed by the assessee on due date in this case and the officer has not attributed anything on the assessee for the delay in passing orders thereon and since there is a bonafide dispute about the validity of the proceedings issued and since tax returns also were filed by the assessee, we direct the officer to recall penalty orders provided assessee clears all the arrears of tax under the compounding scheme with interest in accordance with the judgment, within three months from now. Since counsel for the petitioner submitted that there is error in the calculation of tax, we direct the officer to modify the demand, if there is any mistake based on application for rectification to be filed by the petitioner under Section 43 ignoring the time limit, if 13 application is filed within a month from the date of receipt of a copy of this judgment. C.N.RAMACHANDRAN NAIR Judge C.K.ABDUL REHIM Judge pms