IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM WEDNESDAY, THE 15TH SEPTEMBER 2010 / 24TH BHADRA 1932 WP(C).No. 22552 of 2010(T) ------------------------- PETITIONER : --------------- M/S. K.V.JACOB & SONS, KALLAPARA HOUSE, KUMARAPURAM P.O., PALLIKKARA, ALWAYE, REPRESENTED BY ITS MANAGING PARTNER SHRI. K.V.JACOB. BY ADV. SRI.DALE P.KURIEN RESPONDENT(S): ------------------------ 1. THE COMMERCIAL TAX OFFICER (WC), OFFICE OF THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, MATTANCHERRY- 682 002. 2. THE COMMISSIONER OF COMMERCIAL TAXES, VIKAS BHAVAN, THIRUVANANTHAPURAM -695 033. 3. THE STATE OF KERALA, REPRESENTED BY ITS SECRETARY TO GOVERNMENT, TAXES (B) DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM – 695 033. R1 TO R3 BY GOVERNMENT PLEADER SRI. V.K. SHAMSUDHEEN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 15/09/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Mn C. K. ABDUL REHIM, J. =~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~= W.P.(C) No. 22552 of 2010 =~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~= Dated this the 15th day of September, 2010 JUDGMENT Petitioner is challenging Ext.P3 notice issued by the 1st respondent, calling for objections against the proposal for cancellation of Ext.P2 permission granted for payment of tax at the compounded rate under section 8(a) of the Kerala Value Added Tax Act, 2003 (KVAT Act). It is stated in Ext.P3 that subsequent to grant of such permission, on verification of bills pertaining to the work order, it was found that contract to the extent of Rs.5,85,00,000/- was only for supply of red earth and it does not involve any works contract, and therefore the said amount is liable to be taxed at the rate of 12.5 %. 2. Ext.P3 is challenged mainly on the ground that the 1st respondent has no jurisdiction to withdraw the permission granted. It is contended that once compounding is allowed, it creates a concluded contract between the W.P.(C) No. 22552/2010 2 department and the assessee and there is no provision enabling the department to have a unilateral withdrawal from the contract. 3. In the affidavit filed on behalf of the 1st respondent it is contended that, the petition submitted seeking permission for compounding is only an option and that the department is at liberty to cancel the permission if it is found that such permission was granted on the basis of erroneous facts. Learned Government Pleader has pointed out section 66 of the KVAT Act, which deals with the general power for rectifying any error apparent on the face of the record. It is evident from Ext.P3 notice that Ext.P2 permission was granted on the basis of mistaken impression that the contract pertains to works to be executed by the petitioner. But it is mentioned that there is subsequent realization that the contract was only for supply of read earth, which does not involve any execution of work. Hence the cancellation proposal is perfectly legal and justifiable, is the contention. W.P.(C) No. 22552/2010 3 4. The contention of the petitioner is that the work in question is not relating to supply of red earth, but the same includes loading, transportation, spreading, watering, settling etc. Therefore, for the execution of the work the petitioner is using machinery as well as labour and the same is having characteristics of a work which is to be executed. Referring to Exts.P4 and P5 documents, it is submitted that permission for compounding was already granted to other assessees for identical contracts. However, the above fact was denied by the respondents in their statement. 5. In the statement filed on behalf of the 1st respondent it is stated that the petitioner has not chosen to file any objections against Ext.P3 notice. Along with the reply, the petitioner had produced Ext.P6 indicating that the petitioner had submitted reply to Ext.P3 notice on 26-5- 2008. It is further contended by the 1st respondent that after service of Ext.P3 notice the petitioner had already submitted application for getting certificate in Form No.20E W.P.(C) No. 22552/2010 4 (as contemplated under Section 20(e)) which was filed in Form No.20D. The respondents submitted that application for certificate in From No.20D was filed by the petitioner with computation statement opting payment of tax at the rate of 12.5% for the material portion covered by the contract. It is further stated that all the quarterly returns filed by the petitioner the contract amounts were shown as non compoundable, under section 6 of the KVAT Act. The learned Government contended that the contract in question is non compoundable and is liable to be taxed under section 6, and the petitioner could not now turn around and contend that the authority is powerless to cancel the compounding. 6. The contention of the petitioner is that inspite of filing of returns and remittance of tax at the rate of 12.5% they are entitled to challenge the steps initiated for cancellation of permission for compounding once granted. However, whether the cancellation of the compounding proposed is sustainable or not, is a matter which need be W.P.(C) No. 22552/2010 5 decided by the 1st respondent at the first instance, after considering objections raised by the petitioner and after affording a personal hearing. 7. Therefore, the writ petition is disposed of directing the 1st respondent to finalize the proceedings on the basis of Ext.P6 objection submitted by the petitioner, after affording him an opportunity of being heard. 8. It is made clear that the petitioner is entitled to raise all the contentions available, including contentions based on Ext.P4 and P5 in which it is alleged that compounding was permitted in similar circumstances. C. K. ABDUL REHIM, JUDGE. mn.