The issues involved in these three writ petitions being similar, they are taken up together for consideration and disposed by this common judgment. The petitioners in the writ petitions, who are conducting business in Granite Metals, are assessees under the Kerala Value Added Tax Act (hereinafter referred to as “the KVAT Act”). As per the provisions of Section 8(b) of the KVAT Act, any dealer producing granite metals with the aid of mechanized crushing machines may, at his option, instead of paying tax as per the regular mode of assessment under the KVAT Act, pay tax at the compounded rate envisaged under that Section. The compounding provision, as it stood in the Assessment Year 2008-09, reads as follows:
8. Payment of tax at compounded rates:-
Notwithstanding anything contained in Section 6,-
(a) ...................................
(b) Any dealer producing granite metals with the aid of mechanized crushing machine may, at his option, instead of paying tax in accordance with the provisions of the said sections, pay tax at the following rates, namely:-
[(i) for each crushing machine of size not exceeding 30.48 cm x 22.86 cm = Rs.50,000 per annum;
(ii) for the each crushing machine of size exceeding 30.48 cm x 22.86 cm but not exceeding 40.64 cm and 25.40 cm = Rs.1,60,000 per annum;
(iii) for the each crushing machine of size exceeding 40.64 cm x 25.40 cm = Rs.3,20,000 per annum;]
(iv) for each cone crusher Rs.7,50,000 per annum:
Provided that in the case of dealers, who opted to pay compounded tax under this clause, no separate assessment shall be made in respect of m-sand produced by them.] [Explanation:- For the purposes of this clause, primary crusher shall also be reckoned for the purpose of computation of the quantum of compounded tax and the rate applicable for primary crusher shall be fifty per cent of the rates mentioned in items (i), (ii) and (iii) above.]”
By the Finance Bill 2009, the said provision was amended by inserting the following proviso, after the existing proviso under Section 8(b)(iv), as follows:
“Provided further that dealers with a single crusher other than cone crusher shall pay rupees twenty-five thousand only per annum as tax under this clause.”
This amendment through the Kerala Finance Bill 2009, was made effective from 1st April 2009 and the collection of tax on the basis of the said provisions was authorised through a declaration made in terms of the Kerala Provisional Collection of Revenues Act, 1985. Thereafter, when the Kerala Finance Act 2009 came into force, the proviso was amended to read as follows:
“Provided further that notwithstanding anything contained in this clause, dealers with a single crushing machine of size not exceeding 30.48 cm x 22.86 cm. shall pay rupees twenty five thousand only per annum as tax under this clause.”
Explanation- For the purpose of this clause, primary crushers shall also be reckoned for the purpose of computation of compounded tax, and the rate applicable to primary crushers shall be at fifty per cent of the aggregate of the tax payable on secondary crushers.
2. The petitioners in the above writ petitions opted for payment of tax at the compounded rate, as envisaged in Section 8(b) of the KVAT Act, under the belief that the rate applicable to them, insofar as they owned only a single crushing machine, would be only an amount of Rs.25,000/-, which was the figure indicated in the proviso to Section 8(b) (iv) of the KVAT Act at the time when they were called upon to exercise their option. The applications preferred by the petitioners, opting to pay tax at compounded rate, were on this assumption regarding the amount to be paid. In the case of the petitioner in W.P.(C).No.18043/2010, Ext.P1 is the permission dated 08.07.2009, given to the petitioner by the first respondent, to pay tax at the compounded rate for an amount of Rs.25,000/- as envisaged in the proviso as it then stood. It is seen from Ext.P1 permission that the application of the petitioner, that was considered by the first respondent, was the one dated 29.04.2009. In the case of the petitioners in W.P.(C).Nos.18028/2010 and 18492/2010, although they had also submitted their applications for payment of tax at compounded rates, on 30.04.2009 and 05.05.2009 respectively, based on the proviso to Section 8(b)(iv) that contemplated a payment of Rs.25,000/- as the tax amount to be paid, the orders permitting them to pay compounded tax were passed only on 03.11.2009 and 30.11.2009 respectively. Thus, in the last mentioned two writ petitions, while the applications for permission to pay tax at compounded rate were filed at a point in time when the proviso envisaged the payment of tax of Rs.25,000/- for units having a single crushing machine, the formal orders permitting the petitioners to pay tax at compounded rate were passed only in November 2009, by which time, the Kerala Finance Act, 2009 had come into force, altering the very basis on which the application for compounding had been preferred by the petitioners. As already noted, by virtue of the Kerala Finance Act 2009, the units having a single crushing machine of a size exceeding 30.48 cms. x 22.86 cms. were required to pay an amount of Rs.1,50,000/- as compounding fee. It is relevant to note that, during the interim period between the date of filing of their applications for permission to pay tax at compounded rate and the date of the orders permitting them to pay tax at compounded rates, the petitioners had started remitting the tax at the rate of Rs.25,000/-, that was envisaged in the proviso to Section 8(b)(iv) pursuant to the Kerala Finance Bill, 2009, but before the amendment brought about by the Kerala Finance Act, 2009.
3. The issue that arises in the writ petitions is whether pursuant to the enactment of Kerala Finance Act, 2009, which had the effect of amending the proviso with effect from 01.04.2009, to make the tax payable at compounded rate in respect of crushing machines of size exceeding 30.48 cms. x 22.86 cms., Rs.1,50,000/-, the respondent assessing authorities were justified in either rectifying the earlier orders granting permission to the assessee to pay tax at the reduced rate of Rs.25,000/- or passing orders granting permission to the assessee to pay tax at compounded rates at the enhanced rate of Rs.1,50,000/-, taking note of the amendment brought about by the Kerala Finance Act, 2009. It is the case of the petitioners that, insofar as the applications for permission to pay tax at compounded rates were preferred taking into account the provisions of Section 8(b)(iv) as it stood pursuant to the Kerala Finance Bill 2009, but before the Kerala Finance Act of 2009, it was not open to the respondents to change the very basis on which the option was exercised and compel them to opt for payment of tax at compounded rates taking into account the higher amount brought in by the Kerala Finance Act, 2009.
4. A Counter affidavit has been filed on behalf of the respondents wherein, the stand taken is that the petitioners having exercised their option to pay tax at compounded rate, it was not open to them to resile from the said option and choose to pay tax at regular rates on finding that the rate of tax has been enhanced. It is pointed out, by referring to the various decisions of this Court, that a compounding option once exercised is binding on the assessee as well as the Government and neither are allowed to resile from the same. It is also contended that, merely because the Kerala Finance Act 2009 had the effect of changing the rate of tax that had to be paid in terms of the compounded provisions, the assessee who had opted for the compounding scheme could not resile therefrom by citing the enhancement of rate of tax.
5. I have heard Sri.Muralidharan Nair and Sri.Sathyanatha Menon, the learned counsel appearing on behalf of the petitioners in the writ petitions and Smt.Lilly.K.T., the learned Government Pleader appearing on behalf of the respondents in all the writ petitions.
6. On a consideration of the facts and circumstances of the case as also the submissions made across the Bar, I find that the petitioners in these writ petitions are persons who exercised the option in accordance with the provisions of Section 8(b) of the KVAT Act for payment of tax at compounded rates. Towards that end, they had preferred applications seeking permission from the assessing authorities for payment of tax at compounded rates. Under normal circumstances, the assessing authorities are expected to act on the application and issue prompt orders, either permitting the assessee to pay tax at compounded rates or refusing such permissions. The urgency, in the matter of acting on an application preferred by the assessee, is on account of the fact that an assessee has to know, before the regular date of payment of tax envisaged under the KVAT Act, as to whether he is obliged to pay tax on regular basis in accordance with the provisions of the KVAT Act or on compounded basis in terms of Section 8(b) of the KVAT Act. Unless he knows the fate of his application, he will not be in a position to file a return and pay tax, in the manner contemplated under the KVAT Act. Thus, under normal circumstances, the assessing authorities, before whom applications for permission to pay tax at compounded rates are pending, pass orders on the said applications immediately or at any rate before the assessee is called upon to pay tax on regular basis in terms of the KVAT Act. In the instant writ petition, it is seen that while in W.P. (C).No.18043/2010, the application for permission to pay tax at compounded rates was acted upon expeditiously and the order permitting the assessee to pay tax at compounded rate passed within a couple of weeks, in the other two writ petitions, the orders permitting the petitioners to pay tax at compounded rates was passed only after a gap of almost six months. The delay on the part of the assessing officer in the last mentioned cases assumes significance because, by the time the assessing officer passed orders permitting the assessee to pay tax at compounded rates, there had been an amendment to the provision prescribing the amount to be paid as compounded tax by enhancing the same from Rs.25,000/- to Rs.1,50,000/-. While under normal circumstances, a change in the rate of tax payable, consequent to an amendment that was
effected midway during an assessment year, will not alter the liability of the assessee to pay tax at the amended rates, the amendment does have an impact in the instant case because it changes the very basis of the understanding of the assessee while opting for a payment of tax at compounded rates. In these writ petitions, it is seen that the basis on which the assessees acted, while exercising their option, was the assumption that the tax payable at compounded rates would only be an amount of Rs.25,000/-. That understanding was changed and, by virtue of the amendment brought in by the Kerala Finance Act, 2009 with retrospective effect from 01.4.2009, the assessee was called upon to pay an amount of Rs.1,50,000/- in lieu of Rs.25,000/- The learned Government Pleader would place reliance on the decisions of this Court in Sasi V.V v. Commercial Tax Officer-III, Department of Commercial Taxes, Aluva (2010 (1) KHC 636) as affirmed in the judgment dated 19.02.2010 in W.A.No.284/2010, wherein, this Court found that, where a compounding application had been permitted on the basis of the rate of tax provided in the Kerala Finance Bill, 2009 and the said rate of tax was enhanced by the Kerala Finance Act, 2009, which was enacted subsequently, it could not be said that there was an
enhancement of tax prejudicial to the interest of the assessee since, the permitted rate of compounded tax had not existed in the statute book at any point of time. It was held that the payment of tax by the assessee on the basis of the provisions of the Kerala Finance Bill, 2009 could only be viewed as one effected under mistake of law and hence, the enhanced tax consequent to the enactment of the Finance Act could be validly collected from the assessee. In this connection, I have to note that the said decision does not consider the issue as to the effect of the enhancement, brought about by the Kerala Finance Act, 2009, on the exercise of option by the assessee. No doubt, in a case where the assessee continues to opt for the facility of payment of tax at compounded rate, it may not be open to him to contend that he should be permitted to pay only the tax at the lower rate and not at the enhanced rate introduced through the Kerala Finance Act, 2009. The position would be slightly different, however, in the case of an assessee, who does not wish to pursue the option exercised by him for payment of tax at compounded rate. The latter would be a case where the assessee is essentially contending that the very basis, that informed his choice of opting for payment of tax at compounded rate, was removed through the enhanced rate that was introduced through the Kerala Finance Act, 2009. In my view, where the choice of an assessee, as to the manner of payment of tax, is based on a particular provision of law as it stood at the time of the exercise of his option, and that basis is thereafter changed, the assessee must necessarily be given an opportunity to reconsider his option for the purposes of payment of tax in terms of the KVAT Act. In the instant cases, the orders passed by the assessing authorities have the effect of forcing upon the assessee, an option that he never contemplated, and in that sense, it affects the very understanding between the assessee and the department with regard to the payment of tax on compounded basis. The orders impugned in these writ petitions viz., Ext.P4 in W.P.(C). No.18028/2010, Exts.P2 and P4 in W.P.(C).No.18043/2010 and Exts.P1 and P3 in W.P.(C).No.18492/2010 are hence quashed. As the petitioners in all the writ petitions have clearly expressed that they do not wish to opt for payment of tax at the revised compounded rates for the assessment year in question, the respondent assessing authorities in all these cases shall proceed to complete the assessment on the petitioners, for the assessment years in question, as per the regular provisions of the KVAT Act and not in accordance with the provisions of Section 8 of the said Act. The assessment order with regard to each of the petitioners, for the assessment years in question, shall be passed by the respective Assessing Authorities within a period of three months from the date of receipt of a copy of this judgment, after affording the petitioners an opportunity of being heard in the matter.
The writ petitions are disposed as above.
lsn Sd/-A.K.JAYASANKARAN NAMBIAR JUDGE