The Kerala High Court dismissed an appeal challenging an assessment order passed post-compounding. The court held that since the appellant admits to the offence and valuation to avail compounding under Section 74, he cannot subsequently challenge the consequent assessment order.
Appeal dismissed; assessment order amended after compounding remains valid.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE &
THE HONOURABLE MR. JUSTICE P.SOMARAJAN
FRIDAY, THE 9TH DAY OF MARCH 2018 / 18TH PHALGUNA, 1939
WA.No. 317 of 2017 IN WPC. 806/2017
AGAINST THE ORDER/JUDGMENT IN WP(C) 806/2017 of HIGH COURT OF KERALA DATED 20-01-2017
APPELLANT(S)/PETITIONER.
I.K MUNEER PROPRIETOR, M/S PLASTOWARE TRADERS, MULAMKADAKAM, KOLLAM.
BY ADV.SRI.BOBBY JOHN
RESPONDENT(S)/RESPONDENTS:
1. THE COMMERCIAL TAX OFFICER THIRD CIRCLE, COMMERCIAL TAXES, KOLLAM.690536.
2. THE INTELLIGENCE OFFICER, SQUAD NO.3, COMMERCIAL TAXES, KOLLAM.690536.
3. THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, KOLLAM.690536.
4. THE INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, KOLLAM.690536.
5. STATE BANK OF TRAVANCORE, ANANDAVALLESWARAM, KOLLAM, REPRESENTED BY ITS BRANCH MANAGER.690530.
R5 BY ADV. SRI.R.S.KALKURA, SC, SBT
THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 19-02-2018, THE COURT ON 9/3/2018 DELIVERED THE FOLLOWING:
WA NO.317/2017
APPENDIX
APPELLANT'S EXHIBITS
ANNEXURE I: TRUE COPY OF THE SIR NO.121706 DATED 13.10.2014 ISSUED BY THE INTELLIGENCE OFFICER.
ANNEXURE II: TRUE COPY OF THE SIR NO.121684 DATED 13.10.2014 ISSUED BY THE INTELLIGENCE OFFICER.
ANNEXURE III: TRUE COPY OF THE COMPOUNDING APPLICATION DATED 30.5.2015 SUBMITTED BY THE PETITIONER/APPELLANT HEREIN BEFORE THE 2ND RESPONDENT.
//True Copy//
PS to Judge
Rp
A.M. SHAFFIQUE & P.SOMARAJAN, JJ.
========================== W.A.No.317 of 2017
===============
Dated this, the 9th day of March, 2018
J U D G M E N T
Shaffique, J.
The petitioner in WP(C) No.806/2017 is the appellant. He challenges judgment dated 20/1/2017 by which the writ petition was dismissed.
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2003 (hereinafter referred to as the Act) as compounding fee/tax. Ext.P1 is the said order. Petitioner preferred an application for rectification on the ground that the compounding fee was fixed on the basis of valuation of stock at MRP rate. In the absence of any provision for rectification, the 2nd respondent rejected the said application as per Ext.P2 order dated 4/5/2016. Petitioner preferred a revision along with an application to condone delay. In the meantime, the 1st respondent issued notice u/s 25(1) of the Act to reopen the assessment despite the objection filed stating that he was forced to compound the matter under pressure from the department officials. The assessment was reopened and as proposed in the notice, an order dated 6/5/2016 has been passed which is produced as Ext.P6. Petitioner again filed rectification application on 19/1/2016. In the meantime, further proceedings were taken by the department for recovering the amount. Petitioner therefore challenges the assessment order inter alia contending that it was based on a compounding order which is patently illegal. According to the petitioner, the estimation of value of the stock at MRP rate is the basic premise on which compounding fee was calculated. In so far as the taxable event
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under the Act is sale/purchase, the actual sale price/purchase price alone can be taken for the purpose of valuation under the Act. It is therefore contended that the computation of compounding fee is erroneous and clearly unsustainable in law. Petitioner expecting the correction of the said anomaly in the statutory revision contends that the assessment made on the basis of said valuation of stock is illegal and arbitrary.
(II) to issue a writ in the nature of certiorari or any other appropriate writ, order or direction quashing Exhibits. P9 and P10 orders passed by the 4th respondent;
(III) to issue a writ in the nature of mandamus or any other appropriate writ, order or direction directing the 1st and 4th respondents not to initiate any recovery proceedings pursuant to Exhibit P6 assessment order for a period of six months;
(IV) to issue a writ in the nature of certiorari or any other appropriate writ, order or direction quashing Exhibit P6 assessment order passed by the 1st respondent.”
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reliance on the judgment in Trichur Auto Spares v. State of
Kerala [(2014) 22 KTR 508 (Ker)] in order to contend for the position that when there is patent mistake in the quantification of the compounding fee payable, the assessee can contest the order of the competent authority in an appeal u/s 55 of the Act.
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petitioner had accepted the offence and agreed for compounding, which resulted in Ext.P1 order, the rectification application is not maintainable even going by the dictum laid down in Trichur Auto Spares (supra). In so far as the suppressed turn over was made known to the assessee by the authorities after which the assessee accepted the offence and agreed to compound the offence and the assessee did not chose to file any appeal or pay the amounts determined as compounding fee, the dictum in Jaya Jewellers (supra) clearly applies and accordingly, the writ petition was dismissed.
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offer is made, it is for the prescribed authority to determine whether the offence should be compounded or not. The process of compounding would be complete only when the money offered is accepted by the authority concerned. Once the compounding of the offence is complete, the person who has committed or reasonably suspected of having committed an offence under the Act cannot be an aggrieved person.
1,52,000/- and the compounding fee payable as 1,52,200/-. Annexure B was the order passed. Petitioner preferred an appeal against Annexure B order which came to be rejected, against which a further appeal filed before the Appellate Tribunal was also rejected. The Tribunal held that since the petitioner had compounded the offence u/s 74 of the Act, no challenge should be made invoking S.55 of the Act. After placing reliance on S.55 and S.74 of the Act, it is held atWA No.317/17
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paragraph 8 as under:-
“8. It is clear from a reading of S.74 that an assessee who opts for the benefit of the said provision, accepts the commission of the offence alleged to have been committed by it. Once it does that, the competent authority proceeds to determine the compounding fee payable by the assessee in accordance with clause (a) or (b) of sub-section (1) of the said Section. We feel that in such a situation, it will not be open to an assessee who opts for compounding under the said Section, and thereby avoids adjudication proceedings for penalty and prosecution under the Act, to turn around and contest the order of the competent authority accepting its application for compounding the offence. We are of the view that the scheme of composition of offences under Act does not permit an assessee to approbate and reprobate. No doubt it may be open, in cases of patent mistakes in the quantification of the compounding fee payable, for an assessee to contest the order of the competent authority in an appeal under S.55 of the Act but that recourse can be had only in cases where the mistake is one that is relatable solely to the quantification of the compounding fee and does not militate against the admission by the assessee of its having committed the offence alleged against it. The legal justification for such an appeal would be the contention that while the assessee has admittedly compounded the offence, the
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department has no right to demand or collect any amount towards compounding fee, as is in excess of what is authorised by the statutory provision.”
WA No.317/17
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the item of stock is the MRP value and certain other deficiencies are also pointed out with reference to the manner in which the turnover suppression is arrived at. As a result of such irregular turnover suppression noticed or taken note of, the suppression exceeded 8 lakhs as a result of which petitioner had to pay a compounding fee of 8 lakhs. The question is, whether in such instances, the compounding order could be challenged by filing a revision petition.
WA No.317/17
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There is no provision which indicates that no appeal could be filed against an order passed u/s 74. Section 74 of the Act reads as under:-
“74. Composition of offences.-- (1) The assessing authority or other officer or authority authorized by the Government in this behalf may accept from any person who has committed or is reasonably suspected of having committed an offence against this Act, other than those specified under clause (3) of sub-section (1) or clauses (b), (c) or (d) of sub-section (2) of section 71, by way of compounding of such offence:-
(a) where the offence consists of the evasion of any tax payable under this Act, in addition to the tax so payable a sum of money equal to the amount of tax so payable subject to a minimum of rupees five hundred and maximum of rupees eight lakh: and
[Provided that the maximum compounding fee collectable against a single offence spread over several return periods in a financial year shall be two lakh rupees].
(b) in other cases, a sum of money not exceeding ten thousand rupees:
Provided that the Commissioner may by order authorize any officer to compound the offence under this section on payment of a reduced amount.
(2) On payment of such amount under subsection (1), no further penal or prosecution
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proceedings shall be taken against such person, in respect of that offence.”
_500 and maximum of_ 8 lakhs ”. Therefore, in the case of evasion of tax payable, it is related to the tax so payable and an equal sum of money subject to a minimum of 500/- and maximum of 8 lakhs.WA No.317/17
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which he is mulcted with as evident from Ext.P1 is based on inspection by the Intelligence Squad in the place of business and godowns of the dealer on 13/10/2014. It was found that there is turnover suppression of 14.5% taxable goods amounting to 59,93,340/- and turnover suppression of 5% taxable goods amounting to 9,03,243/-, the total tax effect tax being 9,14,200/- and having violated Section 40 of the Act, proposal was to impose on the dealer penalty of 18,28,400/-. The proposal was communicated to him and objections were called for. He appeared on 13/5/2014 admitting the offence and praying to compound the offence departmentally in lieu of prosecution. It could therefore be seen that when a proposal to impose penalty is being served, an opportunity is always given to contest the matter and an option is available u/s 74 of the Act. When the offence, is admitted, necessarily, the petitioner is admitting that there was irregularity in maintaining true and correct accounts and also the turnover. Therefore, when the petitioner compounds the offence, he is admitting two aspects. One is that he did not maintain true and correct accounts and secondly he agrees with the actual turnover suppression. In Jaya Jewellers (supra),
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Division Bench held that when these facts are not disputed and the compounding application is filed without any coercion, no challenge can be made by filing appeal.
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74 (1) of the Act, he virtually agrees to the turnover suppression and the irregularity in maintaining true and correct accounts. Therefore,even without going into the so called conflict of opinion, in the facts of the present case, we do not think that we will be justified in interfering with the judgment of the learned Single Judge.
Appeal is, therefore, dismissed.
Sd/-
A.M. SHAFFIQUE, JUDGE
Sd/-
P.SOMARAJAN, JUDGE
Rp
//True Copy//
PS to Judge
3 issues framed by the court
Whether an assessee challenging a compounding order based on patent mistakes in quantification of fee can appeal under S.55 without admitting the offence.
Whether an assessee admitting an offence and accepting compounding can subsequently challenge the assessment order based on valuation of stock.
Whether there is a conflict between Trichur Auto Spares and Jaya Jewellers regarding maintainability of appeals against compounding orders.
Colour shows how this judgement treated each authority
Trichur Auto Spares v. State of KeralaExplained¶51
(2014) 22 KTR 508 (Ker)
Jaya Jewellers v. Commissioner of Commercial TaxesExplained¶55
WP(C) No.19641/2003 dated 20/9/2007
2 provisions across 1 enactments
I.K MUNEER PROPRIETOR, M/S PLASTOWARE TRADERS
THE COMMERCIAL TAX OFFICER THIRD CIRCLE, KOLLAM
THE INTELLIGENCE OFFICER, SQUAD NO.3, KOLLAM
THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, KOLLAM
THE INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, KOLLAM
STATE BANK OF TRAVANCORE, ANANDAVALLESWARAM, KOLLAM
A.M. SHAFFIQUE
P.SOMARAJAN
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court