Closure of Branch irrelevant insofar as assessee choose Determination of Tax Liability on Compounding basis: Kerala HC [Read Judgment]

The High Court of Kerala held that the assessee with open eyes applied under the scheme and obtained permission. There was no cause for any exclusion since the closed down branch had business in the previous year for which tax was also paid at the compounded rate.

The assessee, M/s. Kunnathukalathil Jewellery engaged in the business of jewelry had its Head Office at Changanacherry and three branches at Kottayam, Thiruvalla, and Chengannur. From the year 2006-2007 onward the assessee was paying tax under Section 8(f) of the Kerala Value Added Tax Act, 2003. The assessee on March 31, 2010, closed down the branch at Thiruvalla, and from the next assessment year, the business is carried on from the Head Office and two branches.

The assessee for the year 2010-11 applied for compounding and the issue is said to be pending before the Tribunal in appeal. The Department maintains that the compounded tax to be paid by the assessee is at the percentage prescribed of the tax paid in the previous year, ie, 2009-10 which included the Head Office and three branches. In the years 2011-12 and 2012-13, the assessee again applied for compounding and the same was permitted. The assessee had made an application excluding that portion of the tax paid, attributable to the Thiruvalla Branch for the year 2009-10; in the year 2010-11. The assessee was permitted to pay tax under the compounded provision. Later notice was issued under Section 25(1) of the KVAT Act and orders were passed for the two consecutive years including that portion which was excluded in the previous year, for the purpose of determining the tax payable under the compounding scheme for the years under option.

The division bench of Justice K. Vinod Chandran and Justice T. R. Ravi observed that the learned Single Judge does not permit the exclusion of the turnover of a closed branch in a previous year for the determination of tax liability under the compounded provision in the year under option. Explanation 3 is specifically with respect to the closing of a branch during the year under option upon which proportionate reduction in the number of business places can be allowed for the purpose of payment from the next monthly installment.

The court further said, “the assessee with open eyes applied under the scheme and obtained permission. There was no cause for any exclusion since the closed down branch had business in the previous year for which tax was also paid at the compounded rate.”

“The assessee had no escape from paying tax on the basis of the earlier turnover since that was an alternate mode available to the assessee for which the assessee had voluntarily opted with open eyes,” the court said.