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Josco Gold Corporation Pvt. Ltd., Represented By Its General Manager Kottayam v/s The Commercial Tax Officer Kottayam & Others

    WA.No. 319 of 2013

    Decided On, 06 March 2013

    At, High Court of Kerala


    For the Appellant: V.G. Arun, T.R. Harikumar, Advocates. For the Respondents: Bobby John Pulikkaparambil, Govt. Pleader.

Judgment Text

K.M. Joseph, J.

1. Appellant is the writ petitioner. The writ petition was filed seeking the following reliefs:

"i) to issue a writ of certiorari calling for the records leading to the issuance of Exhibit-P10 and quash the same.

ii) to declare Section 8 (f) (ii) of the KVAT, 2003 as ultra vires of Article 14 and 19 (1) (g) of the Constitution of India.

iii) to declare that once a permission is granted for compounding, mandating the petitioner to collect the tax at a specified rate, the respondents cannot cancel the permission and compel the petitioner to pay higher taxes than specified in the order. "

2. Appellant deals in gold. It opted for payment of tax at compounded rate for the assessment year 2009-2010 (Section 8 (f). The same was allowed. For the assessment year 2010-2011 appellant submitted Ext.P1 application dated 22.4.2010 opting for payment of tax under Section 8 (f) of the Kerala Value Added Tax Act,2003 (hereinafter referred to as the 'Act'). Appellant had a head office and one branch. It decided to start a new branch at Nedumangad. Appellant wrote Ext.P2 dated 6.8.2010 to the Commercial Tax Officer, Kottayam. It reads as follows:

"We have great pleasure to inform you that we are opening a new showroom, as the branch of the Josco Gold Corporation Pvt Ltd at EMJAY COMPLEX, Ward No.XV Building No.NM15/80, 81, 82, MARKET JUNCTION, KULAVIKONAM ROAD, NEDUMANGAD, TRIVANDRUM on 08- 08-2010. We also want to pay the Tax under compounding system for the newly opening Show Room."

3. According to the appellant, appellant wrote Ext.P3 letter dated 14.7.2010 pointing out that it is planning to stock 100 kg of gold ornaments in the newly opening branch. It also referred to Section 8 (f) (ii) of the Act which inter alia provided power to the officer to refuse permission to pay tax under Section 8 which relates to payment of tax at compounded rate and cancel the permission, if any, granted inter alia on the ground of holding of stock exceeding double the quantity held in the previous year. It is pointed out that a question was asked as to whether if it stock 100 kg they can continue the compounding facility. Ext.P3 reveals that request was made seeking advice in the matter as early as possible. Ext.P4 shop inspection report is prepared by the Commercial Tax Officer at Nedumangad. It is dated 17.8.2010. Therein, it is inter alia stated that there is a stock of gold in a quantity of 98567.241 gms. It is by Ext.P5 dated 1.9.2010 that the Commercial Tax Officer at Kottayam granted permission under Section 8 (f) of the Act to the appellant to pay compounded rate of tax for the year 2010-2011. Thereafter, the appellant was served with Ext.P6 notice dated 27.10.2012 from the Commercial Tax officer, Kottayam. Therein, it is inter alia stated that, on further scrutiny of the available records it is found that during 2009-2010 the appellant had a closing stock of 215.115 grams of gold valuing Rs.247382/- whereas the closing stock for 2010-2011 is 61449.087 grams of gold valued Rs.74381047/-. The quantity of gold has increased to 285 times and it held stock exceeding double the quantity held in the previous year. Appellant's objections were sought for the proposal to cancel the permission. Appellant responded by Ext.P7 dated 26.11.2012 raising various contentions. By Ext.P8, the permission granted by Ext.P5 was cancelled and appellant was held liable to pay tax under Section 6 (1) of the Act. This is on the basis that the appellant had violated mandatory provisions for eligibility of compounding under Section 8 (f) (ii). Appellant is served with Ext.P9 notice under Section 25 (1) of the Act. Ext.P10 is the assessment order dated 31.12.2012. Ext.P11 is the notice of demand.

4. Before the learned Single Judge, apparently, the appellant sought to canvass the constitutionality of Section 8 (f) (ii). Appellant sought to persuade the learned Single Judge to read down the provisions contained in Section 8 (f) (ii). According to the appellant, Section 8 (f) (ii) would be unconstitutional if it were to be interpreted as meaning that the officer is bound to cancel the permission granted irrespective of the circumstances. Learned Single Judge was not persuaded to think that a case had been made out for reading down the provisions. Learned Single Judge took the view that, while it is open to the Court faced with challenge to the constitutionality of the Section, to employ the principle of reading down the said device is meant to save the statute from unconstitutionality. According to the learned Single Judge, none of the circumstances which would render the statute vulnerable existed in the present case. Learned Single Judge found that the appellant must be treated as aware of the provisions as per which if there were stock exceeding double the quantity held in the previous year, the party is not entitled to compound and what is more he is liable to be visited with an order of cancellation. The learned Single Judge therefore repelled the contention regarding the constitutionality, but, however,regarding other issues left it open to the appellant to pursue remedies. Feeling aggrieved, the appellant is before us.

5. We heard the learned counsel for the appellant and learned Government Pleader. Learned counsel for the appellant would reiterate before us the facts. He would point out that the authority was very much aware that the appellant has started a new branch at Nedumangad. Appellant had addressed Ext.P2 dated 6.8.2010 to the Commercial Tax Officer at Kottayam. He would point out that there was a shop inspection conducted in the newly started branch at Nedumangad on 17.8.2010. The stock of gold was found in sufficient quantity by the officer which would have invited the wrath of the section prohibiting grant of permission under Section 8 (f) (ii). Ext.P5 order granting permission is passed on 1.9.2010. Still, the officer who must have been aware of the shop inspection report granted permission to the appellant to pay tax on compounded basis. He would submit that great injustice is caused to the appellant. Appellant proceeded on the basis of Ext.P5 to pay tax at compounded rate collecting 1.25% only as tax as permitted. He is sought to be deprived of the facility of compounding in the year 2012 that is after the assessment year is run out and what is more important after he is totally deprived of opportunity to collect tax under Section 6 of the Act. He would therefore submit that unless Section 8 (f) (ii) is read down and interpreted to mean that an officer enjoys discretion not to cancel the permission granted even though the stock was in excess as contemplated in the provision the section must perish on the ground of it being unconstitutional. He presses into service the fundamental right available under Article 19 (i) (g) of the Constitution. According to him, the very restriction on holding of stock is an infraction of the fundamental right under Article 19 (1) (g) and therefore the provision cannot be sustained unless it is read down to mean that it is only discretionary for the officer to cancel the permission in appropriate cases. According to him, in the facts of this case,particularly, in the light of the fact that the appellant had notified the officer of the opening of a new branch which in fact is taken note of by the officer in the order of compounding and which is the very basis of the order of compounding (as Explanation v of Section 8 (f) has been made applicable) there is no need at all to invoke the power under Section 8 (f) (ii) to cancel the permission in the instant case.

6. Per contra, the learned Government Pleader would submit that the appellant was only availing a highly concessional rate of tax which is a beneficial provision. As far as the assessee who avails such benefit is concerned it is open to the Legislature to provide conditions. He would further submit that, a party opting for compounding is bound to understand the conditions which are attached to a valid compounding order and when the law clearly stipulates the condition that the holding of double the stock is impermissible, it is not open to the party to turn round and say that the Section should not be invoked. He would submit that, at any rate, as far as Section 8 (f) (ii) is concerned, the condition that permission may be refused and cancellation of permit already granted shall be made must be treated as mandatory when there is stock held which is more than twice the stock held in the previous year. In other words, according to him, there is no question of reading down the Section and to confer discretion on the authority when it is found that the stock is held in excess as contemplated. Section 8 (f) (ii) of the Act for the relevant year reads as follows:

" (ii) The assessing authority, for valid and sufficient reasons, such as shifting of place of business,holding of stock exceeding double the quantity held in the previous year, furnishing of false information, suppression of relevant information, failure to furnish such information demanded, may refuse permission to pay tax under this section and cancel the permission if any granted.

Provided that no orders under this sub- clause shall be issued without giving the dealer an opportunity of being heard and without prior approval of the District Deputy Commissioner."

7. We are of the view that, the case of the appellant challenging the constitutionality of Section 8 (f) (ii) on the ground that it is violative of Article 19 (i) (g) must fail on the short ground that the appellant is a corporate body being a private limited company. It is settled law that Article 19 (i) (g) confers fundamental freedoms on citizens. It has been consistently held by the Apex Court that it is not open to a corporate body to challenge a provision on the ground of violation of freedom under Article 19 (i) (g). The right conferred is only on citizens and citizen would mean natural persons. (See Tata Engineering Co. V. State of Bihar (AIR 1965 SC 40). On that short ground appellant is bound to fail.

8. Faced with this position, learned counsel for the appellant sought to rest his challenge alternatively on the basis of the provisions Article 14 of the Constitution. The argument is that, if Section 8 (f) (ii) is interpreted as conferring power to mandatorily cancel the permission on the ground that the party holds stock in excess then it would be countenancing the conferment of unbridled power on the statutory authority and it would also amount to permitting the exercise of power in an arbitrary manner. It is submitted that there is uncanalized power.

9. It is clear that the argument that there is uncanalized power is totally bereft of any merit. In fact, Section 8 (f) (ii) as far as the challenge of the appellant is concerned, it is to be declined as we are concerned in this case where power is sought to be exercised on the ground that the appellant is holding stock in excess. This is an objective criteria. There is absolutely no element of subjectivity. Unless and until such objective criteria is fulfilled there is no question of statutory authority exercising power and once the objective criteria is fulfilled and the circumstances are ripe for exercise of power in terms of statute the law cannot be interpreted as conferring any unbridled power. In fact, such a challenge could possibly be levelled in respect of other categories which are mentioned in Section 8 (f) (ii). We should not be treated as having pronounced on the same as it does not arise for our consideration.

10. It must be noticed that the officer who conducted inspection and prepared Ext.P4 shop inspection report is located at Nedumangad which is a different area falling under a different district from the officer who passed Ext.P5 order of compounding and Ext.P8 order of cancellation of compounding. Shop inspection report is dated 17.8.2010. Ext.P5 granting permission was on the 15th day of the inspection. In fact, in Ext.P8 order it is stated that at the time of compounding, the shop inspection report has not been perused in detail and copy of the shop inspection report is not available in the office records. Since the learned Singe Judge left the matter open for further

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appeal, we are not going into those aspects, particularly in view of the contention of the appellant that the order was passed at any rate after great delay. We are of the view that, as held by the learned Single Judge, no case has been made out for reading down the provision at least in respect of a situation where permission was granted in violation of the condition that stock of gold must not exceed twice the quantity which is held in the previous year. That is a statutory requirement. The failure to comply with such statutory requirement entails consequences. Compounding system of taxation provides for highly concessional rate of taxes. The conditions for availing the said benefit are clearly declared in the statute. A party availing such benefit must be aware of the conditions. It is an objective criteria. Therefore, to say that, it must be treated as discretionary would in fact be vesting an arbitrary power with the authority to treat persons who are otherwise similarly situated unequally. 11. Therefore, we refuse to accept the challenge to Section 8 (f) (ii) and reject the request to read down on the basis of Article 14 as without basis. As already noted, the appellant has also a case that compounding was cancelled after a great amount of delay. We do not wish to express any view in this matter. The appeal is without merit and it is dismissed.