Kerala High Court upholds validity of demand notices

Kerala High Court upholds validity of demand notices

The court directed that the government was bound to recover differential VAT from dealers

The Kerala High Court has upheld the validity of the demand notices. It ruled that the state is bound to recover differential Value Added Tax (VAT) from dealers.

The division bench of Justice S V Bhatti and Justice Bechu Kurian Thomas held that the tax or its collection brought in by the Finance Act of 2011 was not controlled by the validation clause in the Act.

When the compounded tax for dealers in ornaments, including articles of gold and other metals were retrospectively amended for the year 2011-12, the dealers had raised a challenge against the collection of differential tax. Several writ petitions were filed before the court.

The single judge allowed the writ petitions after concluding that the differential tax attempted to be collected from the writ petitioners for the assessment year 2011-12 was legally unsustainable. Accordingly, the court quashed all the impugned orders/demand notices.

The VAT department had appealed contending that the retroactive operation of the compounded rate of tax was within the authority of the government. It further said that the consequential collection of differential tax was legally valid.

The petition was preferred when the dealer was directed to pay the balance tax under the newly introduced compounded rate of tax. It was contended that the compounded tax being in the nature of a contract, the government should be stopped from demanding the same at a higher rate. Even though the assessing officer had sanctioned that the tax could be paid in installments.