1. This appeal is directed against the judgment and order passed by the High Court of Kerala at Ernakulam in T.R.C. No. 70 of 1997, dated 25.02.2003.

2. The assessee is a dealer in arrack. We are concerned with the assessment year 1993-1994. The regular rate of tax on the sale of arrack is 12.5 per cent. In the normal course, the sale of arrack would attract the charging provisions, namely, Section 5(1) of the Kerala General Sales Tax Act, 1963 (for short, the Act) and the regular assessments would be made by the assessing authority by applying the principles as envisaged under Section 17 of the Act.

3. Section 7 was introduced in the Act, w.e.f., 01.04.1992. Section 7 of the Act provides for payment of tax at compounded rates. Admittedly, in the beginning of the excise year, the assessee had filed an application in Form No. 21 before the assessing authority, dated 24.05.1993, inter alia requesting the assessing authority to facilitate it to pay the tax under the Act at the compounded rates. This application of the assessee was allowed by the assessing authority by an order, dated 28.06.1993 and accordingly Form No. 21A was issued to the assessee.

4. The assessee continued with its business activities from the beginning of the excise year till 15.08.1993. On 19.08.1993, the assessee made an application before the assessing authority inter alia informing them that it has closed its business for multifarious reasons and, therefore, the tax should be assessed as envisaged under Section 5(1) read with Section 17 of the Act. The said request of the assessee was rejected by the assessing authority. Aggrieved by the same, the assessee had carried the matter before the First Appellate Authority, namely the Appellate Assistant Commissioner (Appeals), Ernakulam, who by his order dated 05.12.1994 dismissed the appeal and thereby confirmed the orders of the assessing authority.

5. Being dissatisfied with the orders so passed by the First Appellate Authority, the assessee had carried the matter by way of Second Appeal before the Sales Tax Appellate Tribunal in Appeal No. 32 of 1995. The Tribunal by its order dated 24.02.1995 had allowed the appeal and set aside the order passed by the Appellate Assistant Commissioner.

6. The Revenue being aggrieved by the order passed by the Tribunal had filed the Tax Revision Case before the Division Bench of the High Court in T.R.C. No. 70 of 1997. The High Court by order dated 25.02.2003 following their earlier order in the case of Udaya Traders vs. Sales Tax Officer, Chengannur & Ors.,1995 (99) STC 41 has allowed the Revenues Revision and thereby set aside the orders passed by the Tribunal. It is the correctness or otherwise of the order passed by the High Court which is the subject matter of this Civil Appeal.

7. We have heard learned counsel for the parties to the lis.

8. In order to answer the issues canvassed by learned counsel for the appellant we need to notice Sections 7, 7(14), Form 21 and Form 21A of the Act and Rule 30 of the Kerala General Sales Tax Rules, 1963.

9. Section 7 of the Act is the charging section which provides for payment of tax at compounded rates. The Sub-Section (1) is extracted omitting what is not relevant for the purpose of this case. Sub-Section (1) read as under:

"7.Payment of tax at compounded rate :- (1) Notwithstanding anything contained in Sub-Section (1) of Section 5."

[(A)xx][(a) any dealer in gold or silver ornaments or wares, may, at his option instead of paying tax in accordance with the provisions of that Sub-Section, pay tax at one hundred and fifty per cent of the tax payable by him as conceded in the return or accounts for the immediate preceding years.]

7(14): Notwithstanding anything contained in Sub-Section (1) of Section (5), any dealer who is having licence for retail sales in arrack, may at his option instead of paying tax in accordance with clause (v) of that Sub-Section, pay tax at [thirty per cent of the rental amount payable by him under the Abkari Act 1 of 1077 for the licence, less tax paid for the purchase of arrack on the first sale point."

Sub-Section (15) of Section 7 of the Act provides for the procedure which requires to be followed by the assessee after he intends to pay the tax at the compounded rate.

Sub-Section (15) of Section 7 of the Act reads thus:

7(15): Every dealer referred to in Sub-Section (14) may opt to pay tax in accordance with that Sub-Section by making an application in the prescribed form to the assessing authority and pay the tax in monthly instalments in the prescribed manner after deduction of the tax paid on purchase of arrack for each month in accordance with the provisions of Sub-Section (14)."

10. After receipt of the application that may be filed by the assessee the assessing authority is expected to pass appropriate orders as provided under Sub-Section (16) of Section 7 of the Act.

11. Having noticed the relevant sections, we now refer to Rule 30 of the Rules. The said Rule prescribes the form which requires to be filled by the dealer/assessee while claiming the benefit of Section 7(14) of the Act. The said Rule reads as under:

"Rule 30: Every dealer who is eligible to pay tax at compounded rate under Section 7 of the Act and who desires to exercise the options provided for under the said section may apply to the assessing authority concerned for permission to pay tax at the rates specified therein in Form 21 on or before the first day of May of the year to which the option relates.

Provided that the assessing authority may admit an application field after the prescribed date for good and sufficient reasons to be recorded in writing.

(2) On receipt of the application, the assessing authority shall conduct necessary enquiries and shall pass such order granting or rejecting the application, as the case may be. No application shall be rejected unless the dealer is given an opportunity of being heard.

(3) On the application being allowed, the assessing authority shall serve on the dealer a notice of demand in Form 22.

(4) If any dealer executing works contract or any dealer in arrack claims deduction of any amount as tax paid on his purchase within the State, such claim shall be accompanied by a statement in the following form.

Other Rules are not relevant for the purpose of disposal of this appeal."

12. A bare reading of Rule 30 of the Rules would indicate that a dealer who is liable to pay tax at the compounded rates under Section 7 of the Act and who desires to use the option provided under Section 7(14) of the Act may file an application for permission before the concerned assessing authority in the form prescribed, namely, Form 21 on or before first day of the month of May in the year.

13. The Rule making authority has provided the discretion to the assessing authority to permit an assessee to make an appropriate application beyond the period prescribed under Rule (1) of Rule 30 after he is satisfied that the assessee was prevented from not filing the application within the time limit prescribed for good and sufficient reasons.

14. Sub-Rule (2) of Rule 30 stipulates that assessing authority shall make appropriate enquiries and pass suitable orders granting or rejecting the application that may be filed by the assessee. In order to satisfy the principles of natural justice, the rule provides that no application shall be rejected by the assessing authority without affording an opportunity of hearing to the assessee.

15. Form 21 is an application for permission for payment of tax under Section 7 of the Act. Form 21-A is the form wherein the assessing authority issues form 21-A if it is satisfied that the assessee has complied with the conditions prescribed under Section 7(14) of the Act read with Rule 30 of the Rules.

16. Admittedly the appellant-assessee had filed an application as envisaged under the Act as well as the Rules for payment of tax at compounded rates on 24.05.1993. This application was favourably considered by the assessing authority and it had passed an order on 28.06.1993. The order so passed by the assessing authority has some relevance for the purpose of disposal of this appeal and therefore, the same is extracted which reads as under :

"The Kerala General Sales Tax Rules 1963

Form No. 21A

Permission of Payment of Tax funder Section -7 (See Rule 30)

Whereas M/s. Koothattukulam Liquors, Koothattukulam arrack dealers holding Registration Certificate No. 23152072 under KGST Act date 20.5.1992 carrying on the retail business of Arrack in shops Nos. 1 to 25 in Piravom range has applied for payment of tax under section 7 of the KGST Act, 1963. It is hereby permitted that the said dealer be required to pay the amount noted below.

93-94 Rs.31,80,100.-

(including 10% surcharge)

1. The permission hereby granted is liable for cancellation if the dealer fails to pay the amount fixed and demanded by the Assessing Authority within the time stipulated in the notice of demand for any month.

2. The dealer shall maintain true and correct accounts of purchaser and sales effected by him during the course of business.

3. The permission is valid from 1.4.93 to 31.3.94.

Muvattupuzha

Signature of the Assessing Authority

sd/-

Addl. Sales Tax Officer- II,

Muvattupuzha.

To

Sri P.A. Mathaj, Ag. partner,

M/s Koothattukulam Liquors,

Parappalil (H), Onakkoor P.O. Muvattupuzha"

17. One of the conditions that is provided in the aforesaid order is that if for any reason the dealer/assessee fails to pay the amount fixed and demanded by the assessing authority within the time stipulated in the notice of demand for any month, the assessing authority reserves its right to cancel the order passed under Section 7(14) of the Act read with Rule 30 of the Rules.

18. The assessee after carrying on business for approximately two months, had again approached the assessing authority to cancel the permission that was granted to him earlier under Section 7(14) of the Act read with Rule 30 of the Rules on the ground that the assessee had closed his business.

19. The request of the assessee came to be rejected by the assessing authority and in that the assessing authority has observed that once the permission is granted to pay tax at the compounded rates, the assessee cannot request the assessing authority to permit him to withdraw his earlier application and requests for completion of assessments under Section 17 of the Act. In the words of the assessing authority "the request for cancellation of compounded permission, cannot be accepted as per the Kerala General Sales Tax Act and the Rules. Further, the dealer has enjoyed the benefits granted to dealers who have opted for compounding system of payment of tax. Under such circumstances, the final assessment for 1993-94 upto stoppage of business is completed ..."

20. Aggrieved by the said rejection as we have already noticed, the assessee has unsuccessfully filed an application before the Appellate Assistant Commissioner who confirmed the order passed by the Assessing Authority. The Tribunal upset the orders passed by the Appellate Authority and the Assessing Authority.

21. The only question for our consideration and decision is whether the assessee can request for a regular assessment in the same assessment year after opting for composition of tax under Section 17 of the Act.

22. The concept of payment of compounded amount of tax is a bilateral agreement between the parties. The scheme of composition provides that the State Government is empowered to accept a lump sum amount in lieu of tax that may be payable by the dealer in respect of such goods or class of goods and for such period as may be agreed upon. For that purpose, the dealer is obliged to execute an agreement of undertaking to pay the sales tax in lump sum and the same is assessed at an agreed rate as envisaged under the Act itself. The scheme as introduced by the legislature provides for a bilateral agreement between the assessee and the Sales Tax Authorities with an object to dispense with the requirement of regular assessment and for the easy purpose of levy and collection of the tax payable under the Act. A dealer, who has opted for payment of lump sum amount in lieu of tax, is not required to file monthly, quarterly or annual returns of his turnover. It is the choice of a dealer to opt for compounded payment of tax and if the said choice is in accordance with the scheme and is ultimately accepted by the authority concerned, it becomes an agreed amount of tax. The department and the dealer are thereafter bound by the said agreement.

23. The compounding of the tax by way of contract of payment of tax is a lump sum on the value of contract on an agreed rate. The contract of compounding is a statutory contract under a scheme, in which the State Government can increase or decrease the rate of compounding of tax. It is an invitation to offer for compounding for each financial year resulting in an agreement qua such financial year. Therefore, the contract between the assessee and the assessing authority can be then annulled by the parties only under the circumstances which are provided under the provisions of the Contract Act. The right to rescind from the contract is available to the assessee only under the circumstances prevailing under the Indian Contract Act. The term rescind as explained in Indian Contracts Act, 1872 is revocation of contract by an express and unequivocal cancellation by one party. The right of rescission is only available when the consent of the party is obtained by fraud, misrepresentation, coercion or undue influence. Therefore, the dealer having once exercised its option under the composition scheme cannot, therefore be permitted to turn around and rescind from its liability merely on the ground that he had no turnover due to losses or had not done any manufacturing activity during the relevant year only for the reason that amount payable under the composition scheme is not relatable to any annual turnover but depends upon the agreement under the scheme at the option of the dealer. In other words, the assessee once having opted for composition and upon the completion of assessment cannot blow hot and cold at the same time, requesting the assessment authority for regular assessment under the Act. The aforesaid position of law is explained in the case of Commissioner of Central Excise and Custom vs. M/s Venus Castings (P) Ltd., wherein this Court while considering the provision of Section 3A(4) of the Central Excise Act, 1944 and Rule 96ZO(3) of the Central Excise Rules, which envisaged the composition method of payment of duty, has held that they provided two alternative procedure to be adopted at the option of the assessee and they do not clash with each other. The manufacturer if they have availed of the procedure under Rule 96ZO(3) at their option, cannot claim the benefit of determination of production capacity under Section 3A(4) of the Act, which is specifically excluded. The principle is again reiterated in the case of Union of India & Ors. vs. Supreme Steels & General Mills and Ors, AIR 1997 SC 3640 [LQ/SC/1996/2069] . In the aforesaid case, it has been held by this Court that it was absolutely optional for the manufacturer to opt for payment of excise duty in accordance with Sub-Rule (3) of Rule 96ZO on the basis of total finished capacity installed as provided thereunder and the manufacturer cannot opt twice during one financial year first choosing to pay in accordance with Sub-rule (3) of Rule 96ZO and thereafter to switch over to actual production basis under Section 3A(4) of the Central Excise Act, 1944 in case it is less than the duty payable under Sub-rule (3) of Rule 96ZO. The said Sub-Rule is quite clear that the option under it is available subject to the condition that once having opted it, the benefit, if any, under Sub-Section (4) of Section 3A of the Central Excise Act, 1944 shall not be available. The said observation has further found place in the case of State of Kerala & Another vs. Builders Association of India & others; AIR 1997 SC 3640 [LQ/SC/1996/2069] ; wherein this Court has time and again made it clear that once the dealer has opted for composition, the same cannot claim benefit under regular assessment.

24. The composition of tax is nothing but an alternative route to assessment regulated by the terms of a contract between the assessee and the assessing authority to arrive at the same destination. Therefore, the dealer who had voluntarily and with full knowledge of features of alternate method of taxation has opted to be governed by it, a fortori cannot in the lean season, claim for his assessment to be made under the regular assessment in the same assessment year.

25. In the instant case, the appellant had voluntarily offered to pay the tax at the compounded rates and since it was accepted by the assessing authority, in our opinion, in the middle of the year the assessee could not have withdrawn the application for payment of the tax at the compounded rates. This has been taken note by the assessing authority and the First Appellate Authority and by the High Court.

26. After going through the reasoning of all these three forums and the settled law as it stands, we are of the opinion that the High Court has not committed any error, whatsoever, that would call for our interference in this appeal.

27. The Civil Appeal is dismissed accordingly.