Limitation under KVAT Act clarified: Notice issuance time frame crucial for assessments

THE COMMERCIAL TAX OFFICER, ANCHAL, KOLLAM, THE INTELLIGENCE OFFICER (IB), COMMERCIAL TAXES, KOLLAM AND THE DEPUTY TAHSILDAR, REVENUE RECOVERY, TALUK OFFICE, VARKALA, THIRUVANANTHAPURAM Versus S. NAJEEM AND S. SAJEEV

THE COMMERCIAL TAX OFFICER, ANCHAL, KOLLAM, THE INTELLIGENCE OFFICER (IB), COMMERCIAL TAXES, KOLLAM AND THE DEPUTY TAHSILDAR, REVENUE RECOVERY, TALUK ... Issues Involved:
1. Limitation under Section 25(1) of the Kerala Value Added Tax Act (KVAT Act).
2. Validity of orders issued under Section 25B of the KVAT Act.
3. Applicability of principles of natural justice in extending the period for completion of assessment.
4. Retrospective effect of amendments by substitution.

Issue-wise Detailed Analysis:

1. Limitation under Section 25(1) of the KVAT Act:
The primary issue was whether the limitation under Section 25(1) of the KVAT Act pertains to the initiation of proceedings or the completion of assessments. The court held that the limitation provided under Section 25(1) is for the issuance of notice, not for the completion of assessments. The Full Bench decision in Cholayil Enterprises v. Assistant Commissioner of Income-Tax was cited, which clarified that the limitation is for the initiation of proceedings, i.e., the issuance of a notice. The court found that the notices issued after the expiry of five years from the last date of the assessment year could not be sustained, even if there was an extension for the completion of assessments. The amendments extending the period for completion of assessments do not revive assessments where no notices were issued within the initial five-year period.

2. Validity of Orders Issued under Section 25B of the KVAT Act:
Section 25B of the KVAT Act, introduced by the Kerala Finance Act, 2013, allowed the Deputy Commissioner to extend the period for completion of assessments beyond the periods specified in Sections 24 and 25. The court found that Section 25B cannot extend the limitation period for initiation of proceedings, which had already expired. The reliance on the judgment in State of Kerala v. Abhilash T. Mathew was upheld, which emphasized that no extension of the limitation period could be granted without notice to the assessee. The court concluded that the invocation of Section 25B after the expiration of the limitation period for initiation of proceedings was improper and hit by limitation.

3. Applicability of Principles of Natural Justice:
The court underscored the necessity of adhering to principles of natural justice when extending the period for completion of assessments. It was held that any extension of the period of limitation must be preceded by a notice and an opportunity for the assessee to be heard. The court cited Mohinder Singh Gill v. Chief Election Commissioner and Swadeshi Cotton Mills v. UOI to affirm that the principles of natural justice are integral to administrative actions affecting civil consequences. The absence of a provision for notice in Section 25B was deemed a negation of natural justice, which requires a pre-decisional hearing to be read into the provision.

4. Retrospective Effect of Amendments by Substitution:
The court addressed whether the substitution of the period of limitation from five years to six years by an amendment could be applied retrospectively. The court held that an amendment by substitution is not invariably retrospective. The court referred to several Supreme Court decisions, including S.S. Gadgil v. Lal and Co. and K.M. Sharma v. ITO, which established that an amendment extending the period of limitation cannot revive proceedings where the limitation period had already expired. The court distinguished the Full Bench decision of the Karnataka High Court in Hassan Co-operative Milk Producers Societies Union Limited v. State of Karnataka, which suggested that amendments by substitution are retrospective. The court found that the amendment to Section 25(1) did not have retrospective effect and could not apply to assessments where the five-year period had already expired.

Conclusion:
The court upheld the judgments that quashed the notices and assessments issued beyond the limitation period under Section 25(1) of the KVAT Act. It affirmed that the extension of the period for completion of assessments does not revive assessments where no notices were issued within the initial limitation period. The court also emphasized the need for compliance with principles of natural justice in administrative proceedings and held that amendments by substitution are not automatically retrospective. The appeals by the State were rejected, and the judgments in favor of the assessees were upheld.