2023 (9) TMI 801 - SC - VAT and Sales Tax

Appeals dismissed, affirming judgment on limitation period for VAT reassessment.

The Assistant Commissioner (Assessment) & Ors. Versus M/s. Cholayil Pvt. Ltd.

The appeals were dismissed, affirming the Kerala High Court's judgment that quashed the notices as being beyond the limitation period prescribed under ... Interpretation of statute - Effect of the amendment - Retrospective or prospective - sub-section (1) of Section 25 of KVAT Act as well as the third proviso of the said Section - initially the third proviso was not part of the Section but was later inserted in the year 2010 by the Finance Act 2010 and every year till Finance Act, 2018 the said proviso has been substituted - interpretation to be given to the words “at any time within five years from the last date of the year to which the return relates, proceed to determine” as found in sub-section (1) of Section 25 and the third proviso to the said sub-section as inserted with effect from 01.04.2015, extending time limitation for initiation of proceedings for reassessment of escaped turnover. Whether, the third proviso to sub-section (1) of Section 25 extends the period of limitation for the initiation of proceedings for reassessment insofar as escaped turnover is concerned? - HELD THAT:- What has to be interpreted is the expression “proceed to determine” as it occurs in sub-Section (1) of Section 25 as well as the third proviso to the said sub-Section as amended in Finance Act, 2017. No doubt, in both the provisions, the expression used is “proceed to determine.” The said expression must be considered in light of the words that occur prior to and subsequent to the said expression. Under sub-Section (1) of Section 25, the intention of the use of the expression “proceed to determine” is in the context of initiation of proceedings at any time within five years (now six years after the 2018 amendment) from the last date of the year to which the return relates. The object and purpose is that there cannot be a belated initiation of proceedings and at the whims and fancies of the Department so as to re-open stale returns, which had already been concluded under the provisions of the said Act. However, the object of the proviso which also uses the words “proceed to determine” must be in the context of completion of the Assessment which had already been initiated in accordance with sub-Section (1) to Section 25 within the time-frame as prescribed therein. The department is not right in contending that the expression “proceed to determine” in the third proviso gives a lease of life or an extension of the period of limitation by one year at a time for “initiation” of the reassessment proceeding under sub-section (1) of Section 25 of the Act. Such an interpretation would lead to absurdity as a proviso cannot militate against the intention of the main provision in sub-section (1) of Section 25 and thus a proviso cannot extend the limitation period which is fixed under the main provision. The normal function of a proviso is to exempt something out of the provision or to qualify something enacted therein which, but for the proviso, would be within the purview of the provision. It may be clarified that the expression “proceed to determine” is found in the amendment made to the KVAT Act with effect from 2017 Finance Act, whereas in the earlier amendment, the expression clearly was to “complete the assessment” in the third proviso of sub-section (1) of Section 25 which is also a clear indication of the intention of the Legislature to give a command to the concerned assessing officers seized of the proceedings which had been initiated under sub-section (1) of Section 25 to complete within the time-frame as stipulated in the said proviso. The amendment to the Kerala Finance Act, 2017 is with effect from 01.04.2017 and does not have any retrospective effect. There are no merit in these appeals. The appeals are hence dismissed. Issues Involved:1. Interpretation of Sub-Section (1) of Section 25 of the Kerala Value Added Tax Act (KVAT Act).2. Interpretation of the third proviso to Sub-Section (1) of Section 25 of the KVAT Act as amended by the Finance Act, 2017.3. Whether the third proviso extends the period of limitation for the initiation of reassessment proceedings.Summary:1. Interpretation of Sub-Section (1) of Section 25 of the KVAT Act:The central issue is the interpretation of sub-section (1) of Section 25 of the KVAT Act, which deals with the assessment of escaped turnover. The section allows the assessing authority to determine the escaped turnover within five years (later amended to six years) from the last date of the year to which the return relates. The Kerala High Court, following its earlier judgments, quashed the notices as being beyond this limitation period.2. Interpretation of the Third Proviso to Sub-Section (1) of Section 25 of the KVAT Act:The third proviso was inserted in 2010 and amended in subsequent years, including by the Finance Act, 2017, which extended the period for proceeding to determine any assessment up to 31st March, 2018. The appellants argued that this proviso extended the limitation period for the initiation of reassessment proceedings. The respondents contended that the proviso only extended the period for the completion of assessments already initiated.3. Whether the Third Proviso Extends the Period of Limitation for the Initiation of Reassessment Proceedings:The Court held that the expression 'proceed to determine' in sub-section (1) of Section 25 refers to the initiation of proceedings within the specified period, while in the third proviso, it refers to the completion of assessments. The Court emphasized that a proviso cannot extend the limitation period fixed under the main provision. The Court reiterated that the expression 'proceed to determine' must be contextually interpreted to avoid absurdity. The Court concluded that the third proviso mandates the completion of reassessment within the stipulated time and does not extend the period for initiating reassessment proceedings.Conclusion:The appeals were dismissed, affirming the Kerala High Court's judgment that quashed the notices as being beyond the limitation period prescribed under sub-section (1) of Section 25 of the KVAT Act. The Court clarified that the third proviso to sub-section (1) of Section 25 does not extend the period for the initiation of reassessment proceedings but mandates the completion of assessments within the specified time.