2024 (3) TMI 1503 - HC - VAT / Sales Tax

Reassessment under s.25(1) KVAT quashed as time-barred; five-year limit applies to starting escaped turnover proceedings

HC quashed the reassessment order and consequential demand issued under s.25(1) KVAT Act for AY 2009-10 as time-barred. Relying on SC precedent, HC held ... Challenge to order passed u/s 25(1) of the KVAT Act and consequent demand which pertains to the Assessment Year 2009-10 - limitation period of five years provided in Section 25(1) got expired - HELD THAT:- It is well settled by the decision of the Hon'ble Supreme Court in Assistant Commissioner (Assessment) v. M/s. Cholayil Private Limited [2023 (9) TMI 801 - SUPREME COURT] that the limitation period of five years mentioned in Section 25(1) of the KVAT Act is to “proceed to determine’ the assessment of escaped turnover where as the time extended in the Third Proviso to Section 25(1) (as existed before the amendment as per Kerala Finance Act, 2017) is for the completion of assessment. According to the Hon'ble Supreme Court, the Third Proviso to Section 25(1) does not extent the period of limitation for the initiation of proceedings for assessment provided in Section 25(1). In Section 25B also the words used is “completion of assessment” like the words used in unamended Third Proviso to Section 25 (1) and not “proceed to determine’ as used in Section 25(1). Hence the extension of period of limitation provided in S.25B is not for extending the period of limitation of five years provided in Section 25(1) for initiation of the proceedings. The limitation period for completion of assessment cannot be for the initiation of proceedings. there are no merit in the contention put forward in the Counter Affidavit of the Respondent No.2 on the strength of Section 25B. That apart, there is no case for the respondents that the limitation period is extended by the Deputy Commissioner invoking his power under Section 25B. The proceedings leading to Ext.P3 orders were initiated as per Ext.P1 Pre-Assessment Notice after the limitation period prescribed under Section 25(1) of the KVAT ACT and that Ext.P3 order is bad in law. Ext.P5 Demand is issued for recovery of the amount in Ext.P3 order and hence Ext.P5 does not have leg to stand. Petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the writ petition is maintainable despite availability of a statutory appellate remedy against the impugned assessment order and demand, where the matter has been pending for long and involves only a pure question of limitation on admitted facts. 1.2 Whether the proceedings initiated under Section 25(1) of the Kerala Value Added Tax Act for the assessment year 2009-10 are barred by limitation, having regard to the five-year period in Section 25(1), the scope of the (unamended) third proviso to Section 25(1), and Section 25B of the Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of writ petition despite alternate remedy Interpretation and reasoning 2.1 The Court noted that the impugned order under Section 25(1) is appealable, but the writ petition has been pending since 2016 with an unconditional interim stay of further proceedings pursuant to the impugned order and demand. 2.2 The Court held that, in such long-pending matters, where the lis can be decided on admitted facts or on the basis of admitted documents without much adjudicatory process, it is appropriate to decide the matter on merits instead of relegating the petitioner to the statutory remedy. 2.3 The Court emphasised that the judicial time required to dispose of such a writ on merits would be substantially the same as that required to decide whether to relegate the matter to the statutory authority, and that deciding it itself would save official and adjudicatory time. 2.4 It was clarified that this approach applies only to long-pending matters and is not to be understood as enabling routine bypass of statutory remedies, and that the discretion must be exercised on the facts and circumstances of each case. 2.5 Relying on the Division Bench decision holding that the rule of alternate remedy is a self-imposed restriction and not an absolute bar, the Court considered it appropriate to exercise discretionary jurisdiction since the only issue to be decided was limitation on admitted facts. Conclusions 2.6 The writ petition was held to be maintainable and was decided on merits without directing the petitioner to avail the appellate remedy. Issue 2 - Limitation for initiation of proceedings under Section 25(1) KVAT Act; effect of third proviso and Section 25B Legal framework discussed 2.7 Section 25(1) of the Kerala Value Added Tax Act prescribes a limitation period of five years to 'proceed to determine' the assessment of escaped turnover. 2.8 The (unamended) third proviso to Section 25(1) extends the time for 'completion of assessment', not for initiation of proceedings. 2.9 Section 25B authorises the Deputy Commissioner to extend the period for 'completion of assessment' under Section 25 or Section 24, subject to specified conditions. 2.10 The Court referred to the Full Bench judgment which held that, by introduction of the third proviso to Section 25(1) and later inclusion of Section 25 within Section 25B, the legislature fixed an outer time limit for completion of assessment proceedings, and that there cannot be an indefinite proceeding under Section 25(1). 2.11 The Court relied on the judgment of the Supreme Court which authoritatively held that: (i) the five-year limitation in Section 25(1) relates to the stage to 'proceed to determine' escaped assessment (initiation), and (ii) the third proviso to Section 25(1) extends only the time for completion of assessment, and does not extend the limitation period for initiation of proceedings under Section 25(1). Interpretation and reasoning 2.12 The respondents contended that, based on two OR files and by virtue of the Finance Act, 2015, the period for completion of assessment which otherwise expired on 31.03.2015 stood extended up to 31.03.2016 under Section 25B, and that the pre-assessment notice dated 18.01.2016 was therefore within the extended period. 2.13 The Court observed that Section 25B, like the unamended third proviso to Section 25(1), uses the expression 'completion of assessment' and not 'proceed to determine' as in Section 25(1), and therefore Section 25B deals only with extension of time for completion of assessment, not with extension of the five-year period for initiation of proceedings. 2.14 The Court held that the limitation period for completion of assessment cannot be treated as the limitation period for initiation of proceedings; they are distinct stages governed by different provisions and language. 2.15 The Court also noted that there was no case for the respondents that the Deputy Commissioner had, in fact, exercised power under Section 25B to extend any period of limitation. 2.16 On facts, it was admitted in the counter affidavit that the pre-assessment notice under Section 25(1) was issued on 18.01.2016 for assessment year 2009-10, whereas the five-year limitation period under Section 25(1) expired on 31.03.2015. Conclusions 2.17 The Court concluded that: (i) the extension provisions relating to 'completion of assessment' under the third proviso to Section 25(1) and Section 25B do not extend the five-year limitation period for initiation of proceedings under Section 25(1); and (ii) the pre-assessment notice dated 18.01.2016 was issued after expiry of the five-year period. 2.18 Consequently, the proceedings leading to the impugned assessment order were held to have been initiated beyond the period prescribed under Section 25(1) and were therefore barred by limitation. 2.19 The impugned assessment order under Section 25(1) was held to be bad in law, and the consequential demand notice, being dependent on the invalid assessment order, was also held unsustainable. 2.20 The writ petition was allowed and both the impugned assessment order and the consequential demand notice were set aside.