2024 (11) TMI 1575 - HC - VAT / Sales Tax

Reopening of tax assessments under KVAT Act upheld where reassessment notice issued within extended six-year limitation period.

Non-compliance with natural justice was alleged where an assessment notice was issued and assessment completed without affording an effective opportunity ... Non-compliance with the rules of natural justice - notice was issued and the assessment itself was completed without affording an effective opportunity to the assessee to reply to the notice - extended period of limitation - HELD THAT:- The KVAT Act was amended in 2017, whereby the period of limitation for re-opening the assessment was enhanced from five years to six years. No doubt, in those cases where the erstwhile period of limitation of five years had already expired before the date of the amendment of Section 25(1) in 2017, the Revenue would not be permitted to re-open assessments that had been settled, through a fresh notice issued thereafter invoking the six-year period of limitation. In the instant case, however, it is found that the assessment year in question is 2013-14 and the limitation period for re-opening assessment under Section 25(1) of the KVAT Act was six years. The notice under Section 25(1) having been issued on 06.02.2020 was well within the period of six years contemplated under Section 25(1) as it stood then. It was only on account of the erroneous assumption of the learned Single Judge that the writ petition came to be allowed on the ground of limitation. The impugned judgment of the learned Single Judge is set aside - appeal allowed. Issues: (i) Whether the notice under Section 25(1) of the Kerala Value Added Tax Act for assessment year 2013-14 was barred by limitation; (ii) Whether the impugned assessment order was vitiated by non-compliance with the rules of natural justice and required setting aside and remand for a fresh decision after hearing the assessee.Issue (i): Whether the notice dated 06.02.2020 for re-opening assessment for 2013-14 was beyond the period of limitation under Section 25(1) of the KVAT Act.Analysis: The limitation period under Section 25(1) as amended in 2017 applicable to the assessment year 2013-14 was six years. The notice dated 06.02.2020 fell within the six-year period for re-opening the assessment for 2013-14. Prior decisions holding notices to be time-barred where the five-year period had already expired before the amendment are distinguishable on the facts.Conclusion: The notice dated 06.02.2020 was within the statutory period of limitation under Section 25(1) and the finding that the assessment was barred by limitation is set aside (not in favour of the assessee on limitation).Issue (ii): Whether the impugned assessment order is vitiated by failure to afford the assessee an effective opportunity of being heard and therefore requires being set aside and remitted to the Assessing Authority for fresh adjudication.Analysis: The impugned assessment order shows the assessee was not heard prior to passing the assessment. Principles of natural justice require that the assessee be afforded an opportunity to be heard and that any reassessment be by a reasoned order on merits after hearing. Given the procedural defect, the appropriate remedy is to set aside the assessment order and remit the matter for fresh decision with an opportunity of hearing within a fixed timeframe.Conclusion: The impugned assessment order is set aside and the matter is remitted to the Assessing Authority to decide the assessment afresh on merits after affording the assessee an opportunity of being heard (in favour of the assessee on the natural justice ground).Final Conclusion: The appeal is allowed to the limited extent of setting aside the Single Judge's limitation finding; the impugned assessment order is set aside and remitted for fresh decision on merits after hearing the assessee, with the Assessing Authority to pass a reasoned order within six weeks; the assessee is not permitted to reopen the issue of limitation on remand.Ratio Decidendi: Where a re-opening notice falls within the statutory limitation period in force for the assessment year, the re-opening is not time-barred, but an assessment passed without affording the assessee an opportunity of being heard is vitiated by breach of natural justice and must be set aside and remitted for a fresh, reasoned decision after hearing the assessee.