2025 (3) TMI 1096 - HC - VAT / Sales Tax

Section 25A of KVAT Act cannot override limitation period under Section 25(1) for completing tax assessments

Kerala HC held that Section 25A of KVAT Act cannot override limitation period under Section 25(1) for completing assessments. The court ruled that Section ... Completion of an assessment under the Kerala Value Added Tax Act has become barred by limitation under Section 25 (1) of the KVAT Act - mere fact that a notice is issued by the Revenue invoking the provisions of Section 25A of the KVAT Act would enable the Revenue to complete a re-assessment by ignoring the period of limitation under Section 25 (1) of the KVAT Act or not - Whether Section 25A of the KVAT Act fits in the Scheme of assessment under the KVAT Act? - HELD THAT:- Section 25A begins with a non-obstante clause, and it provides for nothing more than an additional ground on which the power to re-assess can be exercised by the Assessing Authority. The scope of that power can be gathered from the words used in the provision to define it. It is a power to proceed to re-assess the dealer and the power is to be exercised only if the Assessing Officer is satisfied that the objection raised by the CAG is lawful. It is in the backdrop of the above analysis of the power conferred under the Section that we must look for the meaning of the words “order passed” that appear in the proviso to the said Section. In our view, the order passed must necessarily be taken as a reference to the expression of satisfaction of the Assessing Officer, as to whether or not the objection raised by the CAG is lawful. Further, that satisfaction of the Assessing Officer must be one that is arrived at only after affording the dealer an opportunity of being heard. The contention of the Revenue that Section 25A also provides for the procedure for re-assessment cannot be accepted, not only because the provision itself does not say so, but also because procedural due process in a taxing statute cannot be inferred but must necessarily find a place in the statute itself. Article 265 of the Constitution clearly mandates that there shall be no levy or collection of tax save by authority of law. In our view, therefore, once the Assessing Officer arrives at the satisfaction envisaged under Section 25A, he has to proceed to re-assess the dealer in the manner envisaged under the Statute, namely, by following the procedure under Section 25 (1) of the KVAT Act. In that process, he must also ensure that the substantive safeguards envisaged for an assessee, such as the requirement of exercising the power within the time permitted by the Statute, are strictly adhered to. Conclusion - In cases where the completion of an assessment under the KVAT Act has become time barred by virtue of the limitation provisions under Section 25 (1) of the KVAT Act, the Revenue cannot proceed to re-assess an assessee on the basis of a subsequent report obtained from the CAG. The O.T. Revisions and Writ Appeal filed by the State dismissed. ISSUES PRESENTED and CONSIDEREDThe primary issue addressed in this case is whether the Revenue can proceed with a re-assessment under Section 25A of the Kerala Value Added Tax Act (KVAT Act) based on an audit objection from the Comptroller and Auditor General of India (CAG), despite the limitation period for assessment under Section 25(1) having expired.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe KVAT Act outlines the procedures for tax assessment, including self-assessment under Section 21, best judgment assessment under Section 22, and assessments based on audit objections under Section 24. Section 25 allows for re-assessment of escaped turnover within a stipulated period, initially five years, later extended to six years. Section 25A, introduced through the Kerala Finance Act, 2012, permits re-assessment based on CAG audit objections, without explicitly prescribing a limitation period.Court's Interpretation and ReasoningThe Court examined the statutory scheme of the KVAT Act, emphasizing that Section 25A, while providing an additional ground for re-assessment, does not negate the procedural requirements and limitation periods established under Section 25(1). The Court interpreted the non-obstante clause in Section 25A as not overriding the limitation period but rather as allowing re-assessment based on CAG objections, provided the procedural safeguards and limitation periods are respected.Key Evidence and FindingsThe Court analyzed the procedural aspects of Section 25A, determining that it requires the Assessing Officer to be satisfied with the lawfulness of the CAG's objection, which must be communicated to the assessee with an opportunity for a hearing. The satisfaction of the Assessing Officer must be recorded before proceeding with re-assessment, ensuring compliance with Article 265 of the Constitution, which mandates tax collection by authority of law.Application of Law to FactsThe Court applied the legal principles to the facts, concluding that the Revenue's reliance on Section 25A to bypass the limitation period under Section 25(1) was impermissible. The Court held that the absence of a prescribed limitation period in Section 25A does not allow for indefinite re-assessment, as this would contravene constitutional principles of fairness and the rule of law.Treatment of Competing ArgumentsThe Court considered the Revenue's argument that Section 25A operates independently of Section 25(1) and allows re-assessment without a time limit. However, the Court rejected this interpretation, emphasizing the necessity of adhering to procedural due process and limitation periods to ensure fairness and legality in tax administration.ConclusionsThe Court concluded that re-assessment under Section 25A must adhere to the limitation periods prescribed in Section 25(1). The Revenue cannot proceed with re-assessment based on CAG objections if the limitation period has expired, as this would violate constitutional principles and statutory safeguards.SIGNIFICANT HOLDINGSThe Court held that Section 25A does not permit re-assessment beyond the limitation period prescribed in Section 25(1). The phrase 'order passed' in Section 25A refers to the Assessing Officer's satisfaction regarding the lawfulness of the CAG's objection, which must be determined within the statutory limitation period. The Court emphasized that procedural due process and limitation periods are integral to tax law and cannot be circumvented.Core Principles EstablishedThe judgment reinforces the principle that tax assessments must comply with statutory procedures and limitation periods, ensuring fairness and legality. The Court underscored the importance of procedural safeguards and constitutional mandates in tax administration.Final Determinations on Each IssueThe Court dismissed the O.T. Revisions and Writ Appeal filed by the State, upholding the limitation period for re-assessment under Section 25(1). The Court quashed the impugned notices and proceedings that violated the limitation provision, granting relief to the petitioners. Specific writ petitions were allowed or dismissed based on the adherence to the limitation period for the respective assessment years.