2014 (10) TMI 918 - HC - VAT and Sales Tax

Interpretation of statute - period of limitation - section 25(1) of the KVAT Act - meaning of the phrase proceed to determine - the decision in the case Tirur Medical Stores v. State of Kerala 1978 (4) TMI 209 - KERALA HIGH COURT examined - Though Tirur was rendered construing section 19 of the KGST Act that decision became relevant for the present case and hence a reference doubting the correctness of that precedent - Held that - the Bench took the view that the use of the proceed to determine in section 19 of the KGST Act which provides for best judgment of escaped turnover means that the assessing authority has to proceed to determine in the sense that the proceedings for the determination of the escaped turnover must commence within the period stipulated and the word assess in that section is used in the wider sense as given to it by the honourable Supreme Court in Sudarsanam Iyengar 969 (8) TMI 71 - SUPREME COURT OF INDIA so as to include the proceeding leading to the final order of assessment - it was also laid down that it does not matter that the final order itself was passed beyond the period stipulated in section 19 of the KGST Act. Tirur case is precedent for the principle that proceeding has to be initiated by the issuance of notice within the period prescribed in section 19 of the KGST Act. The next specific view taken in Tirur case is that the phrase proceed to determine in section 19 of the KGST Act only requires the assessing authority to proceed to determine and commence such activity of decision making by issuance of notice within the period fixed in section 19 of the KGST Act. The net effect of the introduction of the third proviso to sub-section (1) of section 25 and the inclusion of section 25 within the canopy of section 25B is indicative of the fact that for all intents and purposes the Legislature fixed an outer time-limit for completion of assessment proceedings under sub-section (1) of section 25 at least in cases to which the provision in section 25(1) as amended by the Kerala Finance Act 2010 and the later amendments sustaining that provision or conferring power of enlargement of time applies. Obviously even if section 25B is to guide the Deputy Commissioner the time-limit has to be reasonable because there cannotbe an indefinite proceeding under section 25(1) in view of the third proviso to that section - the files will be placed before the Division Bench for further consideration.

Summary

Issues:
1. Challenge to assessment orders under the KVAT Act for the years 2005-06 and 2006-07.
2. Interpretation of the phrase "proceed to determine" in section 25 of the KVAT Act.
3. Reference to previous judgments and their applicability.
4. Impact of the third proviso to sub-section (1) of section 25 of the KVAT Act.
5. Legislative amendments and their effect on the time-limit for completion of assessment proceedings.

Issue 1: Challenge to Assessment Orders:
The petitioner challenged assessment orders (exhibits P4 and P5) passed by the first respondent under section 25(1) of the KVAT Act for the years 2005-06 and 2006-07. The petitioner contended that the proceedings were issued beyond the five-year limitation period. The Government Pleader argued that the assessment period had been extended up to March 31, 2014, under the relevant Finance Act, rendering the challenge baseless. The court noted the availability of an alternative remedy through appeal and dismissed the writ petition, allowing the petitioner to pursue appellate remedies.

Issue 2: Interpretation of "Proceed to Determine":
The Full Bench considered the interpretation of the phrase "proceed to determine" in section 25 of the KVAT Act. Referring to the precedent set by the Tirur Medical Stores case, it was established that initiating relevant proceedings within the statutory time-frame was crucial, rather than completing the assessment within that period. The court emphasized that the assessing authority must commence the determination process within the stipulated time, and the final order could be passed later. The judgment in Tirur Medical Stores was deemed applicable to cases falling under section 25(1) of the KVAT Act.

Issue 3: Reference to Previous Judgments:
The court extensively referred to previous judgments, including those by the Supreme Court, to support the interpretation of the phrase "proceed to determine." The decisions highlighted the importance of initiating proceedings within the prescribed time-frame, as seen in the Sudarsanam Iyengar case. The court upheld the principle established in Tirur Medical Stores regarding the initiation of proceedings within the statutory period.

Issue 4: Impact of the Third Proviso:
The introduction of the third proviso to sub-section (1) of section 25 of the KVAT Act raised questions about the time-limit for completing assessment proceedings. The court noted that the Legislature appeared to have set an outer time-limit for assessments, especially with subsequent amendments and the inclusion of section 25B. The provision aimed to prevent indefinite proceedings under section 25(1) by imposing reasonable time-limits for completion.

Issue 5: Legislative Amendments and Time-Limits:
The court highlighted the legislative amendments, particularly the third proviso and the introduction of section 25B, which empowered the Deputy Commissioner to extend assessment periods under certain conditions. These amendments indicated the Legislature's intent to establish reasonable time-limits for assessment proceedings, ensuring that assessments are not prolonged indefinitely. The court's interpretation aimed to balance fiscal matters and judicial review while respecting legislative authority in setting time-frames for proceedings.

This detailed analysis of the judgment addresses the issues raised in the legal dispute, providing a comprehensive overview of the court's decision and the underlying legal principles.