2018 (8) TMI 1160 - HC - VAT and Sales Tax

Time Limitation - Section 25(1) of the KVAT Act - further amendment made by introduction of a proviso extending the time for completion of assessment first in the year 2010 and then regularly extended in the subsequent years - Held that - Notices in all the cases coming under Group-A, were issued by the respective Assessing Authorities, after the expiry of 5 years from the last date of the assessment year. Later, there was a proviso introduced extending the period for completion of assessment till the end of the year. These amendments were made in the successive years after 2010, the benefit of which was claimed by learned Special Government Pleader (Taxes) for sustaining the notices issued - the action initiated by the Department after the period of limitation provided, by issuance of notices under Section 25(1) cannot be sustained. Introduction of Section 25B in the KVAT Act by the Kerala Finance Act, 2013 w.e.f. 01.4.2013 - Held that - There is no reason to find the invocation of Section 25B, to be proper, after the period of limitation provided under Sections 24 and 25 has expired. The same is also hit by limitation. The power of the legislature to make an amendment, with retrospective effect, is undisputed but the requirement is that unless the same is expressed in clear language or implied, without any scope for doubt, then the amendment would only be prospective. We are of the opinion that when there is a substitution, unless the same is expressed to be prospective the Courts could always interpret it to be retrospective, looking at the scheme of the enactment, the purpose and object of the amendment, especially when the amendment by substitution, was intended at removing an obvious anomaly or correcting a blatant error or obliterating an absurdity or bringing it in consonance with any other law or the Constitution. The subject substitution which we are concerned with, relating to limitation, is not retrospective neither by reason of express words nor on grounds of intendment. Limitation, though procedural in nature, any action taken after its expiry, creates disabilities and obligations. The right accrued to an assessee, after the expiry of the period of limitation, not to be assessed or re-assessed can be meddled with only by an amendment, expressed or implied to be retrospective. Power of the legislature to make laws prospectively and retrospectively which included the subsidiary or auxilary power to validate laws - Held that - When a particular statute is declared invalid, the legislature has the power to suitably amend the law by use of appropriate phraseology, rectifying the defects and removing the inconsistency pointed out by the Court. In that context the legislature also could validate the actions taken under the earlier statute as if the defects pointed out never existed; which cannot be termed as an incursion on the judicial power. The amendment by substitution in the present case, extending the period of limitation from 5 years to 6 years to be not applicable to those assessments which stood completed and the 5 year period for re-opening of assessment under Section 25(1) stood expired. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Limitation under Section 25(1) of the Kerala Value Added Tax Act (KVAT Act).
2. Validity of orders issued under Section 25B of the KVAT Act.
3. Applicability of principles of natural justice in extending the period for completion of assessment.
4. Retrospective effect of amendments by substitution.

Issue-wise Detailed Analysis:

1. Limitation under Section 25(1) of the KVAT Act:
The primary issue was whether the limitation under Section 25(1) of the KVAT Act pertains to the initiation of proceedings or the completion of assessments. The court held that the limitation provided under Section 25(1) is for the issuance of notice, not for the completion of assessments. The Full Bench decision in Cholayil Enterprises v. Assistant Commissioner of Income-Tax was cited, which clarified that the limitation is for the initiation of proceedings, i.e., the issuance of a notice. The court found that the notices issued after the expiry of five years from the last date of the assessment year could not be sustained, even if there was an extension for the completion of assessments. The amendments extending the period for completion of assessments do not revive assessments where no notices were issued within the initial five-year period.

2. Validity of Orders Issued under Section 25B of the KVAT Act:
Section 25B of the KVAT Act, introduced by the Kerala Finance Act, 2013, allowed the Deputy Commissioner to extend the period for completion of assessments beyond the periods specified in Sections 24 and 25. The court found that Section 25B cannot extend the limitation period for initiation of proceedings, which had already expired. The reliance on the judgment in State of Kerala v. Abhilash T. Mathew was upheld, which emphasized that no extension of the limitation period could be granted without notice to the assessee. The court concluded that the invocation of Section 25B after the expiration of the limitation period for initiation of proceedings was improper and hit by limitation.

3. Applicability of Principles of Natural Justice:
The court underscored the necessity of adhering to principles of natural justice when extending the period for completion of assessments. It was held that any extension of the period of limitation must be preceded by a notice and an opportunity for the assessee to be heard. The court cited Mohinder Singh Gill v. Chief Election Commissioner and Swadeshi Cotton Mills v. UOI to affirm that the principles of natural justice are integral to administrative actions affecting civil consequences. The absence of a provision for notice in Section 25B was deemed a negation of natural justice, which requires a pre-decisional hearing to be read into the provision.

4. Retrospective Effect of Amendments by Substitution:
The court addressed whether the substitution of the period of limitation from five years to six years by an amendment could be applied retrospectively. The court held that an amendment by substitution is not invariably retrospective. The court referred to several Supreme Court decisions, including S.S. Gadgil v. Lal and Co. and K.M. Sharma v. ITO, which established that an amendment extending the period of limitation cannot revive proceedings where the limitation period had already expired. The court distinguished the Full Bench decision of the Karnataka High Court in Hassan Co-operative Milk Producers Societies Union Limited v. State of Karnataka, which suggested that amendments by substitution are retrospective. The court found that the amendment to Section 25(1) did not have retrospective effect and could not apply to assessments where the five-year period had already expired.

Conclusion:
The court upheld the judgments that quashed the notices and assessments issued beyond the limitation period under Section 25(1) of the KVAT Act. It affirmed that the extension of the period for completion of assessments does not revive assessments where no notices were issued within the initial limitation period. The court also emphasized the need for compliance with principles of natural justice in administrative proceedings and held that amendments by substitution are not automatically retrospective. The appeals by the State were rejected, and the judgments in favor of the assessees were upheld.