2020 (11) TMI 348 - HC - VAT and Sales Tax

Time Limitation for issuing notices and assessment order - Amendment of Section 42 brought vide notification dated 13.11.2016 having a retrospective effect - whether period of limitation as provided in Section 25 or rule 58 will be applicable and would give cause to the State to issue notice by commencing the proceedings or otherwise? - HELD THAT - The time limit prescribed vide amendment was, from five years, extended to six years as per the amendment brought in 2017 in v the judgment in Baiju A.A Others v. State Tax Officer 2019 (12) TMI 469 - KERALA HIGH COURT . In view of the judgment, the amendment, extendimg period of limitation has been held to be prospective in nature and Assessment proceedings ,initiated after expiry of 5 years, were held to be beyond limitation. The question which is to be seen by this Court is that the amendment of Section 42 brought vide notification dated 13.11.2016 having a retrospective effect, whether period of limitation as provided in Section 25 or rule 58 will be applicable and would give cause to the State to issue notice by commencing the proceedings or otherwise. The time limits specified in Rule 58(20) of KVAT Rules offer a safe guarding factor to define the limits of power under Section 42(3) of the Act. Meaning thereby, it would not be proper to re-open assessments to bring the tax escaped turnover, which cannot be exercised in a manner that prejudicially affect an assessee, who would not be in a position to meet the charge against him for want of books of accounts and other relevant material - petition allowed.

Summary

Issues:
Challenge to assessment orders for the assessment years 2009-10 and 2010-11 based on limitation under Section 25(1) and Section 42(3) of the Kerala Value Added Tax Act, 2003.

Analysis:

1. The petitioner challenged the assessment orders dated 20.3.2017 for the assessment years 2009-10 and 2010-11, arguing that the proceedings under Section 25(1) were initiated after the period of limitation provided, which was 5 years. The petitioner relied on the judgment in MCP Enterprises v. State of Kerala, where it was held that an amendment to Section 42 of the Act was prospective in nature. The Court found that the notices for assessment orders were quashed as they were beyond the limitation period.

2. The Learned Government Pleader contended that the case involved Section 42(3) of the Act, which allows for pending assessments if certain documents are not filed by the assessee. Referring to previous judgments, the Government Pleader argued for the dismissal of the writ petition based on the provisions of Section 42(3) and related cases.

3. The Court analyzed the time limit extension from five to six years as per the 2017 amendment and referred to the judgment in Baiju A.A v. State Tax Officer. The Court deliberated on whether the retrospective effect of the amendment to Section 42 would impact the limitation under Section 25 or rule 58. The Court considered the retrospective operation of Section 42(3) and its implications on reopening assessments completed years back.

4. The judgment in MCP Enterprises case highlighted the challenges faced by the assessee due to the retrospective operation of Section 42(3), affecting their ability to defend against allegations of suppressed turnover. The Court emphasized the importance of maintaining books of accounts as per Rule 58(20) of KVAT Rules and the need for a reasonable interpretation of statutory provisions to avoid unfairness and arbitrariness.

5. The Court concluded that the time limits specified in Rule 58(20) of KVAT Rules act as a safeguard to define the limits of power under Section 42(3). It was held that reopening assessments to bring in tax escaped turnover would prejudice an assessee who lacks relevant books of accounts and material. Consequently, the assessment orders were set aside, and the writ petition was allowed.