2022 (8) TMI 696 - HC - VAT and Sales Tax

Time limitation for completion of assessments - applicability of limitation prescribed in Section 7-A of the Act to an assessment passed under Section 6(3) of the Act - whether the appellate tribunal was justified in holding that the provisions pertaining to re-assessment cannot be applied to an assessment when computing the period of limitation especially when the word assessment would take into its connotation a re-assessment in the comprehensive sense? HELD THAT - A bare reading of Section 6(3) of the Act makes it clear that no period of limitation is prescribed for assessment in cases of the assessee failing to furnish a return in respect of any period within the period specified in sub-section (1) of Section 5. The explanation offered by the revenue for invoking Section 6(3) of the Act by issuing the proposition notice on 12.2.2014 is, that the intelligence report dated 24.4.2008 was received in the office of the assessing officer on 29.12.2012. This inter se delay in the office of the Commercial Taxes would not be a ground to consider the assessments concluded on 28.2.2014 as reasonable. As per the law enunciated by the Hon ble Apex Court in the case of Bharat Steel Tubes Ltd. 1988 (5) TMI 335 - SUPREME COURT , even in the absence of any prescribed period of limitation, the assessment has to be completed within a reasonable period. What such reasonable period would be, would depend upon facts of each case. One view can be that it should be a period not exceeding five years as the legislature has fixed the limitation of five years for completing assessments in case of escaped turnover. Unless there be an assessment made soon after the period to which such assessment relates, the question of consideration of escapement would indeed become difficult to consider and examine. The Hon ble Apex Court having regard to the return filed by the assessee along with the payment of admitted tax held that no prejudice to the assessee will be caused if the assessing authority is permitted to complete the assessment even at that stage. If no assessment is made, the assessee may claim refund of taxes in the absence of an assessment. It would be appropriate to confirm the assessment orders only as far as levy of taxes are concerned. Any reference made to the matters pending before this Court challenging the vires of Section 3-D of the Act would not come to the assistance of both the parties since the assessee was not a party to the proceedings before this Court and taxes were collected in the year 2007-2008. There being lapse on the part of the assessing officer in invoking Section 6(3) of the Act well within a reasonable period, atleast, within a period of five years from the expiry of the year to which the tax relates as per Section 7-A of the Act dealing with the assessment of escaped tax, conclusion of the original assessment beyond the period specified for assessment of escaped tax under Section 7-A of the Act would ex-facie prove that the said assessment was not further amenable to re-assessment, which appears to be not the intention of the legislature. The orders passed by the assessing officer relating to interest and penalty are set aside. However, having regard to the peculiar facts and circumstances of the case, the assessee shall not be entitled for refund of the taxes paid in pursuance to the inspection conducted on 17.5.2007 - revision petition is allowed in part.

Summary

Issues Involved:
1. Limitation period applicability under Section 7-A to assessments under Section 6(3) of the Karnataka Tax on Luxuries Act, 1979.
2. Interpretation of "assessment" to include "re-assessment" under the Act.

Issue-wise Detailed Analysis:

1. Limitation Period Applicability:
The primary issue was whether the limitation period prescribed in Section 7-A of the Karnataka Tax on Luxuries Act, 1979, should apply to assessments made under Section 6(3) of the Act. The petitioner argued that although Section 6(3) does not specify a limitation period, the five-year limitation period for reassessment under Section 7-A should be adopted for assessments. The Tribunal had dismissed the appeals, holding that the limitation under Section 7-A could not be applied to Section 6(3) assessments.

The Court examined the statutory provisions and the facts, noting that Section 6(3) lacks a prescribed limitation period, unlike Section 7-A, which explicitly provides a five-year period for reassessment of escaped tax. The petitioner relied on the Supreme Court's judgment in Bharat Steel Tubes Ltd., which emphasized that assessments must be completed within a "reasonable period" in the absence of a specified limitation period. The Court found that the delay from the intelligence report (dated 24.4.2008) to the proposition notice (issued on 12.2.2014) was unreasonable, concluding that the assessment should have been completed within a period akin to the five-year limitation for reassessment under Section 7-A.

2. Interpretation of "Assessment" to Include "Re-assessment":
The petitioner contended that the term "assessment" should be interpreted to include "re-assessment," arguing that the processes serve the same purpose. The Court reviewed the statutory language and relevant case law, including the Supreme Court's decision in Filter Co., which clarified that reassessment provisions apply only where an initial assessment has been made and there has been under-assessment or escaped assessment.

The Court concluded that the Tribunal erred in not applying the principles of reasonable period and the analogy of the five-year limitation from Section 7-A to the assessments under Section 6(3). The Court held that the assessments completed on 28.2.2014, for the years 2003-04 to 2007-08, were indeed barred by limitation.

Conclusion:
The Court allowed the revision petition in part, setting aside the orders related to interest and penalty but confirmed the levy of taxes. It held that the assessments under Section 6(3) should have been concluded within a reasonable period, analogous to the five-year limitation under Section 7-A. The Court directed that any amounts recovered towards interest and penalty be refunded to the assessee within ninety days, but denied the request for a refund with interest. The questions of law were answered in favor of the assessee and against the revenue, subject to the non-refund of taxes paid.