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2023 DIGILAW 941 (KER)

Sterling and Wilson (P) Ltd. v. State of Kerala

2023-11-23

DAMA SESHADRI NAIDU

body2023
JUDGMENT : DAMA SESHADRI NAIDU, J. Introduction: 1. An assessee questions the assessment proceedings on the grounds of limitation. The limitation periods in question relate to Section 25(1) and Section 56(2)(c) of the Kerala Value Added Tax Act. To subject a dealer to best judgment assessment, the limitation fixed is “five years from the last date of the year to which the return relates.” Similarly, under Section 56(2) of the Act, the sua sponte revisional power must be exercised before the four-year period expires from the year in which the order to be revised was passed. How should we reckon the limitation under Section 25(1) and Section 56(2) of the KVAT Act? What does “commence” connote in Section 25(1) of the Act? Facts: Sterling and Wilson (P) Ltd. (“Sterling”) as an assessee under the KVAT Act, suffered the Ext.P1 assessment order for 2010-11. Later, it filed the Ext.P2 rectification application; that resulted in the Ext.P3 order. 2. As much depends upon the chronology, I may note that the Ext.P1 was passed on 30th September 2016; then Sterling submitted the Ext.P2 application, dated 03.11.2016, to have that assessment rectified; thereafter, the Assistant Commissioner (Works Contract) passed the Ext.P3 order, dated 03.07.2017. 3. Sterling does assert that the revisional authority allowed the revision in its favour. The revisional authority, the Company also asserts, has held that Sterling has paid close to Rs. 10 lakh in excess. But Sterling does not seem to have claimed any refund. 4. The record reveals that on 28.09.2017, the Deputy Commissioner issued a notice under Section 56(1) of the KVAT Act. The authority proposed to exercise its sua sponte power and revise the Ext.P3 order. Sterling submitted the Ext.P5 reply, opposing the Deputy Commissioner's proposal to invoke Section 56. At any rate, the Revisional Authority went ahead and rendered the Ext.P6 order. Through the Ext.P6, the Revisional Authority set aside the Ext.P1 order of assessment and remitted the matter back to the Assessing Authority for fresh disposal. 5. In that context, the Assistant Commissioner issued a notice under Section 25(1) of the KVAT Act 2003, inviting Sterling's Ext.P8 objections. Eventually, he rendered the Ext.P9 order of fresh assessment. Assailing the Ext.P6 order in revision and also the Ext.P9 assessment order on remand, Sterling has filed this writ petition. Submissions: Petitioners: 6. 5. In that context, the Assistant Commissioner issued a notice under Section 25(1) of the KVAT Act 2003, inviting Sterling's Ext.P8 objections. Eventually, he rendered the Ext.P9 order of fresh assessment. Assailing the Ext.P6 order in revision and also the Ext.P9 assessment order on remand, Sterling has filed this writ petition. Submissions: Petitioners: 6. Smt Latha K. the learned counsel for Sterling, has focussed on one specific plea: the proceedings under the Exts.P6 and P9 have been hit by Section 25(1) and Section 56(2)(c) of the Act, respectively. 7. To elaborate, Smt Latha has drawn my attention to the judgment dated 19th July 2018 in W.A. No. 1016 of 2017, rendered by a learned Division Bench of this Court. According to her, under Section 25(1), the limitation fixed is only five years, but the Ext.P1 was sought to be disturbed beyond five years. Besides, she has contended that the Ext.P9 fresh assessment order cannot be sustained because the Deputy Commissioner invoked his sua sponte power under Section 56, beyond four years from the year of assessment. To support her contentions, she has relied on Ninan vs. State of Kerala, 1965 KLT 1167 and S. Najeem vs. Commercial Tax Officer, (2016) 96 VST 229 (Ker). Respondents: 8. On the other hand, Dr. Thushara James, the learned Government Pleader, has made strenuous efforts to refute Sterling's contentions. According to her, though the Ext.P1 was rendered on 30th September 2016, the notice proposing the assessment was issued on 01st March 2016. The five years, she maintains, must be reckoned by the date of the notice, rather than the date of the order. In other words, 1st March 2016, the date of the notice, is well within five years. Therefore, the limitation stands saved, she asserts. 9. At any rate, Dr. James also contends that Sterling has never questioned the Ext. P1; instead, it had the assessment order revised through the Ext.P3. Therefore, Sterling, according to her, is estopped. Then, as to the significance of the expression “proceed to determine” Dr. James draws my attention to paragraphs 2 and 3 of the judgment in State of Kerala vs. Ceen Mathew in W.A. No. 1016 of 2017 judgment dated 19.07.2018. 10. The learned Government Pleader has also drawn my attention to Section 56 of the Act. Then, as to the significance of the expression “proceed to determine” Dr. James draws my attention to paragraphs 2 and 3 of the judgment in State of Kerala vs. Ceen Mathew in W.A. No. 1016 of 2017 judgment dated 19.07.2018. 10. The learned Government Pleader has also drawn my attention to Section 56 of the Act. According to her, the sua sponte revision was strictly in terms of Rule 10, especially the sub-rule (2) clause (a) and the proviso appended to it. The revision was taken up, according to her, within the time frame the statute fixed under Section 56(2)(c). 11. To elaborate, Dr. James submits that unlike Section 25(1), under Section 56, the limitation has to be reckoned from the year in which the order of assessment was passed. Therefore, even under Section 56, the Ext.P9 does not suffer from any legal infirmity. Petitioner’s Reply: 12. In reply, Smt Latha contends that Section 56(2)(c) is unambiguous; it refers only to the date of assessment, rather than the year when the assessment order may have been passed. She stresses that had the legislature intended to confine the limitation to the year of order, instead of the year of assessment, it would have employed a different phraseology. 13. Heard Smt. Latha, K. the learned Counsel for the petitioner, and Dr. Thushara James, the learned Government Pleader. Discussion: How Does Section 25 (1) of the KVAT Act affect the Assessment Proceedings? 14. Sterling, an assessee under the KVAT Act, engages itself in executing the Electrical Works Contracts. First, it has suffered the Ext.P1 assessment order, dated 30.09.2016. It relates to the assessment year 2010-11. According to Sterling, limitation bars this assessment under Section 25 (1) of the Act. 15. Then, the Ext.P1 assessment order was subjected to sua sponte revision; the Ext.P6 is the order in revision. Sterling assails this order, again, as barred by limitation under Section 56 (1) of the Act. 16. So, to begin with, let us examine Section 25. That is, we will consider whether the Ext.P1 order is barred by limitation under that Section. Then, the Ext.P1 assessment order was subjected to sua sponte revision; the Ext.P6 is the order in revision. Sterling assails this order, again, as barred by limitation under Section 56 (1) of the Act. 16. So, to begin with, let us examine Section 25. That is, we will consider whether the Ext.P1 order is barred by limitation under that Section. And the provision reads: “Section 25 (1): Where for any reason the whole or any part of the turnover of business of a dealer has escaped assessment to tax in any year or return period or has been under assessed or has been assessed at a rate lower than the rate at which it is assessable or any deduction has been wrongly made therefrom, or where any input tax or special rebate credit has been wrongly availed of, the assessing authority may, at any time within five years from the last date of the year to which the return relates, proceed to determine, to the best of its judgment, the turnover which has escaped assessment to tax or has been under assessed or has been assessed at a rate lower than the rate at which it is assessable or the deduction in respect of which has been wrongly made or input tax or special rebate credit that has been wrongly availed of and assessee the tax payable on such turnover or disallowed the input tax or special rebate credit wrongly availed of, after issuing a notice on the dealer and after making such enquiry as it may consider necessary: Provided that before making an assessment under this sub-section the dealer shall be given a reasonable opportunity of being heard: Provided further that where the escapement is due to the application of incorrect rate of tax, no assessment under this subsection shall be made where the dealer files revised return and pays the tax which has escaped assessment along with interest under sub-section (5) of section 31 and thrice the interest as settlement fee. Provided also that the assessments pending as on 31st March 2013 under this section shall be completed on or before 31st March 2014.” (Italics supplied) 17. An assessee’s turnover may have escaped assessment to tax in any year, or it may have been under assessed or assessed at a lower rate. Or it may have reflected wrong deductions. Provided also that the assessments pending as on 31st March 2013 under this section shall be completed on or before 31st March 2014.” (Italics supplied) 17. An assessee’s turnover may have escaped assessment to tax in any year, or it may have been under assessed or assessed at a lower rate. Or it may have reflected wrong deductions. In some other cases, the assessee may have wrongly used the input tax or special rebate credit. In all those cases, the Assessing Authority can reassess the tax, by his best judgment. He must “proceed to determine” this issue “within five years from the last date of the year to which the return relates.” 18. In Ceen Mathew a learned Division Bench examined the issue of limitation under Section 25 (1) of the Act. It has referred to Cholayil Enterprises vs. Assistant Commissioner of Income Tax, 2015 (4) KLT 516 while examining the import of proceed to determine. 19. In the end, Ceen Mathew holds that the limitation provided under Section 25 is for “issuance of notice and the extension by the proviso was of the period for completion of assessments, for which there was no limitation provided.” 20. The power conferred on a revisional authority cannot be exercised after the expiry of the period mentioned in the statute, held this Court in Ninan. In S. Najeem this Court has examined these issues: the period of limitation for invoking Section 25(1) or 25A of the KVAT Act, and the Deputy Commissioner’s power under Section 25B of the Act to extend the time for the assessment completion beyond the period under Section 25(1). S. Najeem has also examined whether the penalty proceedings could be taken against an assessee beyond the period specified under Section 67(1) read with section 25(1) of the Act, or under section 45A read with section 19(1) of the KGST Act, 1963. 21. A learned Single Judge (A.M. Shaffique, J.) has subjected the statutory provisions to meticulous analyses and ruled on all these issues. The power given to the Assessing Officer is to determine at any time within five years from the last date of the year to which the return relates, whether the turnover has escaped assessment. S. Najeem has also held that even if the assessee failed to comply with Section 22 (10), nothing prohibits the authorities from invoking Section 25(1). The power given to the Assessing Officer is to determine at any time within five years from the last date of the year to which the return relates, whether the turnover has escaped assessment. S. Najeem has also held that even if the assessee failed to comply with Section 22 (10), nothing prohibits the authorities from invoking Section 25(1). It could not be stated, S. Najeem notes, that Section 25 could be invoked only after a revised return was filed under Section 22(10) of the Act. 22. According to S. Najeem, when a procedure under Section 25(1) was invoked, it had to be within the period of limitation, and no exclusion could be claimed by the Department merely for the reason that the Assessee had opted for compounding and a procedure under Section 22(10) was being followed. The assessment proceedings were barred by limitation. Unless the procedure prescribed under Section 25(1) was “commenced” within the period of limitation, time could not be extended for completing the assessment. 23. On facts, S. Najeem has held that the notices the authorities issued in those cases were to be treated as notices under Section 25(1) of the Act. Then, as an inevitable corollary, S. Najeem has held that the proceedings were within the time specified in Section 25(1). 24. Here, the assessment year was 2010-2011; the terminal date of the assessment year was 31st March 2011. The Assessing Authority must have proceeded to determine the issue in five years: before 31st March 2016. “Proceeding to determine” does not denote conclusion; it signifies commencement. Indeed, the proceedings may commence in many ways; the issuing of notice is one such way. Here, the Assessing Authority issued the notice on 01.03.2016. And it is, I must conclude, within five years from 31.03.2011. 25. So the Ext.P1 does not fall foul of Section 25(1); on the contrary, it is within limitation. That apart, Sterling did not assail the Ext.P1. Instead, it applied for its rectification and, then, invited, the Ext.P3 order. How Should the Limitation Under Section 56 of the KVAT Act Affect the Authority’s Sua Sponte Power? 26. Now, we will examine the sua sponte revision. Has it been barred by limitation under Section 56 (2) of the Act? To examine that, let us extract that provision. And it reads: “Section 56(2): The Deputy Commissioner shall not pass any order under sub-section (1) if: (a).......... (b).......... 26. Now, we will examine the sua sponte revision. Has it been barred by limitation under Section 56 (2) of the Act? To examine that, let us extract that provision. And it reads: “Section 56(2): The Deputy Commissioner shall not pass any order under sub-section (1) if: (a).......... (b).......... (c) more than four years have expired from the year in which the order referred to therein was passed.” 27. Section 56 of the Act confers powers of sua sponte revision on the Deputy Commissioner. That authority may, of his own motion, call for and examine any order passed or proceedings recorded under this Act by any officer or authority subordinate to him. If he feels the order is prejudicial to the Revenue’s interest. Then, he can revise that order or proceeding. But the Deputy Commissioner shall not pass any order beyond four years from the year in which the order referred to therein was passed. Conclusion: 28. Chronologically considered, the Ext.P1 Assessment Order was passed on 30.09.2016. The Deputy Commissioner issued a notice under Section 56(1) of the KVAT Act on 28.09.2017. Then, he exercised his sua sponte revisional powers and passed the Ext.P6 order on 24.11.2017. In fact, he set aside the Ext.P1 order of assessment and remanded the matter to the Assessing Authority. And the Assessing Authority, finally, passed the Ext.P9 order on 20.08.2018. 29. Looked from whichever perspective, the Ext.P6 order in revision is within four years-even the consequential Ext.P8 order of assessment, too, is within four years: 30.09.2016 to 20.08.2018. 30. So the writ petition is dismissed. No order on costs.