Case Law Details
Jyothy Labs Pvt. Ltd. Vs Assistant Commissioner (Kerala High Court)
The Kerala High Court allowed a writ petition challenging a notice dated 14.12.2020 issued under Section 25A read with Section 25(1) of the Kerala Value Added Tax Act, 2003 (KVAT Act), for reopening the assessment for the year 2009-10 based on audit objections raised by the Accountant General of Kerala.
The petitioner contended that the notice was barred by limitation and relied on earlier decisions of the High Court. During the hearing, the State also conceded that the issue was covered by the Division Bench decision in State of Kerala v. M/s. Chowdhary Rubber & Chemicals Pvt. Ltd..
The Court referred to the Division Bench judgment, which held that although Section 25A empowers the Assessing Officer to act on audit objections, the reassessment must be carried out by following the procedure prescribed under Section 25(1) of the KVAT Act. The Court observed that procedural safeguards, including the statutory limitation period, are integral to the reassessment process. It further held that tax can be levied and collected only in accordance with law, and permitting reassessment without any limitation period would be contrary to the principles of fairness in taxation and the rule of law. The Division Bench had also clarified that if an audit objection is received after the limitation period prescribed under Section 25(1), it cannot be treated as a lawful audit objection for initiating reassessment under Section 25A.
Applying these principles, the Court noted that the escaped assessment related to the assessment year 2009-10 and that Section 25(1) prescribed a limitation period of five years from the last date of the relevant assessment year for completing such reassessment. Since the impugned notice dated 14.12.2020 had been issued beyond the prescribed limitation period, the issue was squarely covered by the Division Bench decision.
Accordingly, the High Court held that the petitioner was entitled to relief and quashed the notice issued under Section 25A read with Section 25(1) of the KVAT Act.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner filed this writ petition under Article 226 of the Constitution of India, challenging Ext.P1 notice dated 14.12.2020, issued by the 1st respondent under Section 25A r/w Section 25(1) of Kerala Value Added Tax Act, 2003, (‘KVAT Act’ for short). The said notice was one issued by the 1st respondent for carrying out an escaped assessment for the year 2009-10, based on Audit Objections of the Accountant General of Kerala.
2. The petitioner contends that Ext.P1 notice is clearly barred by limitation and places reliance on the judgment of this Court in Saseedran Pillai v. Commercial Tax Officer and Another dated 02.02.2017 in W.P.(C)No.35493 of 2016 as well as the judgment in M.C.P. Enterprises and Others v. State of Kerala and Another [2020 28 KTR 267 (KER)].
3. During the course of arguments, the learned Government Pleader also fairly conceded that the issue involved in this writ petition is covered in State of Kerala v. M/s. Chowdhary Rubber & Chemicals Pvt. Ltd. [2025 (2) KLT 413]. In the said judgment, a Division Bench of this Court held thus;
“9. It is also significant that Section 25A does not set out in detail the procedure to be followed for the re – assessment that must ensue if the Assessing Officer decides that the objection of the CAG is lawful. That procedure is spelt out only in Section 25(1) of the KVAT Act. The contention of the Revenue that Section 25A also provides for the procedure for re – assessment cannot be accepted, not only because the provision itself does not say so, but also because procedural due process in a taxing statute cannot be inferred but must necessarily find a place in the statute itself. Article 265 of the Constitution clearly mandates that there shall be no levy or collection of tax save by authority of law. In our view, therefore, once the Assessing Officer arrives at the satisfaction envisaged under Section 25A, he has to proceed to re – assess the dealer in the manner envisaged under the Statute, namely, by following the procedure under Section 25(1) of the KVAT Act. In that process, he must also ensure that the substantive safeguards envisaged for an assessee, such as the requirement of exercising the power within the time permitted by the Statute, are strictly adhered to.
10. The ‘law’, for the purposes of Article 265, must also be one that satisfies the requirements of being just, fair and reasonable so as to be compatible with Article 14, Article 19 and Article 21 of the Constitution of India. To permit the Revenue to exercise the power of assessment and recovery of tax, without circumscribing the said power with a period of limitation for its exercise, would tantamount to ignoring the very fundamentals of the Rule of Law and the principles of fairness in taxation that form an integral aspect of it. We are therefore of the view that there cannot be an exercise of power under Section 25A of the KVAT Act beyond the period of limitation prescribed under Section 25(1) of the KVAT Act. In fact the provisions of Section 25A allude to this aspect when it refers to the satisfaction to be recorded by the Assessing Officer of the “lawfulness” of an audit objection. In our view, one of the aspects of lawfulness would also be the date by which the audit objection is communicated by the CAG. If the audit objection is received at a point in time that is beyond the period of limitation envisaged for re – assessment under Section 25(1) of the KVAT Act, then the Assessing Officer cannot treat the said objection as ‘lawful’ for the purposes of exercise of his power under Section 25A of the KVAT Act.
11. We thus hold that in cases where the completion of an assessment under the KVAT Act has become time-barred by virtue of the limitation provisions under Section 25(1) of the KVAT Act, the Revenue cannot proceed to re – assess an assessee on the basis of a subsequent report obtained from the CAG.”
[Underline supplied]
4. In the instant case, the escaped assessment mentioned in Ext.P1 notice is in respect of the returns filed for the year 200910, as evident from the said notice. The period mentioned in Section 25(1) of the KVAT Act to assess any such escaped assessment is 5 years from the last date of the year to which the assessment relates. Therefore, it is clear that the issue involved in this writ petition is covered in M/s. Chowdhary Rubber [2025 (2) KLT 413]. The petitioner is, therefore, entitled to succeed.
In the result, this writ petition is allowed by quashing Ext.P1 notice dated 14.12.2020 issued by the 1st respondent to the petitioner, under Section 25A r/w Section 25(1) of KVAT Act, 2003.
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