K.G. Rejimon Vs State of Kerala (Kerala High Court)
Conclusion: High Court upheld the validity of the suo motu power under Section 56 and the classification finding, but held that the clarificatory order holding that “thermic fluid heaters” were not specifically covered under Schedule III and were taxable at 12.5% as a residuary (RNR) item under SRO 82/2006 could operate only prospectively from 07.04.2016 onwards, and not for AY 2009–10.
Held: Assessee was a dealer engaged in trading thermic fluid heaters, was assessed for the year 2009–10 under the KVAT Act, 2003. The initial assessment levied tax at 12.5%, based on a 2006 departmental clarification. Upon appeal, First Appellate Authority observed that the 2006 clarification had already been set aside by the High Court in OTA No.3 of 2008 and directed a fresh consideration. Consequent reassessment taxed the goods at 4%, accepting assessee’s contention that the product fell under Entry 83(1)(f), Schedule III as a “heat exchange unit.” Subsequently, the Authority under Section 94 issued a new clarificatory order holding that “thermic fluid heaters” were not specifically covered under Schedule III and were taxable at 12.5% as a residuary (RNR) item under SRO 82/2006. Based on this clarification, the Deputy Commissioner invoked Section 56, initiating suo motu revision, cancelling the 4% assessment and remitting the matter for reconsideration. Assessee challenged this before the Commissioner, contending that the Deputy Commissioner lacked jurisdiction. However, the Commissioner upheld the revision leading to the present petition before the High Court. Assessee contended that Deputy Commissioner had no authority to exercise suo motu powers under Section 56(1) when the original assessment had already been appealed and modified by the appellate authority; 2016 clarification could not retrospectively alter the completed assessment for 2009–10; Thermic fluid heaters qualified as “heat exchange units” taxable at 4% under Entry 83(1)(f), Schedule III and the clarification under Section 94(2) could operate only prospectively, relying on Sreedhareeyam Ayurvedic Medicines (P) Ltd. v. State of Kerala (2011 19 KTR 561). It was held that the Deputy Commissioner was empowered to revise the order, as it was independent of the earlier appellate order and did not contravene the bar under Section 56(2)(b). Reassessment was a fresh order, and since AO failed to properly re-examine the issue as directed by the appellate authority, the suo motu revision was justified. The Court noted that assessee failed to substantiate the claimed classification with HSN codes or specific documentation. The Chartered Engineer’s technical opinion describing the product as a “heat exchange unit” was insufficient for classification under Entry 83(1)(f), which explicitly required HSN 8419.50.
Hence, the classification at 12.5% under SRO 82/2006 was upheld. However, the Court accepted assessee’s contention that the clarificatory order dated 07.04.2016 could only have prospective effect under Section 94(2). Citing Sreedhareeyam Ayurvedic Medicines (P) Ltd. and Reckitt Benckiser (India) Ltd. v. Commissioner, Commercial Taxes [(2008) 15 VST 10 (SC)], it was held that retrospective application would prejudice dealers who could not recover differential tax from customers. Accordingly, the clarification could apply only from 07.04.2016 onwards, and not for AY 2009–10.
