KGST Penalty Proceedings Time-Barred as They Were Not Started Within Reasonable Time: Kerala HC

Taj Garden Retreat Vs State of Kerala (Kerala High Court)

The Kerala High Court allowed an intra-court appeal and quashed a show cause notice proposing penalty under Section 45A of the Kerala General Sales Tax Act, 1963 (KGST Act), holding that such proceedings cannot be initiated beyond a “reasonable period of time” even where the statute does not prescribe a specific limitation period.

The appellant, an assessee dealing in Indian Made Foreign Liquor (IMFL) and Foreign Made Foreign Liquor (FMFL), was subjected to an inspection on 08.03.2012. Based on this inspection, a show cause notice proposing penalty under Section 45A was issued only on 20.12.2018. The appellant challenged the notice as being hopelessly delayed by filing a writ petition. While an interim stay was initially granted, a learned Single Judge later relegated the appellant to the statutory authority, prompting the present appeal.

Before the Division Bench, the appellant argued that although Section 45A does not prescribe a limitation period, penalty proceedings must nevertheless be initiated within a reasonable time, as recognised in earlier decisions of the Court. It was contended that limitation is a jurisdictional issue and that the writ court ought to have decided the matter on merits.

The State opposed the appeal, contending that several notices had been issued after the inspection calling for production of accounts and that repeated adjournments sought by the assessee delayed the proceedings. According to the State, the delay was attributable to the assessee and therefore the proceedings were not time-barred.