Case Law Details

Case Name : K. Vinod Chandran Vs Ashok Menon (Kerala High Court)
Appeal Number : W.A. Nos. 230/2017
Date of Judgement/Order : 19/07/2018
Related Assessment Year :

K. Vinod Chandran Vs Ashok Menon (Kerala High Court)

The impugned judgments in the above appeals disposed of a batch of writ petitions as also writ petitions, individually, filed by the assessee-petitioners against notices issued for assessment under the Kerala Value Added Tax Act, 2003 (for brevity “KVAT Act”). The issues raised being identical, reference is made to the common judgment dated 05.10.2016 disposing of a batch of writ petitions [W.P(C) No.10979 of 2015 & connected cases]. The learned Single Judge categorized these cases on the basis of the provision under which the proceedings were initiated. The first group in the impugned common judgment are cases in which notices were issued under Section 25(1) of the KVAT Act, beyond the period of limitation provided thereunder classified as Group-A. In some of these cases the assessment has been completed and the petitioners have approached this Court under Article 226, without availing the statutory remedies on the ground of the proceedings itself being without jurisdiction for reason of the limitation having kicked in. Group-B are cases in which again the proceedings were issued after the period of limitation under Section 25(1); but the Assessing Officer rely on the orders issued by the Deputy Commissioner under Section 25B; extending the period for completion of assessment. The challenge is to the notices issued or the assessment orders passed on the strength of the orders issued under Section 25B. Group-C, is similar to Group-B, but are cases in which the order passed under Section 25B is under challenge. Group-D is a single case in which the order of penalty is challenged on the ground of limitation. Then there are two cases in which the departmental officers have resorted to Section 25A which provides for reassessment in cases where there is an audit objection; on satisfaction of the Assessing Authority. These are cases coming under Group-E. We are not concerned with Group-D & E, since the appeals from those writ petitions are not posted along with this batch.

2. We deem it fit that the writ appeals be considered on the issues specifically raised and delineated by the learned Single Judge; the facts being not in dispute. The first question raised is of limitation as available under Section 25(1) of the KVAT Act and the effect of the further amendment made by introduction of a proviso extending the time for completion of assessment first in the year 2010 and then regularly extended in the subsequent years. The proviso so introduced, attempted to extend the period of limitation for completion of assessment of the various years. The fundamental challenge is on the ground that there is no limitation provided in Section 25(1) for completion of assessment. The limitation provided is to ‘proceed to determine…’; which words refer and mean, an initiation of proceedings, that is to say issuance of a notice. The issue stands covered by the Full Bench decision of this Court in Cholayil Enterprises v. Assistant Commissioner of Income-Tax (2015 (4) KLT 516).

3. The order of the Full Bench was in a reference from W.A No.1184/2013. After the reference was answered, when the matter came up for consideration before us there was a distinction urged by the learned Special Government Pleader (Taxes), which we did not agree with. We hence allowed the writ appeal following the decision of the Full Bench, by judgment dated 05.07.2018. The limitation provided under Section 25, was held to be 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. The assessments which lapsed for reason of no notices being issued, within five years, cannot stand revived by the extension of the period for completion of assessment; for which the statute provided no limitation, was the finding.

4. Having followed the Full Bench decision, we are of the opinion that nothing more remains to be said on the question of limitation under Section 25(1). Notices in all the cases coming under Group-A, were issued by the respective Assessing Authorities, after the expiry of 5 years from the last date of the assessment year. Later, there was a proviso introduced extending the period for completion of assessment till the end of the year. These amendments were made in the successive years after 2010, the benefit of which was claimed by learned Special Government Pleader (Taxes) for sustaining the notices issued. We have followed the Full Bench decision insofar as finding that the limitation was for not concluding the assessment but for initiation of proceedings. The interpretation placed on the words ‘proceed to determine…’ by the Full Bench, was following the earlier decision of a Division Bench which considered in pari materia provisions under the KGST Act, in Tirur Medical Stores V. State of Kerala [1978 KLT 415]. In such circumstance the action initiated by the Department after the period of limitation provided, by issuance of notices under Section 25(1) cannot be sustained.

5. The learned Special Government Pleader (Taxes) has an argument, against the impugned judgment, that the strong reliance placed by the learned Single Judge on the decision of the Hon’ble Supreme Court in State of Punjab v. Shreyans Industries Ltd. [(2016) 4 SCC 769] was misplaced. It is the submission that therein, the issue was with respect to the power exercised by the Commissioner, extending the period of limitation after the period expired whereas here the extension was by way of a statutory provision. There can be no reliance placed on the said judgment to find the action of the Department to be defective is the argument addressed. We notice that in Shreyans Industries Ltd. the Commissioner was empowered under the taxing statute, to extend the period of limitation for assessment. The Commissioner extended the time, after the period of limitation had expired. The Hon’ble Supreme Court found that, on the period of limitation expiring, as per the statute, a right accrues to the assessee and this cannot be lightly interfered with by the Commissioner. The extension of time for assessment has the effect of enlarging the period of limitation and once the period expires, the immunity against being subject to assessment, sets in and the right to make assessment gets extinguished. The power to enlarge the period could have been invoked and exercised only within the period prescribed of limitation, was the finding, which squarely applies here. With a further qualification that in the present cases, there is absolutely no extension of limitation provided at all, of that period prescribed under Section 25(1) of the Act as we found in W.A. No.1184/2013. The period of limitation provided under Section 25(1) is for initiation of assessment proceedings while the extension granted was for completion of assessment, which does not in any way extend the period for initiation of proceedings. Shreyans Industries Ltd. would have no application if there was an extension provided by an amendment to the statute, with retrospective effect. The legislature by such an amendment could have revived assessment for years in which the period of limitation had expired as per the pre-amended provision. No such retrospective amendment has been made here. The judgment impugned, insofar as it allows the writ petitions under Group-A is unassailable. So are the other judgments passed in the writ petitions, individually.

6. The next batch of writ appeals are with respect to the introduction of Section 25B in the KVAT Act by the Kerala Finance Act, 2013 w.e.f. 01.4.2013. By the introduction of the said provision, power was conferred on the Deputy Commissioner to extend the period of completion of assessment beyond the period specified in Sections 24 and 25 of the KVAT Act. Sections 24 and 25 respectively had limitation of 4 and 5 years for proceeding to determine inter alia the escaped turn over. The provision introduced as Section 25B definitely confers the Deputy Commissioner with powers to extend the period of limitation for completion of assessment, but as found earlier, there is no period prescribed in Sections 24 & 25 for completion of assessment. The limitation in Sections 24 & 25 was to ‘proceed to determine…’, meaning thereby issuance of notice or initiation of proceedings. The attempt of the Deputy Commissioner in the writ petitions, was to extend the time for completion of assessments, after the limitation for issuance of notice stood expired. We have already held that the proviso added to Section 25 (1) cannot enable extension of the limitation period provided in Section 25(1). In such circumstances, we do not see any reason to find the invocation of Section 25B, to be proper, after the period of limitation provided under Sections 24 and 25 has expired. The same is also hit by limitation. The learned Single Judge has also relied on the judgment of the Division Bench in State of Kerala V. Abhilash T.Mathew [2013 (1) KLT S.N. 132 (Case No.119)]; which too is apposite since there was no opportunity granted before the extension was carried out. There can be no interference caused to the judgment in so far as the writ petitions decided under Group B & C also. The reasoning applies squarely to the other judgments in appeal raising the very same issue.

7. The learned Special Government Pleader would then seek to distinguish Abhilash T Mathew. It is argued that Section 25B introduced in the KVAT Act, speaks of permission to extend the period of completion of assessment only for “good and sufficient reasons”. There is also no provision for notice; is the contention. We are unable to find any distinction on the grounds so urged. Abhilash T Mathew found that there could be no extension of period of limitation, without notice, when there is a power conferred on the departmental authorities so to do. This is because, such extension visits the assessee with prejudice and he has to be informed of the reasons on which the extension is granted and an opportunity afforded to seek that, the authority desist from making such extensions. The good and sufficient reasons for granting extension should be those arising in the facts of the case on an objective consideration after hearing the assesee too. The good and sufficient reasons cannot be those arise in the mind of the Deputy Commissioner on a mere subjective appraisal of the facts and circumstances. The argument that there is no provision to issue a notice or afford an opportunity to hear, is a negation of the principles of natural justice, which stands squarely answered by Mohinder Singh Gill v. Chief Election Commissioner [(1978) 1 SCC 405]:

“77. We have been told that wherever the Parliament has intended a hearing it has said so in the Act and the rules and inferentially where it has not specificated it is otiose. There is no such sequitur. The silence of a statute has no exclusionary effect except where it flows from necessary implication. Article 324 vests a wide power and where some direct consequence on candidates emanates from its exercise we must read this functional obligation”.

8. It was held in (1981) 1 SCC 664 [Swadeshi Cotton Mills v. UOI] thus:

“Rules of natural justice are not embodied rules. Being means to an end and not an end in themselves, it is not possible to make an exhaustive catalogue of such rules. But there are two fundamental maxims of natural justice viz. (i) audi alteram partem and (ii) nemo judex in re sua. The audi alteram partem rule has many facets, two of them being (a) notice of the case to be met; and (b) opportunity to explain. This rule cannot be sacrificed at the altar of administrative convenience or celerity. The general principle as distinguished from an absolute rule of uniform application seems to be that where a statute does not, in terms, exclude this rule of prior hearing but contemplates a post-decisional hearing amounting to a full review of the original order on merits, then such a statute would be construed as excluding the audi alteram partem rule at the pre-decisional stage. Conversely if the statute conferring the power is silent with regard to the giving of a pre-decisional hearing to the person affected and the administrative decision taken by the authority involves civil consequences of a grave nature, and no full review or appeal on merits against that decision is provided, Courts will be extremely reluctant to construe such a statute as excluding the duty of affording even a minimal hearing, shorn of all its formal trappings and dilatory features at the pre-decisional stage, unless, viewed pragmatically, it would paralyse the administrative process or frustrate the need for utmost promptitude. In short, this rule of fair play must not be jettisoned save in very exceptional circumstances where compulsive necessity so demands. The Court must make every effort to salvage this cardinal rule to the maximum extent possible, with situational modifications. But, the core of it must, however, remain, namely, that the person affected must have reasonable opportunity of being heard and the hearing must be a genuine hearing and not an empty public relations exercise.”

9. These two decisions along with a host of others were relied on in Sahara India (Firm) Vs. CIT [AIR 2008 (Supp) SC 308] to declare so:

“24. The upshot of the entire discussion is that the exercise of power under Section 142(2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in Section 142(2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar’s case (2006 AIR SCW 5685)”.

Any attempt to enlarge the time provided by the statute to initiate proceedings to determine escapement of income, has to comply with the principles of natural justice; which without a pre-decisional hearing will be vitiated. Section 25B has to be made compliant with the principles of natural justice by reading into the said provision, the requirement to hear the assessee who would be visited with civil consequences of re-assessment and further liability to tax.

10. The learned Special Government Pleader then relied heavily on Additional Commissioner( Legal) and another v. Jyoti Traders [(1999) 2 SCC 77] to argue for the position that the legislature could re-open even pending assessments. We have no quarrel on the proposition; but whether such an exercise was carried out here, is the moot question. In Jyoti Traders, the Hon’ble Supreme Court was concerned with a proviso added to a sub-section which provided limitation for completion of assessment. The sub-section provided that no order of assessment or re-assessment under the Act shall be made after the expiration of the four years from the end of an assessment year. The proviso conferred the Commissioner with powers to permit assessment or re-assessment after the expiration of period of limitation but within 8 years from the end of assessment year.

The Hon’ble Supreme Court upheld the validity of the provision and found that by implication there is a retrospective amendment made to the provision for limitation; when the Commissioner is satisfied on the basis of reasons recorded that such assessment or re-assessment is just and expedient. The language of Section 25B however, does not commend this Court to find an implication insofar as extension of the limitation period with retrospective effect. The language if worded as the proviso considered by the Hon’ble Supreme Court in Jyoti Traders, would have resulted in a different conclusion. But the language as it exists now does not commend any retrospectivity.

11. In this context, apposite would be reference to paragraph 25 of the decision in Jyoti Traders:

25. The two decisions in the cases of Ahmedabad Manufacturing & Calico Printing Co. Ltd. [AIR 1963 SC 1436] and Biswanath Jhunjhunwalla [(1996) 5 SCC 626] are more closer to the issue involved in the present case before us. They laid down that it is the language of the provision that matters and when the meaning is clear, it has to be given full effect. In both these cases, this Court held that the proviso which amended the existing provision gave it retrospectivity. When the provision of law is explicit, it has to operate fully and there could not be any limits to its operation. This Court in Biswanath Jhunjhunwalla case [(1996) 5 SCC 626] said that if the language expressly so states or clearly implies, retrospectivity must be given to the provision. Under Section 34 of the Income Tax Act, 1922, it is the service of the notice which is the sine qua non, an indispensable requisite, for the initiation of assessment or reassessment proceedings where income had escaped assessment. That is not so in the present case. Under sub-section (1) of Section 21 of the Act before its amendment, the assessing authority may, after issuing notice to the dealer and making such inquiry as it may consider necessary, assess or reassess the dealer according to law. Sub-section (2) provided that except as otherwise provided in this section, no order for any assessment year shall be made after the expiry of 4 years from the end of such year. However, after the amendment, a proviso was added to sub-section (2) under which the Commissioner of Sales Tax authorises the assessing authority to make assessment or reassessment before the expiration of 8 years from the end of such year notwithstanding that such assessment or reassessment may involve a change of opinion. The proviso came into force w.e.f. 19-2-1991. We do not think that sub-section (2) and the proviso added to it leave anyone in doubt that as on the date when the proviso came into force, the Commissioner of Sales Tax could authorise making of assessment or reassessment before the expiration of 8 years from the end of that particular assessment year. It is immaterial if a period for assessment or reassessment under sub-section (2) of Section 21 before the addition of the said proviso had expired. Here, it is the completion of assessment or reassessment under Section 21 which is to be done before the expiration of 8 years of that particular assessment year. Read as it is, these provisions would mean that the assessment for the year 1985-86 could be reopened up to 31-3-1994. Authorisation by the Commissioner of Sales Tax and completion of assessment or reassessment under sub-section (1) of Section 21 have to be completed within 8 years of the particular assessment year. …”

12. The above extracted paragraph from Jyoti Traders answers the contention raised by the Revenue against them and supports the assessee. Against the revenue it has to be stated that the language of the proviso as available in Jyoti Traders, given its full effect, would cloth the Commissioner with the power to permit assessment or re-assessment even after the expiry of limitation provided in the sub-section, however, within 8 years from the last date of assessment year. Section 25B is a non obstante clause overriding Section 24 and 25; but the language used confers power on the Deputy Commissioner, for good and sufficient reasons, to extend the period of completion of assessment beyond the period specified in those sections, if the assessment cannot be completed within the period specified under the said sections. There is no period for completion of assessment provided in Section 25 and the overriding effect given to Section 25B, is of no consequence. As already found the limitation provided under sub-section (1) of Section 25 is for initiation of proceedings, obviously by way of a notice for re-assessment and if that has not been done, within the period of limitation, the assessing authority cannot fall back upon a permission issued by the Deputy Commissioner under Section 25B extending the period of limitation for completion of assessment. We are fortified, in taking such view, by the decision of the Hon’ble Supreme Court in Commercial Motors Ltd. Vs. Commissioner of Trade Tax (2015) 15 SCC 168, in which Jyoti Traders was distinguished. Despite this, it cannot but be observed that the limitation provided under section 24 is for completion of assessment, with which we are not concerned in the present appeals.

13. The learned Special Government Pleader (Taxes) relentlessly would urge that Tirur Medicals was under the KGST regime and the dictum stands distinguished by the KVAT regime. Under the KGST regime mere filing of return does not conclude an assessment. There is a requirement under Section 17, for the Assessing Officer to carry out an assessment. Under the KVAT Act, the principle and policy as enunciated by the enactment is of self assessment on the return being filed. Hence if the limitation provided was for issuance of notice for re-assessment then necessarily the word used ought to have been proceed to “re-determine…”. We do not think that any such distinction as argued by the learned Special Government Pleader, holds good. The provision considered in Tirur Medicals was Section 19 of the KGST Act which again is a proceeding after assessment, as is provided under Section 25 of the KVAT Act. We also do not think that there is any error in the use of the words “proceed to determine…” since what is to be determined is the escapement of income, short fall of tax and so on and so forth which would result in a re-assessment.

14. The learned Special Government Pleader (Taxes) lastly argued that there was an amendment by substitution to Section 25(1) by which the period for proceeding to determine was made 6 years. When a substitution is made as distinguished from addition, deletion or insertion then, the substituted provision would relate back to the date of the enactment unless otherwise specified. Strong reliance was placed on AIR 2014 Karnataka 120 (Full Bench) [Hassan Co-operative Milk Producers Societies Union Limited v. State of Karnataka] to urge the position. At least the notices issued within the six year period has to be sustained argues the Special G.P. In Hassan Co-operative Union the Full bench considered the issue of a substitution made, changing the term of an elected committee of a co-operative society from “five co-operative years” to “five years from the date of election”. The State sought to appoint an Administrator as per the pre-amended provision deeming the term of the committees elected prior to the substitution, as having expired at the end of the co-operative year. The Full Bench was considering the issue as referred by a Division Bench (D.B) doubting the decision of another D.B in Shankarappa Mallappa Kelagiri Vs. The Co-operative Election Commissioner.

15. The D.B of the Karnataka High Court in S.M. Kelagiri held that it is not an invariable rule that when a substitution is effected, the substituted provision has effect from the inception of the original Act. It was held that the Court could decide the issue whether the amendment was prospective or retrospective, by looking into the scheme of the Act, the object of the amendment, the mischief sought to be rectified etc:; but in cases where there is an express statement that it is prospective there is no scope for any interpretation. The D.B in S.M. Kelagiri, thus refused to grant relief and held that the amendment was expressly stated to be effective from the date it came into force. The second D.B. was of the opinion that when a provision of law has been amended by substitution it relates back to the date of Act unless otherwise specified; hence the reference. The Full Bench agreed with the referring Bench, based on Supreme Court decisions and held that the substitution is retrospective and would apply to all the committees in office at the time the amendment came into force. Though we agree with the final conclusion arrived at by the Full Bench, we, with due respect are unable to accede to the position that the decisions of the Supreme Court are to the effect that “… an amendment which has the effect of substitution of a provision has the effect of replacing the old provision by the substituted provision and in the absence of repugnancy, inconsistency and absurdity, must be construed as if it has been incorporated in the Act right from ab initio. In other words an amendment by substitution has retrospective operation”(sic- para21) We are unable to agree to the proposition highlighted in the above extract nor does it emerge from the decisions of the Supreme Court. That would be akin to stating that when the legislature has made a substitution then it is always retrospective.

16. The power of the legislature to make an amendment, with retrospective effect, is undisputed but the requirement is that unless the same is expressed in clear language or implied, without any scope for doubt, then the amendment would only be prospective. We are of the opinion that when there is a substitution, unless the same is expressed to be prospective the Courts could always interpret it to be retrospective, looking at the scheme of the enactment, the purpose and object of the amendment, especially when the amendment by substitution, was intended at removing an obvious anomaly or correcting a blatant error or obliterating an absurdity or bringing it in consonance with any other law or the Constitution; as was the case in Hassan Co-operative Union. On the other hand an amendment other than by substitution would be retrospective only if it is so expressed or it follows from necessary intendment, as is implicit from the language employed. Otherwise there is no requirement for the legislature to express the retrospectivity; it could very well make a substitution, which would operate from the inception of enactment.

17. Coming back to the Karnataka case, the Full Bench, in considering the specific substitution made, extending the period of an elected committee of a co-operative society, to five years from the date of election, noticed the Constitution (Ninety-seventh) Amendment Act, 2011, to understand whether by implication it could be found that the substitution was intended by the legislature to be retrospective. We pause here to say, with due respect, that the same was unnecessary and irrelevant if all substitutions were retrospective in its operation, as an invariable rule. The Full Bench then noticed Article 234ZK relating to election of members of a Board, (alternatively used for committee) which by the non-obstante clause overrode all State legislation, and made mandatory by clause (1), for the elections to co-operative societies, to be conducted before the term of the existing board expires, so as to ensure that the newly elected board assumes office immediately on the expiry of the term of the outgoing board. A proviso also enabled the State, by a law to provide the procedure and conduct of such elections. Article 234ZT spoke of the continuance of existing laws, before the ninety-seventh amendment, insofar as they were inconsistent to that Part, to be in force till they are repealed or amended by the competent legislature or till the expiration of one year, whichever is earlier. The amendment made by way of substitution was to prescribe the term of office of the board of the co-operative societies, in consonance with the constitutional prescription. This is a matter of interpretation, looking at the general scheme and the purpose of the substitution which makes it retrospective in operation. The mere fact that the amendment was to be effective from the date it was brought about, would not stand in the way of the committees, whose term had not expired on the date in which the amendment was made effective; from their term being extended to five years from the date of their election.

18. In this context it has to be pertinently noticed that the Full Bench was careful to observe that they were not, in the batch of cases, concerned with a situation where the term of the elected board expired before the substitution was made to the Act. There could also have been no such situation since the expiry of the term of office, prior to substitution was, the date of completion of five co-operative years and the substitution was to five years from the date of election. If the situation was just the opposite; ie: the substitution was from the expiry of five years from election to completion of five co-operative years. Then there could arise a situation that the five years from election expired on a date prior to the substitution and the elected members took charge or was about to take charge and immediately thereafter the substitution came. In that case there could be no continuation of the expired board till the end of the co-operative year, since their term had expired and the substantive right of the newly elected members to be sworn into office, would be taken away. We hence respectfully follow the declaration on substitution made by the Division Bench in S.M. Kelagiri but, with equal respect, agree with the conclusion of the Full Bench, interpreting the provision, to inure to the benefit of the boards of those co-operative societies who were in office at the time of amendment, whose term stands extended to the date of expiry of five years from their election date. We now examine the Supreme Court decisions referred to by the Full Bench of the Karnataka High Court for completeness.

19. In AIR 1952 SC 324 Shamrao V. Parulekar Vs. D.M. Thana the question was whether the detention order, initially passed under a Preventive Detention Act, the validity of which Act was to end before the period of the detention, could prolong the period of detention. The argument was that dehors the period of detention the order would end with the Act and the prolongation of the enactment cannot revive the expired order. Section 3 of the amended act clearly provided that detention orders passed under the principal act shall have effect under that Act as amended by the present amendment Act.

It was argued that the principal Act was of 1950, expiring in 1951, which stood amended and extended by an Act of 1951, under which amendment, the detention order was passed. The Act of 1951 also expired and there was an extension in 1952, which only extended the orders under the Act of 1950, was the plea. The contention was negatived and it was held that only a desperate hairsplitting could lead to the perceived absurdity and in any event courts should construe statutes in a manner advancing the intended ends of the enactment unless there is repugnancy, inconsistency or absurdity. Therein the amendments made in each of the years, prolonging the operation of the provisions, incorporated the provisions of the earlier act to the later one.

20. AIR 2001 SC 2472 [Shyam Sundar Vs. Ram Kumar] was relied on by the Full Bench of the Karnataka High Court citing alongside certain other decisions, the Constitution Bench relied therein. Shyam Sundar was concerned with the right of a co-sharer to pre-empt a sale, granted by a statute, which was characterized as feudal archaic and outdated, but accepted by the Court for reason of it being codified based on customs and the necessity to preserve and maintain peace and security in the village community and society. The crucial issue dealt with was whether the amendment by substitution taking away the right of pre-emption of a co-owner was retrospective or not. The Court was concerned with whether an amendment brought about after the adjudication by the first court, in a suit for pre-emption, could be applied by the appellate court. Reliance placed by the parties, were on three set of decisions, the respective dictum as specified in para 9 of the judgment were as follows. The first set of decisions declared that the right of pre-emption of a co-owner should be established as existing from the date of sale till the date of decree of the first Court. The second set declared that the appeal being a continuation of the original proceedings any retrospective amendment taking away the right of pre-emption should be given full effect to. The third set advanced the proposition that when any amendment is made during the pendency of an appeal or other statutory proceedings the appellate or revisional court should take into account the amendment. In other words when an appeal or other proceeding is pending from the decree of the first court if the right is taken away, then the higher Court should reject the claim of pre-emption. The Constitution Bench agreed with the first two set of decisions and disagreed with the third set; despite the amendment taking away the right was by way of substitution. What follows is that a substitution does not invariably result in a retrospective application.

21. The Constitution Bench in disagreeing with the third set of decisions garnered support from a number of decisions, which were also cited by the Full Bench of the Karnataka High Court, which we will now look into. AIR 1957 SC 540 Garikapati Veeraya Vs. N. Subbiah Choudhry spoke on the vested right accrued to a party to a suit at its inception, of an appeal, which remains unaltered by the raising of the pecuniary jurisdiction of that appellate court; being a substantive right. The Constitution Bench, by a majority asserted the principle that the vested right can be taken away only by a subsequent enactment, by express words or necessary intendment. AIR 1966 SC 1423 [Dayawati Vs. Inderjit] held the relief granted by an Act prohibiting usurious interest, applicable to all pending suits, to be applicable to appeals pending from decrees passed, looking at the necessary intendment. The applicability was intended for all proceedings pending from a decree passed and was excluded only in so far as decrees which had attained finality. Hitendra Vishnu Thakur Vs. State of Maharashtra [AIR 1994 SC 2623] and the principles culled out therein were extracted; which are extracted hereunder:

“(I) A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits.

(ii) Law relating to forum and limitation is procedural in  nature, whereas law relating to right of action and  right of appeal even though remedial is substantive in  nature.

(III) Every litigant has a vested right in substantive law but no such right exists in procedural law.

(iv) A procedural statute should not generally speaking be  applied retrospectively where the result would be to  create new disabilities or obligations or to impose new duties in respect of transactions already accomplished.

(v) A statute which not only changes the procedure but also creates new rights and liabilities shall be  construed to be prospective in operation, unless  otherwise provided, either expressly or by necessary implication.”

(emphasis supplied by us)

The emphasized portion makes it very clear that the subject substitution which we are concerned with, relating to limitation, is not retrospective neither by reason of express words nor on grounds of intendment. Limitation, though procedural in nature, any action taken after its expiry, creates disabilities and obligations. The right accrued to an assessee, after the expiry of the period of limitation, not to be assessed or re-assessed can be meddled with only by an amendment, expressed or implied to be retrospective.

22. K.S. Paripoornan Vs. State of Kerala was also noticed and the legal position emerging from the decisions cited was declared so in Shyam Sunder:

“We are further of the view that there is a presumption against the retrospective operation of a statute and further a statute is not to be construed to have a greater retrospective operation than its language renders necessary, but an amending Act which affects the procedure is presumed to be retrospective, unless amending Act provides otherwise. We have carefully looked into new substituted S.15 brought in the parent Act by Amendment Act, 1995 but do not find it either expressly or by necessary implication retrospective in operation which may effect the right of the parties on the date of adjudication of suit and the same is required to be taken into consideration by the appellate Court. In Shantidevi (Smt) v. Hukumchand (1996) 5 SCC 768 : (1996 AIR SCW 3680 : AIR 1996 SC 3525) this Court had occasion to interpret the substituted S.15 with which we are concerned and held that on a plain reading of S.15 it is clear that it has been introduced prospectively and there is no question of such section affecting in any manner the Judgment and decree passed in the Suit for pre-emption affirmed by the High Court in the second appeal. We are respectfully in agreement with the view expressed in the said decision and hold that the substituted S.15 in the absence of anything in to show that it is retrospective, does effect the right of the parties which to them on the date of suit or on the date passing of the decree the Court instance. We are also of the view that present appeals are unaffected by change in law so far it related to determination of the substantive rights of the parties and the same are required to be decided in light of law of pre-emption as it existed on the date of passing of the decree”.

The above declaration by the Constitution Bench puts it beyond any pale of doubt that an amendment by substitution is not automatically retrospective and the principles apply as in any other amendment. For an amendment to have retrospective operation and effect, it should be clear from express words or evident from necessary intendment.

23. Zile Singh did not rule any differently or give an amendment by substitution a greater status on retrospectivity contrary to that found by the Constitution Bench; which was relied on by the three judge bench. The amendment coming up for interpretation there was to an exception to a disqualification. On 05.04.1994 an amendment was made to the Municipal Act in Haryana bringing in a disqualification for being elected or continued as a member of the Municipality, to persons having more than two children. An exemption was provided to those who had more than two living children “on or after the expiry of one year of the commencement of the Act”. This brought in anomalous consequences verging on absurdity since a person who has a third child on commencement of the Act would be disqualified, but the disqualification would be removed on expiry of an year. That was not the intention and noticing the anomaly a substitution was made in October, changing the word “after” to “upto”. Zile Singh, a member, had a fourth child in August and was hence sought to be disqualified. It was argued that the amendment cannot be given retrospective effect and that the one year period could only commence from the date of substitution. The Hon’ble Supreme Court found that the substitution was intended to remove the anomaly and by necessary implication it had retrospective effect from the date on which the disqualification was first brought into the statute book. It was held so in para 22:

“22. The State Legislature of Haryana intended to impose a disqualification with effect from 5-4-1994 and that was done. Any person having more than two living children was disqualified on and from that day for being a member of municipality. However, while enacting a proviso by way of an exception carving out a fact-situation from the operation of the newly introduced disqualification the draftsman’s folly caused the creation of trouble. A simplistic reading of the text of the proviso spelled out a consequence which the Legislature had never intended and could not have intended. It is true that the Second Amendment does not expressly give the amendment a retrospective operation. The absence of a provision expressly giving a retrospective operation to the legislation is not determinative of its prospectivity or retrospectivity. Intrinsic evidence may be available to show that the amendment was necessarily intended to have the retrospective effect and if the Court can unhesitatingly conclude in favour of retrospectivity, the Court would not hesitate in giving the Act that operation unless prevented from doing so by any mandate contained in law or an established principle of interpretation of statutes”.

We are quite justified in taking a different view on the interpretation of an amendment by substitution, from that taken by the Full Bench of the Karnataka High Court and there cannot be an irrefutable rule that a substitution is invariably retrospective.

24. Now we look at the other decisions relied on by the learned Special Government Pleader. AIR 1963 SC 1667 [Rai Ramakrishna and others v. State of Bihar declared the power of the legislature to make laws prospectively and retrospectively which included the subsidiary or auxilary power to validate laws, which have been held invalid, by removing the basis of such invalidation; in which event the judgment invalidating the law would be of no effect; for reason only of the infirmity or defect pointed out having been corrected, rectified or removed. AIR 1997 SC 1467 [Meerut Development Authority v. Satbir Singh and others] was a case concerned with an acquisition in which the State Government published a notification under Section 4(1) of the Land Acquisition Act, 1894, dispensed with the enquiry under Section 5A and made a declaration under Section 6, two days from the notification which was published still later. The challenge before the High Court succeeded because though earlier the State Government could have published the notification and declaration simultaneously, an Amendment Act prohibited the same. The High Court had followed the judgment of the Apex Court on the very same subject. While the matters were pending in the Supreme Court the State Government brought in yet another amendment bringing in a proviso, by which the Government was empowered to make declarations simultaneous or at any time after the notification; in cases where the enquiry was dispensed with, between the date of the earlier amendment and the date of judgment of the High Court. There was a validation clause in the second amendment act making valid all actions taken by the State in conformity with the principal act as stood amended thereby. The Hon’ble Supreme Court negatived the plea that the legislature was incompetent to nullify or overrule the judgment of the constitutional court. It was reiterated that when a particular statute is declared invalid, the legislature has the power to suitably amend the law by use of appropriate phraseology, rectifying the defects and removing the inconsistency pointed out by the Court. In that context the legislature also could validate the actions taken under the earlier statute as if the defects pointed out never existed; which cannot be termed as an incursion on the judicial power.

25. AIR 1997 SC 1815 [State of Tamil Nadu v. M/s Arooran Sugars Limited] also was concerned with an enactment prescribing a ceiling limit on land holdings and the consequential vesting in the Government of the excess lands. There was also a compensation payable, which was reduced from the rate as it originally existed, by an amendment. After the rate reduction was introduced, a provision was introduced deeming the vesting to have occurred from a date prior to such reduction, with a view to make the land holder liable to, a compensation to the Government for any benefit derived from the land. The respondent who had considerable land holdings claimed compensation from the State, before the High Court, at the earlier rates, since the deeming fiction, subsequently made the vesting effective from a date when the rate of compensation as per the principal act was more; which claim stood allowed. Subsequently the State realising its folly made an amendment omitting the provision which created the fiction and validating the principal act as it was originally enacted and the amendments deemed to have been never made, not withstanding any judgment decree or order of any Court. The exercise made by the State legislature was held to be perfectly within its powers and the respondent was held to be entitled to only the reduced rates, despite a judgment in its favour. The vesting deemed from an anterior date of the notification under the enactment, was set at naught by an amendment and that amendment stood validated as if the deeming fiction was never created.

26. AIR 2000 SC 498 [Indra Swahney v. Union of India] is a case in point where the purported attempt to remove a defect, with a validation clause was struck down by the Apex Court. The Supreme Court having declared that the creamy layer from the backward classes are to be excluded from the benefits of reservation, the State of Kerala brought in an amendment to the Act, which provided such reservations to back ward classes, declaring with retrospective validation that such creamy layer was absent in the State. The declaration and the validation provided, were declared unconstitutional since there was no elimination of the defect pointed out by the Supreme Court. The defect was insofar as extending benefits of reservation to the creamy layer in the backward classes, which was held to be violative of Articles 14 and 16 of the Constitution of India since un-equals cannot be treated as equals nor equals treated unequally. The reasoning was that those included in the creamy layer from amongst the back ward classes, will not be equal to the others not so included; but would be at par with those in the forward classes. Without exclusion of the creamy layer from reaping the benefits of reservation, there could be no declaration that there was no creamy layer in the State; which would be a direct encroachment into the judicial power; in exercise of which it was earlier directed to make such exclusion. This is not relevant to the subject matter of the instant case at all.

27. 1996 AIR SCW 1051 [Indian Aluminium Co. v. State of Kerala and others] also examined an enactment and the validation clause contained therein; brought about to avoid refund of a sur-charge imposed on supply of electricity, which impost by an earlier executive order was set aside. The decision is also an authority for the proposition that when an enactment is challenged, as far as possible the resolution should be in favour of the legislative body, putting the most liberal construction upon the legislative entry, conferring on it the widest amplitude. Therein, an excise duty was imposed on electricity by the Parliament, to recoup which an executive order was made to impose a levy of surcharge on the consumers. Later the excise duty was withdrawn and in supersession of the executive order another was brought out to continue the levy. On a challenge by the consumers the High Court set it aside finding it to be a compulsory exaction for the benefit of the State and finding the enactment under which the order was issued not having conferred competence on the Government to levy and collect a duty of excise. A subsequent enactment revived the impost and validated the levy under the earlier order; which was held to be ultra vires by this Court. This was again challenged on the earlier grounds and the additional one of attempting to nullify and overrule the judgment of the High Court, upheld by the Apex Court. The levy subsequently made was as tax on sale of electricity under Entry 53 of List II, Schedule VII of the Constitution. The supply, consumption and sale, in the context of electricity, was found to be simultaneous. The validation of the levy, which was earlier declared to be illegal was said to have been made properly, sourcing power correctly and fundamentally altering the defect which was the basis of the earlier decision. The subsequent levy made retrospectively and with a validation clause was held to have removed the vice earlier pointed out, against the executive order. The effect was to have validated the illegal collections thus successfully avoiding a refund to the consumers. We are at a loss to understand how these decisions help in sustaining the notices issued by the Assessing Officers after the period of limitation expired. The amendment made, was (i) extending the period of limitation for completion of assessment by a proviso; while the sub-section provided a limitation for issuance of notice and (ii) the substitution of the period of ‘five years’ with ‘six years’ which was not retrospective.

28. We cannot but observe that AIR 1941 Federal Court 16 [United Provinces v. Mt. Atiqa Begum and others] AIR 1969 SC 504 [Koteswar Vittal Kamath v. K Rangappa Baliga and Co.] placed before us by the State, also are not relevant. The declarations in the former has a connection to the facts of this case, only on the question of ‘validation of doubtful executive orders’. A validation clause is conspicuously absent in the amendment act which brought in the substitution here, and hence works against the defense set up. The second cited case referred to yet another decision (A.T.B. Mehtab Majid & Co. Vs State of Madras AIR 1963 SC 928), wherein the issue dealt with was as to whether on a substituted provision being declared invalid whether the old rule revives. The Supreme Court categorically held that the process of substitution consists of two steps; (i) the repeal of the old provision and (ii) the introduction of the new one. Merely because the second step is invalidated, the first step, putting an end to the old provision stands unaltered. These decisions do not at all help the State to sustain the notices, on the basis of the substitution made.

29. We have to now notice the decisions relied on by the respondents-assessees. AIR 1962 SC 918 [I.T.O v. S.K. Habibullah] was a case in which the completed assessment of a partner of a firm was sought to be rectified on the basis of the assessment of the firm, completed subsequently. The rectification was attempted within the four year period of limitation. However the reopening of the completed assessment against the partner was by virtue of a deeming provision incorporated into the statute permitting such rectification on the basis of the errors in the assessment of the partner, revealed on completion of assessment of the firm. The amendment made was after the completion of assessment of the partner. The Supreme Court ruled that the subject of rectification was not a rectifiable mistake as per the statute, as it originally stood and only the amendment deemed it to be rectifiable mistake. Hence there could be no retrospectvity inferred to rectify completed assessments on the basis of the deeming provision brought into the statute subsequent to the completion of assessment of the individual partner. AIR 1965 SC 171 [S.S Gadgil v. Lal and Co.] dealt with an amendment, extending the period of limitation, to make an assessment deeming a person to be an agent of a non-resident from one year to two years from the end of that year. The amendment was by way of substitution which was held to be not retrospective. The specific question which was answered in the negative was whether by virtue of the amendment, a notice could be issued when the time for issuance of such notice had expired even prior to the amendment. It was held so in para 13:

“… That provision must be read subject to the rule that in the absence of an express provision or clear implication, the Legislature does not intend to attribute to the amending provision a greater retrospectivity than is expressly mentioned, nor to authorise the income-tax Officer to commence proceedings which before the new Act came into force had by the expiry of the period provided become barred”.

30. AIR 1969 SC 778 [ITO, Ahmedabad v. Devshankar Bhatt] followed S.S. Gadgil. There the first appellate authority had set aside a reassessment, under the Income-tax Act, 1922, on the ground of no proper service of notice. Later the Act was superseded by Income-tax Act, 1962, which provided a extended period of 8 years in the case of escapement of income above Rs. 50,000/-. However the period of limitation as per the old Act having expired prior to the new Act, the notice was held to be illegal and ultra vires. AIR 2002 SC 1715 [K.M. Sharma Vs. ITO] again was a re-assessment to bring to tax the interest received against compensation on acquisition made of agricultural land in 1967, as enhanced in a reference in 1991. The assessee claimed that the interest has to be assessed in each year, on its accrual and asserted that upto 1982, the assessment had become time barred. There was already a provision in the Act to give effect to an order passed in appeal, revision or reference without reference to the limitation provided elsewhere, by a non-obstante clause. The power to so reassess on the basis of “an order by a Court in any proceeding under any law” was added only in 1989. The Supreme Court found in favour of the assessee in the following words:

“13. Fiscal statute more particularly on a provision such as the present one regulating period of limitation must receive strict construction. Law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. …”.

31. Union of India & Others v. Uttam Steel Limited [(2015) 13 SCC 209] is again a case on point, having dealt with a substitution, which was held to be not retrospective. The provision was under the Central Excise Act, 1944, wherein a period of limitation for claiming refund was extended from six months to one year by virtue of an amendment by substitution. Before the amendment came, the respondent had filed a claim for rebate, but beyond the six months period, on 28.12.1999. On 12.05.2000, the period of six months was substituted with a period of one year. The rebate application having been filed within the period of one year, the respondent contended that they were in time as per the substituted provision. The Hon’ble Supreme Court, among others, relied on S.S Gadgil to find that the claim for rebate can only be made under Section 11B within the period of limitation stated there. The appeal against the judgment of the Bombay High Court was allowed, rejecting the claim made beyond the period of limitation despite the claim having been made within the period provided by the substituted provision.

32. Having gone through the gamut of decisions placed before us, both by the State and the respondent-assessees, from which we have copiously referred to, we find the State’s contention to be supported only by the judgment of the Full Bench of the Karnataka High Court, which we have dissented from. We have demonstrated from the various decisions of the Hon’ble Supreme Court placed before us by both the parties that there is no irrefutable rule that an amendment by substitution is invariably retrospective. We find the amendment by substitution in the present case, extending the period of limitation from 5 years to 6 years to be not applicable to those assessments which stood completed and the 5 year period for re-opening of assessment under Section 25(1) stood expired. We do not see any reason to interfere with the impugned judgments on the basis of the amendment made subsequent to the judgment. Though the legislature had the competence to extend the period of limitation with retrospective effect, the same was not done. We cannot but observe that even if such an exercise was carried out, necessarily there should have been a validation clause so as to get over the judgment of the writ Court. Rai Ramakrishna, Meerut Development Authority, M/s Arooran Sugars Limited, and Indian Aluminium Co. are cases in which the legislature despite the judgment of a constitutional court; brought in amendments removing the defect pointed out in the judgments, and also provided a validation clause by which the action taken under the defective provision stood validated under the retrospective amendment made. This exercise is totally absent in the amendment made to section 25 (1), substituting the period of limitation from five to six years.

33. Binu Gopinath v. State of Kerala [2018 (3) KHC 482] was also relied on by the learned Special Government Pleader. The provision which was considered therein was distinct from that considered here. Finance Act, 2017, as we noticed, substituted the provision under sub-section (1) of Section 25 and provided six years from the last date of the assessment year, as the period of limitation for proceeding to determine the tax payable. The assessment which came up for consideration before the learned Single Judge was of the year 2011-12. As per the earlier provision and the limitation provided of five years, the period stood expired on 31.03.2017, after which the amendment by substitution was brought into the statute book. We have already held that substitution as such would not have any retrospective effect. The learned Single Judge had also not declared the assessment to be retrospective merely for reason of a substitution having been made. There was a proviso in the substituted sub-section extending upto 31.03.2017, the period for proceeding for any assessment which expires on 31.03.2017. Hence, the proviso by necessary intendment granted retrospective effect to the six year period at least for the assessment year 2011-12. The decision has absolutely no application on the facts emanating from the appeals before us.

34. Groups- ‘A’, ‘B’ and ‘C’ as indicated in the common judgment dated 05.10.2016 concerned with Section 25(1) and Section 25B have already been dealt with by us in the above judgment. As far as Group ‘D’ & ‘E’ in the said judgment are concerned, the appeals are not before us in this batch. We hence reject the appeals of the State upholding the findings in the common impugned judgment dated 05.10.2016 in so far as Groups- ‘A’, ‘B’ and ‘C’ are concerned and the separate judgments in the individual writ petitions. We notice that there is another judgment in a batch [W.P.(C) No.29126 of 2013 and connected cases], which refers to the proceedings under Rule 6(5) and 6(7) of the Central Sales Tax Rules (Kerala), 1957. The learned Single Judge has found that the limitation as provided in Rule 6(7) is akin to that in Section 25(1) of the KVAT Act, being “proceed to determine …”. We, hence, uphold the said judgment dated 13.12.2016 also. The parties shall bear their respective costs.

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