Citizen Watches (India) Pvt. Ltd. v. Assistant Commissioner, Department of Commercial Taxes, Special Circle II, Ernakulam; Deputy Commissioner, Department of Commercial Taxes; State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **THURSDAY, THE 01ST DAY OF OCTOBER 2020 / 9TH ASWINA, 1942** ## **WP(C).No.39068 OF 2016(G)** ## **PETITIONER/S:** **M/S. CITIZEN WATCHES (INDIA) PVT.LTD GCDA SHOPPING COMPLEX, MARINE DRIVE, ERNAKULAM, REPRESENTED BY ITS AUTHORIZED SIGNATORY BELARAMAN A.S.** **BY ADVS. SMT.S.K.DEVI SRI.SANTHOSH P.ABRAHAM** ## **RESPONDENT/S:** **1 THE ASSISTANT COMMISSIONER DEPARTMENT OF COMMERCIAL TAXES, SPECIAL CIRCLE II, ERNAKULAM, KOCHI-682 015. 2 THE DEPUTY COMMISSIONER DEPARTMENT OF COMMERCIAL TAXES, ERNAKULAM, KOCHI-682015. 3 STATE OF KERALA REPRESENTED BY ITS SECRETARY, FINANCE DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695001.** ## **OTHER PRESENT:** ## **BY SR GP SRI K GOVIND** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 01.10.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WP(C).No.39068 OF 2016(G)** **2** ## **JUDGMENT** ## **Dated this the 1[st] day of October 2020** Through this writ petition petitioner, instead of availing alternative remedy of appeal, has sought indulgence of this Court in laying challenge to Ext.P2 being abuse of process of court. In support of the aforementioned prayer, it is alleged that petitioner is a private limited company registered under the Companies Act. It is dealing in Watches and an assessee under the Kerala value Added Tax Act, 2003, on the files of the Assistant Commissioner, Special Circle II, Ernakulam. For the assessment year 2010-11, petitioner submitted annual returns conceding a total and taxable turnover of Rs.3,13,42,000/-. However, petitioner was served with notice under Section 25 (1) of the Act. The petitioner submits that the assessment completed under Section 25 (1) is barred by limitation. Petitioner submitted reply to the notice explaining the defects. However without going to the reply, the assessment order Ext.P2 was passed. 2. On other hand, Learned Government Pleader submits that it is not a simple case of assessment under Section 25(1) of 2003 Act. Section 42(3) of the Act **WP(C).No.39068 OF 2016(G)** **3** provides that if any assessee fails to file any audited accounts referred to in sub Section 1 or annual return, annexures, statements, certificates, details of sale and purchase, the assessment for the relevant year for the purposes of Section 25 shall be treated as pending and time limit mentioned therein shall not be applicable in such cases. In support of the aforementioned contention, he relied upon the Division Bench judgment of this Court in **Assistant Commissioner (Assessment) v. Grasim Industries Ltd. (2006 (1) KLT 821)** and urges this Court for dismissal of the writ petition even, Exts.P1 was issued in August 2016. 3. I have heard the learned counsel for the parties and appraised the paper book. The assessment orders as seen from the contents Ext.P1 is August 2016, but, without compliance of principles of natural justice. The time limit prescribed was, five years, extended to six years as per the amendment brought in 2017 in view of the judgment in **Baiju A.A & Others v. State Tax Officer (2020 (1) KHC 39)** . As per judgment, the **WP(C).No.39068 OF 2016(G)** **4** amendment,i.e. extension period of limitation has been held to be prospective in nature and assessment proceedings, initiated after expiry of 5 years, were held to be beyond limitation. The question which is to be seen by this Court is that the amendment of Section 42 brought vide notification dated 13.11.2016 having a retrospective effect, whether period of limitation as provided in Section 25 or rule 58 will be applicable and would give cause to the State to issue notice by commencing the proceedings or otherwise. **4** . The judgment of the Single Bench of this Court in **MCP Enterprises & Others vs. State of Kerala & Others [2020 (1) KHC 127]** was regarding amendment to Section 42 by inserting sub Section 3 by giving retrospective operation with effect from 1.4.2005. It was observed that retrospectivity would have the effect of removing the basis of the judgment rendered in case of such assesses in the context of limitation under the provisions of Section 25 of the KVAT Act. Once there was an absence of power other than mentioned in Section 25 of KVAT Act, the revenue could not re-open assessment **WP(C).No.39068 OF 2016(G)** **5** after expiry of the limitation prescribed under Section 25. On analysis of the judgment and arguments, it was held that on account of a retrospective operation of newly introduced provision, assessee would not be in a position to adduce material to defend against an allegation of suppressed / escaped turnover. No doubt, retrospective operation of Section 42(3) would entail into reopening of assessments completed years back, but, assessee would not have relevant books of accounts, other records, to defend the case against alleged escaped turnover. As per Rule 58(20) of KVAT Rules, assessee is required to maintain the books for a period of five years from the end of assessment year in question or two years from the date of disposal of the appeal or revision arising out of such assessment or from the date of completion as per the provisions under the Act connected with such assessment appeal or revision, whichever is later. Fixing of a reasonable period would have to be read in determining what reasonable should be. The oral scheme of KVAT Act is to ensure certainty in tax matters and also the necessity to interpret the provisions in the manner to **WP(C).No.39068 OF 2016(G)** **6** avoid unconstitutional results such as unreasonablness, unfairness and arbitrariness of statutory provisions. For the purpose of determining limits of the exercise of powers, Section 42(3) is reproduced herein below: “3. Notwithstanding anything to the contrary contained in this Act, if a dealer, (i) fails to file audited accounts referred to in sub-section (1), or (ii) fails to file revised annual return rectifying the mistake or omission, along with the audited statement of accounts and certificate or if the variance in the audited statement of accounts and certificate or if the variance in the audited statement of accounts with the returns is not satisfactorily explained in the reconciliation statement prescribed, or (iii) fails to file the annexures, statements, certificates, declarations, including the statutory declarations to be filed under the Central Sales Tax act, 1956 which are required to be filed along with the returns to prove the correctness of the concessional rate of tax, exemptions and exports claimed in the returns, or (iv) fails to declare any sale, purchase or interstate stock transfer as evidenced from the documents prescribed under Section 46 available with the assessing authority in the sales and purchase lists filed along with the returns, the assessment of such dealer for the relevant year for the purpose of Section 25 shall be treated as pending and the time limit mentioned thereunder shall not be applicable in such cases.” As far as the judgment cited by the learned Government Pleader, it pertains to non-maintaining of the Books, which, would attract only the penal or otherwise similar consequences. Therefore, in my view, time limit **WP(C).No.39068 OF 2016(G)** **7** specified in Rule 58(20) of KVAT Rules offer a safe guarding factor to define the limits of power under Section 42(3) of the Act. Meaning thereby, it would not be proper to re-open assessments to bring the tax escaped turnover, as would prejudicially affect an assessee, who would not be in a position to meet the charge against him for want of books of accounts and other relevant material resultantly, assessment order Ext.P2 is set aside. The writ petition stands allowed. **Sd/-** sab **AMIT RAWAL JUDGE** **WP(C).No.39068 OF 2016(G)** **8** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1 TRUE COPY OF THE NOTICE NO.32070360262/2010-11 DATED 22-8-2016 ISSUED BY THE 1ST RESPONDENT.** **EXHIBIT P2 TRUE COPY OF THE ASSESSMENT ORDER NO.32070360262/2010-11 DATED 31-102016 ISSUED BY THE 1ST RESPONDENT.**