Merchem India (P) Limited v. The Commercial Tax Officer - I Perumbavoor and The Tahsildar, RR Kanayannur Taluk

**WP(C).No.28825 OF 2014(C)** **1** ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **FRIDAY, THE 23RD DAY OF OCTOBER 2020 / 1ST KARTHIKA, 1942** ## **WP(C).No.28825 OF 2014(C)** ## **PETITIONER/S:** **MERCHEM INDIA (P) LIMITED INDUSTRIAL AREA, MUDICKAL, REPRESENTED BY ITS DIRECTOR SMT. JOLLY THOMAS.** **BY ADVS. SRI.A.KUMAR SRI.P.J.ANILKUMAR SMTG.MINI(1748) SRI.P.S.SREE PRASAD** ## **RESPONDENT/S:** **1 THE COMMERCIAL TAX OFFICER - I PERUMBAVOOR 1ST CIRCLE, PERUMBAVOOR-683542. 2 THAHSILDAR RR KANAYANNUR TALUK, ERENAKULAM, KOCHI-682011.** **R1-2 BY GOVERNMENT PLEADER** ## **OTHER PRESENT:** ## **SR GP SRI C K GOVIND** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 2509-2020, THE COURT ON 23-10-2020 DELIVERED THE FOLLOWING:** ## **JUDGMENT** ## **Dated this the 23rd day of October 2020** The petitioner, a Private Ltd. Company through the instant writ petition has laid challenge to assessment orders Exts.P1 and P2 issued by the first respondent and recovery notices Exts.P5 and P6 issued by the 2nd respondent. 2. In support of the aforementioned prayer, it is averred that petitioner is an assessee under the erstwhile Kerala Value Added Tax Act, 2003 and Central Sales Tax Act. For the assessment years 2005-06 and 2006-07, petitioner filed return under the CST, declaring inter-State sales turnover against 'C' Forms. The petitioner was surprised to receive revenue recovery notice issued by the 2nd respondent, shown to have been on the basis of some alleged arrears of sales tax. The recovery notices were purportedly based on the requisition of the first respondent assessing authority on the basis of assessment orders dated 29.3.2014 as arrears w.e.f 1.4.2005 and 1.4.2006 ie., for the assessment years 2005-06 and 200607. 3. Learned counsel appearing on behalf of the **WP(C).No.28825 OF 2014(C)** **3** petitioner submits that the petitioner made a reasonable enquiry and was informed by the assessing authority that CST assessment orders had been passed for the aforementioned period. Accordingly, the petitioner applied for copies as Exts. P1 and P2. The demand notices are Exts.P3 and P4 and recovery notices Exts.P5 and P6. The orders under challenge are not sustainable as no opportunity of hearing nor any notice has been served upon the petitioner. 4. For a CST assessment, the procedure contemplated for assessment under the KVAT Act would be applicable and for reopening of the assessment, the time period for limitation is specifically prescribed under Rule 6(7) and Rule 6(8) of the Central Sales Tax (Kerala) Rules limiting up to 4 years. The time for regular assessment under Rule 6(5) would be 5 years under the KVAT Act. Thus the time limit for assessment year 2005-06 would be 5 years from the end of the relevant assessment year, which ought to have been completed by 31.3.2011 and for assessment year 2006-07 by 31.3.2012. But as noticed above, Exts.P1 and P2 are of March 2014. The assessment orders are void ab **WP(C).No.28825 OF 2014(C)** **4** initio as they are hopelessly barred by limitation. The petitioner has relied upon the judgment of the Hon'ble Supreme Court in **Sate of Punjab and Others v. Bhatinda District Co-operative Milk Producers Union Ltd., [(2007) 11 SCC 363]** . 5. 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 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 unreported judgment in **Johnson Plastics v. Intelligence Officer (O.P No.8290 of 2003)** dated 22.11.2007 and urges this Court for dismissal of the writ petition. **WP(C).No.28825 OF 2014(C)** **5** 6. I have heard the learned counsel for the parties and appraised the paper book. The assessment orders as seen from the contents Exts.P1 and P2 are of March 2014 and without compliance of principles of natural justice. The recovery notices are of October 2014. The time limit prescribed vide amendment was, from 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 amendment, extending 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. **7** . The judgment of the Single Bench of this Court in MCP Enterprises case (supra) was regarding amendment to Section 42 by inserting sub Section 3 having been given **WP(C).No.28825 OF 2014(C)** **6** 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 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 and assessee would not have relevant books of accounts and 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 of any other **WP(C).No.28825 OF 2014(C)** **7** 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 in the interest of ensuring certainty in tax matters and also the necessity to interpret the provisions in the manner is to 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 **WP(C).No.28825 OF 2014(C)** **8** ## 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 would attract only the penal or otherwise similar consequences. Therefore, In my view, time limits 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, which cannot be exercised in a manner that 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. Accordingly, assessment orders Exts.P1 and P2 are not sustainable and are set aside. The writ petition stands allowed. ## **Sd/-** ## **AMIT RAWAL** sab **JUDGE** **WP(C).No.28825 OF 2014(C)** **9** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1 TRUE COPY OF THE CST ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005-06 DATED 19-3-2014.** **EXHIBIT P2 TRUE COPY OF CST ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2006-07 DATED 19-32014.** **EXHIBIT P3 TRUE COPY OF THE DEMAND NOTICE FOR ASSESSMENT YEAR 2005-06 DATED 19-3-2014. EXHIBIT P4 TRUE COPY OF DEMAND NOTIC FOR ASSESSMENT YEAR 2006-07 DATED 19-3-2014. EXHIBIT P5 REVENUE RECOVERY NOTICED ISSUED BY THE 2ND RESPONLDE FOR ASSESSMENT YEAR 200506 DATED 10-10-2014. EXHIBIT P6 REVENUE RECOVERY NOTICED ISSUED BY THE 2ND RESPONDENT FOR ASSESSMENT YEAR 200607 DATED 10-10-2014.** ## **RESPONDENT,S EXHIBITS:** **R2(A) THE PHOTO COPY OF THE NOTICE DATED 11.2.2010** **R2(B) THE PHOTO COPY OF THE NOTICE DATED 18.3.2014** **R2(C) THE PHOTO COPY OF TEH A/D CARD SHOWING SERVING OF NOTICE ON 22.3.2014** **R2(D) THE PHOTO COPY OF THE NOTICE DATED 18.3.2014**