M/S. Cholayil Pvt. Ltd. (formerly M/S. Dorcas Market Makers (P) Ltd.)

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **THURSDAY, THE 5TH DAY OF JULY 2018 / 14TH ASHADHA, 1940** **WA.No. 1184 of 2013 IN WPC. 18143/2013** **AGAINST THE ORDER/JUDGMENT IN WP(C) 18143/2013 of HIGH COURT OF KERALA DATED 22-07-2013** **APPELLANT(S)/PETITIONER** **M/S.CHOLAYIL PVT.LTD. (FORMERLY M/S.DORCAS MARKET MAKERS (P) LTD., PLOT NO.4 (VII/599-D) ORCHARD DENE, KUTTANELLUR, THRISSUR-680014 (PRESENTLY AT "SRIPADMAM', P.V.SREEDHARAN ROAD, KUMBALAM P.O., KOCHI, REPRESENTED BY ITS MANAGER (LEGAL) SHRI.K.KIRUBAKER.** **BY ADVS.SRI.T.M.SREEDHARAN (SR.) SRI.V.P.NARAYANAN SMT.BOBY M.SEKHAR SMT.DIVYA RAVINDRAN** ## **RESPONDENT(S)/RESPONDENTS:** **1. THE ASSISTANT COMMISSIONER (ASSESSMENT) SPECIAL CIRCLE, COMMERCIAL TAXES, THRISSUR-680004.** **2. THE DEPUTY COMMISSIONER COMMERCIAL TAXES, THRISSUR-680001.** **3. STATE OF KERALA** **REPRESENTED BY CHIEF SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM-695001.** **BY SRI.C.E.UNNIKRISHNAN, SPECIAL GOVERNMENT PLEADER (FOR FINANCE)** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 05-07-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WA 1184/2013** ## **APPENDIX** ## **APPELLANT'S EXHIBITS** ## **NIL** ## **RESPONDENTS' EXHIBITS** - **ANNEXURE-R1 (a) : COPY OF THE NOTICE UNDER SECTION 24(1) OF THE KVAT ACT 2003 DATED 11.1.2008.** - **ANNEXURE-R1(b) : COPY OF THE NOTICE IN FORM NO.17 ISSUED BY THE ASSISTANT COMMISSIONER (AA) DATED 2.12.2006.** - **ANNEXURE-R1(c) : COPY OF ADJOURNMENT LETTER DATED 17.12.2006. ANNEXURE-R1(d) : COPY OF NOTICE DATED 23.12.2006. ANNEXURE-R1(e) : COPY OF THE NOTICE IN FORM NO.17 ISSUED BY THE ASSISTANT COMMISSIONER (AA) DATED 10.4.2007.** - **ANNEXURE-R1(f) : COPY OF ADJOURNMENT LETTER DATED 10.05.2007.** - **ANNEXURE-R1(g) : COPY OF NOTICE IN FORM NO.17 ISSUED BY THE ASSISTANT COMMISSIONER (AA) DATED 26.5.2007.** - **ANNEXURE-R1(h) : COPY OF ADJOURNMENT LETTER DATED 21.6.2007.** - **ANNEXURE-R1(i) : COPY OF ADJOURNMENT LETTER DATED 4.7.2007.** - **ANNEXURE-R1(j) : COPY OF ADJOURNMENT NOTICE DATED 16.7.2007.** - **ANNEXURE-R1(k) : COPY OF RELEVANT PORTION OF THE KERALA FINANCE ACT 2011.** - **ANNEXURE-R1(l) : COPY OF RELEVANT PORTION OF THE RELEVANT PORTION OF THE KERALA FINANCE ACT 2012.** - **ANNEXURE-R1(m) : COPY OF THE RELEVANT PORTION OF THE KERALA FINANCE ACT 2013.** **//TRUE COPY//** jg-20/7 **PS TO JUDGE.** K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- W.A.No.1184 of 2013 ------------------------------------------Dated this the 5[th] day of July, 2018 ## J U D G M E N T ## Vinod Chandran, J. The issue raised in the Writ Appeal is no longer res integra and is covered in favour of the appellant/petitioner by the order of the Full Bench, which answered the reference by a Division Bench in the above Writ Appeal. 2. The brief facts to be stated are that notices under Section 25(1) of the Kerala Value Added Tax Act, 2003 ('KVAT Act', for short) was issued on 21.1.2013 and 22.1.2013, respectively Exts.P1 and P2, for the assessment years 2005-06 and 2006-07. The Act, in a departure, from the earlier regime under the Kerala General Sales Tax Act, 1963 ('KGST Act', for short) provided for completion of assessment on the filing of return by the assessee. Section 25 of the KVAT Act provided for assessment of escaped turnover, under which at the instances of escapement as enumerated there under, the assessing authority may “proceed to determine, to the best of its judgment, the turnover WA 1184/2013 -2- which has escaped assessment to tax or has been underassessed or has been assessed at a rate lower than the rate at which it is assessable or the deduction in respect of which has been wrongly made or input tax credit that has been wrongly availed of and assess the tax payable on such turnover or disallow the input tax credit wrongly availed of, after issuing a notice on the dealer and after making such enquiry as it may consider necessary”. However, this had to be done within five years from the close of the assessment year. 3. In the present appeal, the assessment years were 2005-06 and 2006-07, the close of which occur on 31.3.2006 and 31.3.2007. The issue before the learned Single Judge was whether notices could be issued after the five year period as stipulated in Section 25 of the KVAT Act. The learned Single Judge refused to exercise discretion under Article 226 of the Constitution of India and relegated the party to the appellate remedy. The petitioner/assessee was in appeal. 4. A Division Bench of this Court considering the appeal was confronted with a judgment of another Division Bench of this Court in 1978 KLT 415 [Tirur WA 1184/2013 -3- Medical Stores v. State of Kerala] , wherein, in pari materia provision under Section 19 of the KGST Act and the limitation prescribed therein, was called in question on the very same ground; whether it is for issuance of notice or completion of assessment. The Division Bench in Tirur Medical Stores (supra) relying on (1970) 25 STC 252 [Sales Tax Officer v. Sundarsanam Iyengar & Sons] and also the meaning given to the word “assess”, held that the words “proceed to determine” refer to and indicate initiation of the proceedings and not completion of the same. 5. The Division Bench which considered the instant appeal was of the opinion that the interpretation creates an anomalous situation, insofar as leaving it to the Department to delay completion of assessment unreasonably. The Division Bench was of the opinion that the limitation applied for completion of assessment and not for initiation of proceedings. Either way in this appeal the proceedings were beyond the period of limitation. Here only a notice was issued and that too after the five year period. If the period provided was for completion of assessment, then necessarily an initiation of proceedings, which WA 1184/2013 -4- obviously the notices are; is definitely barred and out of time. But the question arose by reason of the subsequent amendment to the statute extending the period for completion of assessment. 6. The Full Bench considering the Reference upheld the decision in Tirur Medical Stores (supra) . It was held by the Full Bench that the period provided under Section 25(1) of the KVAT Act was for initiation of proceedings. The issue highlighted by the order in reference, being the unreasonable delay that would occur for completion of assessment, was also noticed by the Full Bench. The Full Bench after observing that the said issue was not a point of reference, opined that, even otherwise, there could be no structured time frame issued by this Court sitting in Article 226 of the Constitution of India and left it to the legislature to decide on the time frame required for completion of assessment. 7. The learned Special Government Pleader (Taxes) appearing for the State would contend that the Full Bench has gone into areas where it ought not to have gone into, especially when the reference order confined itself to the sustainability of Tirur Medical WA 1184/2013 -5- Stores (supra). We do not see any such digression of issue by the Full Bench, especially since there was no further findings entered on the unreasonable delay that could occur in the wake of interpretation agreed to by the Full Bench. The Full Bench merely opined that, in any event, it would not be proper for this Court to bring out a structured time frame for completion of assessment and termed it to be the task of the legislature. 8. As far as the confirmation of Tirur Medical Stores (supra), it was specifically the point of reference by the Division Bench. The learned Special Government Pleader (Taxes) would argue that in the facts of the aforesaid case, there was no reason for such a reference order. That was a matter which the State should have urged before the Full Bench and after having suffered an order in the reference, cannot now raise it again before the Division Bench. Again, as we noticed the reference would have normally been unnecessary; but for the amendment. 9. The amendment with effect from 01.04.2010, introduced a proviso extending the period of limitation for completion of assessment of the year 2005-06 to 31.03.2011. In 2011, this proviso was substituted with WA 1184/2013 -6- another extending the limitation for completion of assessment upto 31.03.2012. Yet another substitution occurred extending, likewise, till 31.03.2013, the period for completion of assessment of years upto 20072008. We assume, with sufficient authority that these amendments, prompted the Division Bench to make the reference, lest otherwise the limitation provided in the statute for “proceeding to determine” has to be understood to be for initiation of proceedings and not completion, going by the binding precedent of Tirur Medical Stores (supra); a decision by a co-ordinate Bench of this Court. 10. Be that as it may, we are bound by the order of the Full Bench which answered the reference affirming the view of the earlier Division bench in Tirur Medical Stores (supra). As of now, the limitation as provided under Section 25(1) of the KVAT Act can only be for initiation of proceedings. 11. The learned Special Government Pleader (Taxes) has also yet another contention with respect to introduction of the proviso, for the first time, in 2010 and its substitution in all subsequent years. If the Full Bench had looked into the proviso, definitely WA 1184/2013 -7- the answer would have been otherwise, contends the learned Special Government Pleader (Taxes). It is also urged that when the legislature is presumed to know the law of the land, it cannot be imagined that there would be a provision introduced, which is redundant on the face of it. The proviso extending the period for completion of assessment was introduced by the legislature on its understanding of the determination to proceed being the final determination, i.e. completion of assessment. When two interpretations are possible, relying on Heydon's Rule, the learned Special Government Pleader (Taxes) submits that the purpose and intention behind the legislation has to be advanced and an interpretation by the Constitutional Court always should be to advance such purpose and intention. The learned Special Government Pleader (Taxes) also places on record the decision of the Honourble Supreme Court in AIR 2015 SC 3479 [Indian Performing Rights Society Ltd. V. Sanjay Dalia and another] to further persuade this Court to permit the assessments to be completed, in the extended period. 12. Indian Performing Rights Society Ltd. was concerned with the question as to whether Section 62 of the Copyright Act, 1957 and Section 134(2) of the Trade WA 1184/2013 -8- Marks Act, 1999, non-obstante clauses, provided a departure from Section 20 of the Civil Procedure Code, in the matter of jurisdiction for institution of suits. There the appellant/plaintiff, on a cause of action which arose in Mumbai, where both the plaintiff and defendant ordinarily reside and carry on business; chose to institute the suit in Delhi for reason only of the plaintiff having a branch office in Delhi. Reading the provisions, the recommendations of the Joint Committee of the two Houses and the Parliamentary debates, the intention discernible was held to aid the injured, intending to initiate an action for infringement or passing off under either of the enactments and to drag the infringer to that Court which is most suited and convenient for the injured. It was held so in para 22: “22 . If the interpretation suggested by the appellant is accepted, several mischiefs may result, intention is that the plaintiff should not go to far flung places than that of residence or where he carries on business or works for gain in order to deprive defendant a remedy and harass him by dragging to distant place. It is settled proposition of law that the interpretation of the provisions has to be such which prevents mischief. The said principle was explained in Heydon's case [76 ER 637]. According to the mischief rule, four points WA 1184/2013 -9- are required to be taken into consideration. While interpreting a statute, the problem or mischief that the statute was designed to remedy should first be identified and then a construction that suppresses the problem and advances the remedy should be adopted. The Heydon's mischief rule has been referred to in Interpretation of Statutes by Justice G.P. Singh , 12th Edn., at pp. 124-125 thus : "(b) Rule in Heydon's case; purposive construction: mischief rule When the material words are capable of bearing two or more constructions the most firmly established rule for construction of such words "of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law)" is the rule laid down in Heydon's case (76 ER 637) which has "now attained the status of a classic [Kanailal Sur v. Paramnidhi Sadhukhan AIR 1957 SC 907]. The rule which is also known as 'purposive construction' or 'mischief rule' [Anderton v. Ryan 1985 2 All ER 355], enables consideration of four matters in construing an Act: (i) What was the law before the making of the Act, (ii) What was the mischief or defect for which the law did not provide, (iii) What is the remedy that the Act has provided, and (iv) What is the reason of the remedy. The rule then directs that the courts must adopt that construction which "shall suppress the mischief and advance the remedy". The rule was explained in the Bengal Immunity Co. v. State of Bihar [AIR 1955 SC 661] by S.R. Das, CJI as follows: "It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon's case (supra) was decided that for the sure and true interpretation of all Statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered: WA 1184/2013 -10- 1st - What was the common law before the making of the Act? 2nd - What was the mischief and defect for which the common law did not provide? 3rd - What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and 4th - The true reason of the remedy; and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico. [Bengal Immunity Co. v. State of Bihar (supra)]." 13. The sine quo non for invoking the mischief rule is that the material words are capable of bearing two or more constructions and only if it is so capable, then the four tests can be applied. It is not as if the rule has to be applied in all cases where the legislature attempts to cure a defect in statute or provide for something which was earlier not available. Then the Courts will have to first speculate on the intention and apply the rule to remedy the perceived ills without reference to the words employed. This would be missing the woods for the trees. When the words of the statute are clear and unambiguous and the plain and natural meaning is easily discernible then WA 1184/2013 **==> picture [21 x 9] intentionally omitted <==** “Heydons Rule” has no application because no “mischief” emanates from the words employed. The Court also held so in para 25: “25 . It was also submitted that Heydon's rule is not applicable where the words of the statute are clear. Reliance has been placed on M/s. Hiralal Rattanlal etc. etc. v. State of U.P. and Anr. etc. [1973 (1) SCC 216 : (AIR 1973 SC 1034)] in which it has been observed that when the provision is unambiguous and if from the provision legislative intent is clear, the court need not call into aid the other rule of construction of statutes such as that of 'mischief'. However, we opine, when two interpretations are possible, the court has to adopt the one which furthers the object as provided in the statute itself.” 14. We are not convinced that the mischief rule applies in the above case and there is any possibility of there being two interpretations. One other reason also succinctly referred to by the supreme Court is found in para 27: “27 . Bennion on Statutory Interpretation in section 318 in Part XXI has mentioned that strict construction may be avoided or at least reduced by limiting the remedy where a counter mischief would arise if the remedy provided by the Act was eschewed widely. It may appear to the court that one of the opposing construction of the enactment, if adopted, would operate a mischief of its own. The prospects of this would constitute a negative factor in weighing the applicability of the construction in question. The court WA 1184/2013 -12- also has in mind the consequences for the public welfare.” 15. Section 25(1) of the KVAT Act specifically speaks of a limitation of five years for proceeding to determine to the best of judgment the turnover, when the contingencies as enumerated under the provision occur. The Full Bench has categorically held that the words “proceed to determine” would indicate initiation of proceedings, that is with a notice under Section 25(1). In normal circumstances, this interpretation would aid the Department insofar as initiating proceedings within five years and then having its own sweet time to complete the assessment. The countermischief is in that, otherwise the Department will have to initiate and conclude the reassessment within the period of limitation provided in Section 25(1). This was never the intention when originally the Act was enacted with Section 25(1).The legislative wisdom is un-questionable at that point and even when the amendment came. But the drafts man has failed to translate such wisdom and the specific intention into the words employed at the stage of the amendment. There was sufficient illumination in what the specific words WA 1184/2013 -13- convey, by way of an authoritative pronouncement of this Court in Tirur Medical Stores (supra); which held the field for more than four decades. The pronouncement was also in the predecessor general sales tax legislation; which the present value added tax enactment superseded. 16. Of course, when there is no limitation prescribed for completion, there could only be the principles of reasonableness applied, on facts of individual cases, if a challenge is made with regard to that. As held by the Full Bench, it is not for us to provide a time frame and it is left to the legislature to decide on that. However, the legislature in extending the period of completion of assessment, has extended a period which was never there as per the limitation prescribed under Section 25 of the KVAT Act Act. We cannot presume the legislature having done it purposefully, especially when the limitation prescribed for was not for the final determination, but to 'proceed to determine', which definitely indicates initiation of proceedings for determination. The legislature also was aware of Section 19 of the KGST Act, which was in pari materia with Section 25 of the WA 1184/2013 -14- KVAT Act and the Division Bench judgment of this Court in Tirur Medical Stores (supra) rendered four decades back. We are surprised that such a redundant provision was brought into the Act. Suffice it to observe, neither are we permitted to speak against the Full Bench decision nor are we in disagreement with the view expressed by their Lordships; which we respectfully follow. We hence set aside the judgment of the learned Single Judge as also allow the Writ Petition setting aside the notices issued beyond the limitation period as provided under Section 25(1) of the KVAT Act. The Writ Appeal would stand allowed. No costs. Sd/K.VINOD CHANDRAN JUDGE Sd/ASHOK MENON JUDGE jg