M/S Prism Jonson Limited (Formerly Prism Cement Limited) v. State of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **TUESDAY, THE 20TH DAY OF OCTOBER 2020 / 28TH ASWINA, 1942** ## **WP(C).No.12183 OF 2019(W)** ## **PETITIONER/S:** **M/S PRISM JONSON LIMITED (FORMERLY PRISM CEMENT LIMITED)DOOR NO.11/300 F,NEXT TO VTJ HYUNDAI,NH-47 KUNDANOOR,MARADU,ERNAKULAM,KOCHI,-682304, REPRESENTED BY ITS ASSISTANT MANAGER ACCOUNTS,MR.VINU VARGHESE.** **BY ADVS. SRI.A.KUMAR SRI.P.J.ANILKUMAR SMT.G.MINI SHRI.JOB ABRAHAM SRI.P.S.SREE PRASAD** ## **RESPONDENT/S:** **1 STATE OF KERALA REPRESENTED BY THE CHIEF SECRETARY, GOVERNMENT OF KERALA,GOVERNMENT SERETARIAT, THIRUVANANTHAPURAM-695001. 2 THE COMMISSIONER, STATE GOODS AND SERVICES TAX DEPARTMENT,THIRUVANANTHPAURAM-695001. 3 THE ASSISTANT COMMISSIONER, SPECIAL CIRCLE-1,STATE GOODS AND SERVICES TAX DEPARTMENT,KOCHI-682018.** ## **OTHER PRESENT:** **SR GP SRI C K GOVIND** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 20.10.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WP(C).No.12183 OF 2019(W)** **2** ## **JUDGMENT** ## **Dated this the 20[th] day of October 2020** The petitioner, a public limited company incorporated under the Companies Act, 2013 is engaged in manufacturing and marketing of cement, tiles, ready mix concrete etc. under the name and style 'RMC Readymix (India)' and a registered dealer under the Kerala value Added Tax Act, 2003 and on the rolls of the 3rd respondent. During the Assessment year 2011-12, certain sales to Special Economic Zone(SEZ) units from its local place of business within the State of Kerala, were effected. The supplies to the SEZ units are specifically exempted from tax under Section 6 (7) (b) of the KVAT Act. Thus, tax from the SEZ units was not collected and necessary declaration forms along with returns was filed. Company was astounded to receive the notice under the provisions of Section 25 (1) r/w Section 42 (3) of the KVAT Act on the premise that the sale to SEZ of Rs.5,11,96,753/- was an exempted sale, however the dealer availed the full input tax credit on the inputs used for manufacturing RMC on the exempted sale and accordingly, **WP(C).No.12183 OF 2019(W)** **3** under Rule 12 A of KVAT Rules, a sum of Rs.19,36,334/- was required to be reversed. The petitioner filed a detailed reply dated 14.11.2018 against the allegations raised in notice. 2. Sri.A.Kumar, learned Counsel for the petitioner submitted that without appreciating the contentions of the petitioner viz-a-viz availing of input tax credit on sale of Ready Mix Concrete (RMC) to SEZ, the 3[rd] respondent vide Order dated 30.11.2018 confirmed the demand of Rs.19,36,334/- as input tax credit wrongly availed by the petitioner, evident from Ext.P3. As per the impugned order, it was held that the sale to SEZ was not an export, but only an exempted sale. Petitioner has also laid challenge to vires of Kerala Finance Act, 2018 under Section 10(4) therein to the 3[rd] Proviso of 25 (1) substituting the words and figures '31[st] March', 2018 as void and the domestic tariff area as per Section 2 (lvii ) r/w Section 13 of the KVAT Act. The other challenge is against the exercise of jurisdiction of the competent authority to issue notice being time barred under Section 25 (1) of KVAT Act. He further submitted, notice Ext.P1 was also caused in such a manner even the provisions of Section 42(3) amended with retrospective effect have also been pressed into service. The aforementioned provisions reveal that there is no limitation for keeping the books of accounts as and when they **WP(C).No.12183 OF 2019(W)** **4** have been called. The alleged penalty proceedings under Section 47 had nothing to do with assessment proceeding even if culminated in 2016, as the petitioner did not file any appeal or revision by strictly adhering to Rule 58 (20) of the KVAT Rules; a period of five years would not be applicable, but only two years from the completion of the proceedings which culminated in 2016, whereas the impugned notice is of September 2018, beyond two years. 3. In support of the contentions, he relied upon the judgment of this Court in **Baiju.A.A. & Others v. State Tax Officer [2020 (1) KHC 39]** , wherein extending the period of limitation under Section 25 has been held to be prospective in nature as 5 years. As far as applicability of Section 42 is concerned in **MCP Enterprises Vs. State of Kerala [2020** **(2) KLT 295],** it has been held that amendment to Section 42 by inserting sub section 3 have been given retrospective operation with effect from 1.4.2005. It was observed that retrospectivity would have the effect of removing the genesis of the judgment rendered in case of such assessment in the context of limitation under the provisions of Section 25 of the KVAT Act. 4. On the other hand, Sri.Govindan, learned Government Pleader relied upon the judgment of this Court in **Assistant** **WP(C).No.12183 OF 2019(W)** **5** ## **Commissioner (Assessment) v. Grasim Industries [2006(1)** **KLT 821]** to contend that the procedure contemplated for reassessment under KVAT Act would be applicable and for the re-opening of the assessment, the time limit for limitation is prescribed under Rule 6(7) and Rule 6(8) of the CST Rules, petitioner cannot be permitted to allege proceedings under Section 25 which were not under the solid provisions of Section 45 but under section 42(3), where no time line has been provided, and urges this Court for dismissal of this writ petition. 5. Heard the learned counsel for the parties and appraised the paper book. The law with regard to initiation of the assessment proceedings under Section 25 has been held to be barred by limitation, if initiated after five years as amendment to aforementioned section by incorporating six years was held to be prospective. Now coming to the question as to whether by the amendment to sub section 3 of section 42 brought by notification dated 13.11.2016, the limitation provided under Section 25 or rule 58 would be applicable and would give the power to the State to issue notice by commencing the proceedings otherwise. In **MCP Enterprises** (supra) it was laid as follows: “10. What then should be the period prescribed for exercise of the power under Section 42(3) and **WP(C).No.12183 OF 2019(W)** **6** consequently the extent of retrospectivity conceded to the statutory provision ? Ordinarily, one could have looked to the time limit prescribed for exercise of a similar power, and for a similar purpose under the Act, to apply the same time limit for the exercise of power under Section 42(3). A similar power is contained in Section 25 of the KVAT Act but the time limit under the said provision is expressly stated to be inapplicable to Section 42(3). This Court has therefore to look at the overall Scheme of the KVAT Act, the interests of ensuring certainty in taxation matters as also the necessity to interpret the provision in a manner that would avoid unconstitutional results such as unreasonableness, unfairness and arbitrariness of the statutory provision, for determining the limits of exercise of the power under Section 42(3). In my view, the time limit specified in Rule 58(20) of the KVAT Rules offers a safe guide to define the limits of the power under Section 42(3) of the Act. It would ensure that the power to re- open assessments, so as to bring to tax escaped turnover, is not exercised in a manner that prejudicially affects an assessee who is not in a position to meet the charge against him for want of his Books of account and other relevant material. Such a limitation on the power to re-open assessments would also accord with the requirement of ensuring fairness and certainty in matters of taxation, a feature that has been insisted upon in the tax jurisprudence of our country. [See New Delhi v. Vatika Township Private Limited- [(2015) 1 SCC 1]; Principal Commissioner of Income-Tax v. Maruti Suzuki India Ltd. - [(2019) 416 ITR 613 (SC)]]. As observed by the Supreme Court in the last mentioned case, "there is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable." In the result, these writ petitions are disposed by upholding the retrospective operation of Section 42(3) of the KVAT Act, but declaring that the power to reopen assessments under the said provision cannot be exercised in relation to such assessments where the **WP(C).No.12183 OF 2019(W)** **7** period for which the assessee concerned is obliged to retain the Books of account under Rule 58(20) of the KVAT Rules has expired. The retrospective operation of Section 42(3) of the KVAT Act will thus stand controlled by the period of limitation aforementioned, and the legality of the notices/orders impugned in these writ petitions shall stand determined by the said declaration.” In view of the findings extracted above and facts noted above, the present case falls within the ratio decidendi in **MCP Enterprises** (supra). The writ petition is allowed keeping the question with regard to Relief Nos.1 and 2 open. **SD/-** **AMIT RAWAL JUDGE** jm **WP(C).No.12183 OF 2019(W)** **8** ## **APPENDIX OF WP(C) 12183/2019** **PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE SHOW-CAUSE NOTICE DATED 28/09/2018 EXHIBIT P2 TRUE COPY OF THE REPLY EXHIBIT P3 TRUE COPY OF THE ORDER DATED 30/11/2018.**