M/S. Sree Ramachandran Enterprises Fort, Thiruvananthapuram-23 v. Assistant Commissioner-II Special Circle, KVAT, Karamana, Thiruvananthapuram; Deputy Commissioner Commercial Taxes, Thiruvananthapuram

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **WEDNESDAY,THE 23RD DAY OF JANUARY 2019 / 3RD MAGHA, 1940** ## **WP(C).No. 11873 of 2015** ## **PETITIONER/S:** **M/S. SREE RAMACHANDRAN ENTERPRISES FORT, THIRUVANANTHAPURAM-23, REPRESENTED BY J.SARAVANACHANDRAN, PARTNER.** ## **BY ADV. SRI.JOSE JOSEPH** ## **RESPONDENT/S:** - **1 THE ASSISTANT COMMISSIONER-II SPECIAL CIRCLE, K.V.A.T., KARAMANA, THIRUVANANTHAPURAM-695002.** - **2 THE DEPUTY COMMISSIONER COMMERCIAL TAXES, THIRUVANANTHAPURAM-695001.** **BY ADV. GOVERNMENT PLEADER** ## **OTHER PRESENT:** ## **SRI V.K SHAMSUDHEEN SR GP** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 23.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** WP(C) No.11873/2015 2 ## **J U D G M E N T** ## **Vinod Chandran, J** **The above writ petition brings forth very serious issues on the interpretation to be placed on Sections 21, 25 and Section 25B of the Kerala Value Added Tax Act, 2003 (for brevity KVAT Act). We have to first state the bare minimum facts for the purpose of considering the question raised in the above writ petition as to whether the assessments for the years 2007-08 and 2008-09 can be permitted to be proceeded with under Section 25(1) after expiry of the limitation period by virtue of the orders passed by the Deputy Commissioner under Section 25B of the KVAT Act.** **2. The assessment years are 2007-08 and 2008-09 and the period for initiating proceedings under Section 25(1) expires respectively on 31.03.2013 and 31.03.2014. On 17.03.2014, there was** WP(C) No.11873/2015 3 **an order passed under Section 25B as evidenced from Ext.P1 by which the period of limitation for finalising the assessment in respect of the assessee for the years 2007-08 and 2008-09 stood extended up to 31.03.2015. Obviously there was a penalty proceedings pending as on that date; which was remanded to the Intelligence Officer in an appeal. The probable time that would normally be taken for passing a consequential order on fresh consideration, was the reason stated, for the delay in completing the assessment. After Ext.P1, Ext.P2 order dated 31.01.2015 was passed by the Intelligence Officer imposing penalty under Section 67. We also have to notice that the time for completion of assessment of the year 2007-08, is said to have been extended by a proviso, to 31.03.2014. Hence the period for completion of assessments for both the years 2007-08 and 2008-09 would be available till 31.03.2014, is the argument. Ext.P1 order of the Deputy Commissioner** WP(C) No.11873/2015 4 **under Section 25 extended the assessment further to 31.03.2015 for reason of paucity of time. Yet again, the Assessing Officer approached the Deputy Commissioner and a further order was passed at Ext.P3 dated 10.03.2015, extending the period of completion of assessment for the two years up to 31.03.2016. Notices were issued under Section 25(1) by Ext.P4 & P5 on 23.03.2015.** **3. Sri Jose Joseph, learned Counsel appearing for the assessee would contend that the assessment for 2007-08 stood completed on the filing of the return and the limitation for initiating proceedings under Section 25 stood expired on 31.03.2013. This Court has held that proviso extending the period of completion of assessment would not enable the State to take up proceedings beyond the period of limitation, in** _**Cholayil (P) Ltd. V Asst. Commissioner (2015 (4) KLT 516) (FB)**_ **and** _**CTO Anchal Vs. S. Najeem (2018 (4) KHC 666(D.B)**_ **. Hence there could be no extension** 5 WP(C) No.11873/2015 **of initiation of proceedings under Section 25B for the year 2007-08 or 2008-09. The further argument is that there was no notice issued under Section 25(1) prior to the expiry of the period of limitation. Hence the extension for completion of assessment under Section 25B will not enure to the Department insofar as initiating proceedings after the limitation has expired. Sri Jose Joseph also contended that there is no good and sufficient reason as seen from Ext.P1 and P3. Further it is submitted that there was sufficient time after Ext.P2 was passed and there could have been no good and sufficient reason for extending the period under Section 25B for a second time as done in Ext.P3. The order under Section 25B also suffers from the fundamental defect of it having been issued behind the back of the assessee and without any notice to him.** **4. Sri. V.K. Shamsudhin, the learned Senior Government Pleader, would submit that the good and** WP(C) No.11873/2015 6 **sufficient reason as evidenced from Ext.P1 is the remand made in an appeal and the penalty proceedings pending before the Intelligence Officer for fresh consideration. As far as Ext.P3 is concerned, it was pointed out that the assessee was responsible insofar as seeking regular adjournments after the penalty order when notice was issued under Section 25(1). Despite the same having been granted, to ensure that a reasonable opportunity is granted to the assessee the assessee kept on adjourning the matter which necessitated further extension. As far as the interpretation of the provision, Sri.Shamsudheen would submit that Section 25B is a** _**non obstante**_ **provision empowering the Deputy Commissioner to extend the time for completion of assessment. This has to be interpreted especially looking at the intention with which the legislation was brought in. The intention was to enable the Department to complete assessments pending, which often are delayed for** WP(C) No.11873/2015 7 **reason of the tactics employed by the assessee. The learned Senior Government Pleader in his inimitable style sought to support the legislation and application of the same to the facts of the case specifically pointing out that otherwise the very provision under Section 25B would be redundant. This Court would not attempt an exercise by which such action of the legislation, is rendered otiose causing prejudice to the State and the revenue collection; is the argument put forth.** **5. We have to first observe that we are not very convinced that there is any good and sufficient reason, recorded by the Deputy Commissioner, as evidenced from Ext.P1 and not at all in Ext.P3. Ext.P1 only speaks of a report made by the Assessing Officer that the penalty proceedings are pending pursuant to an order in appeal. There are no dates mentioned as to when the appellate order was passed and why the same was pending before the Intelligence Officer without** WP(C) No.11873/2015 8 **expeditious consideration. We also see that the good and sufficient reasons to be recorded in the order under Section 25B is of the Deputy Commissioner and the mere statement of the reason put forth by the Assessing Officer would not suffice. As far as Ext.P3 is concerned we notice that there is absolutely no reason stated therein but for recording the statement of the Assessing Officer that the assessment would be barred by limitation on 31.03.2015. In this context, we also notice that if the assessments can be said to have been extended up to 31.03.2015 by Ext.P1 there is no requirement for Ext.P3 since Ext.P4 notice was issued on 23.03.2015 before 31.03.2015. We cannot but reiterate that the State, as we noticed in the above stated decisions have been confusing the initiation of proceedings with completion of assessment.** **6. On the specific question raised for the year 2007-08, the limitation under Section 25(1)** 9 WP(C) No.11873/2015 **expires on 31.03.2013 for initiation of proceedings; we emphasize not for completion of assessment. The reliance placed is on the proviso which reads as under:** **“Provided also that the assessments pending as on 31[st] March, 2013 under this section shall be completed on or before 31[st] March, 2014”** **The Division Bench decision cited by us herein above, and the Full Bench decision stands against the said contention. We have specifically declared that the limit provided under Section 25(1) is for initiation of proceedings and not for completion of assessment. The proviso, as per our declaration, is rendered otiose and does not enable the State to complete the assessment beyond the limitation period provided under Section 25(1) if there is no initiation of proceedings as provided therein. In such circumstances, the reliance placed on the proviso cannot be accepted. If the period of** WP(C) No.11873/2015 10 **limitation for initiating proceedings under Section 25 (1) stood expired on 31.03.2013 there is no question of a further extension being granted subsequent to the date on which the initiation of proceedings got barred under Section 25B. Moreover Ext.P1 dated 17.03.2014, again extended the period of completion of assessment; which alone the Deputy Commissioner was empowered to do under section 25B. Hence the assessment for the year 2007-08 has to be set aside for reason of it having been initiated after the period of limitation.** **7. Considerable arguments have been raised by the learned Senior Government Pleader with respect to the assessment year 2008-09 and the interpretation to be placed on Section 25B. It is argued that Section 25B was introduced with a specific purpose. What was intended was to extend the period provided for assessment insofar as cases where an investigation or enquiry is pending. Undisputed is the fact that a penalty proceeding** WP(C) No.11873/2015 11 **was initiated and the same was pending before the Intelligence Officer as against the assessee. The assessment could be taken up for both the years, only on completion of penalty proceedings. As far as the assessment year 2008-09 is concerned the limitation expires only on 31.03.2014; prior to that Ext.P1 has been passed on 17.03.2014. The completion of assessment provided under Sections 24 and 25 would stand extended by the order under Section 25B; is the specific contention raised.** **8. At the outset, we have to notice that the assessee was not issued with notice before extending the period of limitation under Section 25B. Here we rely on yet another Division Bench of this Court in** _**State of Kerala v. Abhilash T Mathew (2013 KHC 2519)**_ **which categorically found that such extension by the Departmental Officers can only be with notice to the assessee. Otherwise when the limitation sets in, the extension would have been granted without the assessee being made** WP(C) No.11873/2015 12 **aware of it.** **9. Further on the interpretation also, we find it difficult to accept the arguments raised by the learned Senior Government Pleader. The KVAT Act contemplates self assessment as provided under Section 21. Unlike the general sales tax regime, wherein after filing a return there was a requirement for issuance of notice and initiation of proceedings for completion of assessment; the value added tax regime contemplates completion of assessment of filing of return. Section 21 of the KVAT Act, speaks of the assessment being deemed to have been completed on the receipt of a return subject to the provisions of Sections 22, 24 and 25. Section 22 contemplates initiation of proceedings in the case of non-filing returns or filing of defective returns, section 25 to cover up the escaped turnover and Section 24 to take into account the discrepancies pointed out in an audit. We are only concerned with Section 25 which speaks** WP(C) No.11873/2015 13 **of assessment of escaped turnover for which initiation of proceedings has to be done within five years from the last date of the year to which the return relates. Reading Sections 21 and 25 together, if no notice is issued under Section 25 within the period provided therein the assessment is deemed to have been completed at the time of filing the return; and there could be no reassessment after the time provided under Section 25(1), ie: after five years. The assessment stands stands finalized within five years if not reopened within that time. There is no question of any re-assessment or a fresh assessment being carried out for bringing to tax the escaped turnover after limitation has set in.** **10. Section 25B cannot be interpreted in isolation or on the avowed purpose of the amendment, as strenuously argued by the learned Senior Government Pleader. Section 25B extends the period of limitation for assessment in certain** WP(C) No.11873/2015 14 **cases, ie, in cases where there is any investigation or enquiry pending under the Act. Pertinently it is to be noticed that Section 25B is a** _**non obstante**_ **clause having overriding effect on Sections 24 and 25. It also provides for extension of period of completion of assessment beyond the period specified in those sections. As we noticed in the aforecited decisions, there is no period of completion of assessment provided under Section 25. Completion of assessment is a word employed in Section 21; which creates a deeming fiction by which the completion is effected on the return being filed in the prescribed manner and accompanied by prescribed documents. No defect in the manner in which the return was filed or the accompanying documents are produced, have been noticed for the subject assessment year. Pertinently Section 25B does not have an overriding effect on Section 21. Hence the completion of assessment deemed in Section 21 cannot be extended** WP(C) No.11873/2015 15 **by an order under Section 25B. The extension of completion of period of assessment, as provided under Section 25B can only be with respect to the completion of assessment under Section 25. Here we have to reiterate that there is no period for completion of assessment as provided in Section 25 and the period provided is for initiation of proceedings.** **11. Looking at the facts from the above perspective we notice that the limitation for initiating proceedings under Section 25(1) for the assessment year 2008-09 also stood expired as on 31.03.2014. Section 25B was invoked by the Deputy Commissioner on 17.03.2014 to extend the period of completion of assessment under Section 25(1). The fact remains that there is no notice issued under Section 25(1) for the said year before limitation of 5 years set in, and hence the extension of period for completion of assessment would be of no avail to the department. We hence find the** WP(C) No.11873/2015 16 **provision not supporting the reopening; insofar as the period for initiation of proceedings under Section 25(1) having expired in both the assessment years without an initiation of proceedings having been undertaken.** **12. In such circumstances, we set aside Exts.P4 and P5 assessment orders for the years 2007-08 and 2008-09. Before leaving the matter we cannot but observe that the entire exercise of extension, on account of the pending penalty proceedings, was on account of a total ignorance of the powers conferred on an Assessing Officer in proceeding for best of judgment. It is trite that a mere imposition of penalty would not result in an estimation on that count, in assessment, since the assessee could convince the A.O that in fact the offence is not in existence. Likewise the pendency of a penalty proceeding would not divest the power of best judgment of the A.O who could look into the crime file and proceed independently. In fact even** 17 WP(C) No.11873/2015 **on finalisation of penalty the A.O has to independently find the discrepancies to carry out estimations based on the offence on best of his judgment.** **Writ petition stands allowed. No order as** **to costs.** **Sd/K. Vinod Chandran, Judge Sd/Ashok Menon, Judge** **jma** WP(C) No.11873/2015 18 ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1 EXHIBIT-P1: TRUE COPY OF ORDER NO.B11343/14 OF THE 2ND RESPONDENT DATED 17.03.2014. EXHIBIT P2 EXHIBIT-P2: TRUE COPY OF PROCEEDINGS OF INTELLIGENCE OFFICER, SQUAD NO.1, COMMERCIAL TAXES, THIRUVANANTHAPURAM DATED 31.01.2015.** **EXHIBIT P3 EXHIBIT-P3: TRUE COPY OF ORDER NO.B11343/15 OF THE 2ND RESPONDENT DATED 10.03.2015.** - **EXHIBIT P4 EXHIBIT-P4: TRUE COPY NOTICE U/S 25(1) OF THE KVAT ACT DATED 23.03.2015 FOR THE YEAR 2007-08.** - **EXHIBIT P5 EXHIBIT-P5: TRUE COPY OF NOTICE U/S.25(1) OF THE KVAT ACT DATED 23.03.2015 FOR THE YEAR 2008-09.** - **RESPONDENT'S/S EXHIBITS:** - **EXHIBIT R1(a) TRUE COPY OF THE ACKNOWLEDGED DEMAND NOTICE** - **EXHIBIT R1(b) TRUE COPY OF THE ACKNOWLEDGED SUMMONS** - **EXHIBIT R1(c) TRUE COPYOF THE REQUEST DATED 16.02.2015 OF THE PETITIONER** - **EXHIBIT R1(d) TRUE COPY OF THE ACKNOWLEDGED POSTING NOTICE EXHIBIT R1(e) TRUE COPY OF HT E PETITIONERS' REQUEST FILED ON 25.02.2015** - **EXHIBIT R1(f) TRUE COPY OF THE ACKNOWLEDGED NOTICE** - **EXHIBIT R1(g) TRUE COPY OF THE NOTICE DATED 12.03.2015 EXHIBIT R1(h) TRUE COPY OF THE LEDGER PAGE 1293 OF** WP(C) No.11873/2015 19 **PETITIONER, WHERE FIRST RESPONDENT PUT SIGNATURE OF VERIFICATION**