T. T. Shijoy v. State of Kerala & Others (WA No. 1291 of 2017, connected matters)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY, THE 17TH DAY OF SEPTEMBER 2018 / 26TH BHADRA, 1940** **WA.No. 1291 of 2017** **AGAINST THE JUDGMENT IN WPC 14103/2016 of HIGH COURT OF KERALA DATED 13-12-2016** ## **APPELLANTS/RESPONDENTS:** - **1 THE ASSISTANT COMMISSIONER (ASSMT), SPECIAL CIRCLE, DEPARTMENT OF COMMERCIAL TAXES, PALAKKAD – 678 001.** - **2 THE COMMERCIAL TAX OFFICER, (IN CHARGE), OFFICE OF THE ASSISTANT COMMISSIONER (ASSMT), SPECIAL CIRCLE, DEPARTMENT OF COMMERCIAL TAXES,PALAKKAD – 678 001.** - **3 THE DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, PALAKKAD – 678 001.** - **4 THE STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM – 695 001.** **BY SPECIAL GOVERNMENT PLEADER SRI.C.E. UNNIKRISHNAN** ## **RESPONDENT/PETITIONER:** **T.T.SHIJOY, M/S DEVI INETERNATIONAL, CHALLISSERY.P.O, PALAKKAD - 679 536. BY ADV. SRI.P.N.DAMODARAN NAMBOODIRI** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 17.09.2018, ALONG WITH W.A.NO.1172 OF 2017 & CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _W.A. Nos.1172 of 2017 & connected cases_ 2 **W.A. Nos.1172,1175,1179,1188,1189,1211,1215,1233,1264, 1265, 1270,1284,1291 & 1333 of 2017** ## **JUDGMENT** **The issue raised in the above writ appeals is with respect to the limitation under Section 6(5) of the Central Sales Tax Rules, 1957 [for brevity, the Rules]. Before we proceed with the matter, we have to notice the change brought about on introduction of the Kerala Value Added Tax Act, 2003 [for brevity, the KVAT Act]. Prior to the KVAT Act, the Kerala General Sales Tax Act, 1963 [for brevity, the KGST Act] provided for an assessment under Section 17 and much later to the enactment, provided a period of limitation for completion of assessment, which was four years. Under the KGST Act, there was only one return to be filed both under the KGST Act and the Central Sales Tax Act, 1956 [for brevity, the CST Act]. The Assessing Officer under the KGST Act would complete the assessments both under the KGST Act and CST Act by** _W.A. Nos.1172 of 2017 & connected cases_ 3 ## **separate orders.** **2. After the introduction of the KVAT Act, there is a deemed completion of assessment under Section 21, if the return is filed in the prescribed manner accompanied with the prescribed documents. Assessment of escaped turnover could be made either under Section 24 or under Section 25 of the KVAT Act, the latter of which provided a limitation period of five years for issuance of notice of assessment, more specifically** _**“to proceed to determine...”**_ **. Section 24 provided completion of such assessment within three years from the date of order to which the return relates. However, the practice of an assessment being proceeded with and completed by a specific order continued under the CST Act as per the prescription available in the Central Sales Tax(Kerala) Rules, (CST Rules, hereafter) ie: Rule 6(5). There is no limitation provided for such completion of assessment, under Rule 6(5); which the State seeks benefit of in these writ appeals. The learned** _W.A. Nos.1172 of 2017 & connected cases_ 4 **Single Judge, by the impugned judgment allowed the writ petitions of the assessees setting aside the notices issued and the orders passed under the CST Act on the ground of it having not been completed within a reasonable time; which reasonable time was held to be four years.** **3. In the writ petitions, the challenge was against the issuance of notice and completion of assessments beyond the four year period as provided under sub-rule (7) & (8) of Rule 6 of the CST Rules. The contention of the assessee before the learned Single Judge was that sub-rule (5) having not provided for any period of limitation, it cannot be said that the power to complete assessment could extend endlessly. It was submitted that even if there is no specific period of limitation provided, there should be a reasonable period contemplated; looking at the nature of the statute, rights and liabilities there under and other relevant factors, as has been held in** _**State of Punjab v. Bhattinda District Co-operative Milk**_ _W.A. Nos.1172 of 2017 & connected cases_ 5 _**Producers India Ltd. [2011 (11) 363]**_ **. The learned Single Judge accepted the said proposition and found so in paragraph 15 of the impugned judgment:** _**“15.In the said circumstances, I am of the view that even going by the statutory provision under Rule 6(5), the assessment has to be completed within a reasonable time, which shall not be later than the period prescribed under Rule 6(7).”**_ **4. The learned Government Pleader submits that the said finding is no longer good law for reason of the binding precedent of a Division Bench in** _**Parisons Foods (P) Ltd. v. State of Kerala [2017**_ _**(3) KLT 1]**_ **. A reading of the decision, just now cited, indicates that the issue arose under both the KGST Act and the KVAT Act. It was held that there could be no adoption of the period of limitation provided under sub-rule (7) or (8); as limitation under sub-rule (5) of Rule 6.** _**Bhattinda District Co-operative Milk Producers India Ltd.**_ **[supra] was noticed to find that therein the provision dealt with was the** _**suo motu**_ **power to revise an assessment or proceeding under the Punjab** _W.A. Nos.1172 of 2017 & connected cases_ 6 **General Sales Tax Act. However, looking at the scheme of the KGST Act and the CST Act and Rules, the said decision was found to provide no help to the assessees. The Court looked at Section 9(2) of the CST Act to find that the powers of assessment under the CST Act is conferred on the authorities constituted under the general sales tax law of the State and they have to proceed in accordance with the provisions of the law enacted by the State. Sub-section (2) of Section 9 opens with the words 'subject to the provisions under this Act and Rules framed thereunder' and hence the provisions of the KGST Act would apply only in so far as they are not contrary to the provisions of the CST Act and the Rules framed thereunder. Sub-Rule (5) of Rule 6 of the CST Rules having not provided any period of limitation for completion of assessments,the limitation provided would be of the completion of assessments under the general sales tax law, ie: four years, provided under Section 17 of the KGST Act. In this context, the extension of period for** _W.A. Nos.1172 of 2017 & connected cases_ 7 **completion of assessment, brought in by the provisos to Section 17 also would be equally applicable, was the finding. It was hence the assessments under the CST Act during the KGST regime were found to be sustainable, if the same has been completed within the time provided under the general sales tax law of the State. The Division Bench also categorically found that there is no warrant for adopting the period provided under sub-rule (7) or (8) in sub-rule (5) of Rule** **6. In such circumstances, we are of the opinion that the contention of the learned Government Pleader that paragraph 15 of the impugned judgment is no longer good law has to be accepted.** **5. The learned Single Judge further noticed the amendments made to the KVAT Act extending the period for completion of assessments and found that it will not render any assistance to the State while finalising the assessments under Rule 6(5). The finding was in the context of the reliance placed on** _**Bhattinda District Co-operative Milk**_ _W.A. Nos.1172 of 2017 & connected cases_ 8 _**Producers India Ltd.**_ **[supra] that the assessments should be finalised within a reasonable period. It was also found that the initiation of proceedings has to be within the specified time and only when there is delay in completion of assessment, the extension by the provisos introduced in the various Finance Acts could render assistance to the State. Finding that in none of the cases above referred, notice has been issued within a period of four years, the learned Single Judge placed reliance on** _**Abdul Majeed P.A. v. State of Kerala [2012 20 KTR**_ _**554(Ker)**_ **and allowed the writ petitions setting aside the notices for assessment as also the assessment orders.** **6. We have to notice that** _**Abdul Majeed P.A.**_ **[supra] specifically dealt with a proceeding under Rule 6(7), where there was a re-asessment proposed and found the four year period to be sacrosanct. The Division Bench of this Court in** _**Parisons Foods (P) Ltd.**_ **[supra] having found that period, not capable of adoption to Rule 6(5), we cannot accept** _W.A. Nos.1172 of 2017 & connected cases_ 9 **the finding that the four year period would be the reasonable period for completion of assessment even as per Rule 6(5) of the CST Rules.** **7. The learned Special Government Pleader has placed before us a decision of the Hon'ble Supreme Court in** _**Bharat Steel Tubes Ltd. & Another v. State of Haryana & Another [1988 (3) SCC 478].**_ **The Hon'ble Supreme Court had referred to** _**Indian Aluminum Cables Ltd. & Another v. Excise and Taxation Officer & Another [(1977) 1 SCR 716]**_ **, in which there was an approval of the earlier decision in** _**Gurbax Singh v. Union of India [(1976) 3 SCR 247]**_ **. In** _**Gurbax Singh**_ **[supra] the ratio was that in the absence of a period provided by statute for completion of assessment, an order of assessment made with some delay would not be without jurisdiction. In** _**Indian Aluminum**_ **[supra], where the statute requires assessment to be completed within a reasonable time, the Court indicated that the argument of the learned counsel that the assessment had to be completed within a reasonable time in** _W.A. Nos.1172 of 2017 & connected cases_ 10 ## **order to be sustainable was not a sound argument.** **8. In** _**Bharat Steel Tubes Ltd.**_ **[supra] also the Hon'ble Supreme Court, despite the assessment having not been completed within five years, found that there is no specific limitation provided and directed the assessments to be completed within four months from the date of the judgment. However, the learned Bench made certain observations, which we extract hereunder:** _**“15. Before we part with the case, we would like to indicate that assessment of tax should be completed with expedition. It involves the revenue to the State. In the case of a registered dealer who collects sales tax on behalf of the State, there is no justification for him to withhold the payment of the tax so collected. If a timely assessment is completed, the dues of the State can be conveniently ascertained and collected. Delay in completion of assessment often creates problems. The assessee would be required to keep up all the evidence in support of his transactions. Where evidence is necessary, with the lapse of time, there is scope for its being lost. Oral evidence as and when required to be produced by the assessing authority may not be available if a long period intervenes between the transactions and the consideration of the matter by the assessing authority. Long delay thus is not in the interest of either the assessee or the State. In view of the fact that a period of limitation has been prescribed for bringing the escaped turnover into the net of taxation, such an eventuality cannot be grappled with appropriately unless timely assessment is completed. In several taxing statutes, even in a situation like this, where assessment under Section 11(3) or 28(3) of the respective Acts is contemplated, a period of**_ _W.A. Nos.1172 of 2017 & connected cases_ 11 _**limitation is provided. Until by statute, such a limitation is provided, it is proper for the State Governments to require, by statutory rules or appropriate instructions, to ensure completion of assessments with expedition and reasonable haste but subject to rules of natural justice.”**_ ## **9. Respectfully bowing to the above** **observations as also the finding in** _**Bhattinda District Co-operative Milk Producers India Ltd.**_ **[supra] we have to see what would be the reasonable period depending upon the nature of the statute, rights and liabilities thereunder and other relevant factors. As noticed in** _**Parisons Foods (P) Ltd.,**_ **[supra] there being no limitation provided under Rule 6(5); by virtue of Section 9(2) of the CST Act, one has to necessarily look at whether there is any provision under the general sales tax law of the State, providing a limitation for assessment. As was noticed, the KVAT Act, which is the general sales tax law for the subject assessment years in all the writ petitions, deems by Section 21, completion of an assessment without any specific order, on the filing of the return in the prescribed manner and** _W.A. Nos.1172 of 2017 & connected cases_ 12 **accompanied with the prescribed documents. Section 25 speaks of assessment of escaped turnover, for which a period is provided of five years under the KVAT Act, for initiation of proceedings. Under the the CST Rules the limitation, to** _**“proceed to determine...”**_ **is four years as provided under Rule 6(7). Looking at the nature of the statute and the rights and liabilities thereunder, we are of the opinion that there could be a reasonable period prescribed of five years for initiation of proceedings for completion of assessment under the CST Act also. We say this because the four year limitation under Rule 6(7) & (8) is for assessment of escaped turnover; while Rule 6(5) contemplates an assessment at the first instance after the return is filed. Under the value added tax regime even for assessment of escaped turnover the limitation is five years; for initiation of proceedings. Hence we find the same to be reasonable for proceeding to carry out the assessment after the return is filed; under the** _W.A. Nos.1172 of 2017 & connected cases_ 13 **CST Act. We, then have to look at the individual proceedings challenged in the various writ petitions in the background of the reasonable time as found by us.** **10. Before we look at the individual writ petitions, we have to notice one another contention taken up by the learned Special Government Pleader; of all these assessments being** **open for consideration as per the amendments brought into Section 42 of the KVAT Act, again relying on the provisions of Section 9(2) of the CST Act. By Finance Act, 2016, sub-section (3) was added to Section 42, which reads as under:** _**“(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 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**_ _W.A. Nos.1172 of 2017 & connected cases_ 14 _**(iv) fails to declare any sale, purchase or interstate stock transfer as evidenced from the documents prescribed under section 46 available 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.”**_ **11. Reliance is placed on sub-clause (iii) to contend that the CST assessment has to be treated as pending for the purpose of Section 23 and the time limit mentioned therein shall not be applicable in such cases. We have to notice that the amendments have been brought in after the limitation expired in certain cases, which is before us for consideration. In any event, we have to emphasise that the provision brought in is for extension of period for the purpose of Section 25, which speaks of an assessment of escaped turnover and not the initial completion of assessment. We are of the opinion that the provision would have no application to the present set of cases.** **12. Looking at the individual cases, we have to notice the following:** **(i) W.A. No.1211 of 2017 was concerned with** _W.A. Nos.1172 of 2017 & connected cases_ 15 **the assessment year 2008-2009 and the notice issued was produced at Ext.P2 dated 17.03.2016 beyond the five year period. W.A. No.1211 of 2017 would stand rejected.** **(ii) W.A. No.1215 of 2017 was concerned with the assessment year 2010-2011, which indicates notice having been issued on 15.09.2015 within the five year period. W.A. No.1215 of 2017 would stand allowed setting aside the impugned judgment.** **(iii) W.A. No.1264 of 2017 is concerned with the assessment year 2010-2011, against which a notice for assessment under Rule 6(5) was first issued on 18.01.2016 and a revised notice was issued on 30.01.2016, respectively produced as Exts.P1 & P2. Both these notices are within the reasonable time as prescribed by us, of five years. Hence, W.A. No.1264 of 2017 would stand allowed.** **(iv) W.A. No.1265 of 2017 was concerned with the assessment year 2009-2010 and the notice issued was dated 10.07.2015, as is evident from the assessment order produced therein. The same is** _W.A. Nos.1172 of 2017 & connected cases_ 16 **beyond the limitation period and the appeal would stand rejected.** **(v) W.A. No.1270 of 2017 also dealt with the assessment year 2009-2010. Ext.P1 assessment order does not speak of a date for the notice issued under Rule 6(5). However, Ext.P4 is the reply filed by the assessee, in which 18.02.2016 is stated to be the date of receipt of notice. The State does not controvert such assertion. It has to be found that the notice is issued beyond the period of limitation and the writ appeal would stand rejected.** **(vi) W.A. No.1291 of 2017 was concerned with two assessment years, 2006-2007 and 2007-2008. Exts.P1 & P1(a), both dated 04.03.2016, are the notices issued, which are beyond the limitation period. W.A. No.1291 of 2017 hence would stand rejected.** **(vii) W.A. No.1172 of 2017 is concerned with assessment years 2008-2009 and 2009-2010, for which notices were issued on 24.01.2015 and 31.01.2015** _W.A. Nos.1172 of 2017 & connected cases_ 17 **respectively. Notice as against the assessment year 2008-2009 is beyond the period of limitation. The proceedings by notice dated 24.01.2015 is declared illegal. As far as the assessment year 2009-2010 is concerned, the notice dated 31.01.2015 is within the limitation period. We hence find that the assessment for the said year was within the limitation period. We hence partly allow W.A. No.1172 of 2017, upholding the assessment for the year 2009-2010, only on the question of limitation.** **(viii) W.A. No.1175 of 2017 dealt with assessment year 2010-2011 and the notice issued was on 11.01.2016 within the limitation period. W.A. No.1175 of 2017 hence would stand allowed.** **(ix) In W.A. No.1179 of 2017 for the assessment year 2009-2010, a notice was issued on 17.08.2016 beyond the limitation period. W.A. No.1179 of 2017 would stand rejected.** **(x) W.A. No.1233 of 2017 was concerned with the assessment year 2007-2008 and the notice issued was dated 07.11.2015 beyond the period of** _W.A. Nos.1172 of 2017 & connected cases_ 18 **limitation. W.A. No.1233 of 2017 would stand rejected.** **(xi) W.A. No.1333 of 2017 dealt with three assessment years 2006-2007, 2007-2008 and 20082009. The notices issued under Rule 6(5) were all dated 23.01.2015 beyond the period of limitation for all the said assessment years. W.A. No.1333 of 2017 would stand rejected.** **(xii) W.A. No.1284 of 2017 dealt with notices dated 14.10.2015 for four assessment years, 20072008 to 2010-2011. For the first three assessment years the notice is beyond the period of limitation and for the last, it is within the period of limitation. W.A. No.1284 of 2017 is partly allowed, sustaining the assessment for the year 2010-2011 on the question of limitation.** **(xiii) W.A. No.1189 of 2017 dealt with assessment year 2009-2010 and the notice was dated 13.08.2015. The proceedings having been initiated after the period of limitation, the same has to be rejected.** _W.A. Nos.1172 of 2017 & connected cases_ 19 **(xiv) W.A. No.1188 of 2017 was concerned with the assessment year 2008-2009 and the notice was dated 25.02.2016 beyond the period of limitation. W.A. No.1188 of 2017 is rejected.** **13. The cases in which notices alone were issued and completion of assessment has not been effected, wherever it has been upheld, necessarily the assessee would be entitled to file objections within 30 days from the date of receipt of the certified copy of this judgment and the Assessing Officer would complete the proceedings in accordance with law, leaving open the remedy of the assessee to file statutory appeals as against the quantum, but not against the question of limitation.** **14. We also make it clear that the assessment orders wherever they have been upheld, have been upheld only on the question of limitation. If the assessee desires to agitate the quantum they could do so within a period of 30 days from the date of receipt of a certified copy of this judgment by** _W.A. Nos.1172 of 2017 & connected cases_ 20 **availing the statutory remedy.** **Ordered accordingly. Parties are left to suffer their respective costs.** **Sd/-** **K.VINOD CHANDRAN JUDGE** **Sd/-** **ASHOK MENON JUDGE //True Copy// P.A. To Judge** sp/22/08/18