The Kerala High Court has ruled that revenue authorities cannot conduct reassessments of time-barred cases under the Kerala Value Added Tax (KVAT) Act solely based on a report from the Comptroller and Auditor General of India (CAG). The decision was delivered by a Division Bench consisting of Justices A.Y. Jayasankaran Nambiar and Easwaran S.
The court emphasized that:
"There cannot be an exercise of power under Section 25A of the KVAT Act beyond the period of limitation prescribed under Section 25(1) of the KVAT Act. In fact, the provisions of Section 25A allude to this aspect when it refers to the satisfaction to be recorded by the Assessing Officer of the 'lawfulness' of an audit objection."
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The court further observed that one of the key aspects of determining "lawfulness" includes evaluating the time when the CAG communicated the audit objection. If the objection is received beyond the period of limitation specified in Section 25(1) of the KVAT Act, then the Assessing Officer cannot consider it as "lawful" and proceed with reassessment under Section 25A.
In this case, the primary question was whether the revenue authorities could initiate reassessment proceedings against an assessee relying on a CAG report while disregarding the limitation period of five or six years as provided under Section 25(1) of the KVAT Act.
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The Appellate Tribunal had upheld the revenue’s contention that reassessment proceedings under Section 25A were not restricted by the limitation period specified in Section 25(1). However, the High Court rejected this interpretation and reaffirmed that completed assessments under Sections 21, 22, and 24 could only be reopened within the stipulated time limits prescribed by the KVAT Act.
The bench noted:
"Once the Assessing Officer arrives at the satisfaction envisaged under Section 25A, he has to proceed to re-assess the dealer in the manner prescribed under the Statute, namely, by following the procedure under Section 25(1) of the KVAT Act. In that process, he must also ensure that the substantive safeguards envisaged for an assessee, such as the requirement of exercising the power within the time permitted by the Statute, are strictly adhered to."
Thus, if the assessment period has already expired under the limitation provisions of Section 25(1), the revenue cannot rely on a subsequent CAG report to initiate a reassessment.
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Based on the above findings, the Kerala High Court ruled in favor of the petitioner and quashed the reassessment proceedings initiated by the revenue authorities.
Case Details:
- Case Title: The State of Kerala v. M/s Chowdhary Rubber & Chemicals Pvt. Ltd.
- Case Number: O.T.REV. NO.106 OF 2021
- Counsel for Revenue: Mohammed Rafiq
- Counsel for Assessee: P.S. Soman and T. Radhamony
