In a recent decision, the Kerala High Court held that the Deputy Commissioner has no power to extend the time limit for initiating fresh proceedings u/s 25(1) of KVAT Act. While allowing a bunch of writ petitions, the Court emphasized that the power entrusted to the Deputy Commissioner is confined to pending assessments only, subject to a condition that a notice indicating sufficient reasons for extending the time limit should be served to the assessee which is a mandatory requirement for invoking s. 25B. No fresh assessments under section 25B of the Act can be initiated on the basis of the order of the Commissioner u/s 25B.
The Court was considering a bunch of petitions in which the power of the Deputy Commissioner, Commercial Taxes to extend the period of limitation by invoking Section 25(1) or 25A of the KVAT Act. Under the section 25B,the Deputy Commissioner is empowered to extend the time for completing the assessment beyond the period specified under Section 25(1) and whether penalty proceedings could be taken against an assessee beyond the period specified under section 67(1) read with section 25(1) of the Act, or under section 45A read with section 19(1) of the Kerala General Sales Tax Act, 1963.
The petitioners urged that the power under section 25B cannot be exercised beyond the period of limitation.It was contended that in order to invoke Section 25(1), a notice must be issued to the assessee and the assessment has to be completed within 5 years from the last date of the year to which the return relates. In the absence of the same, the assessment would be barred by limitation and even an order under section 25B issued after the period of limitation will not save the proceedings.
The State, on the other hand, contended that the impugned provisio has been amended several time by extending the period of limitation by one year which permits extension of period for completing the assessment.Further section 25B of the Act gives power to the Deputy Commissioner to extend the period of limitation on certain eventualities and once such a power is exercised, it is not open for judicial review.
While analyzing the provisions of the KVAT Act, the Court observed that under section 25(1), the assessing authority has the power to make best judgment assessment at any time within five years from the last date of the year to which the return relates,in case of escaped assessment, subject to a condition that the assessee must be given an opportunity of being heard.
The Single bench of Justice A.M Shaffique pointed out that under section 19 of the KGST Act and section 25 of the KVAT Act, the assessing authority can make a fresh assessment in respect of escaped turnover even after an assessment being completed in accordance with the statute within 5 years.
Regarding the issue of power to grant extension to the period of limitation prescribed under the Act, the Court observed that “Power is vested with the assessing officer to take proceedings under Section 25(1),within five years from the last date of the year to which the return relates. The words “proceed to determine” under Section 25(1) is further qualified by the words “after issuing a notice on the dealer and after making such enquiry as it may consider necessary”. Therefore, any step under Section 25(1) has to be taken only after issuing a notice on the dealer which apparently has to be done within five years from the last date of the year to which the return relates. The first proviso relates to a dealer being heard before making assessment under Section 25(1). The third proviso which was subsequently incorporated provides extended time for completion of assessments. It could only mean that time is extended only for completing assessment which have already been initiated after issuing notice under Section 25(1) within five years from the last date of the year to which the return relates. Therefore, the provisos which extend the period to complete the assessments, are only in respect of those assessments in which notices under the first proviso to Section 25(1) had been issued within the five year period as specified therein.”
The Court further observed that notice and assessment orders issued under section 25(1) on the basis of orders passed by the Deputy Commissioner under Section 25B, in the instant case, are void since such power can be exercised only to extend the time for completing the assessment. The said section bars extending time for initiation of a fresh assessment proceeding under section 25(1).
“in view of the non obstante clause under section 25B, the Deputy Commissioner has the power to extend the time for taking steps under Section 25(1) in an instance where an investigation or enquiry is pending under the KVAT Act or any other law, or in instances where the assessment cannot be completed. But in cases where power is exercised to extend the period for completing the assessment, does it mean that the said power can be exercised to extend the period of limitation for invoking section 25(1). The statute having consciously used the words “or where any assessment cannot be completed within the periods specified under the said sections, the Deputy Commissioner may,for good and sufficient reasons, extend the period of completion of the assessment beyond the period specified in those sections.”
Read the full text of the Judgment below.
