No Re-Assessment by Revenue Beyond Period of Limitation under KVAT Act based on CAG Report: Kerala HC [Read Order]

The Kerala High Court stated that revenue there cannot exercise  power under Section 25A of the KVAT Act beyond the period of limitation prescribed under Section 25(1) of the KVAT Act. The division bench of Justices A.Y. Jayasankaran Nambiar and Easwaran S ruled that the revenue cannot re-assess time barred assessment under KVAT Act based on CAG report.

According to the bench, one of the factors determining lawfulness would also be the date on which the CAG communicates the audit objection. If the audit objection is received after the time frame for re-assessment specified in Section 25(1) of the KVAT Act, the Assessing Officer cannot consider the objection to be "lawful" for the purposes of exercising his authority under Section 25A of the KVAT Act.

In this case, the issue before the bench was whether the Revenue can proceed to re-assess an assessee by placing reliance on a report of the Comptroller and Auditor General of India [CAG], by ignoring the period of limitation of five years/six years envisaged in Section 25(1) of the KVAT Act?

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The Revenue's argument that re-assessment proceedings started under Section 25A of the KVAT are exempt from the statute of limitations set forth in Section 25(1) of the KVAT Act is upheld by the Appellate Tribunal.

 The bench noted that in accordance with Section 25 of the KVAT Act, assessments finished under Sections 21, 22, and 24 may still be reopened in order to determine whether the turnover was an evaded assessment to tax in a previous assessment.  Nonetheless, the authority to evaluate evaded turnover under Section 25 must be used within the time frame allowed by the KVAT Act.

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“Once the Assessing Officer arrives at the satisfaction envisaged under Section 25A, he has to proceed to re-assess the dealer in the manner envisaged 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,” opined the bench.

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While allowing the petition the  bench held that in cases where the completion of an assessment under the KVAT Act has become time barred by virtue of the limitation provisions under Section 25(1) of the KVAT Act, the Revenue cannot proceed to re-assess an assessee on the basis of a subsequent report obtained from the CAG.

To Read the full text of the Order CLICK HERE

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