Extension of Limitation Period For Reassessment By Amendment Cannot Have Automatic Retrospective Operation To Affect Concluded Assessments: Kerala HC [ Read Judgment]
"The right accrued to an assessee, after the expiry of the period of limitation, not to be assessed or re-assessed can be meddled with only by an amendment, expressed or implied to be retrospective"
In a significant judgment in taxation laws, the High Court of Kerala held that assessments under the Kerala Value Added Tax Act 2003 cannot be re-opened beyond the period of limitation for re-assessment. While holding so, the Division Bench of Justice K Vinod Chandran and Justice Ashok Menon held that even a legislative amendment enhancing the period of limitation for reassessment cannot affect assessments already concluded, unless specific intent to give retrospective application is manifest from the language of the amendment.
Involved in the case was the interpretation of Section 25(1) of the KVAT Act and the proviso added to it through subsequent legislative amendment. Section 25(1) gave power to the revenue to issue notice to the assessee to re-assess concluded assessment on best of judgment basis where there is escapement of turnover from assessment, within a period of five years from the last date of the assessment year.
The Division Bench was considering a batch of appeals by the State against a judgment of the Single Judge, which had quashed the assessment notices on the ground that they were time barred. Before the Court there were cases where notices under Section 25(1) were issued by the Assessing Authorities, after the expiry of 5 years from the last date of the assessment year. The Court held that notice under Section 25(1) cannot be issued beyond the period of limitation. Reliance was placed on the Full Bench dictum in Cholayil Enterprises v. Assistant Commissioner of Income-Tax (2015 (4) KLT 516) that the period of limitation under Section 25(1) was with respect to initiation of re-assessment proceedings and not completion of the same.
There were also cases before the Court where re-assessment notices were issued by the Deputy Commissioner invoking power under Section 25B of the Act. As per Section 25B, the Deputy Commissioner has the power to extend the period for completion of assessment in cases as deemed fit. The Court held that this power of extension had to be invoked within the period of limitation. Further, the Court held that Section 25(1) did not speak of the period of completion of assessment, but period within which notice had to be issued under Section 25(1). Hence, the power to extend period of assessment as per Section 25B was of no consequence, as there was nothing in the statute which limited the period for completion of assessment.
There is no period for completion of assessment provided in Section 25 and the overriding effect given to Section 25B, is of no consequence. As already found the limitation provided under sub-section (1) of Section 25 is for initiation of proceedings, obviously by way of a notice for reassessment and if that has not been done, within the period of limitation, the assessing authority cannot fall back upon a permission issued by the Deputy Commissioner under Section 25B extending the period of limitation for completion of assessment, said the judgment authored by Justice K Vinod Chandran.
In this regard, reliance placed by the State on Additional Commissioner( Legal) and another v. Jyoti Traders [(1999) 2 SCC 77] did not sway the Court. The Court distinguished Jyothi Traders, noting that express retrospective operation was provided in the provision involved in that case; however, Section 25B was not given any retrospectivity, either expressly or impliedly.
Extension of time by amendment cannot have automatic retrospective operation.
The period of limitation under Section 25(1) was later extended as six years from five years as per subsequent amendment. On the strength of this, the State sought to sustain those notices which were issued beyond the period of five years but within the period of six years as extended by the amendment. To drive home the point, the State relied on a Full Bench decision of Karnataka High Court in Hassan Co-operative Milk Producers Societies Union Limited v. State of Karnataka AIR 2014 Karnataka 120, which had held that substitution of a provision will relate back to the date of original enactment of the statute.
However, the Court disagreed with the Full Bench decision of Karnataka High Court, stating that it was contrary to precedents of Supreme Court, particularly Hitendra Vishnu Thakur Vs. State of Maharashtra [AIR 1994 SC 2623]. The main points culled out from the SC precedents were :-
- A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished.
- A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication.
On this basis, the Court held :
An amendment by substitution is not automatically retrospective and the principles apply as in any other amendment. For an amendment to have retrospective operation and effect, it should be clear from express words or evident from necessary intendment.
Proceeding on this premise, the Court held that the assessments cannot be reopened after the period of limitation on the strength of limitation extended by amendment, unless the amendment is stated to be retrospectively applicable. As held by the Court :
The right accrued to an assessee, after the expiry of the period of limitation, not to be assessed or re-assessed can be meddled with only by an amendment, expressed or implied to be retrospective
To reach the above conclusion, reliance was placed by the Court in the decisions AIR 1962 SC 918 [I.T.O v., S.K. Habibullah], AIR 1965 SC 171 [S.S Gadgil v. Lal and Co.], AIR 1969 SC 778 [ITO, Ahmedabad v. Devshankar Bhatt], AIR 2002 SC 1715 [K.M. Sharma Vs. ITO], Union of India & Others v. Uttam Steel Limited [(2015) 13 SCC 209].
The Court dismissed the appeals, holding :
We have demonstrated from the various decisions of the Hon'ble Supreme Court placed before us by both the parties that there is no irrefutable rule that an amendment by substitution is invariably retrospective. We find the amendment by substitution in the present case, extending the period of limitation from 5 years to 6 years to be not applicable to those assessments which stood completed and the 5 year period for re-opening of assessment under Section 25(1) stood expired. We do not see any reason to interfere with the impugned judgments on the basis of the amendment made subsequent to the judgment. Though the legislature had the competence to extend the period of limitation with retrospective effect, the same was not done.