Revenue Cannot Re-Assess Time Barred Assessment Under KVAT Act Based On CAG Report: Kerala High Court

The Kerala High Court stated that revenue cannot re-assess time barred assessment under KVAT Act based on CAG report. The Division Bench of Justices A.Y. Jayasankaran Nambiar and Easwaran S. observed 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.” The bench opined that one of the aspects of lawfulness would also be the date by which the audit objection is communicated by the CAG. If the audit objection is received at a point in time that is beyond the period of limitation envisaged for re-assessment under Section 25(1) of the KVAT Act, then the Assessing Officer cannot treat the said objection as 'lawful' for the purposes of exercise of his power 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? The Appellate Tribunal uphold the contention of the Revenue that re-assessment proceedings initiated under Section 25A of the KVAT are not subject to the limitation period prescribed under Section 25(1) of the KVAT Act. The bench observed that the assessments completed under Sections 21, 22 and 24 can still be re-opened in terms of Section 25 of the KVAT Act to assess such turnover as an escaped assessment to tax in an earlier assessment. The power to assess escaped turnover under Section 25 has, however, to be exercised within the period stipulated under the KVAT Act for the exercise of such power. “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. 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. In view of the above, the bench allowed the petition. Case Title: The State of Kerala v. M/s Chowdhary Rubber & Chemicals Pvt. Ltd.Citation: 2025 LiveLaw (Ker) 200 Case Number: O.T.REV. NO.106 OF 2021 Counsel for Revision Petitioner/ State: Mohammed Rafiq Counsel for Respondent/ Assessee: P.S. Soman and T. Radhamony Click Here To Read/Download The Order

Revenue Cannot Re-Assess Time Barred Assessment Under KVAT Act Based On CAG Report: Kerala High Court

Mehak Dhiman

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