The Kerala High Court has held that the time-barred Kerala Value Added Tax (KVAT) Assessments cannot be reopened based on Comptroller and Auditor General of India (CAG) Report.
The bench of Dr. Justice A.K.Jayasankaran Nambiar and Justice Easwaran S. has observed 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 department cannot proceed to re-assess an assessee on the basis of a subsequent report obtained from the CAG.
Many cases comprising of O.T. Revisions, Writ Petitions and Writ Appeal were filed. The main issue that arises for consideration is whether notwithstanding the fact that the completion of an assessment under the Kerala Value Added Tax Act has become barred by limitation under Section 25(1) of the KVAT Act, the mere fact that a notice is issued by the Revenue invoking the provisions of Section 25A of the KVAT Act would enable the Revenue to complete a re-assessment by ignoring the period of limitation under Section 25(1) of the KVAT Act ?
As per the Scheme of the KVAT Act, the assessment procedure commences with the filing of a return by the assessee. If the return filed by the assessee conforms to the requirements under the KVAT Act and Rules, in respect of the details of turnover to be furnished and the tax to be paid thereon, and there is no query raised by the Revenue within the period prescribed for the same, the assessment to tax is completed as a self assessment to tax by the assessee under Section 21 of the KVAT Act.
If an assessee does not file a return as contemplated by the KVAT Act and Rules or files a defective return, then the assessment is completed on best judgment basis by the Revenue after following the procedure under Section 22 of the KVAT Act.
In certain cases, as enumerated under Section 24 of the KVAT Act, an assessment can be completed pursuant to consideration of audit objections in relation to the details furnished by the assessee along with his returns. 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. The said period was five years from the end of the assessment year concerned till 31.03.2017 and was extended to six years from the end of the assessment year concerned thereafter.
The issue raised 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 court 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 department cannot proceed to re-assess an assessee on the basis of a subsequent report obtained from the CAG.
Case Details
Case Title: The State Of Kerala Versus M/S.Chowdhary Rubber & Chemicals Pvt. Ltd
Case No.: O.T.REV.NO.106 OF 2021
Date: 18/03/2025
Counsel For Petitioner: Mohammed Rafiq
Counsel For Respondent: P.S.Soman
