Kerala High Court
The State Tax Officer (Works Contract) vs Leela Electric Power Services on 8 January, 2025
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
2025:KER:783
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.
WEDNESDAY, THE 8TH DAY OF JANUARY 2025/18TH POUSHA, 1946
W.A.NO.231 OF 2021
AGAINST THE JUDGMENT DATED 09.06.2020 IN W.P(C).NO.11291 OF 2020
OF HIGH COURT OF KERALA
APPELLANTS/RESPONDENTS IN W.P.(C):
1 THE STATE TAX OFFICER (WORKS CONTRACT)
KERALA GST DEPARTMENT, MATTANCHERRY AT ALUVA,
ERNAKULAM DISTRICT - 682 018.
2 THE DEPUTY COMMISSIONER,
KERALA GST DEPARTMENT, MATTANCHERRY,
KOCHI - 682 002.
3 THE COMMISSIONER OF STATE TAX,
KERALA GST DEPARTMENT, TAX TOWER, KARAMANA P.O.,
THIRUVANANTHAPURAM DISTRICT - 695 022.
4 THE STATE OF KERALA,
REPRESENTED BY SECRETARY TO GOVERNMENT,
TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM
DISTRICT - 695 001.
BY SRI.V.K.SHAMSUDHEEN, SENIOR GOVERNMENT PLEADER
RESPONDENT/PETITIONER:
LEELA ELECTRIC POWER SERVICES
PAMPAKUDA P.O., ERNAKULAM DISTRICT - 686 667,
REPRESENTED BY ITS PROPRIETOR, MR.ELDO THOMAS.
W.A.No.231/21 :: 2 ::
2025:KER:783
BY ADV.SRI.K.J.ABRAHAM
BY ADV.SRI.NIKHIL JOHN
THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON
07.01.2025, THE COURT ON 08.01.2025 DELIVERED THE FOLLOWING:
W.A.No.231/21 :: 3 ::
2025:KER:783
JUDGMENT
Dr. A.K.Jayasankaran Nambiar, J.
This Writ Appeal preferred by the State impugns the judgment
dated 09.06.2020 in W.P.(C).No.11291 of 2020.
2. The brief facts necessary for disposal of the Writ Appeal are as
follows:
The writ petitioner was an electrical contractor and a dealer
under the Kerala Value Added Tax Act [hereinafter referred to as the
"KVAT Act"]. During the assessment year 2011-12, he filed returns
along with audit reports in Form 13 and Form 13A as prescribed under
the KVAT Act and Rules. Thereafter, nothing was heard from the
Department, and the petitioner assumes that the assessment has
become final. He was however served with a notice dated 13.02.2019
under Section 25(1) read with Section 42(3) of the KVAT Act. In the
proceedings that followed, his objections were considered and Ext.P5
assessment order passed confirming a substantial demand against him.
In the writ petition, the respondent/writ petitioner impugned Ext.P1
notice and Ext.P5 assessment order inter alia on the ground that the
proceedings that led to the said assessment order were barred by
limitation.
W.A.No.231/21 :: 4 ::
2025:KER:783
3. The learned Single Judge, who considered the writ petition,
found that inasmuch as the notice under Section 25(1) was issued
beyond six years, it was barred by limitation even going by the
provisions of Section 25(1) as amended with effect from 01.04.2017 by
the Finance Act, 2017. In finding the notice under Section 25(1) of the
KVAT Act to be barred by limitation, the learned Judge relied on the
judgment of this Court in Baiju A.A. and Others v. State Tax Officer
and Others - [2020 (1) KHC 39]. As regards the validity of the
notice, to the extent it invoked Section 42(3) of the KVAT Act, the
learned Judge found that even the said notice was barred by limitation
going by the judgment of the Division Bench of this Court in M/s. MCP
Enterprises v. State of Kerala and Others - [2020 (1) KHC 127].
The writ petition was therefore allowed by setting aside Ext.P1 notice
and Ext.P5 assessment order.
4. In the appeal before us, the main contention raised by
Sri.V.K.Shamsudheen, the learned senior Government Pleader, is that,
while it may be a fact that the notice, to the extent it invoked Section
25(1) of the KVAT Act, was barred by limitation as laid down in Baiju
A.A. [supra], the same could not be said of the notice, to the extent it
invoked Section 42(3) of the KVAT Act. It is pointed out that the
Division Bench in MCP Enterprises [supra] had only clarified that the
provisions of Section 42(3) of the KVAT Act do not have a retrospective
effect beyond a period of five years and did not hold that the provision
itself could not be invoked after a period of five years from the end of
W.A.No.231/21 :: 5 ::
2025:KER:783
the assessment year.
5. We have considered the said submission of the learned senior
Government Pleader but find ourselves unable to accept the same. The
very issue as to whether, on the expiry of the period envisaged for re-
opening assessments under Section 25 of the KVAT Act, notices for re-
opening assessments could be issued invoking Section 42(3) of the KVAT
Act was considered by a Single Bench of this Court comprising of one of
us [Dr. Justice A.K. Jayasankaran Nambiar] in M/s. MCP Enterprises v.
State of Kerala - [2020 (2) KLT 295]. In the said case, the
petitioners had contended that in cases where the period for re-opening
assessments under Section 25 of the KVAT Act had expired, the Revenue
could not invoke Section 42(3) of the KVAT Act to re-open assessments
that had already become final under the KVAT Act. While dealing with
the said contention, the Court went into the Scheme of Section 42(3) of
the KVAT Act and found as follows in paragraphs 7 to 10 of the said
judgment;
"7. On a consideration of the facts and circumstances of the case
as also the submissions made across the bar, I find that Section 42 of the
KVAT Act was amended through a Notification dated 13.11.2016, and the
amendment was given retrospective effect from 01.04.2005, the date on
which the KVAT Act was brought into force in the State of Kerala. The
legislative power of the State legislature to amend the Act with
retrospective effect, cannot be disputed for the power to legislate carries
with it the power to legislate retrospectively also [See M/s.J.K. Jute
Mills Co. Ltd. v. State of Uttar Pradesh and another - [1961 KLT
OnLine 1235 (SC) = AIR 1961 SC 1534]; Mr. Jadao Bahuji v. The
Municipal Committee, Khandwa and Anr. - [1961 KLT OnLine 1236
(SC) = AIR 1961 SC 1486]; M/s. Raghubar Dayal Jai Parkash and Ors.
v. The Union of India and Anr. - [1962 KLT OnLine 1135 (SC) = AIR
1962 SC 263]; State of Karnataka and Ors. v. Karnataka Pawn
Brokers Association and Ors. - [2018 (2) KLT OnLine 2032 (SC) =
W.A.No.231/21 :: 6 ::
2025:KER:783
(2018) 6 SCC 363 = 2018 KHC 6187]. Limitations have, however,
been recognised to the power to legislate retrospectively, and the issue
to be considered in these cases is whether any such limitation
ought to be applied in relation to Section 42(3) of the KVAT Act.
8. It would appear that by introducing a new Sub section (3)
to Section 42, the State legislature wanted to carve out a class of
assessees namely, those whose turnover exceeded the threshold limit
specified in Section 42(1), for a differential treatment in the matter of
re-opening of assessments to assess escaped turnover. The technique
that was employed was to define the circumstances under which, in the
case of such assessees, the assessments would not be deemed complete
under Sections 21, 22 or 24, but would be deemed pending for the
purposes of Section 25, notwithstanding the limitation period
prescribed under Section 25 which was expressly stated to be
inapplicable to such cases. Although the petitioners would contend
that the classification brought about between two categories of
assessees for differential treatment in the matter of re-opening of
assessment would offend Article 14 of the Constitution of India, I am of
the view that in enacting fiscal legislation the legislature is entitled to
a great deal of latitude and this Court would interfere with such a
classification only if there is a clear transgression of constitutional
principles that is established. In the instant case, when viewed against
the object sought to be achieved by the legislature viz. the taxation
of escaped turnover, a classification effected amongst assessees, based
on turnover, and for the purpose of adopting a different procedure for
those with a higher turnover, appears to me to be guided by an
intelligible differentia having a rational nexus with the object sought to
be achieved by the legislature. The said classification would therefore
withstand the tests under Article 14 and the statutory provision
cannot be said to be discriminatory in the sense of treating unequals
as equals.
9. While the prospective operation of Section 42(3) satisfies the
test of constitutionality, the question arises as to whether the
retrospective operation of the newly introduced provision would cause
the assessees substantial prejudice or deprive the assessees of any
vested right that accrued to them prior to the introduction of the new
provision. It is trite that if a retrospective operation of a statutory
provision has the effect of depriving an assessee of an accrued right, in a
manner that will substantially prejudice him, then such retrospective
operation of the amended provisions would not be legally justified.
[See Rai Ramkrishna v. State of Bihar - [1963 KLT OnLine
1210 (SC) = AIR 1963 SC 1667]; R.C. Tobacco Pvt. Ltd. and
Another v. Union of India and Another - [2005 (3) KLT OnLine 1113
(SC) = AIR 2005 SC 4203]; Jayaram and Company v. Assistant
Commissioner and Another - [2016 (3) KLT OnLine 2448 (SC) =
(2016) 15 SCC 125]. In my view, the same would be the position if,
on account of a retrospective operation of the newly introduced
W.A.No.231/21 :: 7 ::
2025:KER:783
provision, the assessee is not in a position to adduce material to
defend itself against an allegation of suppressed/escaped turnover. In
these cases, one of the contentions raised on behalf of the
petitioner/assessees is that the retrospective operation of Section 42(3)
would entail the re-opening of assessments that were completed
years ago, and in relation to which assessment years the assessees do
not have the relevant Books of account and other records to defend
their case against an allegation of escaped turnover. The said
contention is based on the provisions of Rule 58(20) of the KVAT
Rules, which obliges an assessee to keep his Books of account only for
a period of five years from the end of the assessment year in question
or two years from the date of disposal of the appeal or revision
arising out of such assessments or from the date of completion of any
other provision under the Act connected with such assessment, appeal
or revisions whichever is later. Thus, from the Scheme of the Act and
Rules, there can be inferred a finality to assessment proceedings
within a specified period from the end of the assessment year. The
fixing of such a specified period would also be in line with the
judgments that hold that in the absence of a prescribed time limit for
completing assessments under the Statute, a reasonable period has to be
read in, and in determining what that reasonable period should be, clues
can be gathered from the other provisions under the KVAT Act and Rules.
[See State of Gujarat v. Patel Raghav Natha and Others - [AIR
1969 SC 1297]; State of Punjab and Others v. Bhatinda District
Cooperative Milk Producers Union Ltd. - (2007) 11 SCC 363;
Director of Income-Tax (International Taxation) v. Mahindra and
Mahindra Ltd. - [(2014) 365 ITR 560 (Bombay)].
10. What then should be the period prescribed for exercise of the
power under Section 42(3) and consequently the extent of
retrospectivity conceded to the statutory provision ? Ordinarily, one
could have looked to the time limit prescribed for exercise of a
similar power, and for a similar purpose under the Act, to apply the same
time limit for the exercise of power under Section 42(3). A similar
power is contained in Section 25 of the KVAT Act but the time limit
under the said provision is expressly stated to be inapplicable to Section
42(3). This Court has therefore to look at the overall Scheme of the
KVAT Act, the interests of ensuring certainty in taxation matters as
also the necessity to interpret the provision in a manner that would
avoid unconstitutional results such as unreasonableness, unfairness and
arbitrariness of the statutory provision, for determining the limits of
exercise of the power under Section 42(3). In my view, the time limit
specified in Rule 58(20) of the KVAT Rules offers a safe guide to define
the limits of the power under Section 42(3) of the Act. It would ensure
that the power to re-open assessments, so as to bring to tax escaped
turnover, is not exercised in a manner that prejudicially affects an
assessee who is not in a position to meet the charge against him for want
of his Books of account and other relevant material. Such a limitation on
the power to re-open assessments would also accord with the
W.A.No.231/21 :: 8 ::
2025:KER:783
requirement of ensuring fairness and certainty in maters of taxation, a
feature that has been insisted upon in the tax jurisprudence of our
country. [See New Delhi v. Vatika Township Private Limited -
[(2015) 1 SCC 1]; Principal Commissioner of Income-Tax v. Maruti
Suzuki India Ltd. - [(2019) 416 ITR 613 (SC)]]. As observed by the
Supreme Court in the last mentioned case, "there is a significant value
which must attach to observing the requirement of consistency and
certainty. Individual affairs are conducted and business decisions are
made in the expectation of consistency, uniformity and certainty. To
detract from those principles is neither expedient nor desirable."
The said findings were affirmed by the Division Bench in State of
Kerala v. MCP Enterprises - [2023 (2) KLT SN 30 (C.No.14)],
where, at paragraphs 18 and 19, the Division Bench found as follows:
"18. As noted above, Section 21 provides for self-assessment of
returns filed under Section 20. The self-assessment is subject to
reassessment under Section 25 of the KVAT Act. The broad heads
attracting reassessment have a period of limitation of five or six years as
is applicable to the return period. The structure of Section 42(3) is that
for an omission brought under Section 42(3), there is no limitation at all.
It is the fiction created by the phrase 'treated as pending' the limitation
otherwise attracted is removed. Juxtapose both situations; on the one
hand, Sections 22 and 25, and on the other hand, section 42(3)(i) to (iv),
there is inconsistency in the application. The certainty covered for
reopening is disturbed, and uncertainty in reassessment is created. The
argument of the Counsel for dealers that there will be limitation and no
limitation for the same or similar eventualities appears to be correct.
From 01.07.2017, the tax on the supply of goods and services is in
operation, and the returns filed under the KVAT Act will be at large with
uncertainty. From the above consideration, we are of the view that the
provision under challenge, if read in the manner suggested by the State,
would lead to inconsistency and attracts contradiction in terms. With a
view to harmonizing the provisions in the Statute, the learned Judge has
referred to the requirement of maintaining books for five years as the
period for which reassessment could be undertaken. With effect from
01.07.2017, the GST regime is in operation, and the State Legislature, in
terms of Section 19 of Constitution Amendment Act 2016 is enabled to
repeal or amend the laws inconsistent with the amended articles in the
Constitution. Even after the anvil of the GST regime, the uncertainty of
reassessment under Section 42(3) of the KVAT Act, in spite of other
limitations or timelines are over, continues. This is an uncertain and
contradictory state of affairs. The literal construction is leading to
situations resulting in more hardship than envisaged at any point of
W.A.No.231/21 :: 9 ::
2025:KER:783
time. The limitation is erased by fiction. So the Court, by construing the
fiction in a reasonable way and limiting the retrospectivity in line with
other provisions, the scheme of the KVAT Act brings harmony to the
appended and unamended provisions. In fact, the judgment under
appeal, from a slightly different viewpoint, has arrived at the same
conclusions. We are in full agreement with the view and conclusions
recorded in the judgment under appeal. (emphasis supplied)
19. The learned Judge, through the impugned judgment, has
rightly held that the Legislature is competent to make retrospective law,
and in the case on hand, the retrospectivity is spelt out in categorical
terms, confer discernible reasons and has rightly held that the
retrospectivity must be in consonance with a reasonable period,
provided for in the VAT Act. Otherwise, the threat of reassessment
without reference to timelines will be staring at all the dealers who have
filed returns for the period of return 2005-06 till 2016-17 and at any
time, the dealer could be subjected to the procedure of reassessment.
We are, for the above reasons, in agreement with the view expressed in
the judgment under appeal, we are not further dwelling on practical
difficulties etc." (emphasis supplied)
Thus, it is clear that the contention of the learned Government
Pleader in the present appeal has already been considered by this Court
in the decisions pertaining to MCP Enterprises referred above and have
been answered against the Revenue. We therefore see no reason to
interfere with the impugned judgment of the learned Single Judge. The
Writ Appeal fails and is accordingly dismissed.
Sd/-
DR. A.K.JAYASANKARAN NAMBIAR
JUDGE
Sd/-
EASWARAN S.
JUDGE
prp/
