Kerala High Court
K.O.Ittoop vs State Of Kerala on 24 March, 2025
2025:KER:24810
W.P(C) NO.4458/2017 1
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE MOHAMMED NIAS C.P.
MONDAY, THE 24TH DAY OF MARCH 2025 / 3RD CHAITHRA, 1947
WP(C) NO. 4458 OF 2017
PETITIONER/S:
K.O.ITTOOP,
AGED 57 YEARS, S/O. OUSEPH KONUPARAMBAN, PROPRIETOR,
KONUPARAMBAN TRADERS, CHALAKUDY, THRISSUR DISTRICT.
BY ADV JACOB SEBASTIAN
RESPONDENT/S:
1 STATE OF KERALA,
REPRESENTED BY SECRETARY TO GOVERNMENT, DEPARTMENT OF
REVENUE, GOVERNMENT SECRETARIAT, TRIVANDRUM-695001
2 THE JOINT COMMISSIONER,
COMMERCIAL TAXES, THIRUVANANTHAPURAM-695001
3 THE ASSISTANT COMMISSIONER (ASSESSMENT),
COMMERCIAL TAXES, SPECIAL CIRCLE, THRISSUR.
SRI. ARUN AJAY SHANKAR, GOVT. PLEADER (TAX)
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
04.03.2025, THE COURT ON 24.03.2025 DELIVERED THE FOLLOWING:
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W.P(C) NO.4458/2017 2
MOHAMMED NIAS C.P., J.
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W.P(C) No.4458 of 2017
.............................................................
Dated this the 24th day of March, 2025
JUDGMENT
The petitioner, an assessee on the rolls of the third respondent, filed
returns for the assessment year 2010-11, which were rejected by the assessing
authority. The petitioner was issued Ext.P1 notice under Section 25(A) of the Kerala
Value Added Tax Act, 2013, (for short 'KVAT Act') on 22.09.2016 by the third
respondent alleging irregularities, that on verification of the annual report, audit
report and final accounts, there was misclassification of goods taxable at 4% as 0%
and that there was an escaped turnover of Rs.53,58,930/-. In response, the petitioner
submitted Ext.P2 reply on 08.10.2016, along with supporting documents detailing
stock transfers from its branch at Kangayam and stock transfers for outside
customers during the assessment year 2010-11 as Annexures I & II in Ext.P2, denying
the allegation of misclassification of taxable goods and also denying the allegation of
tax evasion raised against them.
2. Prior to the issuance of Ext.P1, the petitioner had already submitted a
reconciliation statement (Ext. P3), which was received by the third respondent on
12.08.2016. This statement explained the arithmetical differences noted by the
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department for the assessment year 2011-12 but was not considered before Ext.P1
was issued.
3. Petitioner contends through Ext.P2 reply, that he had clarified that the
stock transfer categorized under 'Interstate stock transfer' included transfers from
its branch at Kangayam. The petitioner also clarified that the cost of 'edible oil'
included coconut oil, de-oiled coconut cake, Palmolien, and rice bran oil, among
others. Due to an oversight, all products were declared as 'edible oil' under Schedule
III, attracting tax at 4%, whereas the majority consisted of coconut oil, which was
exempted. The petitioner submitted stock transfer documents on 14.10.2016 to
substantiate the claims.
4. Without taking into account the clarification provided in Ext.P2, the
assessing authority proceeded to issue Ext.P5 Assessment Order on 30.11.2016, which
was received by the petitioner on 03.12.2016. Additionally, the authority failed to
provide the petitioner with an opportunity for a hearing or to examine the books of
accounts and delivery notes that the petitioner had offered for verification.
5. The petitioner argues that Ext. P5 is vitiated by an apparent error. It
treats all stock transfers as taxable, despite coconut oil--which formed the majority
under the category of 'edible oil'--being exempt. The petitioner filed a rectification
application on 06.12.2016 under Section 66 of the KVAT Act (Ext. P6).
6. When the rectification application was not considered, the petitioner
approached this Court through W.P(C) No. 40375/2016. The Court, by Ext. P7
judgment dated 20.12.2016, directed the third respondent to consider and pass
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orders on the rectification application within one month and to stay the recovery
actions till then.
7. Without affording an opportunity for a hearing or appreciating the
mistake pointed out in Ext. P6, the third respondent upheld the assessment order
through Ext. P8 order dated 11.01.2017.
8. The petitioner contends that the third respondent failed to properly
consider the rectification application. Ext. P5 Assessment Order failed to classify
taxable and non-taxable goods separately, which vitiates the order. Without proper
consideration, the third respondent also issued directions to the petitioner's bankers
to stop operation in the petitioner's current-account vide Ext.P9 and also issued a
prohibitory order in respect of the CC Account of the Petitioner vide Ext. P10,
leading to preclusion from making any online payments including statutory
payments and causing severe prejudice to the petitioner.
9. The petitioner contends that Ext. P1 and subsequent proceedings are
time-barred as they were initiated beyond the statutory period of five years. Ext.P1
does not refer to any audit objections raised by the Comptroller and Auditor General
of India and, therefore, cannot be treated as a notice under Section 25(A) of the
KVAT Act but only be treated as a notice under Section 25 (1) of the KVAT Act.
10. A counter affidavit was filed on behalf of the third respondent stating that a pre-
assessment notice under Section 25(A) of the KVAT Act was issued on 22.09.2016,
proposing best judgment assessment and the third respondent argues that the
petitioner responded on 08.10.2016 with details of closing stock, consignment goods,
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and stock transfer for the assessment year 2010-11 but no corroborating documents
were produced to substantiate and fortify the claim of stock transfer from the
branch of Kangayam, Tamil Nadu.
11. The third respondent submits that the petitioner's authorised
representative, Sri. V.V. Balachandran, produced books of accounts, which were
verified on 24.06.2013 and 19.12.2013, respectively, and the submissions were duly
examined.
12. The third respondent also submits that the assessment against the
petitioner was taken up under Section 25(A) of the KVAT Act consequent to the Audit
Objection raised by the CAG as per the report dated 18.09.2012 (Ext. R3 (a)). The third
respondent further argued that the petitioner's declaration of stock transfer in
interstate stock transfer as of edible oil and that edible oil including stock of account
oil, coconut oil cake, palm oil, rice bran oil etc, cannot be accepted due to the fact
that during the said period coconut oil was non-taxable and edible oil was taxable
commodity and both having separate commodity entities in KVATIS to upload the
description of the goods. The misclassification in the returns was an attempt to
evade tax. The third respondent also submits that in Ext. P5 a reference has been
made to a notice that was already issued to the petitioner dated 22.09.2012, and the
petitioner while accepting the notice there is no case that such a notice has not been
received by the petitioner while he was heard at the time of issuance of the order.
13. The petitioner did not produce books of accounts for the Kangayam
branch or delivery notes from Tamil Nadu, but KVATIS records indicate interstate
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purchases worth Rs.4,53,46,897/- and interstate stock transfers (IN) worth
Rs.15,32,11,683/-, including coconut oil consignment transfers worth Rs.19,85,583/-
during the assessment year 2010-11. The third respondent contends that Section 66
of the KVAT Act allows rectification only in cases of errors apparent on the face of
the record. The petitioner's request lacked merit, as there was no such error. The
rectification application was duly considered but rejected as it did not meet the legal
criteria and the original assessment order was upheld on merits, law, and facts. The
petitioner's annual return for 2010-11, filed on 26.09.2011, declared interstate stock
transfers of edible oil as taxable under Schedule III at 4%, with a total transfer value
of Rs. 66,57,88,364/-. The petitioner's claim that the assessing authority failed to
properly consider the rectification petition is baseless.
14. I have heard the learned counsel for the petitioner and the learned
counsel appearing for the respondents.
15. The essential contention raised by the writ petitioner is that the
proceedings initiated as per Ext.P1 is time-barred, as Ext.P1, though styled as a
notice under Section 25(A) of the KVAT Act, does not refer to any audit or report by
the Comptroller and Auditor General of India and therefore the same cannot be
treated as a notice under Section 25(A). Accordingly, at best, the notice can be
treated only as one under Section 25(1) of the KVAT Act, in which case also the same
is time-barred as the relevant assessment year is 2010-11 and Ext.P1 was issued only
on 22.09.2016. Thus, it is the submission that even if it is a notice under 25(1) though
styled as under Section 25(A), the action is time barred.
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16. The learned Government Pleader seriously opposes the same
contending that the plea of limitation was never raised either at the time of reply to
Ext.P1 notice or at the time of filing the rectification application and the same was
raised for the first time in the writ petition and therefore, it is not liable to be
considered at all. The learned Government Pleader also submits that if the notice is
treated as one issued under Section 25(1), the same is within the extended time
granted. True, no such contention was raised in Ext.P2.
17. It is to be noticed that under Section 25(1) of the KVAT Act, the period
of limitation is prescribed as five years from the last date of the year to which the
return relates, and therefore Ext. P1 notice had to be within the time granted. As
regards the contention under Section 25(A), it is not the objection raised by the
Comptroller and Auditor General of India in respect of an assessment or re-
assessment under the Act that warrants the issuance of notice under Section 25(A),
but the satisfaction of the assessing authority that the objection is lawful, can the
power under 25(A) be invoked. There is nothing on record to show that the
assessing authority had considered the objections of the Auditor prior to issuance of
notice under Section 25(A). On this count also the impugned order cannot be
sustained and the matter requires a fresh reconsideration.
18. As the issue of limitation arises on the facts of the case apart from the
authority to issue the notice which would affect the rights of the petitioner, I am
inclined to grant an opportunity to the petitioner to raise the same and direct the
respondents to consider the same, in accordance with law. This Court granted an
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interim order on 10.2.2017 staying the freezing of accounts communicated to the
petitioner as per Exts.P9 and P10. The said order is still in force.
In view of the reasons stated above, I am inclined to quash the orders
impugned in the writ petition. There will be a direction to the respondents to
reconsider the issue and pass fresh orders following Ext.P1. The petitioner shall file
additional reply/documents, if advised, and the same shall also be considered while
passing orders. The order shall be passed, as directed, within three months from the
date of receipt of a copy of the judgment. The interim order will continue till orders
are passed, as directed above.
The Writ petition is allowed as above.
Sd/-
MOHAMMED NIAS C.P.
JUDGE
okb/
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APPENDIX OF WP(C) 4458/2017
PETITIONER EXHIBITS
Exhibit P1 A TRUE COPY OF THE NOTICE DATED SEPTEMBER 22,2016
ISSUED BY THE 3RD RESPONDENT.
Exhibit P2 A TRUE COPY OF THE REPLY SUBMITTED BY THE
PETITIONER IN RESPONSE TO EXHIBIT P1.
Exhibit P3 A TRUE COPY OF RECONSIDERATION STATEMENT DATED
AUGUST 12, 2016 SUBMITTED BY THE PETITIONER BEFORE
THE 3RD RESPONDENT.
Exhibit P4 A TRUE COPY OF ONE OF SUCH DELIVERY NOTES
SUBMITTED BY THE PETITIONER.
Exhibit P5 A TRUE COPY OF THE ASSESSMENT ORDER DATED
30.11.2016 PASSED BY THE ASSESSING AUTHORITY.
Exhibit P6 A TRUE COPY OF THE APPLICATION FOR RECTIFICATION
DATED 6.12.2016 SUBMITTED BY THE PETITIONER.
Exhibit P7 A TRUE COPY OF THE JUDGMENT DATED DECEMBER 20,2016
IN WPC NUMBER 40375/2016.
Exhibit P8 A TRUE COPY OF THE ORDER DATED JANUARY 11, 2017
ISSUED BY THE 3RD RESPONDENT.
Exhibit P9 A TRUE COPY OF THE LETTER DATED 24.1.2017 ISSUED
BY THE STATE BANK OF TRAVANCORE, CHALAKUDY TO THE
PETITIONER.
Exhibit P10 A TRUE COPY OF THE COMMUNICATION DATED 8.2.2016
ISSUED FROM THE FEDERAL BANK, CHALAKUDY.
RESPONDENT EXHIBITS
Exhibit R3(a) TRUE COPY OF THE AUDIT OBJECTION RAISED BY THE CAG
AS PER REPORT DATED 18/09/2012 ALONG WITH
ACKNOWLEDGMENT CARD
