Kerala HC: No Reopening of Assessment if Limitation Expired Before Timeline Extension

The Kerala High Court held that the department cannot reopen a resolved assessment by issuing a fresh notice if the limitation period had expired prior to the amendment that extended the reopening timeline.

The Division Bench, comprising Justices A.K. Jayasankaran Nambiar and K.V. Jayakumar, noted that in cases where the previous five-year limitation period had ended before the 2017 amendment to Section 25(1), the Revenue could not reopen concluded assessments by applying the new six-year limitation period through issuing a fresh notice.

The assessee/respondent filed a writ petition questioning an assessment order dated March 16, 2020, under Section 25(1) of the Kerala Value Added Tax Act (KVAT Act) for the 2013-14 assessment year, arguing that the order violated principles of natural justice. The notice was issued on February 12, 2020, and the assessment was promptly completed by March 16, 2020, without providing enough time to respond.

The Kerala High Court ruled in favour of the petition on the ground of limitation. However, the department has appealed this decision before the Kerala High Court.

The assessee contended that the Assessing Officer had wrongly expedited the process, believing the assessment had to be completed by March 31, 2020. The assessee argued that only the pre-assessment notice was required to be issued by that date, allowing the assessment itself to be finalized later.

The department countered that the Single Judge had erred in believing the assessment order was barred by limitation. They clarified that the assessment was not actually time-barred, even though the Assessing Officer had hastily completed it under this false assumption.

The bench observed that the assessment year in this case was 2013-14 under the KVAT Act, which was amended in 2017 to extend the reopening limitation period from five to six years. However, if the five-year limitation period had already ended before the amendment of Section 25(1), 2017, the Revenue could not reopen settled assessments by issuing a new notice invoking the six-year limitation thereafter.

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The bench concluded that the relief sought by the assessee in the writ petition was a re-evaluation of the issue on its merits before the Assessing Officer. The assessee did not argue that the assessment order was barred by limitation. The writ petition was allowed due to the Single Judge’s incorrect assumption about the limitation.

The bench found that the assessee had not been granted a hearing before the assessment order was issued. Consequently, it set aside the contested order and remanded the case to the Assessing Authority for a fresh decision based on the merits, ensuring that the assessee would be heard.