Reassessment Proceedings Initiated Beyond the Five Year

Reassessment Proceedings Initiated Beyond the Five Year Statutory Limitation Period Are Wholly Void and Untenable

Issue

Whether a reassessment notice issued under Section 25A read with Section 25(1) of the Kerala Value Added Tax Act, 2003, for the period 2009-10 based on an Accountant General audit objection is legally sustainable, or if it is barred by the mandatory five-year limitation period prescribed under Section 25(1).

Facts

The petitioner filed a writ petition challenging a reassessment notice issued by the first respondent for the financial period 2009-10.
The impugned notice proposed a re-assessment to capture escaped assessment, acting on the basis of an audit objection raised by the Accountant General.
The revenue resorted to Section 25A of the Kerala Value Added Tax Act, 2003, to initiate these proceedings.
The audit objection prompting the reassessment action was received by the department well after the expiry of the standard statutory limitation framework.

Decision

Section 25A is Not an Overriding Provision: Section 25A does not outline an independent, standalone reassessment procedure, nor does it override the explicit limitation periods built into the Act.
Adherence to the Five-Year Cap is Mandatory: After recording satisfaction under Section 25A, the Assessing Officer must proceed strictly under the mechanisms of Section 25(1), which carries a rigid five-year limitation cap.
Late Audit Objections Hold No Legal Validity: An audit objection received after the statutory limitation window has completely closed cannot be treated as a lawful or valid ground to revive dead assessments.
Final Ruling: Because the five-year statutory period for the year 2009-10 had long lapsed, the impugned notice was declared time-barred and void. The High Court allowed the writ petition and quashed the notice in favor of the assessee.

Key Takeaways

Procedural Sections Rely on Limitation Clauses: Special enabling provisions (like Section 25A) that allow tax officers to act on audit inputs cannot be used to extend the life of an assessment indefinitely unless the statute explicitly grants an exemption from limitation.
Audit Objections Cannot Rewrite the Law: While an internal or external audit objection can trigger an inquiry, it does not give the tax department a fresh lease of time to bypass the clear expiration dates fixed by the legislature.
Strict Construction of Tax Timelines: Limitation thresholds in tax statutes are absolute. Once the statutory clock running against a specific financial year runs out, the department loses its inherent jurisdiction to reopen that assessment.

HIGH COURT OF KERALA

Jyothy Labs Ltd.

Assistant Commissioner (WC AND LT)

MURALEE KRISHNA S., J.

WP(C) NO. 1522 OF 2021

JUNE 19, 2026

P. Raghunathan and Premjit Nagendran, Advs. for the Petitioner. B.S. Syamanthak, GP for the Respondent.

JUDGMENT

1. The petitioner filed this writ petition under Article 226 of the Constitution of India, challenging Ext.P1 notice dated 14.12.2020, issued by the 1^st respondent under Section 25A r/w Section 25(1) of Kerala Value Added Tax Act, 2003, (‘KVAT Act’ for short). The said notice was one issued by the 1^st respondent for carrying out an escaped assessment for the year 2009-10, based on Audit Objections of the Accountant General of Kerala.

2. The petitioner contends that Ext.P1 notice is clearly barred by limitation and places reliance on the judgment of this Court in S. Saseedran Pillai v. Commercial Tax Officer [W.P. (C) No. 35493 of 2016, dated 2-2-2017] as well as the judgment in M.C.P. Enterprises v. State of Kerala (2020) 28 KTR 267 (KER).

3. During the course of arguments, the learned Government Pleader also fairly conceded that the issue involved in this writ petition is covered in State of Kerala v. Chowdhary Rubber & Chemicals (P.) Ltd. (2025) 2 KLT 413. In the said judgment, a Division Bench of this Court held thus;

“9. It is also significant that Section 25A does not set out in detail the procedure to be followed for the re – assessment that must ensue if the Assessing Officer decides that the objection of the CAG is lawful. That procedure is spelt out only in Section 25(1) of the KVAT Act. The contention of the Revenue that Section 25A also provides for the procedure for re-assessment cannot be accepted, not only because the provision itself does not say so, but also because procedural due process in a taxing statute cannot be inferred but must necessarily find a place in the statute itself. Article 265 of the Constitution clearly mandates that there shall be no levy or collection of tax save by authority of law. In our view, therefore, 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.

10. The ‘law’, for the purposes of Article 265, must also be one that satisfies the requirements of being just, fair and reasonable so as to be compatible with Article 14, Article 19 and Article 21 of the Constitution of India. To permit the Revenue to exercise the power of assessment and recovery of tax, without circumscribing the said power with a period of limitation for its exercise, would tantamount to ignoring the very fundamentals of the Rule of Law and the principles of fairness in taxation that form an integral aspect of it. We are therefore of the view 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. In our view, 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.

11. We thus hold 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.”

[Underline supplied]

4. In the instant case, the escaped assessment mentioned in Ext.P1 notice is in respect of the returns filed for the year 2009-10, as evident from the said notice. The period mentioned in Section 25(1) of the KVAT Act to assess any such escaped assessment is 5 years from the last date of the year to which the assessment relates. Therefore, it is clear that the issue involved in this writ petition is covered in Chowdhary Rubber & Chemicals (P.) Ltd. (supra). The petitioner is, therefore, entitled to succeed.

5. In the result, this writ petition is allowed by quashing Ext.P1 notice dated 14.12.2020 issued by the 1^st respondent to the petitioner, under Section 25A r/w Section 25(1) of KVAT Act, 2003.