Kerala High Court Rules Clarificatory Orders Under KVAT Act Cannot Be Retrospective
The Court emphasizes the prospective application of a 2016 clarificatory order impacting tax rates for "thermic fluid heaters," setting aside the revisional jurisdiction exercised by the Deputy Commissioner.
In a significant judgment delivered by the Kerala High Court, the bench comprising Justices A. Muhamed Mustaque and Harisankar V. Menon has ruled against the retrospective application of clarificatory orders under Section 94(2) of the Kerala Value Added Tax Act, 2003. The decision comes in the case of K.G. Rejimon v. State of Kerala, where the suo motu revisional powers exercised by the Deputy Commissioner to revise tax assessments were challenged.
The case involved the tax classification of "thermic fluid heaters," where the assessee, K.G. Rejimon, argued against a higher tax rate imposed by a clarification issued on April 7, 2016, which sought to apply a 12.5% tax rate retrospectively. The Deputy Commissioner had exercised suo motu revisional powers under Section 56 to cancel an assessment order from 2015 that favored the assessee, arguing it was prejudicial to revenue interests.
The Court, however, highlighted the statutory provision under Section 94(2), which allows clarificatory orders to have prospective effect unless explicitly stated otherwise. The judgment noted that retrospective application of such clarifications would unfairly prejudice assessees who would be unable to collect differential tax from their customers for past transactions.
In reaching its decision, the Court referred to precedents, including the Supreme Court's judgment in Reckitt Benckiser (India) Ltd. v. Commissioner, Commercial Taxes, which underscored the prospective application of clarifications under similar circumstances.
The Court set aside the revisional orders of the Deputy Commissioner and the Commissioner of State Tax, affirming the rights of the assessee to be taxed under the previously applicable lower rate for transactions preceding the 2016 clarification. This ruling reinforces the principle that tax authorities must adhere to procedural fairness, ensuring that any changes in tax liabilities are communicated and enforced in a manner that does not retroactively impact taxpayers.
Bottom Line:
Kerala Value Added Tax Act, 2003 - Exercise of suo motu revisional powers under Section 56 - Validity of retrospective application of a clarificatory order under Section 94(2) - Clarification issued under Section 94(2) cannot have retrospective effect unless specifically declared by the Commissioner - Assessing authorities must adhere to specific entries and HSN codes in the Act.
Statutory provision(s): Kerala Value Added Tax Act, 2003 Section 56, Section 94(2).
K.G. Rejimon v. State of Kerala, (Kerala)(DB) : Law Finder Doc Id # 2782943
