Absence Of Audit Not A Ground To Reject KVAT Return Revision: Kerala High Court

The Kerala High Court on 15 July held that a taxpayer's request to revise returns under the Kerala Value Added Tax (KVAT) Act cannot be rejected solely because its accounts were not audited under Section 42 of the Act.

A Bench of Justice Harisankar V. Menon allowed the petition filed by Bhima Enterprises, holding:

“A reading of the aforesaid order would show that it pertains to the transportation of certain gold jewellery allegedly not supported by the documents required under the statute. In my opinion, this cannot constitute a valid ground for rejecting the petitioner's request for revision of the return, for the reasons already noticed.”

Bhima Enterprises, which trades in gold jewellery, stated that it had inadvertently omitted certain inward and outward stock transfer transactions while filing its KVAT returns for April, May and June 2017. It applied on 26 December 2020 for permission to revise those returns and correct the omissions.

The Assessing Authority rejected the application on 4 February 2021 because Bhima Enterprises had not audited its books of account under Section 42 of the KVAT Act. Bhima Enterprises challenged that order and the consequential pre assessment notice issued under the KVAT Act.

The GST authorities also alleged that Bhima Enterprises had transferred gold jewellery outside Kerala without proving that the goods were subsequently brought back into the State. They issued notices and passed assessment orders under the Central Goods and Services Tax Act, the State Goods and Services Tax Act and the Integrated Goods and Services Tax Act. Bhima Enterprises argued that the proceedings arose from the same stock transfer transactions for which it had sought revision of its KVAT returns.

The State relied on penalty proceedings under Section 47 of the KVAT Act (which deals with penalties for transport and movement of goods in violation of the Act) and proceedings arising from a criminal case registered against Bhima Enterprises.

The Court held that Section 42 permits revision of returns based on an audit report. However, Bhima Enterprises had not relied on an audit report. It had sought to correct inadvertent omissions. Therefore, the Assessing Authority could not reject the revision application solely because the accounts had not been audited.

It also relied on the Division Bench judgment in Commercial Tax Officer I and Another v. C.R. Varghese [2018 (3) KLT 468], which held that the authorities should accept a request to revise returns if the taxpayer files it before the initiation of assessment or penalty proceedings.

Further, the Bench rejected the State's reliance on the earlier penalty proceedings under Section 47. It held that those proceedings concerned the transportation of gold jewellery without the prescribed statutory documents and had no connection with the request to revise the returns. It also held that the criminal proceedings relied on by the Department related to the assessment year 2016 to 2017 and had no relevance to the dispute concerning the assessment year 2017 to 2018.

Accordingly, the High Court set aside the order rejecting the revision application and directed the Assessing Authority to reconsider it. It also directed the Assessing Authority to keep the KVAT pre assessment proceedings in abeyance until it decides the revision application. Lastly, it further set aside the GST assessment orders and clarified that the authorities may initiate fresh proceedings under the GST laws depending on the outcome of the return revision proceedings.

For the Petitioner: Senior Advocate A. Kumar, instructed by Advocates P.J. Anilkumar, G. Mini, P.S. Sree Prasad, Job Abraham and Ajay V. Anand

For the Respondents: Smt. Harima Hariharan, Government Pleader