Profile Of An Assessing Authority Can’t Be Stern And Unreasonable, Programmed Solely To Collect Tax: Kerala High Court

The Kerala High Court has held that the profile of an assessing authority can no longer be that of a stern and unreasonable automaton that is programmed solely to collect the tax.

"We have come across assessing authorities passing orders in a mechanical manner without showing how the taxable event is attracted in a given case or without giving reasons for denying the claim of an assessee for exemption or deduction, and we deem it appropriate to observe that in matters of assessment under a taxing statute, the requirement of fairness, which is an integral aspect of the rule of law in our country, mandates that an assessing authority should apply its mind to the various factors that influence an assessment and give a sufficient indication in the assessment order of having done so," the bench of Justice A.K. Jayasankaran Nambiar and Justice Mohammed Nias C.P. said.

The appellant/assessee is a private limited company involved in the production and sale of industrial gases such as hydrogen, nitrogen, and HP steam. It is a wholly-owned subsidiary of Air Products and Chemicals Inc., USA. It is also a registered dealer under the Kerala Value Added Tax Act.

The assessment of the appellant under the KVAT Act was completed, based on the penalty orders. The order was passed by construing the agreement entered into between the appellant and BPCL as one that affected a transfer of property in the plant and specified gases in the course of execution of a works contract.

The appellant contended that the assessment orders do not contain a finding that there is a transfer of property involved in the execution of a works contract, and hence, the very sine qua non for invoking Section 6 (1)(f) of the KVAT Act does not exist.

The department contended that under the scheme of the KVAT Act, it is for the respondent assessing authority to decide during the course of the assessment as to whether or not the assessee has executed a work contract. The decision so taken by the assessing authority cannot be termed "without jurisdiction," as jurisdiction only refers to the authority of a person to decide the matter, and that authority to decide the matter is admittedly conferred on the assessing officer by Section 25 (1) of the KVAT Act.

The court noted that what the assessing officer completely overlooks, however, is the fact that there has been no transfer of property in the goods involved in the execution of the works contract. The taxable event under the KVAT Act is not the execution of a works contract but the transfer of the property in the goods involved in the execution of the works contract.

The court held that where the taxing authority assumed a jurisdiction that it did not have, it would be a case of palpable injustice to the appellant to force it to adopt the remedies provided by the statute.

The court allowed the appeals and stated that an assessing authority should apply its mind to the various factors that influence an assessment and give a sufficient indication in the assessment order of having done so.

Case Title: Prodair Air Products India Private Limited Versus State Of Kerala

Case No.: W.A.No.374 Of 2021

Date: 03/04/2023

Counsel For Appellant: P.S.Sreeprasad

Counsel For Respondent: Mohammed Rafiq

Click Here To Read The Order