Monthly Computation of Extended Limitation under Section 21(5) of the AP VAT Act and Remand Mechanism for Time-Barred Periods

1. Introduction

Shirdi Saibaba Constructions (“the petitioner”) challenged two orders passed by the Assistant Commissioner (Sales Tax), Anantapuramu (“the Assessing Officer” or “the 1^st respondent”), under the Andhra Pradesh Value Added Tax Act, 2005 (“the AP VAT Act”).
• Writ Petition No. 5303 of 2022 assails an assessment order dated 31.03.2021, which declined to recognize the petitioner’s composition‐scheme election and levied tax at 14.5% on an alleged suppressed turnover for 2014-15 and 2015-16.
• Writ Petition No. 5350 of 2022 attacks a penalty order dated 21.05.2021, imposing a 100% penalty under Section 53(3) based on the assessment.
Key issues:

Whether the extended limitation period under Section 21(5) (six years for willful evasion) must be computed month‐by‐month from the statutory return-filing deadline or uniformly from the financial year‐end;
Whether part of an assessment that is time-barred invalidates the entire order and requires remand for fresh assessment of the balance;
Whether the Assessing Officer was bound to verify and apply the petitioner’s composition-scheme endorsements before levying tax at the full rate;
Whether the penalty order survives if the underlying assessment is set aside.

2. Summary of the Judgment

By majority, the Andhra Pradesh High Court (R. Raghunandan Rao, J.) allowed both writ petitions. It held:

Section 21(5)’s six-year “extended” limitation for willful evasion runs from each month’s return-filing due date (20^th of the succeeding month), not from the close of the financial year.
The assessment order dated 31.03.2021 was beyond limitation for the months April 2014 through February 2015 and must be set aside to that extent.
Since part of the order is time-barred, the entire assessment must be quashed, and the matter remanded for fresh best-judgment assessment of the remaining in-time months (March 2015 to March 2016), after hearing the petitioner and verifying composition-scheme endorsements.
The penalty order, being derivative of the invalid assessment, also falls and is set aside.
The Assessing Officer may reopen penalty proceedings after fresh assessment, if warranted; no costs were awarded.

3. Analysis

3.1 Precedents Cited

W.P. No. 4805 of 2021 (Div. Bench, Andhra Pradesh High Court, 16.08.2023)
The petitioner relied on this decision to argue that if any part of an assessment period is barred by limitation, the entire assessment must be set aside and remanded. The Court examined the order but found no binding ratio on that precise point; nevertheless, it adopted the practical remedy of quashing the whole order to enable a fresh, correct computation for the unbarred months.

No other landmark judgments on Section 21(5)’s limitation computation were cited, making this decision the first to authoritatively interpret that provision month-by-month in Andhra Pradesh.

3.2 Legal Reasoning

Statutory Framework:
• Section 20(1): Dealers must file monthly VAT returns with tax payment proofs “in such manner and time as may be prescribed.”
• Rule 23(1): Monthly returns are due by the 20^th day of the succeeding month.
• Section 21(4): For routine scrutiny and assessment, the authority has four years from the period’s end.
• Section 21(5): For “willful evasion of tax,” the limitation extends to six years “from the date of filing of the return or the first return relating to such offence.”

Point of Construction:
The Court held that, where returns are filed in time, Section 21(5) must be read in conjunction with the monthly due date prescribed under Rule 23(1). Thus, for each calendar month, the six-year window starts on the 20^th of the next month.

Application to Facts:
• April 2014 return filed by 20.05.2014 → limitation expires 20.05.2020.
• Assessment order dated 31.03.2021 is outside the six-year window for April 2014 through February 2015.
• Only the period March 2015–March 2016 remains within six years from each month’s return-filing deadline.

Remand and Fresh Assessment:
The Court found it most efficacious to quash the entire assessment—rather than sever portions—to permit a fresh, best-judgment assessment of the in-time months. It directed the Assessing Officer to:

Verify and endorse the petitioner’s composition-scheme forms (Form VAT 250) duly filed and accepted online;
Recompute tax for March 2015 to March 2016 under the composition scheme at 5%;
Afford full hearing to the petitioner on all objections;
Postpone any penalty proceedings until after fresh assessment.

3.3 Impact

This decision is significant for dealers under the AP VAT regime:

It clarifies that extended limitation under Section 21(5) is computed monthly from the statutory return-filing due date, not from the financial year-end.
It establishes that when any portion of a best-judgment assessment is time-barred, the entire order must be set aside and remand is the correct procedural remedy to tailor a fresh assessment for the in-time period.
It underscores the Assessing Officer’s duty to verify composition-scheme endorsements before levying tax at the full rate.
It implicitly warns revenue authorities against blanket invocation of extended limitation without granular month-wise computation.

Future assessments will need to adhere to these principles, reducing litigative uncertainty over limitation disputes.

4. Complex Concepts Simplified

Composition Scheme: A simplified VAT payment option for eligible dealers, permitting tax at a flat 5% on turnover rather than the standard rate, in exchange for limited record-keeping and return requirements. Dealers file Form VAT 250 to opt in.

Best-Judgment Assessment: An assessment made by the tax authority based on the available records (or lack thereof), estimating the dealer’s tax liability “to the best of its judgment,” often used when the dealer fails to produce proper books.

Limitation Periods:

Section 21(4) – four years from period-end for routine assessments.
Section 21(5) – six years from the return-filing date when “willful evasion” is alleged. The Court clarifies that “from the date of filing” means from each month’s due date of return filing, not the year-end.

5. Conclusion

Shirdi Saibaba Constructions v. Assistant Commissioner (ST) establishes a clear, monthly-based computation of the extended limitation under Section 21(5) of the AP VAT Act and mandates that assessments partly time-barred must be wholly set aside and remanded for re-assessment of the unbarred months. It also reaffirms the revenue authority’s obligation to recognize valid composition-scheme elections before imposing the higher tax rate. This ruling will streamline future limitation disputes and ensure procedural fairness in VAT assessments across Andhra Pradesh.