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17 Circulars — Issued by the Board — It is
not open to the officers administering the law working under the Board to say
that the Circulars issued by Board are not binding on them.
[State of Kerala & Ors. v. Kurian Abraham Pvt. Ltd. & Anr.,
(2008) 303 ITR 284 (SC)]
M/s. Kurian Abraham Pvt. Ltd., the assessee, was engaged in
the business of buying rubber, processing the same and selling the processed
rubber. The assessee purchases field latex (raw material) in Kerala, but since
its processing factories were in Tamil Nadu, it transported field latex to Tamil
Nadu for processing into centrifuged latex and returned it back to Kerala.
Thereafter, the centrifuged rubber was sold by the assessee either locally in
Kerala or inter-State.
With respect to centrifuged latex sold locally, the assessee
claimed exemption from payment of tax on the purchase turnover of field latex
(raw rubber). With respect to inter-State sale of centrifuged latex, the
assessee paid the tax under KGST Act on the purchase of field latex and claimed
exemption in respect of (‘CST’) under Notification S.R.O. No. 173/93 read with
S.R.O. No.215/97. The returns filed by the assessee were accepted by the
Assessing Officer.
They were also accepted by the Department on the basis of
Circular No. 16/98, dated May 28, 1998 issued by the Board of Revenue
u/s.3(1A)(c). Under the said Circular, field and centrifuged latex were treated
as one and the same commodity in view of entry 110 of the First Schedule to the
1963 Act.
During the interregnum, in the case of Padinjarekkara
Agencies Ltd. v. Assistant Commissioner reported in (1996) 2 KLT 641, a
learned single judge of the Kerala High Court took the view that centrifuged
latex is a commercially different product from field latex.
In view of the judgment of the High Court in Padinjarekkara’s
case, notices were issued by the Department proposing to reopen KGST and CST
completed assessments.
The Department also reopened the assessments on the ground
that the assessee had taken field latex and, therefore, the assessee was liable
to sales tax on the sales turnover of centrifuged latex under entry 110(a)(ii)
on the ground that the assessee had sold centrifuged latex brought from outside
the State of Kerala.
Aggrieved by the reopening of the assessments, the
respondent-assessee moved the High Court under Article 226 of the Constitution
for quashing the orders of reassessment, inter alia, on the ground that
they were contrary to the said Circular No. 16/98 issued by the Board of Revenue
(Taxes). The writ petition filed by the assessee stood allowed. Hence, civil
appeals were filed by the Department. The Supreme Court noted that the judgment
of the Kerala High Court in Padinjarekkara’s case related to A.Ys. 1983-84 to
1986-87 during which time Entries 38 and 39 were in force, whereas the present
case was concerned with the A.Ys. 1997-98 and 1998-99 when Entry 110 was in
force. That the structure of Entries 38 and 39 which existed in the past was
materially different from the structure of Entry 110.
The Supreme Court after taking note of Entries 38 and 39
which were substituted from 1-4-1988 and also Circular No. 16/98, dated
28-5-1998 clarifying that with effect from April 1, 1988, the judgment in
Padinjarekkara Agencies’ case cannot have any application for deciding whether
centrifuged latex is a commodity commercially different from latex, the Supreme
Court held that the said Circular granted administrative relief to the business.
It was entitled to do so. Therefore, it cannot be said that the Board had acted
beyond its authority in issuing the said Circular. Whenever such binding
Circulars are issued by the Board granting administrative relief(s) business
arranges its matters relying on such Circulars. Therefore, as long as the
Circular remains in force, it is not open to the subordinate officers to contend
that the Circular is erroneous and not binding on them. The Supreme Court
further held that in the present case, completed assessments were sought to be
reopened by the Assessing Office on the ground that the said Circular No. 16/98
was not binding. Such an approach was unsustainable in the eyes of law. If the
State Government was of the view that such Circulars are illegal or that they
were ultra vires S. 3(IA), which it was not, it was open to the State to
nullify/withdraw the said Circular. The said Circular had not been withdrawn. In
the circumstance, it was not open to the officers administering the law working
under the Board of Revenue to say that the said Circular was not binding on
them.
Note : The Supreme Court has made following observations
in its judgment : “The administration is a complex subject. It consists of
several aspects. The Government needs to strike a balance in the imposition of
tax between collection of revenue on one hand and business-friendly approach on
the other hand. Today, the Government has realised that in matters of tax
collection, difficulties faced by the business have got to be taken into
account. Exemption, undoubtedly, is a matter of policy. Interpretation of an
entry is undoubtedly a quasi-judicial function under the tax laws. Imposition of
taxes consists of liability, quantification of liability and collection of
taxes. Policy decisions have to be taken by the Government. However, the
Government has to work through its senior officers in the matter of difficulties
which the business may face, particularly in matters of tax administration. That
is where the role of the Board of Revenue comes into play. The said Board takes
administrative decisions, which includes the authority to grant administrative
reliefs. This is the underlying reason for empowering the Board to issue orders,
instructions and directions to the officers under it.”
