Retrospective effect of tax clarification barred where later departmental view could not prejudice the assessee for an earlier assessment period

A departmental clarification issued under statutory power was treated as binding for the assessment period in force, and a later contrary view could not be applied retrospectively to sustain entry tax demand and penalty. The court applied the principle that a clarification or circular reflecting the department's understanding of a levy cannot be withdrawn or altered to the assessee's prejudice for past periods unless the statute expressly permits it. The later clarification therefore operated only prospectively, and the impugned assessment was quashed.

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Issues: Whether the clarification issued by the Commissioner on the classification of the goods could be applied retrospectively so as to sustain the entry tax demand and penalty for the relevant assessment year.

Analysis: The clarification issued under section 28-A of the Tamil Nadu General Sales Tax Act, 1959 was treated as binding on the departmental authorities for the period during which it remained in force. The Court relied on the settled principle that a clarification or circular which grants a concession or adopts a particular understanding of the levy cannot be withdrawn so as to prejudice the assessee retrospectively. The earlier clarification stating that the expression "in all forms" did not cover finished products governed the assessment year in question, and the later contrary view could operate only prospectively. The authorities and decisions dealing with similar circular-binding principles supported this approach.

Conclusion: The clarification dated 19 August 2005 had only prospective effect and could not be used to sustain the impugned demand for the relevant assessment year; the assessment order was quashed in favour of the assessee.

Final Conclusion: The challenge succeeded to the extent that the impugned assessment could not stand for the period covered by the earlier clarification, and the contrary departmental view was confined to future operation only.

Ratio Decidendi: A departmental clarification issued under a statutory power and acting as a binding guide for assessment cannot be applied retrospectively to the prejudice of an assessee when it is withdrawn or altered later; its withdrawal operates only prospectively unless the statute expressly provides otherwise.

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