Binding tax circulars control departmental classification of menthol until the legal position changes

A departmental tax circular is binding on revenue authorities even if it differs from the statute, though it does not bind courts or assessees. On that basis, the Commissioner's circular treating menthol as medicine governed the department for the period it remained operative, and the assessing authority could not adopt a contrary classification. After the later judicial position changed, the classification of menthol as an unclassified item at the higher rate was consistent with the prevailing legal position. The operative principle is that tax authorities must follow their own binding circulars and cannot take an inconsistent stand against taxpayers while the circular remains effective.

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Issues: Whether the trade tax circular issued by the Commissioner was binding on the revenue authorities so as to treat menthol as taxable as medicine at 7.5% up to 23 August 1994, and at 10% thereafter as an unclassified item.

Analysis: A tax circular issued by the departmental authority is binding on the revenue authorities, even if it is contrary to the statute, though not binding on the courts or on the assessee. The record showed that the Commissioner's circular of 12 April 1983 treated menthol as medicine, and the assessing authority could not take a stand inconsistent with that circular for the period when it remained operative. The later view that menthol was taxable as an unclassified item after the date of the contrary judicial decision was also consistent with the legal position then prevailing.

Conclusion: The circular was binding on the department, and the classification of menthol at 7.5% up to 23 August 1994 and at 10% thereafter was upheld.

Ratio Decidendi: A tax authority is bound by its own circulars and cannot contest a position contrary to the binding departmental interpretation, even if the circular may differ from the statute.

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