2009 (7) TMI 1293 - HC - VAT and Sales Tax

Court overturns tax rate increase for laminated sheets, ruling in favor of assessees

The court held that the clarification issued by the Commissioner of Commercial Taxes enhancing the tax rate from 10% to 16% for paper-based laminated ... Enhancement of Tax Rate - paper based laminated sheets - rate enhanced to 16% from 10% - whether interpretation given by the Supreme Court with respect to entry made under the Central Excise Tariff Act, 1985, with regard to paper based decorative laminated sheets can be relied on by the first respondent to collect tax under TNGST Act, 1959, which is a separate enactment passed by the State Legislature? Held that: - the is covered by the recent judgment of this Court in CCE v. Mysore Electricals Industries Ltd, [2006 (11) TMI 202 - SUPREME COURT OF INDIA], where this Court held that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against the assessee, they have right to claim enforcement of the same prospectively. In tax matters, the clarifications issued can be applied only prospectively, failing which it will cause hardship to the assessees. In Manish Maheshwari v. Assistant Commissioner of Income-tax and Another, [2007 (2) TMI 148 - SUPREME COURT OF INDIA], the Supreme Court held that while two interpretations are possible, the Court would ordinarily interpret the provisions in favour of the tax-payers and against the revenue - In the cases on hand, admittedly there was ambiguity with regard to the rate of tax payable by the assessees for the paper based decorative laminated sheets and the benefit of the said ambiguity should be extended to the petitioner-assessees and not to the department/revenue. The impugned clarification issued by the first respondent and the consequential show cause notices/orders passed in reassessment, issued by the second respondent are unsustainable - petition allowed. Issues Involved:1. Validity of the clarification issued by the Commissioner of Commercial Taxes enhancing the tax rate from 10% to 16% for paper-based laminated sheets.2. Validity of the show cause notices and reassessment orders based on the aforementioned clarification.3. Jurisdiction of the Commissioner in issuing the clarification.4. Retrospective application of the clarification.5. Applicability of Supreme Court judgments under the Central Excise Tariff Act to the TNGST Act.6. Benefit of doubt/ambiguity in tax laws to be extended to the assessee.Issue-wise Detailed Analysis:1. Validity of the Clarification Issued by the Commissioner:The petitioners challenged the clarification issued by the Commissioner of Commercial Taxes dated 30.5.2008, which enhanced the tax rate from 10% to 16% for paper-based laminated sheets. The petitioners argued that the actual rate of tax on such goods is 10% and sought a review of the said clarification. The clarification was initially issued under Section 28-A of the TNGST Act, 1959. The first respondent had previously issued a clarification on 23.3.2006, stating that the paper-based decorative laminated sheets are taxable at 10%. This decision was based on an order from the Tamil Nadu Taxation Special Tribunal and was accepted by the department without challenge.2. Validity of Show Cause Notices and Reassessment Orders:The petitioners also challenged the show cause notices and reassessment orders issued for re-assessing the tax at 16% based on the clarification dated 30.5.2008. They argued that there was no purpose in replying to the show cause notices or filing appeals since the Assessing Officers relied upon the binding clarification issued by the Commissioner. The petitioners contended that the clarification could not be applied retrospectively and that reopening the assessments would cause great hardship as they had already paid 10% tax on their sales.3. Jurisdiction of the Commissioner in Issuing the Clarification:The jurisdiction of the Commissioner in issuing the clarification was also challenged. The petitioners argued that the Special Tribunal had given an order on 12.4.1996, which was accepted and implemented by issuing clarifications on 12.11.1998 and 23.3.2006. The relevant entry in the TNGST Act had not been amended or modified, and the Commissioner was not empowered to take a different view, particularly when the assessments were completed and 10% tax had been paid.4. Retrospective Application of the Clarification:The petitioners contended that even if the Commissioner was entitled to issue such a clarification, it could not be applied retrospectively. The assessments already completed and the taxes paid could not be reopened for earlier years. The Supreme Court's interpretation under the Central Excise Tariff Act, 1985, could not be applied to the TNGST Act without amending the relevant entries.5. Applicability of Supreme Court Judgments Under the Central Excise Tariff Act to the TNGST Act:The petitioners argued that the interpretation given by the Supreme Court under the Central Excise Tariff Act, 1985, could not be applied to the TNGST Act. They cited judgments from the Division Bench of the Madras High Court and the Bombay High Court, which held that decisions rendered under the Central Excise Act and Central Excise Tariff have no relevance in interpreting entries under the TNGST Act.6. Benefit of Doubt/Ambiguity in Tax Laws to be Extended to the Assessee:The petitioners argued that there was ambiguity with regard to the collection of tax on paper-based laminated sheets. The respondents had collected only 10% tax, and the benefit of doubt should be extended to the assessees. The Supreme Court has held in several judgments that if there is ambiguity regarding the rate of tax, the benefit should go to the assessee.Conclusion:The court held that the clarification issued by the Commissioner of Commercial Taxes enhancing the tax rate from 10% to 16% was unsustainable. The interpretation given by the Supreme Court under the Central Excise Tariff Act, 1985, could not be relied upon to issue the impugned circular under the TNGST Act. The circular could not be applied retrospectively, and the benefit of doubt should be extended to the assessees. Consequently, the show cause notices and reassessment orders based on the clarification were also found to be unsustainable. The writ petitions were allowed, and the impugned clarification and consequential orders were quashed.