2008 (2) TMI 289 - SC - VAT / Sales Tax

Circular No.16/98 held valid and binding; reopening assessments for its non-binding status unsustainable, remedy is withdrawal

STATE OF KERALA AND OTHERS Versus KURIAN ABRAHAM PVT. LTD. AND ANOTHER

SC held that Circular No.16/98 issued by the Board of Revenue was a valid, binding administrative pronouncement and within the Board's authority to grant ... Legality and binding nature of Circular No.16/98 issued by the Board of Revenue - Department of Sales Tax, Kerela issued a circular regarding taxability and classification of latex - HELD THAT:- The provisions of section 3(1A) are similar to the provisions of section 119(1) of the Income-tax Act, 1961 ('1961 Act') inasmuch as both the sections have used the expression 'for the proper administration of this Act'. According to the Law of Income-tax by Kanga and Palkivala, the Board is entrusted with the power to give effect to the provisions of the Act and to provide 'fair and just administration' in the matter of imposition and collection of tax. This is where it becomes the incumbent duty of the Board to grant administrative relief in appropriate cases. In such exercise, incidentally the Board has to consider the effect of the items enumerated in the entry. Therefore, it is not open to the State Government to contend that the Board in this case had entered into an area which is earmarked for the Legislature/Executive. In our view, the said circular grants 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. One more reason needs to be stated. Whenever such binding circulars are issued by the Board granting administrative relief(s) business arranges its affairs 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. In the present case, as stated, completed assessments were sought to be reopened by the Assessing Officer on the ground that the said Circular No. 16/98 was not binding. Such an approach is unsustainable in the eyes of law. If the State Government was of the view that such circulars are illegal or that they are ultra vires section 3(1A), which it is not, it was open to the State to nullify/withdraw the said circular under section 60 of the 1963 Act. Till today, the circular continues to remain in force. Till today, it has not been withdrawn. In the circumstances, it is not open to the officers administering the law working under the Board of Revenue to say that the said circular is not binding on them. If such a contention was to be accepted, it would lead to chaos and indiscipline in the administration of tax laws. Thus, we find no infirmity in the impugned judgment of the High Court and, accordingly, the State's civil appeals stand dismissed with no order as to costs. Issues Involved:1. Classification of centrifuged latex and field latex as distinct commodities.2. Legality and binding nature of Circular No. 16/98 issued by the Board of Revenue.3. Authority of the Board of Revenue under Section 3(1A) of the Kerala General Sales Tax Act, 1963.4. Reopening of assessments based on the Kerala High Court's judgment in Padinjarekkara Agencies Ltd. v. Assistant Commissioner.5. Double taxation concerns and administrative relief.Issue-wise Detailed Analysis:1. Classification of Centrifuged Latex and Field Latex as Distinct Commodities:The primary issue was whether centrifuged latex and field latex should be treated as distinct commodities for taxation purposes. The Kerala High Court had previously ruled in Padinjarekkara Agencies Ltd. v. Assistant Commissioner that centrifuged latex is a commercially different product from field latex. However, this judgment pertained to the assessment years 1983-84 to 1986-87, during which entries 38 and 39 were in force. For the assessment years 1997-98 and 1998-99, entry 110 was applicable, which treated both types of latex as the same commodity for tax purposes. This entry was materially different from the earlier entries, leading to the issuance of Circular No. 16/98 by the Board of Revenue, which treated field and centrifuged latex as the same commodity.2. Legality and Binding Nature of Circular No. 16/98:Circular No. 16/98, issued by the Board of Revenue, treated field latex and centrifuged latex as the same commodity for tax purposes. The Department contended that this circular was without authority and amounted to legislation by the Board. However, the Supreme Court upheld the validity of the circular, stating that it was issued for the proper administration of the Act and provided administrative relief to avoid double taxation. The circular was binding on all officers administering the tax department until it was withdrawn or nullified by the State Government, which had not been done.3. Authority of the Board of Revenue under Section 3(1A) of the Kerala General Sales Tax Act, 1963:Section 3(1A) of the Kerala General Sales Tax Act, 1963, empowers the Board of Revenue to issue orders, instructions, and directions for the proper administration of the Act. The Supreme Court held that the Board had the authority to issue Circular No. 16/98 under this section. The circular aimed to provide administrative relief and ensure fair and just administration of the tax laws. The Court emphasized that the Board's power to issue such circulars is similar to the power conferred on the Central Board of Direct Taxes under Section 119 of the Income-tax Act, 1961.4. Reopening of Assessments Based on the Kerala High Court's Judgment in Padinjarekkara Agencies Ltd. v. Assistant Commissioner:The Department issued notices to reopen the assessments for 1997-98 and 1998-99 based on the Kerala High Court's judgment in Padinjarekkara Agencies Ltd. v. Assistant Commissioner, arguing that the purchase turnover of field latex and sales turnover of centrifuged latex had escaped assessments. The Supreme Court found this approach unsustainable, as the circular issued by the Board of Revenue was still in force and had not been withdrawn. The circular provided administrative relief to avoid double taxation, and the reopening of assessments based on the High Court's judgment was not justified.5. Double Taxation Concerns and Administrative Relief:The Supreme Court acknowledged the complexity of tax administration and the need to balance revenue collection with a business-friendly approach. The Court noted that the conversion of field latex into centrifuged latex could result in double taxation, which the Board of Revenue sought to avoid through Circular No. 16/98. The Court emphasized that the Board had the authority to grant administrative relief to businesses to prevent double taxation. The notification issued by the State Government on November 13, 2007, further supported the Board's approach by granting exemption from tax on centrifuged latex, recognizing the potential for double taxation.Conclusion:The Supreme Court dismissed the State's civil appeals, upholding the validity and binding nature of Circular No. 16/98. The Court affirmed the Board of Revenue's authority to issue the circular under Section 3(1A) of the Kerala General Sales Tax Act, 1963, and emphasized the importance of providing administrative relief to avoid double taxation. The reopening of assessments based on the Kerala High Court's judgment was deemed unjustified, and the completed assessments could not be reopened on the ground that the circular was erroneous. The judgment reinforced the role of the Board of Revenue in ensuring fair and just administration of tax laws.