Prospective or retrospective effect of a tax clarification must be decided before reassessment or revision can stand.

A material issue affecting tax liability must be examined before reassessment or revision is upheld; where authorities rely on a clarificatory circular prescribing different rates without deciding whether it operates prospectively or retrospectively, the resulting orders are vitiated. The omission went to the foundation of the assessment exercise, so the reassessment and revisional orders were quashed and the matter remanded to the Assessing Authority for fresh consideration in accordance with law, with all contentions kept open.

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Issues: Whether the reassessment and revisional orders were sustainable when the authorities had not considered whether the clarification governing different products operated prospectively or retrospectively.

Analysis: The assessment and revisional authorities proceeded on the basis of the clarification prescribing different rates, but did not examine the crucial question whether that clarification applied only prospectively or also to earlier assessment periods. That issue was material to the validity of the reassessment and to the consequential appellate and revisional orders. As the point had not been considered at any stage, the orders were treated as vitiated. The proper course was remand to the Assessing Authority, since the omission affected the foundation of the entire assessment exercise and all contentions of the parties were kept open.

Conclusion: The orders were quashed and the matter was remanded to the Assessing Authority for fresh consideration in accordance with law, with both sides permitted to raise all contentions.

Ratio Decidendi: Where a material question affecting tax liability, such as the prospective or retrospective effect of a clarificatory circular, has not been examined by the assessing and revisional authorities, the resulting orders are liable to be set aside and the matter remanded for fresh decision.

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