Binding tax clarifications control exemption treatment; reassessment and consequential penalty fail when officers depart from settled classification.

Departmental clarifications issued under the tax statute were treated as binding on assessing officers for the relevant period. Where narrow woven fabric labels fell within the exempt entry and the clarification and erratum directed consistent treatment of settled and pending cases, reassessment on the contrary view was unsustainable. The reassessment made in disregard of that binding exemption position had to be set aside. As the penalty was founded on the same defective reassessment, it could not survive and was also unsustainable.

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Issues: (i) Whether the reassessment order could stand when the product was covered by Entry 11 of Part A of the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959 and the departmental clarifications under Section 28A had treated narrow woven fabric labels as exempt; (ii) Whether the penalty imposed in the reassessment was sustainable.

Issue (i): Whether the reassessment order could stand when the product was covered by Entry 11 of Part A of the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959 and the departmental clarifications under Section 28A had treated narrow woven fabric labels as exempt.

Analysis: Entry 11 exempted narrow woven fabrics of specified textile materials described against heading 58.06. The clarification dated 13.02.2001 cancelled earlier contrary classifications and affirmed exemption, and the later clarification and erratum directed that settled and pending cases relating to narrow woven fabric labels be decided consistently with that position. Clarifications issued under the tax statute were binding on assessing officers, and they could not depart from them for the relevant assessment year. The reassessment was made in disregard of those binding clarifications and was based on the contrary view that the product fell in the residuary taxable entry.

Conclusion: The reassessment order was unsustainable and liable to be set aside.

Issue (ii): Whether the penalty imposed in the reassessment was sustainable.

Analysis: Once the reassessment itself was contrary to the binding clarifications and the exemption position, the consequential penalty could not survive on the same factual and legal foundation. In the circumstances, the penalty lacked legal support.

Conclusion: The penalty was unsustainable.

Final Conclusion: The impugned reassessment and consequential penalty were vitiated by disregard of binding departmental clarifications, and the writ petition succeeded.

Ratio Decidendi: Clarifications issued under a tax statute are binding on assessing officers for the relevant period, and an assessment made in direct contradiction of such binding clarifications cannot be sustained.

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