TMI Blog2005 (10) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... writ petitions filed before the court, the learned single Judge had raised three primary issues for determination. They were: "I. Whether section 5-C of the Act is unconstitutional and void on account of failure to obtain previous sanction of the President under article 304(b) of the Constitution? II. If section 5-C of the Act is valid, what is the true effect and whether it is correctly interpreted in the circular dated April 12, 1996 or in the circular dated October 23, 1999? III. What is the effect of Commissioner's circular No. 5 of 19961997, dated April 12, 1996 and the subsequent circular No. 31 of 1999-2000, dated October 23, 1999?" 2.. The learned single Judge after an elaborate discussion of the issues framed, has granted partial reliefs to the petitioners by his order dated August 2, 2001. The operative portion of the order is as under: "43. In view of the above, this petitions are allowed in part as follows: (a) The validity of section 5-C of the Karnataka Sales Tax Act, 1957 is upheld. Section 5-C does not however apply to deemed sales (leasing transactions): (i) outside the State; (ii) in the course of import or export; and (iii) inter-State. (b) It is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four weeks time from the date of receipt of this order to file objections. The concerned authority shall consider the same and pass appropriate orders in the light of this judgment. (h) The circular dated October 23, 1999 will not however enable the assessing authority to reopen the assessments which have attained finality in accordance with law." 3.. Both the assessees as well as the Revenue have preferred these appeals, inter alia, questioning the correctness or otherwise of the findings and the conclusion reached by the learned single Judge only on issue No. III. 4.. The third issue which was considered by the learned single Judge pertains to the effect of Commissioner's circular No. 5 of 19961997 dated April 12, 1996 and the subsequent circular No. 31 of 1999-2000 dated October 23, 1999. In so far as the findings in regard to the effect of second circular, neither the assessees nor the Revenue have any grievance whatsoever. 5.. Section 5-C of the Act is the independent charging provision. It was inserted in the Act, by Act No. 27 of 1985 with effect from April 1, 1986. The levy of tax is on the transfer of the right to use any goods mentioned in column (2) of the Sev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act have taken effective steps, to give effect to the instructions contained in the second circular issued by the Commissioner of Commercial Taxes by taking recourse to provisions which provide for revision, reassessment, rectification, etc. It is at that stage, the dealers had approached this Court, inter alia, seeking the reliefs noticed by us in the beginning of our order. 8.. The learned single Judge, while considering the effect of the first circular issued by the Commissioner of Commercial Taxes dated April 12, 1996 in his order has observed: "35. The circular dated April 12, 1996 mixes up section 5(3)(a) and section 5-C though they are two different charging sections dealing with two different types of transfers intended to operate in two different sets of circumstances. It erroneously assumed that what could be deducted with reference to section 5(3)(a) could also be deducted with reference to section 5-C for arriving at the taxable turnover. It failed to notice that section 5(3)(a) only exempted payment of tax by subsequent dealers selling the KST suffered goods and it had no bearing on the independent charging section 5-C. There is nothing in section 5-C to exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessing authorities. The assessing authority cannot ignore the circular or refuse to follow the circular on the ground that circular is not in accordance with the provisions of the Act. The provisions of the Act, as interpreted or clarified in the circular should be the basis for the assessing authority to complete the assessment. The circulars issued by the Commissioner are binding only on the assessing authority, but not on the appellate authority or the courts. As the assessing authority is required to follow the circular and if he followed the circular, the department cannot challenge the order of the assessing authority on the ground that order of the assessing authority is contrary to law. If the department at any point of time, feels that circular is not valid or contrary to the provisions of law, the Commissioner will have to set right the matter by issuing a fresh circular setting out the correct position of law. Such subsequent circular when issued, will have a prospective and not a retrospective effect." 10.. The learned single Judge has also noticed that any circular which beneficially affects the rights of the assessees as it stood at the beginning of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... binding on all the authorities under the Act and therefore, for the assessment periods even prior to issuance of the circular dated April 12, 1996, the assessees are entitled for the benefit of the circular. Alternatively, it is contended, that since the circular issued by the Commissioner is to give effect to the amendment introduced by the Karnataka Taxation Laws (Amendment) Act, 1996 retrospectively with effect from April 1, 1986, the circular dated April 12, 1996 is to be applied and intended to apply with effect from April 1, 1986. In sum and substance, the submission of the learned Senior Counsel is that, since the amendment of section 5-C of the Act is retrospective, the circular issued by the Commissioner of Commercial Taxes should be declared so to apply for the entire retrospective period for which the substituted section 5-C of the Act will have application, till it was actually withdrawn. Therefore, it is submitted that the assessments which had been originally completed did not erroneously levy tax under section 5-C of the Act in respect of lease consideration received under the agreements for the lease of equipment where the goods are tax suffered goods. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw material and again on the goods made therefrom. There is no cascading effect when no excise duty is payable upon the raw material and the hardship that the notification seeks to alleviate does not arise. We need to make it clear that, regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue." (emphasis supplied by us) 14.. Collector of Central Excise, Vadodara v. Dhiren Chemical Industries (2002) 10 SCC 64. "The issue involved in these appeals is covered by the decision of a Constitution Bench in Collector of Central Excise, Vadodara v. Here italicised. Dhiren Chemical Industries [2002] 126 STC 122 (SC); (2002) 254 ITR 554 (SC). The Constitution Bench interpreted the phrase 'on which the appropriate amount of duty of excise has already been paid' in favour of the Revenue. However, it held that, regardless of the interpretation placed by it on that phrase, if there were circulars, which had been issued by the Central Board of Excise and Customs, which placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision, the court has reiterated the principles laid down in Dhiren Chemical Industries' case [2002] 126 STC 122 (SC); [2002] 254 ITR 554 (SC) and has further noticed that the view expressed by two learned Judges in Hindustan Aeronautics Ltd. v. Commissioner of Income-tax [2000] 243 ITR 808 (SC), does not lay down correct law. In this decision, the court has stated: "Despite the categorical language of the clarification by the Constitution Bench, the issue was again sought to be raised before a Bench of three Judges in Collector of Central Excise v. Dhiren Chemical Industries (2002) 10 SCC 64; (2002) 143 ELT 19, where the view of the Constitution Bench regarding the binding nature of the circulars issued under section 37-B of the Central Excise Act, 1944, was reiterated after it was drawn to the attention of the court by the Revenue that there were, in fact, the circulars issued by the Central Board of Excise and Customs which gave a different interpretation to the phrase as interpreted by the Constitution Bench. The same view has also been taken in Simplex Castings Ltd. v. Commissioner of Customs (2003) 5 SCC 528. The principles laid down by all these decisions are: (1) Altho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. It must be remembered that law laid down by this Court is law of the land. The law so laid down is binding on all courts/Tribunals and bodies. It is clear that the circulars of the Board cannot prevail over the law laid down by this Court. However, it was pointed out that during hearing of Dhiren Chemical's case [2002] 126 STC 122; [2002] 139 ELT 3 because of the circulars of the Board in many cases the department had granted benefits of exemption notifications. It was submitted that on the interpretation now given by this Court in Dhiren Chemical's case [2002] 126 STC 122; [2002] 139 ELT 3, the Revenue was likely to reopen cases. Thus para 9 was incorporated to ensure that cases where benefits of exemption notification had already been granted, the Revenue would remain bound. The purpose was to see that such cases were not reopened. However, this did not mean that even in cases where the Revenue Department had already contended that the benefit of an exemption notification was not available, and the matter was sub judice before a court or a Tribunal, the court or Tribunal would also give effect to the circulars of the Board in preference to a decision of the Constitution Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004] 271 ITR 322 and the decision of the apex Court in the case of UCO Bank v. Commissioner See [2006] 144 STC 161 (SC). See [2006] 144 STC 146 (SC). of Income-tax [1999] 237 ITR 889, which in our view, does not even remotely suggest the contention canvassed by the learned Senior Counsel. 20.. Reference is also made to the observations made by the apex Court in the case of Ranadey Micronutrients v. Collector of Central Excise [1996] 87 ELT 19. In the said decision, the court has stated: "12. The first question, now, is whether the earlier and later circulars are orders, instructions or directions to Central Excise Officers within the meaning of section 37B which the Central Excise Officers are bound to observe and follow. Both circulars are addressed to all Principal Collectors of Central Excise and Customs, all Collectors of Central Excise and Customs, all Collectors of Central Excise, all Collectors of Customs and all Collectors of Central Excise and Customs (Appeals). Both circulars require that their contents 'be brought to the notice of the lower field formations and the trade interests may also be suitably advised'. Both circulars require, 'All pending assessments may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel out of sheer deference to his standing in the bar. Otherwise, in our view, such an elaborate reference to each one of the case law relied on by the learned Senior Counsel is wholly unnecessary to answer a simple issue raised in these appeals. 23.. Smt Vidya, learned counsel appearing for the appellant, in Writ Appeal No. 6180 of 2002, would submit, that the assessee in the present case has questioned the reassessment proceedings which have been concluded by the assessing authority after the orders passed by the learned single Judge and therefore, the orders passed by the first appellate authority requires to be modified and suitable directions may be issued to the assessing officer to re-compute the tax liability in accordance with law keeping in view the directions that may be issued by this Court. 24.. Sri Thirumalesh, learned counsel appearing for the appellant in Writ Appeal No. 5355 of 2002, would contend that the understanding of the law at the earliest point of time (contemporaneous expositio) placed by the administrative authorities requires to be taken note of by this Court, while answering the legal issue canvassed by the appellants and if understood and interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation of the provisions of the Act, cannot be brushed aside. The Commissioner has changed his view while issuing the subsequent circular. This would affect a large number of assessments or transactions already concluded. In the absence of any substantial new material forthcoming shedding a different light on the language employed by the Legislature (such as an amendment to the Act affecting its scheme, or some interpretation of the provisions of the Act by the High Court or Supreme Court), the Commissioner should not normally issue a different circular; he should realise the inconvenience and hardship that may be caused, by the changed instruction. The Commissioner has a responsibility not only to safeguard the interest of the Revenue, but also a duty to consider the well being of the trading class, who contribute to the Revenue." 25.. The learned counsel has also brought to our notice certain observations made by the Andhra Pradesh High Court in the case of I.T.C. Classic Finance and Services v. Commissioner of Commercial Taxes [1995] 97 STC 330. In the said decision, the court has stated, that it is well-settled, that, when power is conferred by the legislative enactment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it stood at the beginning of the assessment year, will apply to the entire year and the modification would not be relevant for the current year, but would apply only from the beginning of the next assessment year by following the principle of provisions of the Income-tax Act. In support of her submissions, the learned Additional Government Advocate has relied on the observations made by the apex Court in the case of Hindustan Aeronautics Ltd. v. Commissioner of Income-tax, Karnataka [2000] 243 ITR 808; (2000) 5 SCC 365, may be without realising that the view taken in this decision is specifically overruled by the Supreme Court in its subsequent decision in the case of Commissioner of Customs v. Indian Oil Corporation Ltd. [2006] 144 STC 146 (SC); [2004] 267 ITR 272, wherein the court has observed that "the somewhat different approach in Hindustan Aeronautics Limited's case [2000] 243 ITR 808 (SC); (2000) 5 SCC 365 by two learned Judges of this Court, apart from being contrary to the stream of authority cannot be taken to have laid down good law in view of the subsequent decision of the Constitution Bench in Collector of Central Excise v. Dhiren Chemical Industries [2002] 126 STC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it". In exercise of this power, this Court has often denied the relief claimed despite holding in the claimant's favour in order to do complete justice. 30.. Our attention was also drawn to the observations made by the apex Court in the case of Kailash Chand Sharma v. State of Rajasthan (2002) 6 SCC 562, wherein the Supreme Court has stated: "41. Law reports are replete with cases where past actions and transactions including appointments and promotions, though made contrary to the law authoritatively laid down by the court were allowed to remain either on the principle of prospective overruling or in exercise of the inherent power of the court under article 142. The learned Senior Counsel Mr. P.P. Rao reminds us that this power is only available to the Supreme Court by virtue of article 142 and it is not open to the High Court to neutralise the effect of unconstitutional law by having resort to the principle of prospective overruling or analogous principle. The argument of the learned counsel, though not without force, need not detain us for the simple reason that as this Court is now seized of the matter, can grant or mould the relief , without in any way being fettered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 142 and it is not open to the High Court to neutralise the effect of unconstitutional law by having resort to the principle of prospective overruling or analogous principle. The argument of the learned counsel, though not without force, need not detain us for the simple reason that as this Court is now seized of the matter, can grant or mould the relief , without in any way being fettered by the limitations which the High Court may have had. We are of the view that there is sufficient justification for the prospective application of the law declared in the instant cases for more than one reason and if so, the declaration of the High Court to that extent need not be disturbed." 31.. We have two sets of appeals. One filed by the assessees and the other by the Revenue. Having considered the rival contentions advanced by the learned counsel for the appellants/assessees and the learned Additional Government Advocate for the Revenue, we are of the view, that insofar as the appeals filed by the assessees are concerned, the primary grievance of theirs appears to be, that the learned single Judge was not justified in not extending the benefit of the circular issued by the Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is binding on all officers and persons employed in the execution of the Act. The clarification that may be issued cannot have retrospective effect, to affect the past transactions. 35.. The learned Senior Counsel Sri Sarangan would contend that since section 5-C of the Act was amended retrospectively with effect from April 1, 1986 by the Karnataka Taxation Laws (Amendment) Act, 1996, the circular/clarification issued by the Commissioner of Commercial Taxes dated April 12, 1996 was intended to be applied with effect from April 1, 1986. In our view, this submission of the learned Senior Counsel is unacceptable to us. The reason being simple. A law can be made retrospective if it is expressly provided in the statute, but not administrative orders or circulars. The Commissioner explaining the effect of section 5-C of the Act, for the first time, has issued the first circular dated April 12, 1996 and this will have effect and be binding on the authorities for the assessment year 1996 and onwards till it is withdrawn, cancelled or modified or till it is declared ultra vires of the statutory provisions by a competent court. In our view, a circular, which cannot be issued retrospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5] 141 STC 116, has explained under what circumstances the Supreme Court had to declare to give effect to the Board's circular in preference to a decision of the Constitution Bench of the apex Court. Therefore, in our view, the learned Senior Counsel is not justified in contending that the Board's circular or the circulars issued by the Commissioner of Commercial Taxes would prevail over the declaration of law made by the apex Court or this Court. 37.. This Court while considering the effect of circular dated April 12, 1996 has clearly held, that the same is invalid, since it is contrary to the statutory provision, namely, section 5-C of the Act and having come to the aforesaid conclusion, the moot question is, whether the learned single Judge could have still held that the circular is binding on the assessing authorities in regard to assessment period April 1, 1996 to March 31, 1997 till April 1, 1999 to March 31, 2000? Our answer is positively "no". The reason being, the circular instructions issued by the Commissioner of Commercial Taxes in exercise of his powers under section 3-A of the Act is binding on all officers and persons employed in the execution of the Act, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year of the assessee becomes liable to tax. These principles of Income-tax Act cannot be applied to the assessments under the provisions of the Sales Tax Act. The taxable event under the Act, is either sale or purchase as the case may be. The scheme of the Act is that each transaction of sale or purchase by a dealer attracts tax at the point of time when the transaction takes place though for the purpose of convenience, the computation of turnover is made annually. The liability to tax arises on the happening of taxable event though collection of tax may be postponed till the total turnover is determined, the tax levied and the actual demand is under the Income-tax Act, the liability to pay tax accrues on the last date of the year of account on the taxable income of the previous year of a person at the rate or rates prescribed by the Finance Act of the year of assessment but the liability to pay sales tax arises the moment the transaction of sale or purchase is completed and at the rate specified under the charging provisions on the taxable turnover of the dealer in a year. This is the clear distinction between the principles of Income-tax Act and the Sales Tax Act. In the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. This is known as 'contemporanea expositio'." Maxwell says "the language of a statute must be understood in the sense in which it was understood when it was passed, and those who lived at or near the time when it was passed may reasonably be supposed to be better acquainted than their descendants with the circumstances to which it had relation, as well as with the sense then attached to legislative expressions". Proceeding further, the learned author has observed, that "in some judgments, the doctrine of contemporaneous exposition is confused something quite different, namely the undesirability of disturbing a settled construction. The only connection is that, under the principle of presumed continuity, the practice of today is presumed continuity, the practice of today is presumed, unless the contrary is shown, to be the practice of yesterday too. For understable reasons, the courts dislike disturbing a long continuing practice. This even applies where the practice seems wrong in law, for communis error facit jus (common error makes the law). Enacting history is never of binding or competing authority. The court's ultimate task is itself to construe the text of the enactm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l authority. Therefore, notices issued by the assessing authority either under section 12-A of the Act or by the revisional authority under section 21 or 22-A of the Act are without authority of law and therefore, the same requires to be nullified by this Court. To answer this issue of the learned counsel, the effective portion of the validation clause requires to be extracted. It is as under: "Clause 7. Validation of assessments, etc. (1) Notwithstanding anything contained in any judgment, decree or order of any court, Tribunal or other authority anything done or any action taken, purporting to be done or taken (including any notice issued or order made and any proceedings held for levy, assessment, reassessment, revision of assessment and collection of tax or any amount purported to be by way of tax) under the provisions of the principal Act on or after the first day of April, 1986 and before the commencement of this Act, shall so far as such thing done or action taken or purported to be done or taken or notice issued or order made or proceeding held is consistent with the provisions of the principal Act as amended by sub-section (2) of section 6 of this Act shall be deemed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion can be taken to the submission of the learned counsel, since the same is the settled legal position in law. But, in the instant case, this principle need not be applied, since there is only one view that is possible on the interpretation of circular dated April 12, 1996 and its application for the assessment period April 1, 1996 to March 31, 1997 and onwards till it was replaced by circular dated October 23, 1999. Therefore, it is not possible to accept the submission made by Sri Indrakumar, learned counsel. 43.. In view of the aforesaid discussions, the following: ORDER I. Writ appeals filed by the assessees, in W.A. Nos. 5271 of 2002, 5181 of 2002, 5224 of 2002, 5227 of 2002, 5230 of 2002, 5232 of 2002, 5260 of 2002, 5265 of 2002, 5274 of 2002, 5355 of 2002, and 5441 of 2002, 7793 of 2003 and 7938 of 2003, 65 of 2004, 5182 of 2002, 5391 of 2002, 5184 of 2002, 5194 of 2002, 5214 of 2002, and 6180 of 2002 and 2264 of 2004 are rejected. II. Writ appeals filed by the Revenue in W.A. Nos. 3059 of 2003, 5707 of 2002, 5724 of 2002, 5807 of 2002, 6475 of 2002 and 6493 of 2002, 141 of 2003, 142 of 2003 and 2290 of 2003, 4571 of 2004, 5781 of 2002 and 1752 of 2003 are allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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