2007 (4) TMI 644 - HC - VAT and Sales Tax

Summary

Issues:
Rate of tax on menthol - Whether menthol should be taxed at 7.5% as medicines or at 10% as an unclassified item.

Analysis:
The dispute in this case revolves around the rate of tax applicable to menthol. The dealer claimed a tax rate of 7.5% on menthol, treating it as medicines based on a circular issued by the Commissioner of Trade Tax. However, the assessing authority disagreed and levied tax at 10%, considering menthol as an unclassified item. The first appellate authority held that the circular was binding on the assessing authority, ruling that menthol should be taxed at 7.5% as medicines until a certain date and at 10% as an unclassified item thereafter. The Tribunal upheld this decision, dismissing the appeal filed by the Commissioner of Trade Tax.

The High Court analyzed the legal principles regarding the binding nature of circulars issued by tax authorities. Referring to various judgments, including the case of Commissioner of Sales Tax v. Indra Industries, the court emphasized that while circulars are not binding on courts or assesses, the interpretation they provide is binding on the taxing authority. The court also cited the case of Paper Products Ltd. v. Commissioner of Central Excise to highlight the importance of consistency and discipline in following circulars issued by the Board.

Based on the legal precedents and principles discussed, the High Court found no error in the Tribunal's decision. It reiterated that the circular issued by the Commissioner of Trade Tax was binding on revenue authorities, even if it contradicted the statute. Therefore, the court upheld the view that menthol should be taxed at 7.5% as medicines until a specified date and at 10% as an unclassified item thereafter. Consequently, the revision was dismissed, affirming the decision of the Tribunal.