MEANING AND SCOPE OF CIRCULARS IN TAXATION

[Dr. Sanjiv Agarwal]

Meaning of Circular

'Circular' in common parlance is an announcement or directive typically in the form of a printed leaflet intended to be sent to many persons, or otherwise distributed.

According to the Concise Oxford Dictionary, 'circular' is something addressed to a circle of persons and the meaning of 'circular letter' or 'circular' is given as notice, advertisement, etc., reproduced for distribution.

'Circular' is a written or printed communication which is general and not personal in its character, and the same paper may be both a letter and a circular. There are many circulars which are not letters, but a circular which is in the form of a letter may be well described as a "letter and a circular" or a circular letter.

P. Ramanatha Aiyar’s Advanced Law Laxicon explains meaning of Circular in the following words:

‘An announcement or directive typically in the form of a printed leaflet intended to be sent to many persons, or otherwise distributed’.

Circular and Circular Letter

According to the Concise Oxford Dictionary, Circular is something addressed to a circle of persons and the meaning of circular letter or circular is given as notice, advertisement etc. reproduced for distribution.

Circular is written or printed communication which is general and not personal in its character, and the same paper may be both a letter and circular. There are many circulars which are not letters, but a circular which is in the form of a letter may be well described as a letter and a circular or a circular letter.

Circular is something addressed to a circle of persons. Circular letter or circular means notice advertisement, etc reproduced for distribution. V.K. JOHN VERSUS G. VASANTHA PAI AND ORS. - 1956 (10) TMI 44 - MADRAS HIGH COURT.

Judicial pronouncements on Circulars

Various Courts have interpreted meaning and scope of Circulars as follows:  

• In GESTETNER DUPLICATORS PVT. LIMITED VERSUS COMMISSIONER OF INCOME-TAX, WEST BENGAL - 1978 (12) TMI 1 - SUPREME COURT, it was held that a circular of the Board cannot impose a burden on the taxpayer and otherwise put him in a worse position than he is under the statute.

• In KP VARGHESE VERSUS INCOME-TAX OFFICER, ERNAKULAM, AND ANOTHER - 1981 (9) TMI 1 - SUPREME COURT, it was held that the circulars issued under the Income-tax Act or the Central Excise Act are binding on the Department. [Also see: UCO BANK, TAMIL NADU INDUSTRIAL INVESTMENT CORPORATION LTD. VERSUS COMMISSIONER OF INCOME-TAX - 1999 (5) TMI 3 - SUPREME COURT, COLLECTOR OF C. EX., VADODARA VERSUS DHIREN CHEMICAL INDUSTRIES - 2001 (12) TMI 3 - SUPREME COURT.

• In POULOSE AND MATHEN VERSUS COLLECTOR OF CENTRAL EXCISE - 1997 (2) TMI 98 - SUPREME COURT, it was held that Trade notices based on CBEC circulars are also binding on the Department. This cannot be departed from, unless the trade notice has been modified or rescinded.

• In VIDEOCON INTERNATIONAL LTD. VERSUS COMMISSIONER OF C. EX., AURANGABAD - 2004 (3) TMI 111 - CESTAT, MUMBAI, it was held that Circulars contrary to the current legal interpretation are not binding on the quasi-judicial authorities.

• In COMMISSIONER OF CUSTOMS, CALCUTTA VERSUS INDIAN OIL CORPORATION LTD. - 2004 (2) TMI 66 - SUPREME COURT, it was held that—

1.  Although a circular is not binding on a court or an assessee, it is not open to the revenue to raise a contention that is contrary to a binding circular by the Board. When a circular remains in operation, the revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute.
2. Despite the decision of the Apex Court, the department cannot be permitted to take a stand contrary to the instructions issued by the Board.
3. A show-cause notice and demand contrary to the existing circulars of the Board are ab initio bad.
4. It is not open to the revenue to advance an argument or file an appeal contrary to the circulars.