BOARD’S CIRCULARS ARE BINDING ON DEPARTMENT SO LONG AS THEY REMAIN IN OPERATION

[Mr. M. GOVINDARAJAN]

Circulars

A circular is an official letter or advertisement that is sent to a large number of people at the same time.  Tax Act are meant for collection of taxes, providing procedure for collection of tax, punishment etc.   The Acts are framed by the Parliament in respect of Central Acts and by the State Legislatures in respect of State Acts.  The Act gives powers to the Governments to make rules for the purpose of carrying out the provisions of the main Act by means of notifications.  The said notifications are placed before the Parliament or State Legislatures when the same are in session.  The provisions of the Act also give powers to the Governments to issue circulars for the purpose of clarifications and instructions to the Departmental officers.  The circulars are issued under the statutory power.  Therefore they are binding on the Departmental officers/officials.

In ‘M/S. HINDUSTAN COCA-COLA BEVERAGES PVT. LTD AND ANOTHER VERSUS UNION OF INDIA AND OTHERS - 2013 (4) TMI 83 - ALLAHABAD HIGH COURT the High Court held that the circulars are issued in exercise of statutory powers by the Departments and are binding on authorities and officials of the Department.

Binding nature of circulars

In ‘PAPER PRODUCTS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE’ – 1999 (8) TMI 70 - SUPREME COURT it was held by the Supreme Court that the departmental circulars are binding in nature on the revenue authorities and as the circular was in force at the relevant point of time, the demand against the appellants is not sustainable. 

Interpretation in circulars

In ‘COLLECTOR OF C. EX., VADODARA VERSUS DHIREN CHEMICAL INDUSTRIES - 2001 (12) TMI 3 - SUPREME COURT the Supreme Court held that if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation such interpretation will be binding upon the Revenue.

Contrary decisions to circulars

In ‘COMMISSIONER OF CENTRAL EXCISE VERSUS M/S AURO WEAVING MILLS M/S AURO TEXTILE LTD., M/S AURO SPINNING MILLS - 2016 (10) TMI 275 - HIMACHAL PRADESH HIGH COURT, the High Court held that the Board circulars are binding on Department so long as they remain in operation and not open to the Department to raise contention contrary to such circulars.

Challenging a circular by Revenue

In ‘COMMISSIONER OF CENTRAL EXCISE VERSUS MALWA INDUSTRIES LTD. - 2009 (4) TMI 381 - PUNJAB & HARYANA HIGH COURT the High Court held that the Revenue is precluded from challenging the correctness of the circular even on the ground of same being inconsistent with statutory provisions.  The beneficial circulars are to be applied retrospectively while oppressive circular is applicable prospectively.

Extending benefit of a circular

In ‘JYOTI SALES CORPORATION, HSF FOOD PROTECH PVT LTD, SHRI VINAYAKRICE TECHNO, SUNEEL GUPTA AND PUNJAB FABRICATORS VERSUS C.C.E. & S.T. -PANCHKULA AND C.C.E. & S.T. -ROHTAK [2019 (4) TMI 989 - CESTAT CHANDIGARH]  the appellants are manufacturing par boiling machines.  The appellants classified the said products under Chapter Heading No. 8437 of Central Excise Tariff Act.  The Revenue was of the view that the said machines are classifiable under Chapter Heading No. 8419.  The Revenue initiated proceedings against the appellants.  The Authority held that the impugned products are to be classified under Chapter Heading 8419.

The appellants challenged the said order before the Supreme Court which directed to constitute a Larger Bench to resolve the issue of classification.  The Larger Bench also held that the said machinery falls under Chapter Heading No. 8419.  The disputed period is from 01.01.2011 to 15.04.2014.

The appellant, being aggrieved by the order of the said order filed appeal before the Tribunal.  The appellant submitted the following before the Tribunal-

• During the impugned period the Board issued a circular No. 924/14/2010-CX, dated 19.05.2010 was in existence.
• According to this circular the rice Par boiling machinery was having merit classification under Chapter Heading No. 8437.
• The said circular has been rescinded by Circular No. 982/06/2014-CX, dated 19.05.2014.
• Therefore the clearance before 15.05.2014 was correctly classified by the appellants under Heading 8437.
• Therefore no duty can be demanded.
• In case they are liable to duty, in that circumstances, they are entitled to take CENVAT credit on inputs used in manufacturing of their final product i.e., par boiling machines.

The Revenue contended that the impugned order is correctly passed and the appellants are liable to pay duty by classifying their impugned products under Chapter 8419.

The Appellate Tribunal heard the parties and considered their submissions.  The Appellate Tribunal perused both the circulars.  The Circular No. 924/14/2010-CD, dated 19.05.2010 provides that the Board is of the view that Rice 5.0 par boiling machinery and drier which are essential for use in conjunction with the rice mill will merit classification under Heading 8437.

The Circular No. 982/06/2014, dated 15.05.2014, provides that Circular No.924/14/2010-CX, dated 19.05.2010 is rescinded and it is directed that the classification of rice par boiling machine and dryer may be made under Chapter Heading 8419.  Necessary action to protect the revenue interest in respect of past clearances may also be taken.

The Appellate Tribunal observed that the facts are not in dispute that the period prior to 15.05.2014, the circular dated 19.05.2010 was in operation.  The Appellate Tribunal relied on many judgments in this regard. 

The Appellate Tribunal held that the circular dated 19.05.2010 was in operation during the period in question.  The Appellate Tribunal held that the said circular is binding on the departmental officers.  Further the Board circulars are binding on the department so long as they remain in operation and not open to department raise contention contrary to such circulars.  The Revenue is precluded from challenging the correctness of the circular even on the ground of same being inconsistent with statutory provisions.  It goes further to limit the right of the Revenue to file an appeal against the correctness of the binding nature of the circular.  Therefore there is no escape from the conclusion that the circular is binding on the Revenue.

The Appellate Tribunal that the beneficial circulars are to be applied retrospectively while oppressive circular is applicable prospectively.  The circular dated 15.05.2014 is against the appellants and the same is to be operative with effect from 15.05.2014.  For the period prior to 15.05.2014 the appellants are entitled for the benefit of the circular dated 19.05.2010 by classifying their products under Chapter Heading 8437.

The Appellate Tribunal took a note of the fact that the inputs used in manufacturing of final product are dutiable on which the appellant had discharged their duty liability.  CENVAT credit is also available to the appellant if same is taken into consideration then duty liability calculated by the Adjudicating Authority is not correct.  The Appellate Tribunal held that for the period to 15.05.2014 if the appellants have classified their products in question under Chapter Heading No. 8437 no demand is sustainable in terms of circular No. 924/14/2010-CX, dated 19.05.2010.