TMI Blog1997 (11) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... registered under the Act, who are engaged in the business of sale and purchase of raw silk and silk yarn. On the returns filed by the petitioners, the assessing authorities passed orders of assessment and in the orders of assessment so passed by the assessing authorities, it was held by the concerned assessing authorities that all these petitioners are not liable for payment of turnover tax in respect of the business carried on by them in respect of raw silk and silk yarn for the period commencing from April 1, 1991 to August 28, 1991 in respect of the assessment year 1991-92. The assessing authorities while exempting the petitioners from payment of turnover tax, have relied upon the circular dated October 1, 1991, issued by the Commissioner of Commercial Taxes in No. MCA. CR. 118/91-92, a copy of which has been produced as annexure E to Writ Petition Nos. 22880 and 22881 of 1997, wherein he had directed all the officers of the Department of Sales Tax not to collect turnover tax with effect from April 1, 1991 from dealers in raw silk and silk yarn. However, subsequently, the assessing authorities have passed the impugned orders of reassessment/issued impugned proposition notices pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment. It is useful to extract the said circular, which reads as hereunder: Commissioner of Commercial Taxes Circular No. 4/90-91 Sub: Exemption of raw silk and silk yarn from sales tax-Reg. Ref: D.O. Letter No. FD 97 CSL 91 dated 27-4-1991 from the Finance Secretary Government of Karnataka. In the Budget Speech for 1991-92, the honourable Chief Minister has declared that sales tax on raw silk yarn would be withdrawn. In pursuance of this declaration, a notification under KST Act, 1957, has also been issued. However, representations have been made to Government that turnover tax and Central sales tax is being demanded on raw silk and silk yarn by the departmental authorities. The intention at the time of budget was to examine the exemption of all taxes on raw silk and silk yarn. The matter is still under examination by the Government. In the circumstances, all departmental officers are hereby instructed not to demand turnover tax and Central sales tax on raw silk and silk yarn until the position is examined and clarified by the Government. Sd/ Commissioner of Commercial Taxes. Thereafter, the State Government, by means of notification dated August 28, 1991, a copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observations made by this Court in the case of Radhakrishnaiah Setty and Sons v. Commissioner of Commercial Taxes [1994] 94 STC 226 and drew my attention to the statement made by this Court wherein it is observed that no tax was leviable under the Act in respect of twisted silk prior to April 1, 1990 as well as after April, 1990. It is useful to extract the said observation made by this Court, which reads as hereunder: Legislative history may be referred here. Prior to April 1, 1990, raw silk (thrown silk or twisted silk or spun yarn) was found in Sl. No. 38-A of the Fifth Schedule. Therefore, till April 1, 1990, sale, purchase or turnover in respect of twisted silk was statutorily exempted from the tax levied under the Act. After April 1, 1991, again, twisted silk was brought out of the taxation net by virtue of a notification dated March 27, 1991 read with the notification dated August 28, 1991. In other words, undisputedly, no tax was leviable under the Act (including the tax under section 6-B) in respect of twisted silk prior to April 1, 1990, as well as, after April 1, 1991. In the light of the aforesaid observations made by this Court, Sri Kumar would emphasize and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject the said notification is intended to achieve. According to the learned counsel, if the background of the issue of the notification, annexure C, is considered, it would be clear that the same came to be issued in the light of the statement made by the Chief Minister on the Floor of the House that exemption from levy of all types of taxes under the Act would be granted on raw silk and silk yarn and the same was further clarified by the Commissioner in his circular, annexure B, dated April 27, 1991. The learned counsel also submitted that even if the circular is contrary to the provisions of section 8-A of the Act as sought to be made out by the State, still the circular is binding on the officers of the department. In support of the second submission, referred to above, made by the learned counsel, he relied upon the decisions in (1) J.S. Udupi v. Commissioner of Commercial Taxes in Karnataka [1993] 88 STC 411 (Kar), (2) Commissioner of Income-tax, Kerala-I v. B.M. Edward, India Sea Foods, Cochin [1979] 119 ITR 334 (Ker), (3) Bangalore Wood Industries v. Asst. Commissioner of Commercial Taxes (Assessment), Hassan [1994] 92 STC 603 (Kar) and (4) Ranadey Micronutrients v. Collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue in the said case and the same was not considered by the court. Further, since I am inclined to accept the second submission of Sri Kumar, I find it unnecessary to consider his first submission except observing that the said submission is not totally without any basis. 9.. In so far as the second submission of Sri Kumar is concerned, I find that the said submission merits acceptance. It is not in dispute that the circular, annexure E, has been issued by the Commissioner in exercise of the powers conferred on him under section 3-A of the Act. The said section reads as follows: 3-A. Instructions to subordinate authorities.-(1) The State Government and the Commissioner may from time to time, issue such orders, instructions and directions to all officers and persons employed in the execution of this Act as they may deem fit for the administration of this Act, and all such officers and persons shall observe and follow such orders, instructions and directions of the State Government and the Commissioner: Provided that no such orders, instructions or directions shall be issued so as to interfere with the discretion of any appellate authority in the exercise of its appellate func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 3 of the Act. The assessment made in such a case cannot be treated or construed as an escaped assessment or under-assessment or assessment made at a rate lower than which it is assessable under the Act or any deductions and exemptions wrongly allowed by the assessing authority. What has been properly done by the assessing authority following the circular instructions given by the Commissioner under section 3-A cannot be suo motu treated by the assessing authority in the purported exercise of the power conferred under section 12-A of the Act as an escaped assessment or under-assessment or an exemption or deduction wrongly allowed. Therefore, I am of the view that the impugned orders of assessment or the proposition notices issued under section 12-A of the Act, are liable to be quashed. Before I do that, it may be necessary to refer to some of the decisions relied upon by the learned counsel for the petitioners, which support the view I have taken above. 10.. (a) In the case of J.S. Udupi [1993] 88 STC 411 (Kar), while considering the binding force of the circular issued by the Commissioner under section 3-A of the Act, the Division Bench of this Court speaking through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sub-section (2) of section 119 of the Act. In regard to the latter type of circulars affecting the rights of assessees, we are of the opinion that despite the power to recall or withdraw the circulars, the assessee s right to have the assessments effected or carried out in accordance with the circulars, cannot be prejudicially affected by the recall or the withdrawal of the circulars. This, we gather, is the effect of the decisions of the Supreme Court which we may briefly notice. In Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198, the Supreme Court had occasion to examine the statutory basis and background of the circulars issued by the Board of Revenue under the provisions of the I.T. Act, and the scope and the effect of such circulars. It was remarked that a circular of the kind there considered, issued by the Board under section 5(8) of the 1922 Act, was binding on all officers and persons employed in the administration of the Act. Noticing the effect of the circular in that case, the Supreme Court pointed out that past transactions which would normally have attracted the stringent provisions of section 12(1B) as it stood in 1955, were substantially granted exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isable goods uniformly. The whole objective of such circulars is to adopt a uniform practice and to inform the trade as to how a particular product will be treated for the purposes of excise duty. It does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with a statutory provision. Consistency and discipline are of far greater importance than the winning or losing of court proceedings. 15.. The argument that the later circular has only prospective operation and that it cannot apply to these appeals because the Tribunal had already decided them must also be rejected. It is not open to the Revenue to raise a contention that is contrary to a binding circular issued by the Board. It cannot but urge the point of view made binding by the later circular. (Emphasis supplied) (d) In the case of Bangalore Wood Industries [1994] 92 STC 603, the Division Bench of this Court, while considering the effect of the circular issued by the Commissioner under section 3-A and after referring to the decision of the Supreme Court, has observed that the understanding of law at the earliest point of time of its enactment, cannot be ignor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Commissioner binds all subordinate authorities in the enforcement of the provisions of the Act. The relevancy of the circular issued on October 30, 1985 on the interpretation 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. The decision of this Court in the case of Bangalore Wood Industries [1994] 92 STC 603 relied upon by Sri Kumar, fully supports his contention that the principle of contemporane ..... X X X X Extracts X X X X X X X X Extracts X X X X
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