Kerala High Court
Kurian Abraham (P) Ltd. vs Asst. Commissioner (Assmt) Ii on 8 December, 2003
Equivalent citations: 2004(1)KLT498, [2004]137STC237(KER)
Author: K. Padmanabhan Nair
Bench: K. Padmanabhan Nair
JUDGMENT Jawahar Lal Gupta, C.J.
1. Is the Circular dated May 28,1998 issued by the Department of Revenue (Taxes) clarifying that "field latex and centrifuged latex are one and the same commodity" binding on the Revenue? This is the primary question that arises for consideration in these petitions under Article 226 of the Constitution. The facts as given in O.P. No. 12376 of 2003 may be briefly noticed.
2. The petitioner is a registered dealer under the Kerala General Sales Tax Act, 1963 and the Central Sales Tax Act, 1956. It buys raw rubber including latex. It processes latex and produces centrifuged latex and crumb rubber. By this process, the water content of raw latex is reduced.
3. In the present case, the dispute relates to the levy of purchase and sales tax for the assessment years 1997-98 and 1998-99. The assessments for the year 1997-98 under the State and the Central Statutes were finalised vide orders dated May 14,2001 and May 31, 2001 respectively. Copies of these orders are on record as Exts.P10 and P11 respectively. A perusal of the order at Ext.P10 shows that the petitioner had shown a total turnover of Rs. 26,04,47,281/-. It had claimed exemption in respect of the turnover of Rs. 18,57,66,989/-. The taxable turnover shown by the petitioner was Rs. 7,46,80,300/-. On a consideration of the matter, the Assessing Authority had found that the taxable turnover was Rs. 8,15,64,680/-. Similarly, under the Central Sales Tax Act, the petitioner had shown a total turnover of Rs. 13,58,52,997.72. It had claimed exemption in respect of the total turnover. On a consideration of the matter, the Assessing Authority had found that tax at the rate of 4% was leviable on a turnover of Rs. 1,93,05,306/-. The petitioner had paid the tax in full.
4. On October 11, 2001 a Division Bench of this Court decided the case of M/s. Supersonic Industrial Complex, Muvattupuzha v. Dy. Commissioner of Sales Tax (Law), Ernakulam (TRC No. 37 of 2001). It was inter alia held that raw rubber latex and centrifuged latex are different commodities. Consequently, a dealer who purchases raw rubber latex and produces centrifuged latex is liable to pay tax on the purchase of raw rubber latex under Entry 110 as the last purchaser of rubber. Still further, it was also held that the Circular dated May 28, 1998 "cannot have binding force in the place of the conclusion that is to be arrived at based on an appreciation of rival arguments on the scheme of the Act ...... The Board of Revenue cannot issue a Circular exempting a commodity from tax." This decision is reported in ((2002) 10 KTR 203).
5. In pursuance to the above decision, the assessments made for the assessment year 1997-98 were reopened. For the assessment year 1998-99, pre-assessment notices dated October 22, 2002 were issued. The petitioner filed objections. The Assessing Authority considered the matter. It passed orders, copies of which have been produced as Exts.P24 to P27. The petitioner applied for rectification. The orders at Exts.P24(a) to P27(a) were passed.
6. The petitioner challenges the orders at Exts.P24 to P27 and P24(a) to P27(a). It maintains that the Circular of May 28, 1998 is still in force. It is binding on the Department. The view taken by the Division Bench in M/s. Supersonic's case (supra) is per incuriam. The respondents have no jurisdiction to act in contravention of the Circular. Thus, the impugned orders cannot be sustained. It prays that these orders be quashed.
7. A counter affidavit has been filed by the Secretary, Department of Taxes. It has been inter alia averred that "the assessment was completed earlier on the understanding that field latex and centrifuged latex are one and the same commodity and, therefore, the centrifuged latex alone need be taxed. Presumably, this might have been done on the basis of a Circular issued by the Commissioner of Commercial Taxes as Circular No. 16/98. A Division Bench of this Hon'ble Court after considering the legal validity of the Circular and various other decisions on the point held that field latex and centrifuged latex are two different commodities having different commercial identity and the Circular issued by the Commissioner cannot exempt centrifuged latex or field latex from exigibility to tax." After the decision of the Division Bench in M/s. Supersonic's case (supra), notice under Section 19(2) was issued to the assessee in respect of both the assessment years. The petitioner's plea that all the species of rubber have to be considered as one commodity cannot be accepted. Under Section 3(1A), the Commissioner can issue Circulars for the purpose of proper administration of the Act. He has no power to grant exemption, which is specifically vested in the State Government under Section 10. It is maintained that the rule enunciated in M/s. Supersonic's case (supra) is correct. It is binding on the Department. Thus, the impugned orders ate legal and valid.
8. Learned counsel for the parties have been heard. On behalf of the petitioner, Mr. S. Ganesh has contended that latex and centrifuged latex, as mentioned in Entry 110 of the First Schedule to the Act, are merely species covered by the genus 'rubber'. This position has been clarified by the Board in exercise of the power under Section 3(1A). The authorities in the Department are bound by the Circular. The counsel further contended that on the faith of the Circulars at Exts.P7 and P8, the petitioner had not recovered the tax from the purchasers. It cases had been wrongly reopened. The Circular being binding, the impugned orders deserve to be quashed. Mr. Thanu Pillai, learned counsel for the petitioner in the connected case, adopted the contentions.
9. On the other hand, Mr. Raju Joseph, learned counsel for the respondents contended that centrifuged latex is different from field latex. Therefore, it is separately exigible to the levy of tax. He further contended that the Circular at Ext.P8 is not legal. It does not fall within the ambit of Sections 3(1A) and 59A. Thus, it is not binding on the quasi judicial authorities acting under the statute. Counsel for both sides referred to certain decisions, which shall be noticed.
10. In view of the contentions as raised by the learned counsel, the primary issue that arises for consideration is - Does the Circular bind the authorities?
11. Under Section 3, a dealer is liable to pay tax "in the case of goods specified in the First..... at the rates and only at the points specified against such goods in the said Schedule....." At the relevant time, Entry 110 in the First Schedule provided as under:
"110. Rubber, that is to say, (A) raw rubber, latex, dry ribbed sheet of all RMA Grades, tree lace, earth scrap, ammoniated latex, preserved latex, latex concentrate, centrifugal latex, dry crepe rubber, dry block rubber, crump rubber, skimmed rubber and all other qualities and grades of latex,
(i) Purchased within the State At the point of last purchase in the State by a dealer who is liable to tax under Section 5.10
(ii) Brought from outside State At the point of first sale in the State by a dealer who is liable to tax under Section 5. 10 (B) Reclaimed rubber, all grades At the point of first sale in the State by Qualities a dealer who is liable to tax under Section 5. 10 (C) Synthetic rubber -do- 12.5"
Another fact, which may be mentioned here, is that prior to July 1, 1987 the relevant entries were 38 and 39. Thereunder, the provision was as under:
"38. Rubber excluding synthetic rubber At the point of last purchase in the State by a dealer who is liable to tax under Section 5.
39. Rubber products other than those At the point of first sale in the State by a dealer specifically mentioned in this Schedule who is liable to tax under Section 5."
A perusal of entry 38 shows that prior to 1.7.1987 tax was levied on the sale or purchase of rubber. Thereafter, the entry was modified. At the relevant time, the provision was contained in Entry 110. It permits levy of tax on rubber. Still further, it defines rubber to mean "raw rubber, latex, dry ribbed sheet of all RMA grades......" Mr. Raju Joseph contended that latex and centrifuged latex having been separately mentioned, these have to be treated as different commodities. Is it so?
12. It may be stated at the outset that the provisions of a taxing statute have to be construed strictly. A person cannot be taxed unless the provision clearly provides for it. The words of the stature or the relevant entry have to be given their true and natural meaning. The Authority cannot add to the words. It cannot impose a levy by reading an implication into the plain words of the provision. There is no room for intendment. The words of the statute cannot be strained. Strict letter of law has to be seen. The present case has to be examined in the light of these broad parameters.
13. A perusal of the Entry 110 shows that Rubber is followed by the expression 'that is to say.' In ordinary parlance, this expression implies - "is the same as." In other words, the provision in the entry shows that the Legislature provided that all items enumerated in Clause (A) shall be treated as Rubber. In this context, it deserves notice that very often a taxing entry provides an inclusive description. To illustrate, at present Entry 113 provides "plastic and articles of plastics including PVC pipes, plastic paper, cellophane, ...."In such a case, even those items, which are not included may fall under the genus 'plastics.' However, when an entry uses the expression 'that is to say' as distinct from 'including', it can only mean that rubber is the same thing as raw rubber or latex or dry ribbed sheets etc.
14. Mr. Raju Joseph contended that in the case of Padinjarekkara Agencies Ltd. v. Asst. Commissioner (1996 (2) KLT 641), a learned Single Judge of this Court had taken the view that centrifuged latex is a commercially different product from latex. It is undoubtedly so. This was a case where the dealer was claiming the benefit under Section 5 of the Act. Its contention was that after purchasing rubber from the growers it was subjected to treatment with ammonia. It was preserved Thereafter, it was centrifuged with the aid of chemicals and machines. The end product was used for the manufacture of foam rubber and other industrial products. It was marketed in barrels. The dealer had purchased empty drums for the purpose of storing centrifuged latex. It had issued declarations to the effect that the drums were "for marketing the company's finished products." Thus, it was claimed that in view of the provision contained in Section 5(7), it was liable to pay tax at the concessional rate. In this context, the learned Judge had taken the view that "the centrifuged latex obtained at the end of the above process is commercially a different product from the raw rubber latex." However, what deserves notice is that the assessments in this case related to the assessment years 1983-84 to 1986-87. The provision in force at that time was as embodied in entries 38 and 39. The entries per se did not talk of latex and centrifuged latex. The question that had arisen was only in the context of the admissibility of concessional rate of tariff under Section 5(7). It is true that after July 1, 1987 the provision of entry 38 was modified. However, the fact remains that while modifying, the words used by the Legislature do not indicate that there was an intention to treat each item mentioned in Clause (A) as a different product. If such had been the contention, there was no need to use the expression - 'rubber, that is to say.'
15. There is another aspect of the matter. Raw rubber and latex have been separately mentioned. If the contention as raised on behalf of the Revenue is correct, then these should be two different products. But there is nothing to suggest that it is so. In fact, despite being repeatedly asked, Mr. Raju Joseph was unable to point out any distinction between raw rubber and latex. Both are the produces directly obtained from the tree. Still further, the tree lace and earth scraps have been mentioned. The tree lace is the material that gets stuck to the tree trunk below the point of tapping. Earth scrap is the material that spills from the bowl and is picked from the ground. Even in the case of these, no processing is involved. That being so, it cannot be said that they are products different from raw rubber or latex. The entry includes "all other qualities and grades of latex." Does it mean that each quality or grade would constitute a commodity different from the other and not the same thing as rubber? The Entry does not say so.
16. It appears that in view of the finding in Padinjarekkara Agencies (supra), the Board had issued the Circular of May 28, 1998. In this Circular, the decision in the case was noticed. The entry, which was in force from 1.4.1988 and is similar to the one at present was also noticed. Thereafter, it was observed as under:
"So rubber latex and centrifuged latex are treated as one and the same commodity for the purpose of taxation. So with effect from 1.4.1988, the judgment in Padinjarekkara Agencies case mentioned earlier (5 KTR 26) does not have any application for deciding whether centrifuged latex is a commodity commercially different from field latex, both being treated as a single commodity for the purpose of taxation. So with effect from 1.4.1988, if a dealer purchased field latex converted it into centrifuged latex and sold centrifuged latex within the State to a registered dealer, he could claim exemption from tax if the buyer had issued the declaration in Form No. 25. If on the other hand the processed latex (centrifuged latex) is sold inter state, the dealer may have to pay tax on purchase of field latex, he being the last purchaser within the State and also pay Central Sales Tax on the inter sales of centrifuged latex. But from 1.4.1997 if a tax is paid on field latex under the K.G.S.T. Act no tax will be payable for a centrifuged latex sold inter state."
A perusal of the Circular shows that the Board had, on a detailed consideration of the decision and the relevant entries, taken the view that latex and centrifuged latex are one and the same commodity for the purpose of levy of tax.
17. Mr. Raju Joseph contended that the Circular is not legal. The Board was not empowered to grant exemption. The power vests exclusively in the State Government under Section 10. Is it so?
18. In our view, the respondents cannot contend that the Circular is illegal. Yet, we consider the contention as raised by the learned counsel for the respondents. Section 3 inter alia provides as under:
"3. Sales Tax Authorities:-
(1) The Board of Revenue shall have and exercise all the powers and shall perform all the duties conferred or imposed upon it by or under this Act.
(1A) The Board of Revenue shall have superintendence over all officers and persons employed in the execution of this Act and the Board of Revenue may,-
(a) call for returns from such officers and persons;
(b) make and issue general rules and prescribe forms for regulating the practice and proceedings of such officers and persons;
(c) issue such orders, instructions and directions to such officers and persons as it may deem fit, for the proper administration of this Act."
A perusal of Clause (1A) shows that the Board of Revenue exercises superintendence over all officers and persons employed for the purpose of enforcement of the Act. It has been empowered to make and issue rules for regulating the practice and proceedings before the officers. It can issue orders and instructions for the "proper administration of the Act." The power is wide. It is calculated to control the exercise of quasi judicial power according to the exigencies of the situation. The Board can even make rules for regulating the practice and proceedings before the authorities under the Act. In the present case, the above mentioned Circular is clearly within the ambit of the power of the Board under Section 3(1A). It merely clarifies the provision and clears the confusion.
19. Mr. Raju Joseph referred to the provision contained in Section 59A. This provision embodies the power of Commissioner of Commercial Taxes to issue clarifications. It can be exercised to settle a dispute. It is clearly distinct and different from the power under Section 3. The scope and purpose of the provision are not at par with those mentioned in Section 3(1A). In any case, it does not show that the Circular was beyond the jurisdiction of the Board.
20. Faced with this situation, Mr. Raju Joseph referred to the decision of the Division Bench of this Court in M/s. Supersonic's case (supra). In this case, the Assessing Authority had relied on the decision in the case of Padinjarekkara Agencies (supra) and taken the view that centrifuged latex was different from latex. The Bench has undoubtedly observed that the "expression 'that is to say' is apparently meant to exhaustively enumerate the kinds of goods on a given list. The purpose of an enumeration in a statute dealing with sales tax at a single point in a series of sales would, very naturally, be to indicate the types of goods each of which would constitute a separate class for a series of sales." Still further, in paragraph 8, while dealing with the Circular dated May 28, 1998, it was also observed that "the Board of Revenue cannot issue a Circular exempting a commodity from tax. That power is vested with the Government under Section 10 of the Act and the same can be done by the Government by a notification in the Gazette making an exemption or reduction in rate in respect of any tax payable under the Act." The Bench had also taken the view that "the Circular issued by the Board of Revenue cannot having a binding force in the place of the conclusion that is to be arrived at based on an appreciation of rival arguments on the scheme of the Act.."
21. In the light of the observations of the Bench, the question that arises for consideration is - does the Circular issued by the Board not bind the authorities?
22. Mr. Ganesh submitted and we think rightly that the Circular issued by the Board binds the authorities. He referred to the decision of their Lordships of the Supreme Court in Collector of Central Excise, Patna v. Usha Martin Industries (AIR 1997 SC 3871). In this case, the question that arose for consideration was - "Whether the benefit of excise duty exemption (granted by the Central Government as per certain notifications) can be claimed in respect of commodities made out of raw materials on which no excise duty was payable?" On behalf of the Revenue it was contended that "the circulars issued by the Board cannot take the place of judicial interpretation of statutory notifications as those Circulars could at best be reflective of that line of thinking on the part of the department for a time." It was also submitted that "judicial interpretation of a statutory provision or notifications thereunder should not be influenced by what the department thought at a particular time." While dealing with these contentions, their Lordships were pleased to observe as under:
"19. No doubt the court has to interpret statutory provisions and notifications thereunder as they are with emphasis to the intention of the Legislature. But when the Board made all others to understand a notification in a particular manner and when the latter have acted accordingly, is it open to the Revenue to turn against such persons on a premise contrary to such instructions?
20. Section 37B of the Act enjoins on the Board a duty to issue such instructions and directions to the excise officers as the Board considers necessary or expedient "for the purpose of uniformity in the classification of excisable goods or with respect to levy of duty excised on such goods." It is true that Section 37B was inserted in the Act only in December, 1985 but that fact cannot whittle down the binding effect of the circulars or instructions issued by the Board earlier. Such instructions were not issued earlier for fancy or as rituals. Even the pre-amendment circulars were issued for the same purpose of achieving uniformity in imposing excise duty on excisable goods. So the Circular, whether issued before December, 1985 or thereafter should have the same binding effect on the department."
Thus, it was clearly held that the court has to interpret the statutory provisions and notifications thereunder. But when the Board has made the industry to understand a notification in a particular manner, it cannot take a contrary position.
23. It is no doubt true that in Bengal Iron Corporation v. Commercial Tax Officer (90 STC 47), their Lordships of the Supreme Court had expressed a somewhat contrary view. However, while deciding Usha Martin's case (supra), their Lordships had followed the rules as annunciated in the later decision in Poulose and Mathen v. Collector of Central Excise (90 ELT 264) and allowed relief to the assessee.
24. The matter had again fallen for consideration of their Lordships of the Supreme Court in the case of Collector of Central Excise v. Dhiren Chemical Industries (254 ITR 554). This case was referred by a Bench of 3 Judges to a Larger Bench. The correctness of the view in Usha Martin's case (supra) regarding the interpretation of the Circular was doubted. On a consideration of the matter, their Lordships had taken the view that in Usha Martin's case (supra), "where the raw material is not liable to excise duty or such duty is nil, no excise duty is, as a matter of fact, paid upon it, to the goods made out of such material the notification will not apply." Having so held, their Lordships observed at page 557 that:
"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."
The above rule clearly supports the petitioner's plea and indicates that even though the view taken by the Central Board of Excise and Customs was not correct, it was binding upon the Revenue.
25. Another fact, which deserves mention, is that the Constitution Bench, which had considered Dhiren Chemical Industries' case (supra), had remanded the matter to another Bench for decision on merits. Therefore, the matter was considered in Collector of Central Excise, Vadodara v. Dhiren Chemical Industries ((2002) 10 SCC 64). The appeals were disposed of with the following order:
"The issue involved in these appeals is covered by the decision of a Constitution Bench in Collector of Central Excise, Vadodara v. Dhiren Chemical Industries. 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 a different interpretation upon that phrase, that interpretation would be binding on the Revenue. It is not disputed that there are Circulars issued by the Central Board of Excise and Customs which place a different interpretation upon that phrase and which apply to the facts of these two appeals. For that reason these appeals are dismissed. No order as to costs."
Thus, the Lordships of the Supreme Court have laid down a clear rule that the Circulars issued by the Board bind the Department.
26. Mr. Raju Joseph contended that the power of the Board under Section 37B of the Central Excise Act is different from that under Section 3(1A) of the K.G.S.T. Act, 1963. Is it so?
27. Section 37B empowers the Central Board of Excise and Customs to issue orders or instructions "if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duty of excise on such goods....." This power is in no way wider than that of the Board under Section 3(1A) of the K.G.S.T. Act. While the Central Board of Excise and Customs can issue instructions for the purpose of uniformity, the Board as constituted under the Kerala Act can even frame rules, issue instructions and pass binding orders.
28. Mr. Raju Joseph also placed reliance on the decision of their Lordships of the Supreme Court in Bengal Iron Corporation's case (supra). In paragraph 18 it was held that:
"So far as clarifications/Circulars issued by the Central Government and/or State Government are concerned, they represent merely their understanding of the statutory provisions. They are not binding upon the courts. It is true that those clarifications and Circulars were communicated to the concerned dealers but even so nothing prevents the State from recovering the tax, if in truth such tax was leviable according to law."
While dealing with the above observations, their Lordships of the Supreme Court in Commissioner of Sales Tax, U.P. v. Indra Industries (122 STC 100) observed as under:
"2. The said Circular issued on January 19, 1991 by the Commissioner of Sales Tax remains in effect till date. It has not been shown that it has been withdrawn. It is, therefore, very remarkable that it should be contended on behalf of the very Sales Tax Department whose Commissioner issued that Circular that it is erroneous. It is very remarkable that the Sales Tax Authorities should instruct their Assistant Commissioners who deal with tax assessments in a manner which, according to them, contrary to the law.
3. A circular by tax authorities is not binding on the courts. It is not binding on the assessee. However, the interpretation that is thereby placed by the taxing authority on the law is binding on that taxing authority. In other words, the taxing authority cannot be heard to advance an argument that is contrary to that interpretation."
It is, thus, clear that even in case of the levy of sales tax, the Circular issued by the Board is binding of the subordinate authorities. The view taken by the court in the case of Bengal Iron Corporation's case (supra) has not been followed in the later case. In fact, the dictum of the Constitution Bench in Dhiren Chemical Industries' case (supra) is clear and the circulars bind the subordinate authorities.
29. A fact, which deserves mention, is that the Board while issuing the Circulars at Exts.P7 and P8 had expressed its view with regard to the relevant entry. The Circulars were intended to give a uniform guideline to all the authorities in the Department. These Circulars have not been withdrawn by the Government till today. In fact, even after the decision of the Division Bench in the case of M/s. Supersonic's case (supra), the State Government had issued a notification dated July 29, 2003 exempting "manufacturers of centrifuged latex and crumb rubber from the payment of tax payable under the K.G.S.T. Act on the purchase turnover of rubber in any form used for the manufacture of centrifuged latex and crumb rubber." This notification was enforced with effect from April 1, 1988 to October 9, 2001. It is, thus, clear that the Circular dated May 28, 1998 has not only been kept intact but even when the court had upheld the levy of tax on the dealer, the Government has come to his rescue. In this situation, we do not think that the petitioners in these cases had committed any default in acting on the Circulars issued by the Government vide Exts.P7 and P8. They had not collected tax. They cannot now be burdened with the additional liability.
30. No other point was raised.
31. In view of the above, we hold that;
(i) The Circular dated May 28, 1998 is still in force. It is binding on the Revenue.
(ii) The Circular is not illegal or contrary to the provisions of the Act.
(iii) The decision in M/s. Supersonic's case (supra) does not embody the correct enunciation of law.
(iv) A taxing entry has to be strictly construed. Even if two views are possible, the benefit has to be given to the assessee. For interpreting the entry, only the plain words of the statute have to he seen.
In view of the above, the Writ Petitions are allowed. The impugned orders arc set aside. However the parties are left to bear their own costs.