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Judgment
K.K. Sasidharan, J.—Writ appeal in W.A. No. 1152 of 2008 is directed against the order dated April 29, 2008 in W.P. No. 11130 of
2008 whereby and whereunder, the writ petition filed by the appellant to quash the circular dated March 25, 2008 cancelling the earlier circular
dated May 31, 2007, was dismissed. The prayer in W.P. No. 10011 of 2008 is again to quash the very same circular dated March 25, 2008
which was the subject-matter in W.P. No. 11130 of 2008. The other writ petitions relate to the assessment order passed by the Commercial Tax
Officer in respect of SRF Limited in accordance with the impugned circular dated March 25, 2008.
Since the main issue to be decided in the writ appeal as well as in the writ petition pertains to the circular issued by the Commissioner of
Commercial Taxes dated March 25, 2008, the facts as noted in W.P. No. 10011 of 2008 is taken to narrate the background facts.
W.P. No. 10011 of 2008:
The facts:
The petitioner challenges the circular dated March 25, 2008 issued by the Commissioner of Commercial Tax, Chennai, informing them that
tarpaulin made of synthetic fibre is liable to tax at 12.5 percent under the residuary entry No. 69 of Part C of the First Schedule to the Tamil Nadu
Value Added Tax Act, 2006 and cancelling the earlier circular dated May 31, 2007, with retrospective effect.
In the affidavit filed in support of the writ petition, the petitioner contended thus:
(a) The petitioner is a registered dealer under the Tamil Nadu Value Added Tax Act, 2006 (hereinafter referred to as, ""the Act"") on the file of the
Commercial Tax Officer, Manali Assessment Circle, Chennai. The petitioner is engaged in the manufacture and sale of tipped nylon tyre cord
fabric, coated fabric and synthetic tarpaulin. The petitioner has classified the synthetic tarpaulin sold by them as falling under Part C of the First
Schedule to the TNVAT Act, taxable at 12.5 percent. Accordingly, they have calculated VAT at 12.5 percent in their sale invoices and the tax
amount was paid along with the monthly returns.
(b) The second respondent issued a clarification on May 31, 2007. As per the said clarification, the petitioner was informed that the tarpaulin made
out of synthetic fibre was exempted under the Act. The said clarification also dealt with tarpaulin made out of LDPE and HDPE. In view of the
said circular, the petitioner altered the classification adopted by them for the synthetic tarpaulin, and with effect from June 1, 2007, they have
treated their sale of synthetic tarpaulin as exempted sales. Accordingly, the petitioner discontinued the levy of VAT from their customers. In the
monthly turnover returns, they have claimed exemption.
(c) While so, as per notice dated October 16, 2007, the first respondent took the stand that the clarification dated May 31, 2007 pertains to cloth
made out of cotton canvas only and as such, the petitioner was not entitled to the benefits of G.O.Ms. No. 79/CT and R(B2) dated March 23,
2007 reducing the rate of tax for various commodities from 12.5 percent to four percent. The first respondent without noticing the fact that the
petitioners are also manufacturing tarpaulin out of polyester yam which is also a synthetic fabric, considered only the manufacture of tarpaulin out of
synthetic fibre and on that basis, it was proposed to levy tax at 12 percent for the months of July to September 2007. When such a demand was
made, the petitioner took up the matter with the second respondent and sought fresh clarification as to whether synthetic tarpaulin was an
exempted commodity as clarified in circular dated May 31, 2007.
(d) The second respondent issued a circular dated March 25, 2008 clarifying that synthetic tarpaulin sold by the petitioner would be taxable at
12.5 percent under the residuary entry No. 69 of Part C of the First Schedule to the TNVAT Act, 2006. The said clarification contains a further
statement that earlier circular dated May 31, 2007 stood cancelled retrospectively.
(e) The assessing authority as per proceeding dated March 26, 2008, confirmed the earlier proposal and has provisionally assessed the petitioner
for the period from June 2007 to February 2008. The assessing authority has taxed the sales of synthetic tarpaulin at 12.5 percent in accordance
with the clarification issued by the second respondent on March 25, 2008. Since the assessment order was made only on the basis of the circular
dated March 25, 2008, the petitioner has challenged the said circular: In the connected writ petitions, the challenge was to the assessment order
passed for the months of June 2007 to February, 2008.
The very same circular dated March 25, 2008 was challenged by another dealer in W.P. No. 11130 of 2008. When the said writ petition was
taken up by the learned single judge, the learned Government Pleader submitted that the clarification issued by the Commissioner of Commercial
Tax dated May 31, 2007 was relating to synthetic fabric. However, the impugned clarification dated March 25, 2008 relates to synthetic fibre and
therefore, it was altogether a different commodity. The learned single judge was of the view that the clarification relating to synthetic fabric and
synthetic fibre cannot be equated and as such, the second clarification dated March 2008 stands on a different footing. Accordingly, the writ
petition was dismissed. The said order is the subject-matter in W.A. No. 1152 of 2008.
The respondents have not filed counter in answer to the contentions raised in the writ petition.
Submissions:
The learned senior counsel for the petitioner made extensive submissions with respect to the binding nature of the circular. The learned senior
counsel would submit thus:
(1) The Commissioner of Commercial Tax as per his circular dated March 31, 2007 made the position clear that synthetic tarpaulin was an
exempted category. The petitioner has acted on the basis of the said clarification and as such, tax was not collected from the consumers. Since
there was an alteration of position on the basis of the circular issued by the Department, it was not open to the statutory authority to withdraw the
circular with retrospective effect.
(2) Though the circular has no statutory backing and was in the nature of an executive circular, the taxing authority cannot withdraw such circulars
with retrospective effect.
(3) Though the Tamil Nadu General Sales Tax Act, 1959 was replaced by the Tamil Nadu Value Added Tax Act, 2006, all rules, regulations,
notifications, clarifications and order issued under any of the provisions of the Tamil Nadu General Sales Tax Act, 1959, which were in force on
the date immediately before the commencement of the new Act would continue in force. Section 28A of the Tamil Nadu General Sales Tax Rules
and rule 26A permits the dealer to make an application before the Commissioner of Commercial Tax along with the prescribed fee for issuing
clarification.. Since the rules as well as the circular issued under the provisions of the Tamil Nadu General Sales Tax Act, 1959 are saved as per
section 88 of the Tamil Nadu Value Added Tax Act, 2006, the earlier circular has got statutory force and as such, the first respondent was not
justified in withdrawing such circular.
The learned Special Government Pleader (Taxes) would submit that the circular has no statutory force and as such, the second respondent was
fully justified in withdrawing the said circular. According to the learned Government Pleader, the first respondent is a quasi-judicial authority and
the entire issue can be agitated before the said authority. The learned Government Pleader would further submit that the assessing authority will
consider the matter and pass final assessment order as per law, without reference to the impugned circular dated March, 25, 2008.
Analysis:
The petitioner is a manufacturer of tipped nylon tyre cord fabric, coated fabric and synthetic tarpaulin. The petitioner has classified the synthetic
tarpaulin sold by them as falling under Part C of the First Schedule to the TNVAT Act and accordingly, they have been collecting tax at 12.5
percent. The said position continued up to May 2007. According to the petitioner, after seeing the circular dated May 31, 2007 they were
convinced that it was not necessary to collect tax at 12.5 percent as the product was an exempted commodity. Accordingly, tax was not collected
from the customers with effect from January 1, 2007.
Since the claim of the petitioner was based on the circular dated May 31, 2007, it is necessary to consider the scope and ambit of the said
circular. The circular reads thus:
Sir,
Sub: TNVAT Act, 2006--Rate of tax clarification under TNVAT Act, 2006 for tarpaulin--requested--regarding.
Ref: Lr. Dated April 4, 2007 from Tvl. Tamil Nadu Cotton Canvas Tarpaulin Merchants Association, Chennai 3.
Tvl. Tamil Nadu Cotton Canvas Tarpaulin Merchants Association, Chennai-3, have requested rate of tax clarification under the TNVAT Act,
2006 for tarpaulin made of LDPE, HDPE and synthetic
It is clarified that tarpaulin made of synthetic fabric and canvas is exempt and tarpaulin made of LDPE and HDPE are taxable at four percent vide
G.O.Ms. No. 70/CT & R(B2) dated March 23, 2007 under TNVAT Act, 2006 with effect from January 1, 2007.
Sd/-G. SHANMUGAM,
For Commissioner of Commercial Taxes.
The circular dated May 31, 2007 was not a communication issued to the petitioner. The circular was issued at the instance of Tvl. Tamil Nadu
Cotton Canvas Tarpaulin Merchants Association, Chennai. It is not known as to how the petitioner could alter their position on the basis of this
circular which has nothing to do with the product manufactured by them. The circular was not issued to a manufacturer of synthetic tarpaulin like
the petitioner. It was issued with reference to a specific query from the association of merchants.
The petitioner has no case that they have approached the Commissioner of Commercial Taxes and the position regarding exemption of tax was
confirmed, and it made them to discontinue the collection of tax.
The petitioner for the first time approached the Commissioner of Commercial Tax on October 29, 2007 with an application to clarify as to
whether synthetic tarpaulin was exempted from levy of tax. Therefore, the issue was considered by the Commissioner with reference to the
product manufactured by the petitioner and accordingly, the impugned clarification was issued on March 25, 2008. The impugned circular is
specific in nature. However, the earlier circular dated May 31, 2007 was a general circular without reference to the product manufactured by the
petitioner.
The question regarding the tax rate in respect of the tarpaulin manufacture by the petitioner was considered by the Commissioner in the light of
the report submitted by the Commercial Tax Officer. The nature of product manufactured by the petitioner and as to whether it would come under
Part A or B of the Fourth Schedule to the TNVAT Act, 2006 was also considered by the Commissioner. The Commissioner found that tarpaulin
falls under heading 6306 of the Central Excise Tariff. It does not fall either under Part A or Part B of the Fourth Schedule to the Tamil Nadu Value
Added Tax Act, 2006. It was also not enumerated under Part B of the First Schedule to the Act. It was also found that rate of tarpaulin was not
reduced by Government by G.O.Ms. No. 79, CT&R (B2) Department dated March 23, 2007. It was only in such circumstances, the
Commissioner clarified the position that tarpaulin made of synthetic fibre was liable to tax at 12.5 percent under the residuary entry No. 69 in Part
C of the First Schedule to TNVAT Act, 2006.
It is true that as per the very same circular, the earlier circular dated May 31, 2007 was cancelled by giving retrospective effect. On a
comparison of the circular dated May 31, 2007 as well as the impugned circular dated March 25, 2008, one thing would be clear. The circular
dated May 31, 2007 was not on the basis of a detailed consideration of the product. There was no reasoning given in the circular dated May 31,
2007. The dealers in respect of whom the earlier circular was issued were not the manufacturers of tarpaulin made of synthetic fibre. Therefore, no
specific query was made to the Commissioner as to whether tarpaulin made of synthetic fibre was liable to tax and if so, what would be the rate. It
was only when the petitioner made a specific request to clarify the position, the issue was considered by the Commissioner in the light of the report
submitted by the Commercial Tax Officer. Accordingly, the Commissioner clarified the position.
The petitioner is a large scale manufacturer of tarpaulin made of synthetic fibre. It is not as if they were not aware of the percentage of tax for
tarpaulin. It was within their knowledge that tarpaulin was not an exempted category and as such, they have been collecting tax at 12.5 percent.
The issue as to whether tarpaulin made of synthetic fibre was taxable or it was an exempted category was considered for the first time by the
Commissioner in pursuance of the request made by the petitioner. The Commissioner was of the view that the exempted goods referred to in the
circular dated May 31, 2007 has nothing to do with the tarpaulin made of synthetic fibre. Accordingly, the petitioner was directed to pay tax at
12.5 percent as before. Therefore, even if the earlier circular was restored, it would not help the petitioner as the said circular has nothing to do
with the product manufactured by the petitioner. In fact, in paragraph 4 of the impugned circular dated March 25, 2008, the claim of exemption
made by the petitioner was negatived. Therefore, the withdrawal of notification dated May 31, 2007 with retrospective effect was inconsequential
insofar as the petitioner is concerned.
There was no promise made to the petitioner at any point of time that their product was exempted from payment of tax. The petitioner with full
knowledge that the tarpaulin manufactured by them was not an exempted product, collected tax at 12.5 percent from the consumers. The circular
dated May 31, 2007 was not issued to the petitioner and it has no reference to their product and as such, there was no question of acting on the
basis of the said circular.
The petitioner being a large scale manufacturer of tarpaulin should have approached the statutory authority before placing reliance on a circular
issued in respect of an Association of Merchants. However, for the reasons best known to the petitioner, they have not chosen to consult the
authority concerned for issuance of a clarification. Therefore, the respondents were not responsible for the situation and it was the creation of the
petitioner themselves.
The next question is as to whether the Commissioner of Commercial Tax was having statutory powers to issue the circular dated May 31,
2007.
There is no dispute that section 28A of the Tamil Nadu General Sales Tax Act permits the Commissioner to issue a clarification in respect of
any point concerning the rate of tax under the Act. Therefore, the circular issued u/s 28 of the Tamil Nadu General Sales Tax Act has got statutory
force. However, there is no corresponding provision in the Tamil Nadu Value Added Tax Act, 2006, empowering Commissioner to issue such
circulars. The Tamil Nadu Value Added Tax Act has come into force with effect from January 1, 2007. The first circular was issued by the
Commissioner on May 31, 2007. Therefore, as on the date on which the circular was issued, the Commissioner was not having the statutory
powers to issue such circulars. The net result is that the circular have no statutory force.
When the petitioner approached the Commissioner, Commercial Taxes, with an application to clarify the position with respect to the payment
of tax for tarpaulin products and the rate of tax, the matter was considered by the Commissioner on the merits. The nature of product
manufactured by the petitioner was examined for the purpose of determining the actual rate of sales tax. The Commissioner found that it was not an
exempted category and it was liable to tax at 12.5 percent. Accordingly, the impugned clarification dated March 25, 2008 was issued.
The learned senior counsel for the petitioner placed reliance on rule 26A of the Tamil Nadu General Sales Tax Rules read with section 88 of
the Tamil Nadu Value Added Tax Act in support of his contention that the circular dated May 31, 2007 has got statutory force. It is true that all
the rules as well as notifications issued under the Tamil Nadu General Sales Tax Act are saved u/s 88 of the VAT Act, Rule 26A relates to
payment of fee for issuing clarification by the Commissioner. The said rule was made in order to give life to the substantive provision as contained
u/s 28A of the TNGST Act. The rule in question has no independent existence and in the absence of a substantive provision, no reliance could be
placed on the rule to claim that the circular has got a statutory force as it was issued under the Rules. When there is no statutory provision
empowering the Commissioner to issue a circular, clarifying the rate of tax, no reliance could be placed on the procedural provision inserted to
make the substantive provision workable.
The learned senior counsel for the petitioner placed reliance on the judgment of a Division Bench of this court in Mohan Breweries and
Distilleries Limited Vs. Commercial Tax Officer and Others, in support of his contention that even though the circular was only executive in nature,
it is binding on the authorities.
In Mohan Breweries and Distilleries Limited Vs. Commercial Tax Officer and Others, , the Commissioner originally issued a circular clarifying
the position regarding purchase of empty bottles for manufacture of beer and IMFL products from unregistered dealers. It was only when the
Sales Tax Department claimed tax from the very same assesses, the Division Bench held that, the circular issued by the Department in respect of
the very same assesses was binding on the authorities, though it was executive in nature. Since the facts of the present case are entirely different,
the decision in Mohan Breweries and Distilleries Limited Vs. Commercial Tax Officer and Others, has no application.
There is no doubt that circulars and instructions issued in exercise of statutory powers are binding on the authorities under the respective
statutes. Before deciding the binding nature of such circulars, the power derived from the statute for issuing such circulars has also to be
considered. The Supreme Court in Commissioner of Central Excise, Bolpur Vs. Ratan Melting and Wire Industries, held that a circular which is
contrary to the statutory provisions has really no existence in law.
Since the Commissioner has not issued any clarification earlier in respect of the product manufactured by the petitioner the Commissioner was
justified in clarifying the position later at the instance of the petitioner. In any case, the impugned clarification was no merits, correctness of which is
a matter to be decided in appropriate proceedings. Since the legality and correctness of the finding recorded by the Commissioner is not under
challenge in this writ petition, such contentions could be raised before the assessing authority and as such, we are not expressing any opinion on
such matters.
The impugned circular was not issued on the basis of a statutory provision. Similar is the case of the earlier circular. Therefore, neither the
earlier circular nor the subsequent circular has any validity in the eye of law.
Therefore, we are of the opinion that no interference is called for in the impugned circular. Accordingly, W.P. No. 10011 of 2008 is dismissed.
No costs.
In view of our finding that the circular dated March 25, 2008 was issued on a consideration of the merits of the claim made by the petitioner,
we are of the view that no interference is called for in the order passed by the learned single judge in W.P. No. 11130 of 2008 which was
challenged at the instance of another manufacturer. Accordingly, W.A. No. 1152 of 2008 is dismissed. No costs. However, we make it clear that
we are not giving any finding as to whether the synthetic fibre and synthetic fabric are one and the same or different commodities. It is open to the
appellant in W.A. No. 1152 of 2008 to raise all those points before the assessing authority and it is for the authority to decide the issue on the
merits and as per law.
The writ petitions in W.P. Nos. 10012 to 10029 of 2008 related to the assessment proceedings. The writ petitioners have got an alternative
remedy of filing revision petition before the Deputy Commissioner u/s 54 of the TNVAT Act, 2006. The learned Special Government Pleader
would submit that in the event of filing revision petitions before the statutory authority, it would be considered on the merits and as per law, without
reference to the impugned circular dated March 25, 2008 issued by the Commissioner of Commercial Tax Department.
We are of the considered view that the petitioner should be relegated to the alternative remedy of revision.
The writ petition challenging the respective assessment orders were filed within the limitation period for filing revision. In such circumstances,
we are of the view that liberty should be granted to the petitioners in W.P. Nos. 10012 of 2008 to 10028 of 2008 to file revision petitions before
the statutory authority u/s 54 of the TNVAT Act, 2006. Accordingly, the petitioners in W.P. No. 10012 to 10028 of 2008 are granted liberty to
file revision petition before the Deputy Commissioner (CT), Chennai, Central Division and in the event of the petitioners filing such revision
petitions within a period of fifteen days from the date of receipt of a copy of this order, the same shall be considered by the statutory authority on
merits and as per law without rejecting the same on the ground of limitation and without reference to the circulars issued by the Commissioner of
Commercial Taxes. In the result, W.A. No. 1152 of 2008 and W.P. No. 10011 of 2008 are dismissed. No costs. W.P. Nos. 10012 to 10029 of
2008 are disposed of with the liberty as indicated above. No costs. Consequently, all the miscellaneous petitions are closed.