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2008 DIGILAW 518 (KAR)

R. K. CORPORATION v. GOVERNMENT OF KARNATAKA.

2008-09-17

N.KUMAR

body2008
ORDER The Petitioner in this Petition is seeking a writ of certiorari for quashing of Annexure - C, the Clarification dated 11.12.2007 and in the alternative for a declaration that it would apply prospectively and not retrospectively. The Petitioner is a dealer registered under the provisions of the Karnataka Value Added Tax Act, 2003 (for short hereinafter referred to as 'Act'). He is a Commission Agent carrying on the business as a distributor for sale of Aluminium Composite Panel among other products. In order to have an absolute clarity on the aspect of the appropriate rate of tax applicable on the sale of goods, he filed an Application under Section 59(4) of the Act to the Second Respondent requesting for clarification of the rate of tax applicable on Aluminium Composite Panel and PVC Flexible Film on 8.12.2005. Along with the application, he also enclosed copies of the Bill of Entries relating to import of these goods in which the commodity imported was described as "Aluminium (Plastic Composite) Panel Sheet Interior". It falls under Chapter 39 of the Central Excise Tariff Act, 1985 (for short hereinafter referred to as "Tariff Act") under Heading No. 3920, sub-heading No. 1019 and sub-heading No. 4900. The said goods find a place under Entry 51 of the Third Schedule appended to the Act. The Second Respondent issued a Clarification dated 2.2.2006 clarifying to the effect that PVC Flexible Film and Aluminium Panel Sheets covered under Central Excise Tariff Act Codes 3920.49.00 and 3920.10.19 respectively fall under Serial No. 144 of the notification bearing No. FD 197 CSL 2005 (6) and would consequently be liable to tax at the rate of 4% of the Act. Annexure - B is the said Clarification dated 2.2.2006. Subsequently, the Second Respondent served notice on the Petitioner dated 29.5.2007 calling upon the petitioner to show cause as to why the clarification dated 2.2.2006 ought not to be withdrawn since the Aluminium Composite Panel was excisable to tax under Section 4(1)(b) of the Act at the rate of 12.5% and not at 4%, as clarified earlier. The Petitioner appeared through the Authorised Representative and contested the said Show-cause Notice. However, the Second Respondent overruled the objections of the Petitioner and withdrew the Clarification dated 2.2.2006 and issued a fresh Clarification dated 11.12.2007. The Petitioner appeared through the Authorised Representative and contested the said Show-cause Notice. However, the Second Respondent overruled the objections of the Petitioner and withdrew the Clarification dated 2.2.2006 and issued a fresh Clarification dated 11.12.2007. According to the subsequent clarification, Aluminium Panel Sheets and Aluminium Composite Panel Sheets are taxable at the rate of 12.5% in term of Section 4(1)(b) of the Act. It was also made clear that the earlier clarification dated 2.2.2006 stood withdrawn from the date of its issue. Annexure - C is the said clarification. Aggrieved by the same, the Petitioner has preferred this Writ Petition. The Respondents have filed a counter. It was contended that on a thorough examination of the goods in question by the Second Respondent, it revealed that the commodity in question is made of Aluminium Sheets on either side and thick Plastic Sheet in the middle. It is sold/dealt by the dealer in building materials/decorative tiles materials. It is not dealt by the Petitioner as plastic goods. It is used for fixing on the wall in buildings and used as industrial input. Central Excise Tariff Code 3920.10.19 relates to Plastic articles combined with other material. Hence, for a commodity to fall under this Code, it should be predominantly a Plastic Article and known in trade and dealt as an article of plastic. The commodity dealt by the Petitioner is Aluminium Panel Sheets and Aluminium Composite Panel Sheets falling under Central Excise Tariff Code 7606.11.90. Therefore, it cannot be classified as Plastic Articles. Therefore, the Clarification dated 2.2.2006 was issued on the representation made by the Petitioner that the Commodity in question falls under Central Excise Tariff Code 3920.10.19 was found to be incorrect and the same was withdrawn. As the said clarification was based on misrepresentation made by the Petitioner, the same was withdrawn with retrospective effect after providing sufficient opportunity of hearing to the Petitioner. An entry cannot have two meanings, one prior to the clarification and subsequent to the clarification. The Commissioner has authority in law to withdraw the clarification. Subsequent clarification is nothing but rectification of the earlier clarification. The modification made to the clarification relates back to the date of issuance of the clarification. Therefore, the Petitioner cannot challenge the Clarification dated 11.12.2007 on the ground that it cannot be given retrospective effect from the date of notification. The Commissioner has authority in law to withdraw the clarification. Subsequent clarification is nothing but rectification of the earlier clarification. The modification made to the clarification relates back to the date of issuance of the clarification. Therefore, the Petitioner cannot challenge the Clarification dated 11.12.2007 on the ground that it cannot be given retrospective effect from the date of notification. The said clarification is applicable to the entry from the date of its incorporation in the Act. Therefore, the Respondents have sought for dismissal of the Writ Petition. Sri R. V. Prasad, learned Counsel for the Petitioner assailing the impugned clarification submits that in the first place the clarification is contrary to what is contained in Chapter 39 of the Tariff Act and therefore, it is liable to be set aside. Even otherwise, the earlier clarification issued by the Second Respondent on which the Petitioner has acted upon is binding on the Department till it is withdrawn, modified or rectified and therefore, the impugned clarification cannot be retrospective, but it can only be prospective. Per contra, learned Government Advocate submitted that the Second Respondent who had issued the earlier clarification has the power to withdraw the said clarification. Any clarification issued by the Commissioner is always retrospective i.e. from the date of incorporation of the said provision in the Act and it cannot be prospective. Lastly, it was contended that once such a clarification is issued, the dealer is liable to pay tax in terms of the said clarification and he cannot contend that it has to be only prospective. In the light of the aforesaid facts and rival contentions, it is clear that the Petitioner filed an Application under Section 59(4) of the act requesting the Second Respondent to clarify the rate of tax applicable to the goods in question. A clarification was given stating that it is 4% on the value of the goods. With the change of incumbent in the office, it was noticed that the said clarification is not proper. According to the Second Respondent, it was obtained earlier on misrepresentation of facts. He wanted to review the said clarification. Therefore, he had issued a Show-cause Notice to the Petitioner calling upon him to show cause as to why the earlier clarification should not be withdrawn. After hearing the Petitioner, he has withdrawn the earlier clarification by giving cogent reasons. According to the Second Respondent, it was obtained earlier on misrepresentation of facts. He wanted to review the said clarification. Therefore, he had issued a Show-cause Notice to the Petitioner calling upon him to show cause as to why the earlier clarification should not be withdrawn. After hearing the Petitioner, he has withdrawn the earlier clarification by giving cogent reasons. The power to withdraw such clarification cannot be disputed. Learned Counsel for the Petitioner submitted that he will restrict this Writ Petition only for a declaration that the impugned clarification should be prospective. The Supreme Court in the case of State Bank of Travancore v. Commissioner of Income-tax, Kerala, (1986) 58 ITR 102 (SC) : AIR 1986 SC 757 : (1986) 2 SCC 11 has held that the earlier circulars being executive in character cannot alter the provisions of the Act. These were in the nature of concessions and could always be prospectively withdrawn. Again, the Supreme Court in the case of Bengal Iron Corporation and Another v. Commercial Tax Officer and Others, (1993) 8 MTJ 139 : (1993) 90 STC 47 (SC) : AIR 1993 SC 2414 has held that the clarification and circular issued by the Central Government and/or the State Government represents 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. There can be no estoppel against the statute. The understanding of the Government, whether in favour or against the Assessee, is nothing more than its understanding and opinion. It is doubtful whether such clarifications and circulars bind the quasi-judicial functioning of the Authorities under the Act. While acting in a quasi-judicial capacity, they are bound by law and not by any administrative instructions, opinions, clarifications or circulars. Law is what is declared by the Supreme Court and the High Courts, to wit, it is for the Supreme Court and the High Court to declare what a particular provision of the statute says and not for the executive. Law is what is declared by the Supreme Court and the High Courts, to wit, it is for the Supreme Court and the High Court to declare what a particular provision of the statute says and not for the executive. Following the aforesaid law, the Supreme Court in the case of K. P. Varghese v. Income Tax Officer, Ernakulam and Another (1981) 131 ITR 597 (SC) : AIR 1981 SC 1922 : (1981) 4 SCC 173 and the learned Single Judge of this Court in the case of Binani Industries Limited, Cochin v. The Assistant Commissioner of Commercial Taxes, VI Circle, Bangalore and Others, 2002 (53) Kar. L.J. 285 (HC) : (2003) 129 STC 199 (Kar.) held that any circular which beneficially affects the rights of dealers as it stood at the beginning of the Assessment Year will apply to the entire year and the modification/withdrawal of such circular will not be relevant for that current year but will only apply from the beginning of the next Assessment Year. In the light of the aforesaid decision, it is clear that the Second Respondent has the power to withdraw the earlier circular issued. As the earlier circular was beneficial to the Petitioner, the benefit accrued to the Petitioner under the earlier circular can be taken away only from the date of the subsequent circular under which the earlier circular was withdrawn. Though the subsequent circular would have the effect of nullifying the earlier circular as it is only an interpretation of the provision, it will not have the effect of denial of the benefit of the earlier circular. In other words, the impugned Circular has to be only prospective and not retrospective. In that view of the matter, the Petitioner is not liable to pay tax at 12.5% for the period covered under the earlier circular and is liable to pay tax at 12.5% arises only from the date of the impugned circular. Hence, I pass the following order : ORDER The Writ Petition is allowed; The impugned circular at Annexure - C would apply prospectively from 11.12.2007 only; No costs.