STATE OF KERALA & ORS. v. M-S KURIAN ABRAHAM PVT. LTD. & ANR

Citation: [2008] 2 S.C.R. 620

Court: Supreme Court of India

Bench: S.H. KAPADIA, B. SUDERSHAN REDDY

Case summary

STATE OF KERALA & ORS. v. M-S KURIAN ABRAHAM PVT. LTD. & ANR.pdf

Judgment text

[2008) 2 S. C. R. 620 ) '# STATE OF KERALA & ORS. Jr v. M/S KURIAN ABRAHAM PVT. LTD. & ANR. ) (Civil Appeal Nos. 7965-7966 of 2004) FEBRUARY 8, 2008 {S. H. KAPADIA AND B. SUDERSHAN REDDY, JJ. ) >-· • Kera/a General Sales Tax Act, 1963: s. ·3(1A)(c) and First Schedule, Entry 110 - Rubber - Power of Board of Revenue to grant administrative relief - Assessee purchasing field latex in Kera/a, processing it into centrifuged latex in its factories in Tamil Nadu and selling the same - Circular No. 16198 issued by Board of Revenue allowing exemption under 1963 Act and Central Sales Tax Act, 1956, treating field latex and centrifuged latex as one and the same commodity under Entry 110-A. O. on the basis of a >judgment ofHigh Court reopening assessments on the ground \,. that purchase turnover of field latex and sales turnover of centrifuged latex had escaped assessment-' Writ petition by assess~e challenging assessment orders as contrary to Circular No.

16198 - Plea of Department that circular was violative of Entry 110 of First Schedule to 1963 Act and power I to grant exemption was conferred on Government and not on the Board - HELD: Circulars issued by the Board by exercising statutory powers u/s 3(1A){c), being statutory in >· nature, are binding on all authorities administering tax department and are to be respected by the officers working under the supervision ofthe Board as long as the said circulars remain in force - Approach of A. 0. in re-opening completed assessment opining that circulars No. 16198 was not binding is uosustainable in Jaw- Field latex and centrifuged latex, even )>· if assumed to be two different items of taxation under 1963 Act, double taxation avoidance comes within domain of Board of Revenue - It was open to Board u/s 3(1A) to grant PVT. LTD. & ANR. administrative relief by CircularNo.

16198 if it was of opinion that treating field latex and centrifuged latex as two distinct items could result in double taxation - Tax Administration - Circulars issued by Board of Revenue - Binding nature of - Double taxation avoidance. · The respondent-assessee was engaged in the business of rubber. It purchased field latex (raw material) in Kerala, got it processed int~ centrifuged latex in its factories in Tamil Nadu and sold the same either locally in Kerala or inter-State. For the assessment year 1997-98- 1! • initially the assessee, on the basis of Circular No. 16198 , issued by the Board of Revenue uls 3(1A) (c) of the Kerala General Sales Tax Act, 1963, was allowed exemption in respect of the 1963 Act as also the Central Sales Tax Act, 1956, treating the field latex and the centrifuged latex as one and the same commodity under Entry 11Oof the First Schedule to the 1963 Act.

However, pursuant to the judgment of the Kerala High Court in Pandinjarekara's case* holding centrifuged latex as a commercially different product. from field_ latex, notices were issued to the assessee proposing to reopen KGST and CST completed assessments for 1997-98 on the ground that purchase turnover of field latex and sales turnover of centrifuged latex had escaped assessments both _under the 1963 Act 1 and the 1956 Act. The assessee's writ petition seeking to_ quash the orders of reassessments inter a/ia on the ground . F that they were contrary to the Circular No. 16/98 was allowed by the High Court. In the instant appeals filed by the Department it was contended for the appellants that Circular No. 16/98 issued · by the Board of Revenue was violative of the legislative --- - ,I.

Padinjarekara* case related to assessment years 1983- 84 to 1986-87 during which time Entries 38 and 39 were in force whereas the instant case relates to assessment '1> years 1997~98 and 1998-99 when Entry 110 was in force. f The structure of Entries 38 and 39 which existed in the j past was materially different from the structure of Entry 110. [para 6] [626-D, E] *Padinjarekara Agencies Ltd. v. Assistant Commissioner ~ 1996 (2) KLT 641 - distinguished. ),.. 2. 1 In matters of tax administration, the Government needs to strike a balance between collections of revenue on the one . hand and business-friendly approach on the other; and difficulties faced by the business have got to be taken into account. Imposition of taxes consists of liability, quantification of liability and collection of taxes. ' Exemption is a matter of policy and policy decisions have f' to be taken by the Government. However, the Government ,,_ .

~ has to work through its senior officers in the matter of difficulties which the business may face, particularly, in matters of tax administration. That is where the role of the Board of Revenue comes into play. The said Board takes administrative decisions, which include the authority to grant administrative reliefs. This is the underlying reason for empowering the Board to issue )'· orders, instructions and directions to the officers under it. Circular No. 16/98 grants administrative relief to the business. [para 18] [636-F, G, H; 637-A, D] ~l .. - PVT. LTD. & ANR. 2. 2 In the instant case, the binding effect of Circular No. 16/98 needs to be kept in mind. The said pircular issued by the Board in exercise of statutory powers vested in it under Section 3(1A) (c), is statutory in nature. Section 3(1A) provides for an enabling power of the Board which was recognized as an Authority under the 1963 Act. The B, said power was to be exercised in special cases. Granting.

of administrative reliefs by the -Board came within its authority. The said circular was issued for just and fair administration of the 1963 Act. Section 3(1A) of the 1963 Act is similar to Section 119(1) of the Income Tax Act, 1961. c, The circulars of this nature are issued by the Board consisting of highest senior officers -in the. Revenue Department. These circulars are binding on all the authorities administering the tax department and are to be respected by the officers working under the 0 supervision of the Board. [para 21] [639-E, F, G] 2. 3 Whenever such binding circulars are issued by the Board granting administrative relief(s), business arranges its affairs relying on such circulars. Therefore, as long as a circular remains in force, it is not open to the_ subordinate officers to contend that the circular is erroneous and not binding on them. As regards Circular No. 16/98 iss. ued by the Board of Revenue, it has not been withdrawn so far and is still in force.

[para 19] [638-0, E] Union of India and anr. II. Azadi Bachao Ando/an and · anr. (2004) 10 sec 1 - relied on. 3. 1 In the instant case, the nature of powers of the Board of Revenue/Commission u/s 3(1A) of the 1963 Act, and not the scope and extent of each item in Entry 110, is under consideration. Even assuming that centrifuged latex and field latex are two different items of taxation under the Kerala General Sales Tax Act, 1963, double taxation avoidance comes within the domain of the Board of Revenue. It was open to the Board u/s 3(1A) to grant. ~ y ~ administrative relief by Circular No. 16/98 if ·the Board in its expertise was of the opinion that treatment of field latex and centrifuged latex as separate and distinct items could result in· double taxation. Therefore, the Board was entitled to give administrative relief to the business. In fact, this is borne out by Notification dated 13. 11. 2007, issued by the State Government, which indicates that there was ,,.....

_ possibility of double taxation on centrifuged latex .. produced from field latex and, therefore, ultimately the Government had to step in and grant exemption under Section 10 of the 1963 Act. [para 18] [637-8, C, D, E, F]. 3. 2 The ex. emption was not there during the assessment years 1997-98 and 1998-99. Therefore, the Board consisting of senior officers was aware about the propensity of double taxation. In such circumstances, it was not open to the State to contend before the High ~ Court that Circular No. 16/98 was not legal, or that the Board had acted beyond its authority in issuing the said >circular. [para 18 and 19] [637-G, H; 638-D] 4. 1 In the instant case, completed assessments were sought to be reopened by the AO on the ground that Circular· No. 16/98 was not binding. Such an approach is unsustainable in the eyes of law.

If the State Government VIias of the view that the said Circular was illegal or that it was ultra vires Section 3(1A), which it is not, it was open to the State to nullify/withdraw the said Circular under Section 60 of the 1963 Act. Since Circular No. 16/98 continues to remain in . force and till today it has not been withd. rawn, it is not open to the officers administering the law \vorking under the aoard of Revenue to say that the said circular is not binding on them, otherwise it would >lead to chaos and indiscipline in the administration of tax ; laws. [para 21] [640-A, B, C, D] Steel Authority of India v. ·Collector of Customs, Bombay 2000 (115) ELT 42 (SC) - relied on. · ~ ~ \__. _ CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 7965-7966 of 2004 From the common final Judgment dated 8. 12. 2003 of the High Court of Kerala at Ernakulam in O. P. No. 12376/2003 (W) an-d W. P. (C) 30288/2003 (E). R. F. Nariman, R. Venkataramani, S. Ganesh, Joseph Markose, E. M. S.

Anam, Fazlin Anam, Ramesh Babu M. R. , G. ~ > Prakash, K. R. Sasiprabhu, Dileep Pillai, A. K. Jain, M. P. Vinod and M. K Michael for the appearing parties. The Judgment of the Court was delivered by KAPADIA, J. Mis Kurian Abraham Pvt. Ltd. -assessee is engaged in the business of buying rubber, processing the same and selling the processed rubber. Assessee pllrchases field latex (raw-material) in Kerala, but, since its processing factories are in Tamil Nadu, it transports field latex to Tamil Nadu for ...... __ processing into centrifuged latex and returns it back into Kerala. .... Thereafter, the centrifuged rubber is sold by the assessee either locally in Kerala or inter-State. 2. In respect of its· sales turnover, respondent is an assessee under Kerala General Sa~es Tax Act, 1963 ("1963 Act") as well as under-the Central Sales Tax Act, 1956 ("1956 Act"). 3. For the assessment year 1997-98, with respect to . ( centrifuged latex sold locally, the assessee furnished Form No.

25, declaration from the concerned buyers, and claimed exemption- from payment of tax on the purchase Turnover of field latex (raw-rubber). With respect to inter-State sale of centrifuged latex, the assessee paid the tax under the 1963 Act on the purchase of field latex and claimed exemption in respect of Central Sales Tax ("CST") under Notification SRO 1731/93 read -- -- It was challenged inter alia on the ground that it was ultra vires the provisions of Section 19(1 ). The argument was rejected by this Court in the following words: "47. It was contended successfully before the Hig~ Court that the circular is ultra vires the provisions of Section 119. Sub-section (1) of Section 119 is deliberately worded in >-· a general manner so that CBDT is enabled to issu. e appropriate orders, instructions or directions to the subordinate authorities "as it may deem fit for the proper administration of this Act". As long as the circular emanates .. ..

__ from CBDT and contains orders, instructions or directions -it pertaining to proper administration of the Act, it is relatable to the source of power under Section 119 irrespective of its nomenclature. Apart from sub-section (1 ), sub-section (2) of Section 119 also enables CBDT 'for the purpose of proper and efficient management B! of the work of assessment and collection of revenue, to issue appropriate orders, general or special, in -4 > respect of any class of income or class of cases, setting forth directions or instructions (not being prejudicial to the assessees) as to the guidelines, principles or procedures to be followed by other Income Tax. Authorities in the work relating to ' assessment or collection of revenue or the initiation of proceedings for the imposition of penalties'. ln our view, the High Court was not justified in reading the circular as not complying with the provisions of Section ..... 119. The circular falls well within the parameters of the ........

powers exercisable by CBDT under Section 119 of the Act. " ' 21. Lastly, the binding effect of the said circular No. 16/98 needs to be kept in mind. As stated above, the said circular was issued by the Board by exercising statutory powers vested in it under Sectfon 3(1A). As stated above, Section 3(1A) provides for an enabling power of the Board which was recognized as an Authority under the 1963 Act. The said power ·~ was to be exercised in special cases. As stated above, granting I of administrative reliefs by the Board came within its authority. As stated above, the said circular was issued for just and fair administration of the 1963 Act. As stated above, Section 3(1A) is similar to Section 119(1) of the 1961 Act. The circulars of this nature are issued by the Board consisting of highest senior I ~ officers in the Revenue Department. These circulars are to be respected by the officers working under the supervision of the Board.

These circulars are binding on all the authorities administering the tax department. The power of the Board to i~sue such circular is traceable to Section 3(1A)(c) of the Act. The said circular is statutory in nature. Therefore, it is binding on the Department though not on the courts and the assessees. In the present case, as stated above, completed assessments were sought to be reopened by the AO on the ground that the said circular No. 16/98 was not binding. Such an approach is ). __ unsustainable in the eyes of law. If the State Government was of \ / I the View that such Circulars are illegal OJ that they are ultra Vires Section 3(1A), which it is not, it was open to the State to nullify/ withdraw the said circular under Section 60 of the 1963 Act. Till today, the circular continue to remain in force. Till today, it has not been withdravvfl.

In the circumstances, it is not open to the officers administering the law working under the Board of Revenue to say that the said circular is not binding on them. If such a contention was to be accepted, it would lead to chaos 0 ·and indiscipline in the administration of tax laws. 22. In the case of Steel Authority of India v. Collector of Customs, Bombay reported in 2000 (115) ELT 42 (SC) a similar situation arose. It was submitted on behalf of the revenue . in that case that the Trade Notice had been issued only by Bombay Customs and, therefore, it was not binding on other Customs. This argument was repelled by the Division Bench of this Court by stating that the Trade Notice issued by one Customs House must bind all Customs Authorities and, if it is erroneous, it should be first withdrawn or amended. In the present case also, it is not open to the assessing officers to reopen the completed assessments on the ground that said circular No. 16/98 was erroneous.

Till today, the said circular has neither been withdrawn nor amended. 23. For the aforestated reasons, we find no infirmity in the impugned judgment of the High Court and, accordingly, the r State's civil appeals stand dismissed with no order as to costs. R. P. Appeals dismissed.