By TIOL Tax Guard

THE binding effect of Board Circulars is an issue of constant debate and has been a subject matter in several judicial pronouncements. In most of the cases, though the courts have placed a different interpretation than the Board’s interpretation, yet the decisions were based on the “binding nature” of the Board’s Circulars.

In case there is a conflict between a Board Circular and the decision of any Court or Tribunal, which should yield? In most of the cases it was held that the Department can not be permitted to take a stand contrary to the instructions issued by the Board. On the other hand, the assessee can always get relief from an incorrect Board’s Circular from appellate fora. This issue has gained importance again recently with the observation of learned Judge of Apex Court in IOCL case.  (2004-TIOL-23-SC-CUS)
 
Before going into the details, let us recapitulate the famous remarks basing on which the binding character of the Board’s Circular has been re-emphasized by the Apex Court in  Ranadey Micronutrients Vs CCE (2002-TIOl-184-SC-CX). While holding that the Board Circulars are binding, it was observed “One should have thought that an officer of the Ministry of Finance would have greater respect for circulars such as these issued by the Board, which also operates under the aegis of the Ministry of Finance, for it is the Board which is by statute, entrusted with the task of classifying excisable 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”. 

Yes! Consistency and discipline are of great importance. Circulars are issued with the objective of achieving the uniformity of interpretation and assessment through out the country. Needless to say these are to be consistent. It is with this observation that the Board’s Circulars were held to be binding on the Departmental officers. But what will happen if the Board Circulars themselves are not consistent?  Let us take some illustrations:

 
If we take a look at the above Circulars, some of them ( Sl No 1 and 2)  were withdrawn and exactly opposite directions were given because of subsequent decisions of the Courts/Tribunal placing a different interpretation on the issue. This means that the Board never had the intention to extend any benefit to the assessee but the faux pas was due to interpretation problems. Whatever benefits that flow from such circulars are not consciously extended by the Board but are a result of an incorrect interpretation. In such cases, had the adjudicating authority been allowed to use his own interpretation instead of merely following a Board’s circular, it would have produced totally different results. Had the Board not issued the Circular at Sl No 1 in the above table, the Department would have won the case which could have prevented a few thousand crores slipping out of the hands of the Government. The duty involved on account of demurrage charges is a whooping Rs 975 crore in IOCL case alone. Rest of the revenue loss across the nation is left to your imagination.

No wonder the prudent PC asked the Board not to issue Circulars!