By TIOL News Service

ALLAHABAD , SEPT 07, 2016: THE issue is - Whether the 2004 circular issued by the Commissioner, Trade, would have the effect of effacing the benefits derived by the assessee from and under the 1979 circular. NO is the verdict.

Facts of the case

Based upon a circular, the assessee treated roasted groundnut manufactured by it as being covered by the entry given in that circular and therefore entitled to the benefits flowing from Section 14 of the 1956 Act. This position was stated to have continued till the 2004 circular came to be issued by the Commissioner, Trade Tax. As a perusal of the 2004 Circular would show and establish, the opinion of the Law Department of the State Government was stated to have been obtained to clarify as to whether roasted groundnut would stand covered by the entry "groundnut" as used in clause (vi) (i) of Section 14. This reference to the Law Department itself was stated to have been occasioned on account of a conflict between the circular dated 1979 circular and the letter dated 3 March 2001 addressed by the Assistant Commissioner (Law), Trade Tax, U.P. The Law Department basing its opinion on a judgment rendered by the SC in Gopuram Gram Mill Company and another Vs. State of Andhra Pradesh [1994 (95) STC 358] held that groundnut as specified in clause (vi) (i) of Section 14 would not encompass roasted groundnut. Accepting the said opinion as submitted by the Law Department, the Commissioner clarified accordingly and passed directions annulling the earlier circular dated 20 July 1979. The present assessee relate to the AYs 1998-99 and 1999-2000 and in respect of which assessment orders were passed on 20 March 2001 and 29 August 2001. On appeal, both the first appellate authority and the Tribunal affirmed these orders. Thus the assessee was assessed to tax and denied the benefits of section 14 prior to the issuance of the 2004 circular.

Clause (vi) of Section 14 of the 1956 Act refers to various categories of oil seeds. The description of the commodity and various commodities which were then classified as falling within the same genre were prefaced by the words "that is to say". It was trite to note that in Gopuram, three Judges of the SC have noticed and held that the usage of the phrase 'that is to say' indicates the intent of the legislature to make clear or fix the meaning of what is sought to be explained or defined. Their Lordships held that the phrase 'that is to say' indicates an exhaustive enumeration and therefore consequently the benefit of Section 14 must be limited to the goods expressly mentioned therein.

No judgment of HC or for that matter the SC directly deals/dealt with the issue of whether roasted groundnut would be liable to be treated as falling within the ambit of the entry 'groundnut' as used in clause (vi) (i) of section 14. Milak was a judgment rendered with reference to the Customs Tariff Act, 1975 and was not really dealing with section 14 of the 1956 Act. While the interpretation accorded to groundnut in the said judgment may be said to veer around or tend to support the submission of the revisionist, the Court would be justified in treading with caution before applying a judgment which has come to be rendered with reference to the provisions of another statute. This more so when the Court finds that the Customs Tariff Act 1975 did not employ the words "that is to say". Similarly Gopuram while dealing with the provisions of the 1956 Act, was construing "gram" and whether parched or fried gram would stand covered. Of course Gopuram does stress upon and underline the significance of the phrase "that is to say" in section 14 and holds that no expansive meaning can be accorded to commodities which stand mentioned therein. Therefore it would be safe to say that there is no authoritative pronouncement on the issue as to whether roasted groundnut would stand covered under clause (vi) (i) of section 14. The 1979 circular in unequivocal terms held out that roasted groundnuts would be liable to be considered as falling within the ambit of clause (vi) (i). The 2004 circular represented an authoritative yet paradigm shift from what was permitted to hold the field for decades namely, the 1979 circular. The 2004 circular, it may be noted, did not rest itself upon a declaration of the law that roasted groundnut would not be covered. It was based upon the opinion of the Law Department of the State which in turn rested upon the interpretation to section 14 as accorded to it by the Supreme Court in Gopuram. This Court, it must be noted, was not called upon to test the correctness of the opinion expressed therein nor must it be understood to have ruled upon its validity. All that the Court was called upon to consider and answer essentially was whether the 2004 circular would have the effect of effacing the benefits derived by the revisionist from and under the 1979 circular.

Having heard the matter, the Tribunal held that,

++ circulars issued by departmental authorities in exercise of statutory powers is clearly binding on them though not on courts or tribunals. They have been rightly described as representing the views and understanding of the department of the statutory provisions. They continue to hold the field till the view expressed and embodied therein is overruled or eclipsed by an authoritative pronouncement of the High Court or the Supreme Court. Once a precedent comes to be handed down and entered which enunciates the law on the point at variance with what the circular purported to hold, the circular must necessarily give way. At such a juncture a party cannot contend that the circular would continue to operate even though it may run contrary to a binding verdict or declaration of law by a High Court or the Supreme Court. The primary purpose as noted by the Supreme Court in holding the department to the views taken and expressed in such circulars is to ensure a uniform practice and to enable the trade to arrange its business accordingly. If the above principles as enunciated by the Supreme Court are borne in mind it is clear and apparent that the revisionist was justified in proceeding to arrange its affairs in accordance with the 1979 circular. The 1979 circular was issued by the Commissioner of Trade Tax U.P. who was duly empowered in terms of rule 4 of the U.P. Trade Tax Rules, 1948. This circular was clearly binding upon the other subordinate authorities working under and administering the 1948 Act. In any view of the matter the revisionist could not have been held liable to pay additional tax and denied the benefits flowing from section 14. Its actions were based entirely upon the 1979 circular which continued to hold the field till 24 May 2004 when the second circular came to be issued. All transactions prior to 24 May 2004 were therefore liable to be treated in accordance with the provisions of the 1979 circular;

Effect of Circular on previous transactions

++ the 1979 circular continued to hold the field for decades. The 2004 circular represented a considered and definitive shift in the stand and understanding of the department on the subject. It represented a paradigm change of position and thought. The said circular was neither explanatory in character nor was it an instrument to clear conflicting views and opinions. The letter dated 3 March 2001 addressed by the Assistant Commissioner (Law), Trade Tax, U.P, it becomes worthy of note, was merely a communication of the Assistant Commissioner (Law). It was not a circular issued by the Commissioner of Trade Tax in exercise of statutory powers. It did not have the effect of overriding or rescinding the 1979 circular. The 2004 circular can be rightly described as an outcome of a revisit and a reconsideration of the vexed issue of taxability of roasted groundnut and whether it was liable to be treated as an unclassified item. However the moment one arrives at the conclusion that the 2004 circular was merely an outcome of an exercise of "revisit" and "reconsideration" and not an expression of opinion based upon an authoritative pronouncement of law by a competent court, it must be treated as having prospective operation. The Court has also weighed in consideration the flux in the legal position and the fact that the issue of taxability of roasted groundnut as an unclassified item was/is an issue not free from debate and question. In such a situation as SC held in Usha Martin benefit of doubt must be given to the assessee and that opinion which is in its favor must be given effect to;

++ one last submission of Sri B.K. Pandey which needs to be noticed and considered is his contention that the 2004 circular declared the 1979 circular as void and a nullity and therefore the views expressed therein would be deemed to have never operated. With respect, this Court is unable to countenance the said submission. The Commissioner Trade Tax U.P. it needs to be noted is not a court. The power to declare the law is vested in and with a court. The power to issue a declaration of nullity does not inhere in the Commissioner. The submission itself is based upon principles, applicable to the issue of decrees and declarations by courts. The 2004 circular therefore did not have the effect of effacing the 1979 circular with retrospective effect. In light of the above, this Court holds that question no. 2 must be answered in favor of the revisionist and it be held that prior to the promulgation of the 2004 circular the 1979 circular held the field and all transactions in roasted groundnuts as entered into by the assessee be subjected to tax in accordance therewith.

(See 2016-TIOL-2001-HC-ALL-CT)