R. Michael v. Commercial Tax Officer, Alathur & Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.M.JOSEPH & THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** **MONDAY, THE 21ST DAY OF JANUARY 2013/1ST MAGHA 1934** ## **WA.No. 50 of 2013 ()** **--------------------------------------(AGAINST THE ORDER/JUDGMENT IN WP(C).NO.540/2013 DATED 08-01-2013) --------------------------------** ## **APPELLANT/PETITIONER:** **---------------------------------------** **R.MICHAEL, PROPRIETOR, PREMIER SOAPS, 32/X, THOLANUR, PALAKKAD DISTRICT.** **BY ADVS.SRI.HARISANKAR V. MENON SMT.MEERA V.MENON SRI.MAHESH V.MENON** ## **RESPONDENT(S)/RESPONDENTS:** **----------------------------------------------------** **1. COMMERCIAL TAX OFFICER, ALATHUR-678 541.** **2. COMMERCIAL TAX INSPECTOR, COMMERCIAL TAX CHECK POST, GOPALAPURAM-678 504.** **3. DEPUTY COMMISSIONER, DEPT. OF COMMERCIAL TAXES, SALES TAX COMPLEX, PALAKKAD-678 001.** **R1 TO R3 BY GOVERNMENT PLEADER SRI.BOBBY JOHN** **THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 21-01-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **sts** ## **K. M. JOSEPH & C.K. ABDUL REHIM, JJ.** **----------------------------------------------** **Writ Appeal No. 50 of 2013 ----------------------------------------------Dated this the 21st January, 2013** ## **JUDGMENT** ## **K.M. Joseph, J.** Appellant is the writ petitioner. Appellant filed the Writ Petition seeking to quash Ext.P3 notice issued by the second respondent/Commercial Tax Officer. The further relief sought was to release the goods detained as per Ext.P3 unconditionally. 2. Briefly put, the case of the appellant is as follows: Appellant is running a unit engaged in the manufacture and sale of soaps. He is an assessee under the Kerala Value Added Tax Act, 2003 (hereinafter referred to as the Act). The soaps manufactured by the appellant were detained under Section 47 of the Act. According to the appellant, the appellant had received an order from M/s. Jack Pharma. Appellant was instructed to manufacture the soaps under the brand name of the said concern. Appellant was only directed to collect the manufacturing cost and a _**W.A.NO.50/13**_ _**2**_ fairly good amount of profit. Accordingly, the appellant was not entitled to sell the soaps to anyone other than the said M/s. Jack Pharma. Appellant collected Rs.11/30 per piece of soap according to Ext.P1 invoice. According to the appellant, this was the agreed price between the appellant and the party at Madurai. Ext.P2 is the declaration in Form 8F filed by the appellant for the transport of the above goods. While the above goods were being sent to Madurai, they were detained at the Gopalapuram check post by Ext.P3 notice. The reason which is described as the sole reason by the appellant is that the price shown per piece is Rs.11.50 is too low when compared to the branded price of Rs.70/= on the wrapper. Appellant filed Exts.P5 and P6 objections. The objections are apparently based on Ext.P4 circular. Ext.P4 circular relates, according to the appellant, to the manner in which and the situation in which Section 45 of the Act is to be invoked. Section 45 of the Act reads as follows: _**W.A.NO.50/13**_ _**3**_ ## _“_ _**45. Purchase of goods to prevent under**_ ## _**valuation:-**_ _The assessing authority or any other officer empowered in this behalf by the Government is satisfied that any dealer with a view to evade payment of tax, shows in his accounts, sale or purchase of any goods at prices lower than the prevailing market price of such goods, shall have the power to purchase such goods at a price of ten per cent above the purchase value or the value disclosed by any principal or agent in the case of goods received on consignment basis plus transporting charges and entrust such goods for sale to the Kerala State Civil Supplies Corporation Ltd. Or Kerala State Marketing Federation Limited or to any such public distribution system or sell such goods in public auction.”_ 3. It is the case of the appellant that it is mandatory on the part of the second respondent to have effected purchase of the soaps at the price shown in the Invoice and ten per cent above the value. It is accordingly that the appellant approached this Court _**W.A.NO.50/13**_ _**4**_ for the reliefs sought for. 4. The learned Single Judge took the view that as far as the prayer for quashing Ext.P3 is concerned, a similar Writ Petition was disposed of directing adjudication to be conducted and in the meanwhile, the goods be released subject to the petitioner therein furnishing bank guarantee for the security demanded. The learned Single Judge further noticed the further contention raised by the appellant based on Sections 45 and Ext.P4 Circular. The learned Single Judge did not find merit in the said contention on the basis that both the provision and the circular only show that it is only an enabling power of the respondents and there is no mandatory obligation for them to purchase the goods in each and every case when their statutory powers are exercised. The learned Single Judge only directed that if the appellant furnishes bank guarantee for the security demanded, the goods will be released. It is feeling aggrieved by the same that the appellant is before us. _**W.A.NO.50/13**_ _**5**_ 5. We heard the learned counsel for the appellant and the learned Government Pleader. 6. Learned counsel for the appellant would, no doubt, contend that the goods are manufactured against the order of a particular party. The goods cannot be sold to any other party and the price shown as per the agreement between the parties includes manufacturing cost and its profit margin and what is printed on the wrapper is the maximum retail price and the Officer was not justified. 7. The more important contention which was pressed before us by the learned counsel for the appellant was having regard to the terms of Ext.P4 circular which was issued, it was incumbent on the part of the Officer to purchase the goods as mentioned in the Section and the Circular. Learned Government Pleader would, on the other hand, submit that the Section is clear. It is only an enabling provision. It empowers the Officer with the power to effect compulsory purchase, but it cannot clothe the assessee with _**6**_ _**W.A.NO.50/13**_ a right to demand that the goods must be purchased invoking the said Section. 8. Both sides cited large body of case law before us. We have already extracted the Section. As far as the Section goes, it is clear that what is contemplated is “it empowers the Officer to effect purchase”. There is no duty cast on the Officer to purchase. The words of the Statute are clear and can leave no one in any doubt. The appellant laid store by the words used in Ext.P4 circular. The relevant provisions of Ext.P4 circular “items 2 and 5” reads as follows: _“It is brought to notice that this statutory provision bas not been invoked properly so far even though there are instances of tax evasion through underbilling. Hence the following instructions are issued:_ _1. Field Officers shall undertake investigation_ _and identify dealers practicing tax evasion by undervaluation._ _2. Section 45 shall be invoked in cases where_ _**W.A.NO.50/13**_ _**7**_ _clear under-valuation is detected. In the case of grocery it4ems any item whose value is shown in the invoice at lower t4han 70% of the bulk sales price notified by Supplyco for the month will be considered as under-valued. Supplyco notifies such prices from time to time._ _5. Goods which are not handled by Supplyco where under-valuation is suspected shall be purchased at 10% above the value disclosed in the invoice plus freight charges and disposed off in public auction and the receipts remitted to Government”_ Therefore, he would submit that it is mandatory in the circumstances as the present, for the Officer to purchase the goods under Section 45 of the Act. In this regard, he relied on the following case law: (i) The decision in _**Collector or Central Excise, Vadodra**_ v. _**Dhiren Chemical Industries**_ ((2002) 2 SCC 127) was rendered by a Constitution Bench of the Supreme Court. That was a case where the Court was called upon to resolve the difference of _**W.A.NO.50/13**_ _**8**_ opinion emerging from two Benches of three Judges each in Usha Martin Industries case ((1997) 7 SCC 47) and Motiram Tolaram case ((1999) 6 SCC 375). Therein the case arose under the Central Excise Act. A Notification was issued by which the Government exempted iron and steel products made of certain materials or a combination thereof on which the appropriate amount of duty had already been paid. Therein, the Constitutional Bench took the view that the words “has already been paid” controlled the Notification and in a case where no excise duty was payable on the raw-materials, it could not be said that duty has already been paid and further held that the Notification is intended to give relief against the cascading of excise duty. Thereafter, the Court after resolving the dispute, held as follows: _“11. We need to make it clear that, regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase,_ _**9**_ ## _**W.A.NO.50/13**_ _that interpretation will be binding upon the Revenue.”_ (ii) The next Judgment relied on by the appellant is in v. _**Kalyany Packaging Industry Union of India And Another**_ [(2005) 141 STC 116). Therein, the question which was posed was in the light of the observation made in _**Dhiren Chemical Industries' s**_ case, the Court was called upon to consider the effect of the clarification in _**Dhiren Chemical Industries' s**_ case that in spite of the interpretation given by the Court, if there are any Circulars issued by the Central Board of Excise and Customs which places a different interpretation, that interpretation would be binding on the Revenue. The Court, however, proceeded to take the view that the law laid down by the Apex Court is the law of the land which is binding on the Courts and Tribunals and Bodies. It is, further, held that the Circulars of the Board cannot prevail over the law laid down by the Court. Thereafter, the Court proceeded to hold as follows: _**W.A.NO.50/13**_ _**10**_ _“Thus, para 9 was incorporated to ensure that cases where benefits of exemption notification had al3ready been granted, the Revenue would remain bound. The purpose was to see that such cases were not reopened. However, this did not mean that even in cases where the Revenue/Department had already contended that the an benefit of exemption notification was not available, and the matter was sub judice before a court or a tribunal, the court or tribunal would also give effect to the circulars of the Board in preference to a decision of the Constitution Bench of this Court. Where as a result of dispute the matter is sub judice a court/tribunal is, after Dhiren Chemical's case (2002) 139 ELT 3, bound to interpret as set out in that judgment. To hold otherwise and to interpret in the manner suggested would mean that courts/tribunals have to ignore a judgment of t4his Court and follow the circulars of the Board. That was not what was meant by para 9 of Dhiren Chemical's case (2002) 139 ELT 3).”_ (iii) Still further, the learned counsel for the appellant would draw support from the Judgment in _**State of Kerala And**_ _**W.A.NO.50/13**_ _**11**_ _**Others**_ v. _**Kurian Abraham Pvt. Ltd. And Another**_ (2008) 13 VST 1 (SC)). Therein, a Bench of two Judges of the Apex Court was considering, inter alia, the effect of a Circular issued by the Board of Revenue, the State of Kerala. The Court, inter alia, no doubt, held as follows: _“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 section 3(1A). As stated above, section 3(1A) provides for an enabling power of the Board which was recognised as an authority under the 1963 Act. The said power was to be exercised in special cases. As stated above, granting 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 officers in the Revenue Department. These circulars are to be_ _**W.A.NO.50/13**_ _**12**_ _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 issue 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 assessing Officer 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 the view that such circulars are illegal or 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 withdraw. 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 and indiscipline in the_ _**W.A.NO.50/13**_ _**13**_ _administration of tax laws.”_ (iv) Lastly, the appellant referred to the Judgment of the Constitution Bench of the Apex Court in _**Commissioner of Central**_ v. _**Excise, Bolpur Ratan melting & Wire Industries**_ ((2008) 13 SCC 1). The Judgment shows that a reference made to the Constitution Bench was necessitated again by the observation in _**Dhiren Chemical Industries' s**_ case (supra). The Court proceeded to, inter alia, hold as follows: _“Circulars and instructions issued by the Central Board of Excise and Customs (CBEC) are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the court to direct that the circular should be given effect to and not the view expressed in a decision of the Supreme Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned, they represent merely_ _**W.A.NO.50/13**_ _**14**_ _their understanding of the statutory provisions. They are not binding upon the court. It is for the court to declare what the particular provision of statute says and it is not for the executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.”_ 9. Learned Government Pleader has also relied on the following case law: (i) In _**Beeran Koya C**_ . v. _**Commissioner, Commercial Taxes, Tvm. And Others**_ [(2009 (4) KHC 432 (SN)] and _**Shiji M.R., Mridhul Timbers**_ v. _**Inspector, Sales Tax Check Post, Meenakshipuram**_ [(2009) 17 KTR 571 (Ker)] the decisions are rendered by a learned Single Judge of this Court, taking the view that Section 45 does not oblige the Officer to effect purchase. v. _**Sirpur Paper Mill Ltd. Commissioner of Wealth-Tax, Andhra Pradesh**_ [(1970) 77 ITR 6) was a case which arose under the Wealth Tax Act, 1957. Therein, the Apex Court, inter alia, took the view that the orders, instructions and directions of the Central _**W.A.NO.50/13**_ _**15**_ Board contemplated under Section 13 of the Wealth Tax Act 1957 was binding on the Officers in the Department in matters of administration, but not quasi judicial. In _**Kerala Financial**_ v. _**Corporation Commissioner of Income-Tax**_ [(1994) 210 ITR 129) the Apex Court was considering the power of the Central Board of Direct Taxes under Section 119 of the Income Tax Act. Therein, the Court, inter alia, held as follows: _“A circular of the Central Board of Direct Taxes under section 119 of the Income-tax Act, 1961, cannot override or detract from the Act, inasmuch as what section 119 has empowered is to issue orders, instructions or directions for the “proper administration” of the Act or for such other purposes specified in sub-section (2) of the section. Such an order, instruction or dir3ection cannot override the provisions of the Act; that would be destructive of all the known principles of law as that would really amount to giving power to a delegated authority to even amend the provision of law enacted by Parliament.”_ _**16**_ _**W.A.NO.50/13**_ v. (ii) In _**Commissioner of Income-Tax Hero Cycles Pvt. Ltd. And Others**_ [(1997) ITR 463), the Apex Court took the view that Circulars can bind the Income Tax Officer, but do not bind the appellate authority or the tribunal or the court or even the assessee. _**Hindustan Aeronautics Ltd.**_ v. (iii) In _**Commissioner of Income-Tax**_ [(2000) 243 ITR 808)], the Apex Court, inter alia, held as follows: _“Circulars or instructions given by the Board are no doubt binding in law on the authorities under the Act but when the Supreme Court or the High Court has declared the law on the question arising for consideration it will not be open to a court to direct that a circular should be given effect to and not the view expressed in the decision of the Supreme Court or the High Court.”_ (iv) The very recent decision rendered under the Income Tax Act is v. _**Catholic Syrian Bank Ltd. Commissioner of IncomeTax**_ [(2012) 343 ITR 270)] wherein a Bench of three Judges of the Apex Court was considering a case under Section 36 of the Income _**W.A.NO.50/13**_ _**17**_ Tax Act and therein the Court, inter alia, held as follows: _“18. Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, “the Board”) in exercise of the power vested in it under section 119 of the Act. Circulars can be issued by the Board to ex;lain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income-tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and administration and the proper application of provisions of the Act. (Refer to UCO Bank v. CIT [1999) 4 SCC 599)].”_ (v) Learned Government Pleader also seeks to draw support from a three Bench decision rendered by the Apex Court in _**State**_ _**W.A.NO.50/13**_ _**18**_ v. _**Bank of Travancore Commissioner of Income-Tax, Kerala**_ [(1986) 158 ITR 102)]. Therein also, the Apex Court, inter alia, held as follows: _“Circulars which are executive in character cannot alter the provisions of the Act. Circulars which are in the nature of concessions can also be prospectively withdrawn”._ 10. From a perusal of the aforesaid proposition laid down in the aforesaid case law, we can deduce the following principles: Circulars are issued by the State Government or the Central Government. They can also be issued by the respective Boards constituted under various Acts. As held by the Apex Court, any direction issued by the Government would be mere expression of its opinion. As far as circulars which are issued under Section 119 of the Income Tax Act, which has generated much of the case law relating to the effect of circulars, the judgments turn on the wording of Section 119. A circular which is issued may clarify the effect of the law. It may provide concessions to the assessees. It _**19**_ _**W.A.NO.50/13**_ may purport to remove the ambiguity which may appear on a perusal of the concerned statutory provision. When the matter comes up before a court of law, however, it is for the court to interpret the provision to decide the same. As held by the Apex Court in _**Kalyany Packaging Industry**_ v. _**Union of India And Another**_ [(2005) 141 STC 116), once a provision has been interpreted by the superior court, then it may not be open to the assessee to project an interpretation on the concerned provision in tune with the circular, but against the law laid down by the court. But, in order to hold that the circular is to be enforced diluting the strict rigour of the law contained in the statutory provision, the first and foremost and inevitable requirement is that the circular must provide for a benefit to the assessee. In this case, Section 45 of the Act contemplates compulsory purchase of the goods in certain circumstances. The said provision is geared to safe-guard the interest of the Revenue. In fact, the learned counsel for the appellant fairly concedes that the circular does not confer any _**W.A.NO.50/13**_ _**20**_ benefit on the assessee as such. In this case, the provisions of Section 45 are clear as day light and there is no ambiguity as to the nature of the power/duty which is cast on the officer. Section 45 is only an enabling provision. To accept the contention of the appellant, would be to over look the deep financial commitment which would be placed on the shoulders of the Government. Even the wording of the circular could possibly be interpreted as meaning that the officer is called upon to consider invoking the power under Section 45 in certain circumstances. At any rate, if the circular is intended to mean that in all cases as contemplated in paragraphs 2 and 5, the officer is obliged to invoke Section, it is against the interpretation placed on Section 45 by the learned Single Judge of this Court as affirmed in appeal as conceded by the learned counsel for the appellant. This would be contrary to the law which has been laid down by the Apex Court itself. Further more, we may also notice that though a ground is taken in the Writ Petition, the appellant has not sought any relief on the lines that the _**W.A.NO.50/13**_ _**21**_ appellant has projected before us, namely there is no direction sought to the officer to purchase the goods invoking Section 45. In such circumstances, we are of the view that there is no merit in the contentions of the appellant and we dismiss the Appeal. **Sd/=** **K. M. JOSEPH,** **JUDGE** **Sd/= C. K. ABDUL REHIM, JUDGE** ## **kbk.** _**//True Copy//**_