2000 JTR(SC) 86
2000 AIR(SC) 3442 ; 2000 AIR(SCW) 2074 ; 2001 168 CTR 50 ; 2001 248 ITR 338 ; 2000 2 JT 441 ; 2000 6 Scale 392 ; 2000 9 SCC 66 ; 2000 7 SLT 353 ; 2001 122 STC 100 ; 2000 UPTC 472 ; 2000 KHC 1407
SUPREME COURT OF INDIA
N.Santosh Hegde : R.C.Lahoti : S.P.Bharucha
Commissioner Of Sales Tax, U.P.
Versus
Indra Industries
Case No. : 9330 , 9333 of 1994
Date of Decision : 1/12/00
Circulars issued by tax authorities are not binding on courts or assessees, but the interpretation of law contained therein is binding on the taxing authority itself, which cannot argue against its own interpretation.
(A) Tax Law - Circulars issued by tax authorities - Binding nature - A circular by tax authorities is not binding on the courts or the assessee, however, the interpretation placed by the taxing authority on the law is binding on that taxing authority - The taxing authority cannot be heard to advance an argument that is contrary to that interpretation. (Para 4)
(B) Estoppel - The principle that circulars represent merely the government's understanding of statutory provisions and do not prevent the State from recovering tax if leviable according to law applies only when a case of estoppel against a statute is made out. (Para 5)
Facts of the case:
The tax authorities challenged a decision of the lower court which was based on a circular issued by the commissioner of sales tax to assistant commissioners. The authorities contended that the circular was contrary to law and should not have been relied upon, arguing that they were entitled to recover the tax notwithstanding the circular.
Findings of Court:
The circular issued by the commissioner remains in effect and has not been withdrawn. It is contradictory for the department to argue that its own instructions to assessment officers are erroneous.
Issues: Whether a taxing authority is bound by the interpretation of law laid down in its own circulars.
Ratio Decidendi: While circulars are not binding on courts or assessees, they are binding on the taxing authority that issued them. The authority cannot advance an argument contrary to its own interpretation of the law.
Result: Civil appeals dismissed with costs.
(B) Estoppel - The principle that circulars represent merely the government's understanding of statutory provisions and do not prevent the State from recovering tax if leviable according to law applies only when a case of estoppel against a statute is made out. (Para 5)
Facts of the case:
The tax authorities challenged a decision of the lower court which was based on a circular issued by the commissioner of sales tax to assistant commissioners. The authorities contended that the circular was contrary to law and should not have been relied upon, arguing that they were entitled to recover the tax notwithstanding the circular.
Findings of Court:
The circular issued by the commissioner remains in effect and has not been withdrawn. It is contradictory for the department to argue that its own instructions to assessment officers are erroneous.
Issues: Whether a taxing authority is bound by the interpretation of law laid down in its own circulars.
Ratio Decidendi: While circulars are not binding on courts or assessees, they are binding on the taxing authority that issued them. The authority cannot advance an argument contrary to its own interpretation of the law.
Result: Civil appeals dismissed with costs.
Circulars - The court clarified that while circulars issued by the government are not binding on courts, the interpretation of the law placed by the taxing authority in such circulars is binding on that authority.
(1) THE High court decided against the Sales Tax authorities basing itself upon a circular addressed by the Commissioner of Sales Tax to all Assistant Commissioners (Tax Assessment). The Sales Tax authorities challenge the High courts decision by special leave. On behalf of the Sales Tax authorities, it is contented that the said circular is contrary to the law and that, therefore, the High court should have decided the matter without reference to it. Reliance was placed upon the judgment of two learned judges of this Court in Bengal Iron Corporation & Anr. v. Commercial Tax Officer & Ors. JT 1993 (3) SC 134 = (1994 Suppl.(l) SCC 310). In Paragraph 18, it was said : "So far as clarifications/circulars issued by the central government and/or state Government are concerned, they represent merely their understanding of the statutory provision. They are not binding upon the courts. It is true that those not clarifications and circulars were communicated to the concerned deals but even so nothing prevents the State from recovering the tax, if in truth such tax was leviable according to law."
(2) IT was submitted on behalf of the Sales Tax authorities that notwithstanding the said circular, they were entitled to recover the concerned tax from the respondent.
(3) THE said circular issued on 19/01/1991 by the commissioner of Sales Tax remains in effect till date. It has not been shown that it has been withdrawn. It is, therefore, very remarkable that it should be contented on behalf of the very Sales Tax department whose Commissioner issued that circular that it is erroneous. It is very remarkable that the Sales Tax authorities should instruct their Assistant commissioners who deal with tax assessment in a manner which is according to them, contrary to the law.
(4) A circular by tax authorities is not binding on the courts. It is not binding on the assessee. However, the interpretation that is thereby placed by the taxing authority on the law is binding on that taxing authority. In other words the taxing authority cannot be heard to advance an argument that is contrary to that interpretation.
(5) THE observation in paragraph 18 of the judgment in Bengal Iron Corporation can at best apply only when a case of estoppel against a statute is made out.
(6) THE civil appeals are dismissed with costs.