Board Circulars - binding?
Consistency and discipline are of far greater importance than the winning or losing of court proceedings.
Do you still doubt this? The issue comes up with boring regularity and we are not tired of repeatedly reporting it and commenting on it repeatedly.
Once upon a time it was believed that adjudicating authorities are independent judicial officers who were required to pass reasoned orders based on their own reasoning un-influenced by instructions or advice from their superior officers. The Central Excise adjudication manual published in 1988 (that was its last publication), in para 39 directed that Board Orders and reference numbers should not be quoted in the Adjudication Orders. It was further advised that Law ministry’s opinion is confidential and should never be communicated in the same language to even sub-ordinate officers. There were several Assistant Commissioners who used to boast “I am an adjudicating authority and not bound by the Board orders”
A few years down the lane and the whole concept changed. It is now well known that the Board circulars are binding on the departmental officers. This concept enunciated by the Supreme Court was also taken to ridiculous levels. What the Courts meant was that if a Board circular gave a benefit to the assessee, the department is barred from arguing that the circular was wrong. In Dhiren Chemicals, the Supreme Court explained the meaning of, “appropriate duty has already been paid” , but went on to add that if there was any circular of the Board contrary to the Supreme Court’s interpretation, the Board’s interpretation would prevail( in favour of the assessee). This was taken to mean that the Board was supreme and can give instructions even against the Supreme Court’s orders and they would be binding on the officers. Sometime back while talking to a senior law maker of the Board, I told him about a Supreme Court case. He was furious. He shouted at me, “Why do you people in the field go so legalistic?, Don’t you know that the Board instructions are binding on all the officers, even wrong instructions?” I never could understand how the Board can be superior to the Supreme Court?
It was also the judicial opinion that Government circulars are not binding on quasi judicial authorities and they are bound by decisions of the courts and not the Board. In Bengal Iron Corporation V Commercial Tax Officer, it was held that
So far as clarifications/circulars issued by the Central Government and/or State Government are concerned, they represent merely their understanding of the statutory provisions. They are notbinding upon the Courts. It is true that those clarifications and circulars were communicated to the concerned dealers but even so nothing prevents the State from recovering the tax, if in truth such tax was leviable according to law.There can be no estoppels against the statute. The understanding of the Government, whether in favour or against the assessee, is nothing more than its understanding and opinion. It is doubtful whether such clarifications and, circulars bind the quasi judicial functioning of the authorities under the Act. While acting in quasi judicial capacity, they are bound by law and not by any administrative instructions, opinions, clarifications or circulars. Law is what is declared by this Court and the High Court - to wit, it is for this Court and the High Court to declare what does a particular provision of statute say, and not for the executive.
In KIRLOSKAR OIL ENGINES LTD. V UNION OF INDIA - the Apex Court held that
Legally there can be no two opinions that a trade notice issued by the Collector or even the Board has no binding authority and the assessing authority can draw its conclusions.
Then came the now famous RANADEY MICRONUTRIENTS v COLLECTOR OF CENTRAL EXCISE - case, where the Supreme Court held that
Such circulars are not advisory in character but binding on the Central Excise Officers - Department cannot be allowed to plead that such circular was not valid
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. 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.
It is not open to the Revenue to raise a contention that is contrary to a binding circular issued by the Board.
In an Income Tax case in UCO BANK v COMMISSIONER OF INCOME-TAX, WEST BENGAL - it was held that
Departmental circulars are not meant for contradicting or nullifying any provision of the statute but are meant for ensuring proper and efficient administration of the statute, for mitigating the rigours of too literal an application of a particular provision of the statute in certain situations by applying a beneficial interpretation to the provision and for ensuring uniformity of assessment - Such circulars binding on the Department
The PAPER PRODUCTS LTD. V COMMISSIONER OF CENTRAL EXCISE - case reiterated the Ranadey decision and it was held that
Circulars issued by C.B.E. & C. are binding on the departmental authorities and they cannot take a contrary stand - Department cannot repudiate a Circular issued by the Board on the basis that it was inconsistent with a statutory provision - However assessee can contest the validity or legality of such Departmental Circulars or Instructions - Department does not have a right to file an appeal against the correctness or binding nature of a Circular - Department’s actions have to be consistent with the Circulars - Consistency and discipline are of far greater importance than winning or losing Court
In MAHAVIR ALUMINIUM LTD. V COLLECTOR OF CENTRAL EXCISE, JAIPUR - it was held that,
Department is bound by the Circulars issued by the Central Board of Excise & Customs under Section 37B of the Central Excise Act, 1944.
A little later, the Supreme Court observed that Board decisions are not above court orders when it observed in HINDUSTAN AERONAUTICS LTD. V COMMR. OF INCOME TAX,
Board’s circulars or instructions are no doubt binding on the authorities under the Act but when Supreme Court or the High Court has declared the law on the question at issue, it will not be open to a Court to direct that a circular should be given effect to and not the view expressed in a decision of the Supreme Court or the High Court.
And then came the famous Dhiren Chemicals - COLLECTOR OF C. EX., VADODARA v DHIREN CHEMICAL INDUSTRIES - , when the Supreme Court observed that
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 that interpretation will be binding upon the Revenue.
And this was confirmed in COLLECTOR OF CENTRAL EXCISE, MEERUT v MARUTI FOAM (P) LTD.
Regardless of interpretation place on such phrases by Court, if during the relevant time there were circulars issued by C.B.E.C. which place a different interpretation, that interpretation would be binding on Department till it is withdrawn.
The Dhiren case was clarified in KALYANI PACKAGING INDUSTRY v UNION OF INDIA -
This did not mean that even in cases where Revenue/Department had already contended that benefit of an exemption notification was not available and matter was sub-judice before a Court or a Tribunal, the Court or Tribunal would also give, effect to circulars of Board in preference to a decision of Constitution Bench of Supreme Court
This binding nature was doubted in COMMISSIONER OF CUSTOMS, CALCUTTA v INDIAN OIL CORPORATION LTD. - , by one of the judges and it was suggested that the matter needs to be examined by a Constitutional bench.
Proposition of law that even after highest Court settles law on the subject, view expressed by Central Board on same point of law should still hold the field until and unless revoked, is doubted - Customs authority should act subservient to decision of highest Constitutional Court and not to Circular of Board which is denuded of its rationale and substratum under impact of authoritative pronouncement of highest Court
Common thread not running through decisions of Supreme Court - Dicta/observations in some of decisions need to be reconciled/explained - Need to redefine succinctly extent and parameters of binding character of circulars of Board looms large - Constitution Bench’s authoritative pronouncement of subject, is desirable.
Though it was suggested that this issue requires examination by a Constitution bench, it was not really referred.
And then finally the Supreme Court has decided to refer the issue to a five member constitutional bench in RATAN MELTING & WIRE INDUSTRIES -
The issue is again before the Supreme Court in appeal from the state. Today we are carrying a judgement where the Supreme Court had to reiterate the same decided issue. Interestingly the Supreme Court refused to refer the issue to a larger bench. It was apparently not brought to the notice of the Court that the matter already stands referred to a Constitutional Bench, on the question whether the Board Circular will prevail even after the Supreme Court has given its judgement on an issue.
But why should the government take the issue to the Supreme Court so many times? The Government should be ashamed to argue that its circular was wrong. If the Circular was really wrong, it should be withdrawn and whatever benefits allowed till withdrawal should be forgotten. It is certainly not wrong to make mistakes; we all do. And it is really difficult for the poor babus in the Board not to make mistakes, but to make a virtue out of mistakes and fight court battles to take advantage of those mistakes is really silly and most unbecoming of a government! These may be tricks of the trade for a cheap evader, not a giant department which collects a couple of Lakhs of Crores of Revenue.
May be next time a Revenue officer challenges a Board Circular in a court, he should be made to pay 1% of the revenue involved. That would be the only deterrent against such futile litigation.
Consistency and discipline are of far greater importance than the winning or losing of court proceedings.
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