TIOL-DDT 930 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 930</font> <br>
14.08.2008 <br>
Thursday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Circular cannot take away the effect of Notifications statutorily issued – Supreme Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court, yesterday, delivered a landmark judgement, where the Supreme Court held that the provisions of a notification would prevail over the instructions in a Board Circular.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We were under the impression that the Supreme Court on many occasions held that Board Circulars are binding on the Departmental Officers. But now the Supreme Court says that, “A Circular cannot take away the effect of Notifications statutorily issued.”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Interestingly, before the Tribunal, the appellants did not argue that the Board’s Circulars are binding on the revenue though they are contrary to the statutory provisions/notifications. But after the dismissal of the appeals, they filed a ROM before the Tribunal and raised the contention that as per the judgement in <em>Dhiren Chemical Industries</em> case the Circulars are binding on the revenue. But the Tribunal dismissed the ROM application.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Strangely, again the binding nature of circulars was not argued before the Supreme Court!!!!!!</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We are proud to bring you today this judgement which was delivered only yesterday!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please See our <a href="#">Breaking News</a>:</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Board Circulars - binding?</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Consistency and discipline are of far greater importance than the winning or losing of court proceedings.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 <em>Dhiren Chemicals</em>, the Supreme Court explained the meaning of, <em>“appropriate duty has already been paid”</em>, 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, “ 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?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the now famous RANADEY MICRONUTRIENTS v COLLECTOR OF CENTRAL EXCISE - <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-184-SC-CX.htm" target="_blank">2002-TIOL-184-SC-CX</a> case, the Supreme Court held that</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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. <strong>Consistency and discipline are of far greater importance than the winning or losing of court proceedings</strong>.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">It is not open to the Revenue to raise a contention that is contrary to a binding circular issued by the Board.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In an Income Tax case in UCO BANK v COMMISSIONER OF INCOME-TAX, WEST BENGAL - it was held that</font></p>
<blockquote>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">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</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The PAPER PRODUCTS LTD. V COMMISSIONER OF CENTRAL EXCISE - <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-84-SC-CX.htm" target="_blank">2002-TIOL-84-SC-CX</a> case reiterated the Ranadey decision and it was held that</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Circulars issued by CBE & 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 - <strong>Consistency and discipline are of far greater importance than winning or losing Court</strong></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In MAHAVIR ALUMINIUM LTD. V COLLECTOR OF CENTRAL EXCISE, JAIPUR - it was held that,</font></p>
<blockquote>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Department is bound by the Circulars issued by the Central Board of Excise & Customs under Section 37B of the Central Excise Act, 1944.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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,</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
</blockquote>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And then came the famous Dhiren Chemicals - COLLECTOR OF</font><font face="Verdana, Arial, Helvetica, sans-serif"><st2:GivenName w:st="on"></st2:GivenName><st2:GivenName w:st="on"> </st2:GivenName><st2:GivenName w:st="on"><font size="2">C.</font></st2:GivenName></font> <font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <st2:middlename w:st="on"> </st2:middlename> <st2:middlename w:st="on"></st2:middlename> <st2:middlename w:st="on"></st2:middlename> <st2:middlename w:st="on"></st2:middlename> </font><font size="2"> <st2:middlename w:st="on"></st2:middlename> </font> <st2:middlename w:st="on"> <font size="2" face="Verdana, Arial, Helvetica, sans-serif">EX.</font></st2:middlename> <font size="2" face="Verdana, Arial, Helvetica, sans-serif"> , VADODARA v DHIREN CHEMICAL INDUSTRIES - <u><a
href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-83-SC-CX.htm" target="_blank">2002-TIOL-83-SC-CX</a></u> when the Supreme Court observed that</font></div>
<blockquote>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And this was confirmed in COLLECTOR OF CENTRAL EXCISE, <st1:City w:st="on"> <st1:place w:st="on"> MEERUT v MARUTI FOAM (P) <st1:stockticker w:st="on"> LTD.</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Dhiren case was clarified in KALYANI PACKAGING INDUSTRY v UNION OF <st1:country-region w:st="on"> <st1:place w:st="on"> INDIA </st1:country-region> - <u><a
href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2004/2004-TIOL-82-SC-CX.htm">2004-TIOL-82-SC-CX</a></u></font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This binding nature was doubted in COMMISSIONER OF CUSTOMS, <st1:City w:st="on"> <st1:place w:st="on"> CALCUTTA v INDIAN OIL CORPORATION <st1:stockticker w:st="on"> LTD - <a
href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=26&filename=legal/sc/2004/2004-TIOL-23-SC-CUS.htm">2004-TIOL-23-SC-CUS</a>, by one of the judges and it was suggested that the matter needs to be examined by a Constitutional bench.</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though it was suggested that this issue requires examination by a Constitution bench, it was not really referred.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And then finally the Supreme Court has decided to refer the issue to a five member constitutional bench in RATAN MELTING & <st1:stockticker w:st="on"> WIRE INDUSTRIES<b> - </b><u><a
href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2005/2005-TIOL-41-SC-CX-LB.htm">2005-TIOL-41-SC-CX-LB.</a></u></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue was again before the Supreme Court in UNION OF <st1:country-region w:st="on"> <st1:place w:st="on"> INDIA </st1:country-region> & OTHERS vs ARVIVA INDUSTRIES (I) <st1:stockticker w:st="on"> LTD & OTHERS<b> - </b><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2007/2007-TIOL-12-SC-CX.htm" target="_blank">2007-TIOL-12-SC-CX </a>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.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Consistency and discipline are of far greater importance than the winning or losing of court proceedings.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>But now what happens? Can Adjudicators hold that Board Circulars are wrong and then go by the “law” as they understand it? Has Dhiren Chemicals gone for a toss?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Had the assessee taken the stand that, Board Circulars are binding, at the Tribunal stage or at least in the Supreme Court, this unfortunate situation could have been avoided.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Power Plants – whether it is the aggregate capacity or the individual capacity that is to be reckoned for deciding exemption?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Here is another mail from an enlightened and “powerful” netizen.<br>
<br>
Sl. No. 400 of notification 21/2002-Cus grants exemption to the imported goods of the following description falling under chapter heading 9801 --<br>
<br>
Goods required for setting up of any Mega Power Project, so certified by an officer not below the rank of a Joint Secretary to the Government of India in the Ministry of Power, that is to say -</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (a) an inter-state thermal power plant of a capacity of 700MW or more, located in the States of Jammu and Kashmir, Sikkim, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland and Tripura; or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) an inter-state thermal power plant of a capacity of 1000MW or more, located in States other than those specified in clause (a) above; or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) an inter-state hydel power plant of a capacity of 350MW or more, located in the States of Jammu and Kashmir, Sikkim, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland and Tripura; or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) an inter-state hydel power plant of a capacity of 500MW or more, located in States other than those specified in clause (c) above”; </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This exemption is also subject to satisfying the condition 86 appended to the notification.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">An interesting objection in the offing is whether this exemption is available to an individual power plant or to the aggregate capacity of the power plants being set up simultaneously. Eg. two inter-state thermal power plants of a capacity 400 MW each are being set up in Tripura – would they be entitled to this exemption?</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Any answers?</b></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol </font><font color="#006600">– Monday's cases</font></strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Relationship of principal and agent should exist for bringing agent within ambit of C & F Agent – Storage of crude received on behalf of client and transfer through pipe lines to vessels is taxable under category of ‘Transport of Goods through pipeline or conduit service' w.e.f 01.05.2006: CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CLASSIFICATION</strong> of activities undertaken by service providers to determine the taxability will take its time for resolution in the absence of clear definitions in the statute. However, there are instances where the Board has clarified the taxability or otherwise of activities undertaken by service providers but these clarifications usually fall on deaf ears in the field. With the result, the assessees are put to the rigmarole of receiving demand cum show cause notices, quasi judicial processes, confirmation of demands at the lower levels. The assessees get respite only when the issues are resolved at the Tribunals. Things have come to such a pass in the field formations that the lower authorities neither heed the clarifications issued by the Board nor act judiciously to discharge their quasi judicial functions. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>There has been no loss to exchequer and on contrary excise duty paid is more than amount of differential CVD demanded – After dispensing with requirement of pre-deposit, Tribunal grants Stay </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> adjudicating authority is on a penalty imposition spree . He confirmed a CVD demand of Rs.1.70 crores and imposed equivalent penalties on the appellant, an importer, and its Director and gave a similar treatment to the deemed manufacturer and his Managing Director. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, what was the reason for his magnanimity? </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Section 50C (stamp duty value for transfer of capital assets) – constitutional validity upheld - to tax something, it is not necessary to tax everything – Madras High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Tax could be evaded by breaking the law or could be avoided in terms of the law. When there is a factual avoidance of tax in terms of law, the Legislature steps into amend the income tax law to catch such an income within the net of taxation. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns Monday for the judgements</strong></font></p>
<p><b><span style='font-size:24.0pt;font-family:
"Verdana","sans-serif";color:red;background:silver;mso-highlight:silver'>HAPPY </span></b><st1:City w:st="on"><st1:place w:st="on"><b><span
style='font-size:24.0pt;font-family:"Verdana","sans-serif";color:white;
mso-themecolor:background1;background:silver;mso-highlight:silver'>INDEPENDENCE</span></b></st1:place></st1:City><b><span
style='font-size:24.0pt;font-family:"Verdana","sans-serif";color:red;
background:silver;mso-highlight:silver'> </span></b><b><span
style='font-size:24.0pt;font-family:"Verdana","sans-serif";color:#00B050;
background:silver;mso-highlight:silver'>DAY</span></b></p>
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<p><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more<strong> DDT </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Day. </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com </a></font></p>
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