2007 (4) TMI 353 - SC - VAT and Sales Tax

Nature of the amendment - whether it is at all retrospective in operation, and if not, whether the provision as amended by the Second Amendment applies to the appellant? Held that - Appeal allowed. Undisputedly, the 1996 circular was binding on the revenue authorities as is spelt out in the case of April 12, 1996 and October 23, 1999 circulars. The assessments were completed on the basis of the April 12, 1996 circular. Merely because the Commissioner changes his view/opinion and according to him it was review of the earlier decision that cannot have any effect on any assessment which has been completed on the basis of the 1996 circular. That being so, the question of reopening the assessment by mere change of opinion is entirely impermissible

Issues Involved:

1. Validity of Circular No. 31/1999-2000 dated October 23, 1999.
2. Operability of Circular No. 5/1996-97 dated April 12, 1996.
3. Legality of reassessment proceedings and actions under Section 21 based on the subsequent circular.
4. Binding nature of circulars on revenue authorities.
5. Clarificatory nature and retrospective effect of the proviso to Section 5-C.

Issue-wise Detailed Analysis:

1. Validity of Circular No. 31/1999-2000 dated October 23, 1999:
The Supreme Court examined the validity of the circular dated October 23, 1999, which stated that the earlier circular did not reflect the actual position in law. The court noted that the subsequent circular was a review of the earlier one, which is impermissible in law. The circular itself referred to "revised instructions," indicating it could not have retrospective force and could not permit reopening of completed assessments.

2. Operability of Circular No. 5/1996-97 dated April 12, 1996:
The court discussed the initial circular issued on April 12, 1996, which provided that goods taxed under Section 5 of the Karnataka Sales Tax Act could not be taxed again under Section 5-C. This circular was issued under Section 3-A of the Act read with Rule 6(4) of the Karnataka Sales Tax Rules, 1957. The court found that this circular was binding on the revenue authorities and assessments completed based on this circular should stand.

3. Legality of Reassessment Proceedings and Actions under Section 21 Based on the Subsequent Circular:
The court emphasized that reassessment proceedings initiated based on the October 23, 1999 circular were impermissible. This was because the reassessment was based on a mere change in opinion, which is not allowed. The court highlighted that the proviso to Section 5-C, introduced on April 1, 2000, was clarificatory and had retrospective effect from April 1, 1986. Thus, reopening assessments completed under the 1996 circular was not permissible.

4. Binding Nature of Circulars on Revenue Authorities:
The court reiterated that circulars are binding on revenue authorities. The 1996 circular was binding, and assessments completed based on it should not be reopened merely because of a change in the Commissioner's opinion. The court noted that the revised instructions in the 1999 circular could not override the binding nature of the 1996 circular.

5. Clarificatory Nature and Retrospective Effect of the Proviso to Section 5-C:
The court analyzed the proviso to Section 5-C, which was introduced on April 1, 2000. It concluded that the proviso was clarificatory and had retrospective effect from April 1, 1986. The court referred to several precedents to support the view that a clarificatory amendment is intended to explain the law as it always stood. Therefore, the proviso operated retrospectively, and goods that had suffered tax once under Section 5 could not be taxed again under Section 5-C.

Conclusion:
The Supreme Court set aside the judgments of the learned single Judge and the division Bench of the Karnataka High Court. The court concluded that the 1996 circular was binding and the reassessment proceedings based on the 1999 circular were impermissible. The proviso to Section 5-C was clarificatory and operated retrospectively from April 1, 1986. The appeals were allowed, and costs were made easy.

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