2006 (11) TMI 573 - HC - VAT and Sales Tax

Summary

Issues involved:
The issues involved in the judgment are the classification of compacting machinery for tax purposes, the retrospective application of clarifications issued by tax authorities, and the binding nature of such clarifications on the tax department.

Classification of compacting machinery:
The petitioner, a registered dealer, sold compacting machines to spinning mills and reported a turnover for the year 2003-04. The second respondent proposed a revision of assessment, categorizing the compacting machinery under a higher tax bracket. The petitioner objected, arguing that compacting machinery should be considered as "textile machinery" and taxed at a lower rate. The second respondent, relying on a clarification, imposed additional tax and penalty. The petitioner challenged this classification in a writ petition under Article 226 of the Constitution of India.

Retrospective application of clarifications:
The petitioner contended that clarifications issued by tax authorities should only have prospective application and cannot be used to reopen settled assessments. They cited previous clarifications and Supreme Court judgments to support their argument. The Special Government Pleader argued that such clarifications do not bind tax authorities acting in a judicial capacity and that the State can recover taxes if legally leviable, regardless of clarifications.

Binding nature of clarifications:
The judgment referred to various Supreme Court decisions emphasizing the binding nature of circulars issued by tax authorities. It highlighted that tax departments must act consistently with the circulars in force at the relevant time. The judgment clarified that a clarification issued by the Commissioner of Commercial Taxes could not adversely affect the assessee for the assessment year in question. It distinguished a previous Supreme Court case and a division bench judgment, stating they were not applicable to the present case.

Conclusion:
The High Court allowed the writ petition, declaring that the clarification issued by the tax authorities would have only prospective application. As a result, the impugned assessment order was quashed and set aside. The writ appeal was dismissed, and connected miscellaneous petitions were closed with no costs awarded.