2008 (4) TMI 689 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the case, the Tribunal is legally justified in reversing the order of the Deputy Commissioner (Appeals) and confirming the demand of additional tax under section 22? Held that - It is apparent that the Tribunal committed an error while allowing the second appeal on the ground that the circular was not binding on the authorities as according to it the circular was not in accordance with law. The Tribunal has exercised powers beyond the scope of section 22 of the Act. The view taken by the Tribunal is contrary to the various decisions of this court as also the apex court referred to above and as such the order of the Tribunal cannot be sustained. It is accordingly set aside and the appellate order is restored.

Issues Involved:
1. Binding force of circulars issued by the Commissioner on the Department.
2. Scope of section 22 of the U.P. Trade Tax Act, 1948.

Issue-wise Detailed Analysis:

1. Binding Force of Circulars Issued by the Commissioner on the Department:

The dispute arose from the assessment of the dealer for the year 1988-89, where the original assessment did not include additional tax on inter-State sales without form "C" based on a circular dated August 26, 1982, issued by the Commissioner of Trade Tax. This circular provided that while calculating tax under the Central Act, additional tax would not be considered. The Tribunal reversed the appellate authority's decision, which had relied on this circular, and restored the assessment order under section 22 of the Act.

The High Court held that "even an erroneous circular or the circular contrary to the statutory provisions would be binding upon the authorities of the Department." The court cited the apex court's decision in Arviva Industries [2007] 209 ELT 5 (SC), emphasizing that the Department cannot take a stand contrary to a binding circular. The court also referenced Kurian Abraham [2008] 13 VST 1 (SC), which reiterated that as long as a circular remains in force, it is binding on the authorities. The court concluded that the circular dated August 26, 1982, was binding on the Department during its period of currency, and the additional tax could only be levied from the date of its withdrawal, i.e., October 29, 1992.

2. Scope of Section 22 of the U.P. Trade Tax Act, 1948:

Section 22 of the Act allows for the rectification of a mistake apparent on the record. The High Court clarified that for rectification under section 22, the mistake must exist and be apparent on the date the original order was passed. In this case, the original assessment order dated April 29, 1991, did not include additional tax based on the circular in force at that time. The subsequent decision in Aysha Hosiery [1992] 85 STC 106 (SC) and the withdrawal of the circular were events occurring after the original assessment order. Therefore, there was no mistake apparent on the record at the time of the original assessment.

The court cited Deva Metal Powders [2007] 10 VST 751 (SC), which stated that rectification under section 22 is limited to mistakes that are "patent, obvious, and whose recovery is not dependent on argument or elaboration." The Tribunal's decision to apply additional tax retrospectively was beyond the scope of section 22, as it effectively revised the original assessment order based on subsequent legal developments.

Conclusion:

The High Court set aside the Tribunal's order, restored the appellate authority's order, and allowed the revision. The court concluded that the Department was bound by the circular dated August 26, 1982, during its period of validity, and the scope of section 22 did not permit rectification based on subsequent legal changes. The dealer was entitled to a refund of any tax deposited in accordance with the appellate order.

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