2008 (9) TMI 893 - HC - VAT and Sales Tax

Clarification to the rate of tax applicable to the goods in question - Circular challenged - Held that - Any circular which beneficially affects the rights of dealers as it stood at the beginning of the assessment year will apply to the entire year and the modification/withdrawal of such circular will not be relevant for that current year but will only apply from the beginning of the next assessment year. As it is clear that the second respondent has the power to withdraw the earlier circular issued.Though the subsequent circular would have the effect of nullifying the earlier circular as it is only an interpretation of the provision, it will not have the effect of denial of the benefit of earlier circular. In other words, the impugned circular has to be only prospective and not retrospective. In that view of the matter, the petitioner is not liable to pay tax at 12.5 per cent. for the period covered under the earlier circular and is liable to pay tax at 12.5 per cent., which arises only from the date of the impugned circular.

Summary

Issues:
Petitioner seeks writ of certiorari for quashing clarification dated December 11, 2007 and declaration for prospective application.

Analysis:
The petitioner, a registered dealer under Karnataka Value Added Tax Act, sought clarification on tax rate for aluminium composite panel and PVC flexible film. Initial clarification dated February 2, 2006, stated a 4% tax rate, later withdrawn on May 29, 2007, replaced by a new clarification on December 11, 2007, imposing a 12.5% tax rate. The petitioner contested this change through a writ petition.

The respondents argued that the earlier clarification was based on petitioner's misrepresentation, justifying its withdrawal. They contended that the power to withdraw a clarification lies with the Commissioner, and any modification is retrospective from the date of its incorporation in the Act. The respondents sought dismissal of the writ petition.

The petitioner's counsel argued that the impugned clarification contradicts the Tariff Act and should be set aside. They maintained that the earlier clarification, until withdrawn, is binding and should not have retrospective effect.

The court acknowledged the petitioner's application for clarification under section 59(4) and the subsequent withdrawal due to alleged misrepresentation. Citing legal precedents, the court emphasized that circulars and clarifications are not binding on courts and can be prospectively withdrawn. It held that the benefit accrued under the earlier circular should be maintained until the subsequent circular's effective date.

The court concluded by allowing the writ petition, declaring the impugned circular to apply prospectively from December 11, 2007, and rejecting any retrospective tax liability. No costs were awarded in the judgment.