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2009 (7) TMI 1202 - HC - VAT and Sales Tax


Issues Involved:
1. Classification of "Halls" as Ayurvedic medicine or confectionary.
2. Applicability of concessional tax rate.
3. Validity of reassessment proceedings.
4. Binding nature of circulars issued by the Commissioner of Commercial Taxes.
5. Jurisdiction of the High Court to issue a writ of prohibition.

Issue-wise Detailed Analysis:

1. Classification of "Halls" as Ayurvedic Medicine or Confectionary:
The petitioner argued that "Halls" contains ingredients like pudina, nilgiri thailam, narangi thailam, nimbuka thailam, and lemon oil, which are recognized in Ayurvedic formulations and used to treat ailments like cold, cough, and sore throat. The petitioner cited various judgments, including Warner Hindustan Ltd. v. Collector of Central Excise [1999] 6 SCC 762, where the Supreme Court remanded the case to the assessing authorities, who later classified "Halls" as an Ayurvedic medicine. The Central Excise Department's guidelines and previous decisions also supported this classification.

2. Applicability of Concessional Tax Rate:
The petitioner relied on G.O. Ms. No. 65, CT, dated April 4, 2000, and G.O. Ms. No. 33, CT, dated March 27, 2002, which reduced the tax rate to four percent for Ayurvedic medicines. The Special Commissioner of Commercial Taxes issued a clarification on January 2, 2004, confirming that "Halls" is eligible for the concessional rate. The petitioner filed returns accordingly, and the Assistant Commissioner of Commercial Taxes initially accepted this classification and rate.

3. Validity of Reassessment Proceedings:
The first respondent initiated reassessment proceedings based on an audit inspection and a 1997 Central Excise circular, proposing to classify "Halls" as confectionary taxable at 12 percent. The petitioner argued that this action was contrary to the Supreme Court's judgment and previous clarifications. The reassessment was seen as a change of opinion without new facts or a change in law, which is not permissible.

4. Binding Nature of Circulars Issued by the Commissioner of Commercial Taxes:
The petitioner contended that the clarifications issued by the Commissioner of Commercial Taxes are binding on the assessing authorities. The Supreme Court in Binani Industries Limited v. Assistant Commissioner of Commercial Taxes [2007] 6 VST 783 (SC) and other cases held that circulars are binding on the Revenue and cannot be ignored or contradicted by assessing officers. The petitioner argued that the reassessment notice was issued in violation of these binding clarifications.

5. Jurisdiction of the High Court to Issue a Writ of Prohibition:
The High Court examined whether it could issue a writ of prohibition to prevent the reassessment proceedings. The court cited several Supreme Court judgments, including T.C. Basappa v. Nagappa AIR 1954 SC 440 and S. Govinda Menon v. Union of India AIR 1967 SC 1274, which established that a writ of prohibition can be issued when an authority acts without jurisdiction or in violation of natural justice. The court concluded that the reassessment notice was issued without jurisdiction, as it contradicted binding clarifications and previous assessments.

Conclusion:
The High Court allowed the writ petition, setting aside the reassessment notice and prohibiting the respondents from levying or collecting sales tax on "Halls" at more than four percent. The court emphasized that the reassessment was based on a change of opinion without new facts or a change in law, and the binding clarifications issued by the Commissioner of Commercial Taxes were still in force.

 

 

 

 

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