2014 (7) TMI 889 - HC - VAT and Sales Tax

Challenge to the clarification of the first respondent in Reference - powers to issue a circular or clarification under the TNVAT Act - Input tax credit - Capital goods - Held that - The definition of capital goods only specifies that the goods which are used for the purpose of manufacture can be categorized as capital goods. The tax paid for the purchase of capital goods used in the case of manufacture is entitled to be claimed back as ITC - The petitioner herein is involved in the manufacturing of industrial boilers. Huge metals can only be carried by crane for manufacturing boilers. When the cranes are exclusively purchased by a dealer to be used for manufacturing activity, the same would definitely fall under the definition of capital goods. However, when the cranes purchased as rented out to others or used for any other purpose other than for manufacturing activity, the same cannot be treated as capital goods. Therefore, the classification of cranes would have to be dealt with on the facts of each case. First respondent had no powers to issue any circular or clarification. Further section 48 A was introduced with effect from 27.09.2011. Any order by the State Level Authority for Clarification and Advance Ruling under Section 48 A can only be made regarding any clarification on rate of tax on an application by a dealer. Even there, the first respondent has no powers to individually or independently issue any clarification on rate of tax. It is also clear that the first respondent does not have any authority to issue circulars or clarifications on any other matters other than rate of tax. The first respondent cannot use the circulars or clarifications to overcome the provisions of the statute. Any interpretation which was not intended by the legislature also cannot be introduced by way of circulars or clarifications. Any change in the statute can be brought in only by way of amendment. The levy of tax must be within the four corners of law and must not be based on surmises and conjunctures. Any act contrary to the provisions of the taxing statute would be hit by Article 265 of the Constitution of India. Therefore, the impugned circular issued without authority is set aside. The petitioner is directed to submit their objections within four weeks from the date of receipt of a copy of this order and the second respondent shall consider the objections and pass orders independently sticking on to the provisions of the Act - Decided in favour of assessee.

Summary

Issues:
Challenge to the clarification issued by the first respondent under TNVAT Act on the authority to issue circulars or clarifications.

Analysis:

1. The petitioner contested the authority of the first respondent to issue the clarification under TNVAT Act, arguing that no specific powers were granted for such actions. The petitioner emphasized that the second respondent's notice proposing to reverse Input Tax Credit based on the clarification could prejudice assessing officers. The definition of capital goods under section 2(11) of TNVAT Act was crucial, with the petitioner asserting that cranes were essential for manufacturing activities and thus qualified as capital goods.

2. The respondents, represented by the Government Advocate, argued that cranes did not fall under the definition of capital goods as specified in section 2(11) of the TNVAT Act. They contended that the notice issued by the second respondent was independent and in compliance with the law, and therefore, the writ petition should be dismissed.

3. The Court examined the definition of capital goods under section 2(11) of the TNVAT Act, emphasizing that goods used for manufacturing purposes could be classified as capital goods. The classification of cranes as capital goods depended on their specific use in each case, such as for manufacturing industrial boilers.

4. The Court scrutinized the impugned clarification and the absence of provisions in the TNVAT Act empowering the first respondent to issue circulars or clarifications. Citing relevant case laws, the Court highlighted that circulars could not override statutory provisions and that any change in the law must be through formal amendments. The Court emphasized that the first respondent lacked authority to issue clarifications beyond matters related to the rate of tax.

5. Referring to past judgments, the Court reiterated that circulars could not supersede the law and that any clarification issued without proper authority was deemed non est in the eye of the law. The Court directed the petitioner to submit objections within a specified timeframe, and the second respondent was instructed to assess independently based on statutory provisions. Ultimately, the Court allowed the writ petition, setting aside the impugned circular issued without authority.