WHETHER THE COMMISSIONER OF COMMERCIAL TAXES IS HAVING POWER TO ISSUE CIRCULAR OR CLARIFICATION UNDER TAMIL NADU VAT ACT, 2006?

[Mr. M. GOVINDARAJAN]

Section 28A of Tamil Nadu General Sales Tax Act, 1959 enabled the Commissioner to issue clarification by Commissioner of Commercial taxes which was done away by the Tamil Nadu Value Added Tax Act, 2006.

Section 48A was inserted by the Act No. 26 of 2011 with effective from 27.09.2011. Section 48A deals with clarification and Advance Ruling. Section 48A(1) provides that the Government may constitute a State Level Authority for clarification and Advance Ruling comprising of Commissioner of Commercial Taxes and two Additional Commissioners to clarify, any point concerning the rate of tax, on an application by a registered dealer. No such application shall be entertained unless it is accompanied by proof of payment of such fee, paid in such manner, as may be prescribed.

Section 48A(2) provides that no application shall be entertained where the question raised in this application-

• is already pending before any appellate or revising authority of the department or Appellate Tribunal or any Court; or
• relates to an issue which is designed apparently for avoidance of tax.

No application shall be rejected under this section without giving the applicant a reasonable opportunity of being heard and where the application is rejected, reasons for such rejection shall be recorded in the order.

Section 48A(3) provides that the order of the authority shall be binding-

• on the applicant who has sought for the clarification or advance ruling;
• in respect of the goods in relation to which the clarification or advance ruling was sought; and
• on all the officers working under the control of Commissioner of Commercial Taxes.

Section 48 A(4) provides that the Authority shall have power to review, amend or revoke its clarification or advance ruling at any time for good and sufficient cause after giving an opportunity of being heard to the affected parties.  Section 48A (5) provides that an order giving effect to such review or amendment or revocation shall be subject to the period of limitation.

In ‘Veesons Energy Systems (P) Limited V. Commissioner of Commercial Taxes, Chennai’ – 2014 (7) TMI 889 - MADRAS HIGH COURT the assessee was involved in the manufacturing of industrial boilers. For the purpose of manufacturing boilers the assessee is to use cranes to lift the huge metals.

The Commissioner of Commercial taxes, Chennai, vide his letter No. VAT Cell/28180/2007, dated 22.06.2007 issued a clarification in response to the clarification sought for by M/s M.M. Engineers Private Limited, Coimbatore for hoists and cranes.   In this clarification the Commissioner clarified that Hoists and Cranes are used only for lifting goods and moving them from one place to another. They do not fit in the definition of capital goods. Hence they are taxable at 12.5% under Part-C to First Schedule to Tamil Nadu Value Added Tax Act 2006 with effect from 1.1.2007.

The said clarification was also made applicable to the petitioner’s hoists and cranes.  The petitioner filed a writ petition before the Madras High Court against the clarification issued by the Commissioner.

Section 2(11) of Tamil Nadu Value Added Tax Act, 2006 defines the term ‘capital goods’ as-

1. Plant, machinery, equipment, apparatus, tools, appliances or electrical installation for producing, making, extracting or processing of any goods or for extracting  or bringing about any change in any substance for the manufacture of final products;
2. Pollution control, quality control, laboratory and cold storage equipments;
3. Components, spare parts and accessories of the goods specified in (a) and (b) above;
4. Moulds, dies, jogs and fixtures;

The petitioner contended that-

• 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;
• When the cranes purchased are rented out to others or used for any other purpose other than for manufacturing activity the same cannot be treated as capital goods;
• The classification of cranes would have to be dealt with on the facts of each case;
• In their case the hoist and cranes are utilized for the manufacture of boilers; as such it would be capital goods.

The High Court found that there is no provision in the Tamil Nadu VAT Act enabling the Commissioner to issue any circular or clarification.  The VAT Act consists of 7 schedules which indicate the rate of tax applicable for goods in the schedules with code number.   Whenever any particulars cannot be categorized to fall under a particular schedule, the same would fall in the residuary entry.  In the present case the issue is not relating to the rate of tax but whether the goods are used in the course of manufacturing activity.   For the purpose of claiming input tax credit the rate of tax and the entry under which it falls unless exempted is irrelevant. Any order by the State Level Authority for clarification and advance ruling under Section 48A can only be made regarding any clarification on rate of tax on an application by a dealer.   Even there, the Commissioner has no powers to individually or independently issue any clarification on rate of tax.   It is also clear that the Commissioner does not have authority to issue circulars or clarifications on any other matters other than rate of tax.

The High Court held that the Commissioner cannot use the circular 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 an amendment.  The levy of tax must be within the four corners of law and must not be issued on surmises and conjectures. Any act contrary to the provisions of the taxing statute would be hit by Article 226 of the Constitution.   The High Court set aside the impugned clarification issued without authority.