The observations in the Judgment of the Supreme Court in case of Gemini Distilleries about Circular- a case of improper reliance of Circular having vital difference

[CA DEV KUMAR KOTHARI]

References and links:

The Commissioner of Income Tax Bangalore I & ANR Versus M/s Gemini Distilleries 2017 (10) TMI 1275 - SUPREME COURT OF INDIA

Commissioner of Income Tax-VIII, New Delhi Versus Suman Dhamija 2015 (9) TMI 239 - SUPREME COURT

INSTRUCTION NO  3/2011, CBDT., Dated: February 9, 2011

Circular No. 21/2015  F No 279/Misc. 142/2007-ITJ (Pt)

LETTER NO. DIT(L&R)-I/SLP/393/2011/4589, DATED 2-9-2011

Circulars of Board about limits for filing appeals:

CBDT is highest administrative authority in administration of direct taxes. CBDT had from time to time revised monetary limits for filing of appeals before Tribunals, High Courts and the Supreme Court.

The purpose of such limitations for filing of appeal or for withdrawal of appeals are:

a. To reduce litigation.

b. To improve result orientation in tax administration and litigation

c. To have focus on larger and important issues involving large amount of revenue instead of diversion of focus, attention and efforts in litigation involving smaller amount of revenue.

Whether to indulge into litigation or not is decision of parties:

Whether to indulge into litigation or not and whether to continue with litigation or stop it by withdrawing appeals is a decision of the party to suit.

This is why many cases are settled out of court by parties.

This also apply to litigation by revenue because before the Court, revenue is one party ( appellant or respondent) and tax payer is another party. If both parties agree to withdraw appeal, even of revenue, generally the Court should not have any objection when there is bonafide in decision to withdraw appeal.

Reduction of litigation by revenue:

In many situations revenue also consider to reduce litigation and for this purpose different administrative and legislative measures are taken. There is no use in litigation which is futile, involves trivial issues and settled issues. From time to time circulars are issued by CBDT. This circulars in public interest and also interest of revenue. In spite of circulars, many tax authorities have habit to prefer appeals contrary to circulars. In such cases, tax authority or authorised representatives can withdraw appeals of revenue. However, unfortunately, in many cases the tax payer has to face litigation and thereafter it is dependent on the Court or Tribunal whether to dismiss appeal or hear it and decide on merits. Thus litigation continues. 

Beneficial circulars can be retrospective:

Many circulars are issued to remove hardship and to settle disputes and also to withdraw appeals when a legal position stand settled.

Such circulars have retrospective effect because they apply to old matters also.

Unless such circulars are considered to be applied to pending matters, the objective for such circular shall be defeated to a larger extent.

They cannot be considered prospective. If they are considered only as prospective, then litigation on old matters shall continue.

Difference between two circulars:

From Circular dated 09.02.2011*	From Circular dt. 10.12.2015	Remarks
11. This instruction will apply to appeals filed on or after 09.02. 2011. However, the cases where appeals have been filed before 09.02. 2011 will be governed by the Instructions on this subject, operative at the time when such appeal was filed. 12. This Issues under Section 268A(1) of the Income-tax Act 1961.	10.  This instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts/ Tribunals. Pending appeals below the specified tax limits in para 3 above may be withdrawn/ not pressed. Appeals before the Supreme Court will be governed by the instructions on this subject, operative at the time when such appeal was filed.	The difference in two policy decisions of the Board is clearly spelt out.

** read with letter of Board dt. 02.09.2011

In the Circular dt. 10.12.2015 clear decision was taken that the revised limit shall apply to pending appeals also. Whereas in Circular dt. 09.02.2011 clear decision was that revised limits shall apply to new appeals.

These are administrative decisions of the Board taken in public interest. Therefore they should be applied as intended.

A circular beneficial to public is to be applied liberally and to achieve its purpose. This is well settled principal and there are judgments of the Supreme Court also on this issue

It appears that the counsels appearing before the honourable Supreme Court in case of Gemini Distilleries and others could not put the matter in desired manner and therefore the judgment was affected adversely to the tax payers.

The judgment is very correct that the Circular dated 09.02.2011 is not retrospective as it is clearly spelt out.

So far Circular dt. 10.12.2015 is concerned, this was not an issue for consideration by the Supreme Court. The Counsels of tax payers tried to take help of this circular which was not desirable because both circulars are clear in their terms and intention. The honourable Supreme Court has however, held that 

       “Learned counsel for the respondents relied upon circular dated 10th December, 2015 and specifically relied upon paragraph 10. We are of the considered opinion that the central board of direct taxes cannot issue any circular having retrospective operation.”

With due respect, the author feels that there was no need to refer to the Circular dt. 10.12.2015 by the Counsels. With great respect author also feels that in this matter the Supreme Court was also not required to express view about Circular dt. 10.12.2015 or any other Circulars.  This is because contents of Circular dt. 10.12.2015 were not an issue in the appeal. Appeal was only in respect of Circular dated 09.02.2011. Therefore, it can be said that the observations of the Supreme Court are observations but can still constitute an obiter dicta. And such  situation is likely to create more un-necessary litigation.

Learning from the case:

From this case we can learn that un-necessary reliance should not be placed on any Circular or judgment which have different aspects underlying it. Such reliance can sometimes lead to undesired outcome as has been in this case.   

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