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

Sales tax on the sale of Halls - writ of prohibition, prohibiting the respondents from assessing or levying or collecting more than four per cent. Held that - When the Commissioner of Commercial Taxes, Chennai, has issued the clarification Nos. 3 and 106 of 2004, dated January 2, 2004 and April 16, 2004, respectively and revised the assessment on earlier occasion and concluded the penalty for excess collection of tax over and above four per cent, treating Halls as ayurvedic medicine, another assessing authority, by mere change of opinion, cannot propose to revise the assessment treating the said product as confectionary. Therefore, when the show-cause notice issued by the assessing authority is inconsistent with the circulars in force, the same can be challenged by way of a writ petition. Though the general principle of law is that the writ against show cause is not maintainable, yet if the authority acts contrary to the clarificatory circulars and if it lacks jurisdiction, it can be subjected to judicial review in writ jurisdiction In view of the binding precedents of the circulars issued by the Commissioner of Commercial Taxes, in favour of the assessee this court is of the view that the impugned showcause notice issued contrary to the circulars, is without jurisdiction and it is liable to be set aside and accordingly, set aside and consequently, the petitioner is entitled to the relief sought for in the writ petition.

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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