Shivakantjha.org - Beyond Endurance - Ratan Melting - A landmark decision to the extent it goes!
Ratan Melting - A landmark decision to the extent it goes!
By Shiva Kant Jha
THE Commissioner of Central Excise, Bolpur Vs M/s Ratan Melting & Wire Industries [2008-TIOL-194-SC-CX-CB] is a landmark decision to the extent it goes. ‘To the extent' because many other issues pertaining the Board (whether CBDT or CBEC) remain still to be decided.
It is felt that to understand this decision some knowledge of its background is needed. Hence this article is structured in 3 Sections. Section I sets forth the background of the case; Section II relates to what the case decides; and Section III would be devoted to set forth some comments by the author.
Questions pertaining to the legitimate ambit of the Power of the CBDT to issue Circulars had been specifically raised before the Delhi High Court in Shiva Kant Jha & Anr. vs UOI [ 2003-TIOL-04-HC-DEL-IT ] wherein the High Court had held:
(a) In order to be legally binding on the Revenue the circulars conveying instructions must be validly issued under section 119 of the Income tax Act.
(b) Where a circular is considered to have been issued by the CBDT in terms of section 119 of the Income Tax Act, the Central Government can neither supplement the reasons contained in the circular nor explain the same by affidavit, or otherwise
(c )The power of CBDT to issue instructions to subordinate authorities is limited. Such instructions can be issued for proper administration of the provisions of the Income-tax Act, and not otherwise. The CBDT cannot issue instructions which could be de'hors the provisions of the Income-tax Act.
(d) Under section 119 of the Income-tax Act the CBDT has a delegated power to be exercised within the four corners of the delegated authority
(The Court observed; “ Power of issuance of a circular in terms of Section 119 of the Income Tax Act has been delegated to the CBDT for a limited purpose. By reason of such neither the essential legislative function, can be delegated nor arbitrary thereby uncanalised or naked power can be conferred. Delegated authority, it is trite must act within four corners of delegated legislation. It is not only to at having regard to the purpose and object for which the power has been delegated, it must act having regard to the provisions of the statue as also the delegated legislation.”)
(e) Through such circulars neither the essential legislative function can be delegated, nor arbitrary on naked power can be conferred.. (The Hon'ble Court explained the limits on the power of delegation with reference to the observations of the Supreme Court in Krishn Prakash Sharma v. Union of India (2001) 5 SCC 212.)
(f) The government, much less the CBDT, cannot, through an international treaty, lay down a procedure or evidentiary value of document which would be dehors the provisions of the Income-tax Act. (Ramchandra v. Govind AIR 1975 S.C. 915 relied on.)
(g) A statutory authority, must act within the four corners of the statute. (AIR 1975 SC 915.)
This Judgment of the Delhi High Court was reversed by the Supreme Court in Union Of India & Anr. vs.. Azadi Bachao Andolan & Anr ( 2003-TIOL-13-SC-IT) relying on many cases, esp. Central Excise v. Dhiren Chemical Industries (2002-TIOL-83-SC-CX).
The view of the Division Bench of the Supreme Court was questioned by moving a Review Petition, then a Curative Petition, and then (in 2005) by filing a Writ Petition No (Civil) 334 of 2005 [PIL] which was dismissed by the Order dated Nov. 28, 2007 on the preliminary issues, viz.
(i) Remedy under Article 32 of the Constitution is not available to question a decision by the Supreme Court; and
(ii) A party, who lost the Review and Curative, cannot in that case (the inter partes situation) question the decision further by moving a Writ Petition.
This view of the Hon'ble Court has been questioned through a Writ Petition filed in 2008, but I do not consider pursuing this point further. But the issues at the core of Ratan had continued alive in judicial consciousness from the days Azadi Bachao was decided reversing Shiva Kant Jha .
In Commissioner of Customs, Calcutta v. Indian Oil Corporation Ltd (2004-TIOL-23-SC-CUS), decided on February 2004, the Supreme Court considered the status of the CBDT circulars. Justice P. Venkataraman Reddy J took note not only of Dhiren Chemical Industries, Navnit Lal C. Javeri v. K. K. Sen, Ellerman Lines Ltd. v. CIT, K. P. Varghese v. ITO, Sirpur Paper Mills Ltd v. CWT, [(1970) 1 SCC 795.], Keshavji Raiji & Co v. CIT, [(1990) 2 SCC 231.], Bengal Iron CTO [(1994) Supp 1 SCC 310.], CST v. Indra Industries [(200) 9 SCC 66.], Wilh, Wilhelmsen v. CIT [ (1996) 161.], but also of UOI v. Azadi Bachao Andolan (2003-TIOL-13-SC-IT), Hindustan Aeronautics v. CIT [ (2000) 5 SCC 365.], Justice Reddy referred to Sirpur Paper Mills Case on which the Hon'ble Delhi High Court too had relied for formulating the propositions governing the CBDT's power under consideration. He observed:
“It is now trite law that by reason of any power conferred upon any statutory authority to issue any circular; the jurisdiction of a quasi judicial authority in relation thereto can [not] be taken away”.
Justice Reddy concludes his judgment expressing his desire that the matter should go to the Constitution Bench. The Lordship was pleased to observe:
“I have referred to these cases to demonstrate that a common thread does not run through the decisions of this Court. The dicta/observations in some of the decisions need to be reconciled or explained. The need to redefine succinctly the extent and parameters of the binding character of the circulars of Central Board of Direct Taxes or Central Excise looms large . It is desirable that a Constitution Bench hands down an authoritative pronouncement on the subject. ”( emphasis supplied )
On 10/02/2005 Ratan's Case came up before the Supreme Court (coram: Justice Ruma Pal, Justice Arijit Pasayat and Justice C.K. Thakker). The matter was heard but the Court reserved its orders. In Ratan's Case (2005-TIOL-41-SC-CX-LB) the Court observed:
“Though the view expressed in Kalyani's Case , and our view about invalidation might clarify the observations in para 11 of Dhiren Chemical's case ; we feel that the earlier judgment in Dhiren Chemical's case being by a Bench of five Judges, it would be appropriate for a bench of similar strength to clarify the position. In the circumstances, we refer the matter to a larger bench of five Hon'ble Judges. Let the papers be placed before Hon'ble the Chief Justice of India for constituting an appropriate Bench.”
This Civil Appeal No. 4022 of 1999 was fixed before the Constitution Bench on 31st March 2005 when the Court passed the following Order:
“The Registry shall list all matters involving identical issues under Section 119 of the Income-tax Act, 1961, Section 37-B of the Central Excise Act, 1944 and Section151 A of the Customs Act, 1962 before this Court. In addition, a note shall be published in the cause list to the effect that the observations of this Court in Collector of Central Excise vs Dhiren Chemicals Industries reported in (2002-TIOL-83-SC-CX) (para. 11) will be considered by this Court as to whether the observations need modification.”
The Hon'ble Constitution Bench, which drew up the above mentioned order, must have in its judicial memory the questions which remained on judicial anvil right from the moment the Union of India preferred Special Leave Petition against the Delhi High Court decision already referred. The Hon'ble referring Court formulated two points to be considered by the Constitution Bench:
(i) “The Registry shall list all matters involving identical issues under Section 119 of the Income-tax Act, 1961, Section 37-B of the Central Excise Act, 1944 and Section151 A of the Customs Act, 1962 before this Court.”
(ii) “ In addition, a note shall be published in the cause list to the effect that the observations of this Court in Collector of Central Excise vs Dhiren Chemicals Industries (para. 11) will be considered by this Court as to whether the observations need modification.”
On 26/09/2005, a D.B. of three Judges [ coram : the Chief Justice Y.K. Sabharwal; Justice S.H. Kapadia & Justice C.K. Thakker] of this Court observed, in course of hearing of the Writ Petition No (Civil) 334 of 2005 [PIL], that the decision on the issue raised therein relating to the power of the CBDT to frame circulars under Section 119 of the Income-tax Act would, in the end, be decided in conformity with the decision of the Constitution Bench whenever the decision comes. The Hon'ble Chief Justice [ Hon'ble Chief Justice Y.K. Sabharwal, (as his Lordship then was )] observed that as a Constitution Bench was to be formed in consequence to the Court's reference in Ratan, its decision would govern the decision on one of material issues raised in that Writ Petition also. Hence that Writ Petitioner filed an Intervention Application in Ratan 's case on 28 Oct. 2005 for leave to become an Intervenor in C.A No. 4022 0f 1999 with the right to address the Constitution Bench as and when constituted.
It is worth mentioning that the Intervention Application had pointed out that the material provisions under reference under the Central Excise Act and the Income-tax Act 1961 are substantially the same: to illustrate -
Nature of power
Object of the Act
Central Excise Act 1944
for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on goods
Administrative subject to the rules of ultra vires
[Proviso to S. 37B] Decisions of the Quasi-judicial authorities
Levy & collection of excise per the provisions of the Act
Income-tax Act 1961
for the proper administration of this Act
Administrative subject to the rules of ultra vires
[Proviso to S. 119(1)] Decisions of the Quasi-judicial authorities
‘to see what the true assessment ought to be, and that process, a public process directed to public ends'..
The language of the aforesaid Sections reflects modern attitude to taxation whereunder public revenue is under public trust. A V Dicey says ( An Introduction to the Study of the Law of the Constitution pp. 315-316): ‘At one time revenue once raised by taxation was in truth and in reality a grant or gift by the Houses of Parliament…. At present day, however, the public revenue is treated, not as the property of the Sovereign, but as public income….'. The Encyclopedia Britannica observes (Vol28 p.397: “During the 19 th century the prevalent idea was that taxes should serve mainly to finance the government.” Lord Scarman in IRC v. Federation of Self-Employed [(1981) 2 ALL ER 93 at 107 (H L),] noted this new approach when he said:
“ But I do not accept that the principle of fairness in dealing with the affairs of taxpayers is a mere matter of desirable policy or moral obligation. Nor do I accept that the duty to collect ‘every part of inland revenue' is a duty owed exclusively to the Crown. Notwithstanding the Treasury case in 1872, I am persuaded that the modern case law recognizes a legal duty owed by the Revenue to the general body of the taxpayers to treat taxpayers fairly, to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise, to ensure that there are no favorites and no sacrificial victims. The duty has to be considered as one of several arising within the complex comprised in the care and management of a tax, every part of which it is their duty, if they can, to collect." [(1982) 2 All ER 93 at 112]
But the British Inland Revenue Regulation Act 1890 defines “inland revenue” as revenue and taxes ‘placed under the care and management of the Commissioners': see sec.39.The same position continues under the Taxes Management Act 1970. The provisions under the aforementioned two Indian Acts are couched in a better language expressing modern attitude towards taxation. The right approach is to construe them keeping in view the purpose for which power has been granted, of course under the ultra vires rules.
It is is interesting to note that the propositions which the Delhi High Court had formulated [in Shiva Kant Jha v. UoI and Ors (2003-TIOL-04-HC-DEL-IT) stand well with the law declared by the Supreme Court in Pahwa Chemicals Pvt Ltd v. the Commissioner of Central Excise [2005-TIOL-43-SC-CX-LB] in which a Division Bench of three Judges laid down the following vital propositions:
(1) ‘ It is the Act which confers jurisdiction on the concerned Officer/s. If, therefore, the Act vests in the Central Excise Officers jurisdiction to issue show-cause-notices and to adjudicate, the Board has no power to cut down that jurisdiction .'
(2) ‘However, for the purposes of better administration of levy and collection of duty and for purpose of classification of goods the Board may issue directions allocating certain types of works to certain Officers or classes of Officers'.
(3) ‘It is thus clear that the Board has no power to issue instructions or orders contrary to the provisions of the Act or in derogation of the provisions of the Act .'
(4) ‘The instructions issued by the Board have to be within the four corners of the Act.'
(5) ‘The Circulars relied upon are, therefore, nothing more than administrative directions allocating various types of works to various classes of Officers.'
(6) ‘These administrative directions cannot take away jurisdiction vested in a Central Excise Officer under the Act .'‘But if an Officer still issues a notice or adjudicates contrary to the Circulars it would not be a ground for holding that he had no jurisdiction to issue the show cause notice or to set aside the adjudication.'
Ratan came up for hearing before the Constitution Bench [coram: the Chief Justice, Dr. Justice Arijit Pasayat, Justice Harjit Singh Bedi, Justice P. Sathasivam and Justice J.M. Panchal], on Sept 10, 2008. The Bench, per Dr Justice Arijit Pasayat, stated that the Bench would clarify only the point concerning para 11 in Dhiren Chemicals Case. Thus the Bench narrowed the scope for judicial deliberation. In view of this decision by the Bench the said Intervention Petition ceased to have relevance; and hence, it went unnoticed. On October 14, 2008 the Judgment was delivered: Dr. Justice Arijit Pasayat spoke for the Court with which all the other Judges agreed. The Court held, “The appeals filed by the revenue are allowed while those filed by the assessee stand dismissed.”
In Ratan, the Constitution Bench first draws up the context explaining the circumstances under which the matter came up before it: The reference was necessitated because of certain observations by a Constitution Bench in Collector of Central Excise v. Dhiren Chemical Industries. During the hearing of the appeal in Ratan's case before the referring Bench of three Hon'ble Judges it was conceded by the parties that the decision of this Court in Collector of Central Excise, Patna v. Usha Martin Industries (2002-TIOL-400-SC-CX) on which the Customs, Excise and Gold (Control) Appellate Tribunal placed reliance was over-ruled by the subsequent decision of the Constitution Bench in Dhiren Chemical's case (supra). But learned counsel for the assessee-respondent submitted that paragraph 11 of Dhiren Chemical's case (supra) operates in its favour. It reads as under:
"We need to make it clear that regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue."
The referring Bench noted the effect of the aforesaid observations as mentioned in several decisions. It mentioned that in Kalyani Packaging Industry v. Union of India and Anr . (2004-TIOL-82-SC-CX), the Court observed thus:
“We have noticed that para 9 (para 11 in SCC ) of Dhiren Chemical case is being misunderstood. It, therefore, becomes necessary to clarify para 9 (para 11 in SCC ) of Dhiren Chemical case.
One of us ( Variava, J.) was a party to the judgment of Dhiren Chemical case and knows what was the intention in incorporating para 9 (para 11 in SCC ). It must be remembered that law laid down by this Court is law of the land. The law so laid down is binding on all courts/tribunals and bodies. It is clear that circulars of the Board cannot prevail over the law laid down by this Court. However, it was pointed out that during hearing of Dhiren Chemical case because of the circulars of the Board in many cases the Department had granted benefits of exemption notifications. It was submitted that on the interpretation now given by this Court in Dhiren Chemical case the Revenue was likely to reopen cases. Thus para 9 (para 11 in SCC ) was incorporated to ensure that in cases where benefits of exemption notification had already been granted, the Revenue would remain bound. The purpose was to see that such cases were not reopened. However, this did not mean that even in cases where the Revenue/Department had already contended that the benefit of an exemption notification was not available, and the matter was sub judice before a court or a tribunal, the court or tribunal would also give effect to circulars of the Board in preference to a decision of the Constitution Bench of this Court. Where as a result of dispute the matter is sub judice , a court/tribunal is, after Dhiren Chemical case , bound to interpret as set out in that judgment. To hold otherwise and to interpret in the manner suggested would mean that courts/tribunals have to ignore a judgment of this Court and follow circulars of the Board. That was not what was meant by para 9 of Dhiren Chemical case ."
The said Bench concluded as follows:
(i) the view expressed in Kalyani's case (supra), ‘and our view about invalidation clarify the observations in para 11 of Dhiren Chemical's case (supra)': yet
(ii) it was felt that as the earlier judgment in Dhiren Chemical's case (supra) was by a Bench of five Judges, it would be appropriate for a bench of similar strength to clarify the position.
The lis before the Constitution Bench in Ratan's Case : and the volte face of our Government
The issue before the Hon'ble Court in Ratan's Case was joined in the lis in a manner interesting in many ways . The rival contentions were thus summarized by the Hon'ble Court :
As the law declared by this Court is supreme law of the land under Article 141 of the Constitution of India, 1950 (in short the `Constitution'), the Circulars cannot be given primacy over the decisions.
(i) The respondent Company :
The Respondent Company contended:
(a) that once the circular has been issued it is binding on the revenue authorities and even if it runs counter to the decision of this Court, the revenue authorities cannot say that they are not bound by it;
(b) that the circulars issued by the Board are not binding on the assessee but are binding on revenue authorities;
(c ) that that once the Board issues a circular, the revenue authorities cannot take advantage of a decision of the Supreme Court as the consequences of issuing a circular are that the authorities cannot act contrary to the circular;
(d) that once the circular is brought to the notice of the Court, the challenge by the revenue should be turned out and the revenue cannot lodge an appeal taking the ground which is contrary to the circular.
It is interesting to note the volte face ( a total change of position) that our Government presented before the Court. It is never becoming of a democratic government to turn Janus-faced or two-faced. In course of the writ proceeding in Shiva Kant Jha vs. Union of India & Anr . and in its SLP before the Supreme Court against that Case ( Azadi Bachao Andolan & Anr .) the Law Officers of the Government of India ( Mr. Salve, the then Solicitor-General, before the Delhi High Court; and Mr. Soli Sorabji, the then Attorney-General, before the Supreme Court) asserted that the circulars are binding even de hors the law, but in Ratan's Case the Union of India (represented by Mr.Mohan Parasaran, ASG) contended that the law, whether statutory or Judge-made, could not be modified or overridden or diluted by the circulars. It is not clear how and why this divergence in the approaches of our Executive Government occurred. Was it because in Azadi Bachao our Government was sailing in the same boat in the company of a silhouette from a tax haven out to promote an influx of foreign funds by routes through a densely opaque system. The whole idea as to the purity and transparency of means is now lost in the present-day rogue financial system of this acquisitive society. We see things all around us illustrating Iago in Shakespeare's Othello : “Virtue! a fig! 'tis in ourselves that we are thus.” Any way: all is well that ends well.
The Law declared by the Supreme Court in Ratan
The Apex Court approved the view of the Court in Kalyani on the reach and ambit of the observations under reference made by this Court in Dhiren Chemicals's Case . It said;
“As noted in the order of reference the correct position vis-`a-vis the observations in para 11 of Dhiren Chemical's case (supra) has been stated in Kalyani's case (supra). If the submissions of learned counsel for the assessee are accepted, it would mean that there is no scope for filing an appeal. In that case, there is no question of a decision of this Court on the point being rendered. Obviously, the assessee will not file an appeal questioning the view expressed vis -a- vis the circular. It has to be the revenue authority who has to question that. To lay content with the circular would mean that the valuable right of challenge would be denied to him and there would be no scope for adjudication by the High Court or the Supreme Court. That would be against very concept of majesty of law declared by this Court and the binding effect in terms of Article 141 of the Constitution .” [ italics supplied]
A comprehensive examination of the issues led the Hon'ble Court to declare the following propositions. These are binding in terms of the Article 141 of the Constitution of India. All these propositions are essential to the actual decision in Ratan : so they constitute the very rationes decidendi of the Case. These propositions are stated thus:
(i) Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court.
(ii) So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court.
(iii) It is for the Court to declare what the particular provision of statute says; and it is not for the Executive.
(iv) A circular which is contrary to the statutory provisions has really no existence in law.
So far so good. But the quest would go on as many other issues pertaining to the circular-making power are yet to be clarified. Without delving deep into such possible situations, I would make the following comments:
(i) The law declared in Ratan conforms to the well-settled juristic principles. De Smith has aptly said: “A modern lawyer might say that the Crown and its servants, like all other public authorities, must not act ultra vires ."(de Smith, Judicial Review of Administrative Action 4 th ed 94 ). In an appeal from Nigeria in Eshgabayi Eleko v. Govt. of Nigeria [ ( 1931 ) A.C. 662 at 670] Lord Atkin made the following observation which our Supreme Court has quoted with approval [ A.K. Gopalan v. The State A I R 1950 SC 27 ; Basheshar Nath's Case A I R 1959 SC 149] in several cases:
“In accordance with the British jurisprudence no member of the executive can interfere with the liberty and property of a British subject except on the condition that he can support the legality of his action before a court of justice .” (Emphasis supplied.)
The statutory provisions granting the circular-making power arr not conceived to be the vanishing point of law.
(ii) By restricting the scope of the Memorandum of Reference, quoted above, the Court, in effect, excluded from its judicial ken many issues which Section 119 of the Income-tax Act, 1961, Section 37-B of the Central Excise Act, 1944 and Section151 A of the Customs Act, 1962 give rise or can give rise on good grounds.
(iii) It is hoped that some day the Hon'ble Court would examine the circular-making power in a new perspective. The Court shall have to consider someday a question pro bono publico. What would happen if a circular is favourable to the taxpayers, but prejudicial to public interest? Why should public interest in the revenue suffer because the circular-making authorities have issued such circulars through indifference, or ignorance, or pressure, or on account of some entente cordiale of fraud and collusion? Revenue is for public benefit. The Executive is under binding duty to raise revenue as per law. The Commissioners of Income-tax or of Central Excise & Customs are commissioners as they work under commission issued to them by Parliament. And law is what the Parliament says, and as it is interpreted by our courts. A circular in breach of law is dead at its nativity.. It is high time to declare law granting remedy to question the circulars which are beneficial to tax payers but injurious to Public Interest.
A. The whole set of Circulars
B. A sub-set of Circulars. (the Circulars beneficial to the assesses )
C. Circulars beneficial to the assesses but injurious to public interest.
It is hoped that the Court would grant locus standi [invoking the principles settled in by the House of Lords in National Federation of Self-Employed and Small Businesses Ltd [(1981) 2 All ER 93 HL] followed by our Supreme Court in S.P. Gupta & Ors v President of India & Ors (AIR 1982 SC 149)] both to (i) the public spirited citizens; and (ii) the CAG who is the constitutional watchdog, (whom the Executive wants to make its lapdog!).
(iv) It should be obvious that no circular can stand which offends the principles settled under some binding precedent, even if it does so by implication.
(v) It is suggested that authorities whom the statutes put under duty to decide whether to file an appeal in a given case, or not, must not be mere slaves to the circulars, as, if they become so, the statutorily prescribed channels for an appellate scrutiny by Superior Courts would go dry. Exclusion of judicial control under the executive fiat is bound to offend brazenly our Constitution itself: and hence such circulars/instructions would be clearly non est . The doctrine of ultra vires operates with full majesty. Administrative superiors cannot prevent the statutory authorities under them from discharging their statutory duties. If there is any attempt to so, , our Superior Courts should/would provide an effective remedy.
The decision of Ratan gives a new perspective on the powers of the circular-making authorities under the Laws of Direct and Indirect Taxes. Besides, it would make us reflect on a number of judicial decisions, hitherto made, to ascertain to what extent they stand impliedly overruled or modified. One such a case is Union Of India & Anr. V. Azadi Bachao Andolan & Anr [2003-TIOL-13-SC-IT].
Before I end this article I must answer certain queries which are likely to be raised on reading Ratan and its expository analysis in this article. The constraints of the space make me answer such queries with brevity.
(i) Should a wrong circular be challenged; if yes, then when?
Ans. While arguing the Writ Petition No (Civil) 334 of 2005 [PIL], I had quoted Ella Wheeler Wilcox in Settle the Question Right: “No question is ever settled until t is settled right.” Whether a circular is right or wrong is to be determined:
(a) at the outset by those who issue such circulars ( it is well known that one who exercises power must first decide whether one is on the right side of the law, and if ever it is realizes that he went wrong, he must take corrective measure), and then
(b) at the level of the courts of law of competent jurisdiction whose decision on the point of law is final and binding.
In the situation (a), a wrong act is set right by the doer of that act on better reflection; and in situation (b) it is a judicial correction on challenge.
(ii) Why can’t wrong circulars be simply withdrawn but allowing the benefit granted/accrued during the currency of such circulars?
Ans. What is contrary to law, or is in breach of legitimate jurisdiction, is non est under the eyes of law: hence how can any benefit under that continue, or be availed of? It would be unjust enrichment. This worry is often on account of some concealed premises as to the law of taxation which are often shared by the Boards, the lobbyists, and also the Central Government to promote some ulterior purpose. The question boils down to this: what is modern attitude towards taxation? Is it an instrument to raise resources for public benefit in strict conformity with law administered by the statutory authorities who are mere custodians for raising revenue not a paisa less, not a paisa more? OR. is it an instrument in the hands of the Executive to raise and disburse resources in the ways the Tudors had once done, pretending to be “L’Etat,c’est moi”? The conventional view that revenue is a matter of exclusive concern to the executive has yielded place to the principle that the Government owes duty to the general body of the tax payers to collect revenue for public benefit.. The leading case reflecting the traditional idea is R. v. Lords Comrs of the Treasury. The central proposition of the case comes to this :
“……………no mandamus will issue to the treasury to pay moneys appropriated by Parliament for a given purpose, since the money is granted to the Crown, and even though it is in the hands of the Treasury, they are merely the instrument of the Crown for handling the money.”
The Boards are not like the Lords in the dead and gone feudal order. Lord Scarman explained the role of the authorities administering the Law of income tax in the United Kingdom in Inland Revenue Comrs v National Federation of Self- Employed and Small Businesses Ltd . His observation is relevant as the role of the Central Board of Direct Taxes (and also its counterpart under the Laws of Direct Taxes) and that of the Board of the Inland Revenue are analogous. Lord Scarman observed: “The duty has to be considered as one of several arising within the complex comprised in the care and management of a tax, every part of which it is their duty, if they can, to collect.”[Italics supplied]. By rejecting this conventional view shaped in the Victorian ethos, Lord Scarman has boldly recognized and declared the role of the Revenue in the present democratic society and its social mores and the modern world-view. Lord Hewart observed in Rex v. Special Commissioner (20TC 381 at 384, quoted by Kanga & Palkhivala at p. 1509) that the duties imposed upon the Commissioners of Income tax are “in the interest of the general body of tax payers, to see what the true assessment ought to be, and that process, a public process directed to public ends….”
(iii) Who will challenge the Circular?
Ans. Any one of these can challenge:
(a) The statutory authorities whom the statutes have granted powers to decide whether to litigate further or not. Under the Income-tax Act, 1961, they would be the authorities referred to in Sections 253(2), 256(1) and 260A(2) the said Act.
(b) A PIL petitioner questioning a circular in breach of the Rule of Law, or on the ground of being prejudicial to public interest. Our courts have already widened the doctrine of locus stand. The Delhi High Court recognized the locus standi of a PIL petitioner in Shiva Kant Jha & Anr. vs UOI; and neither our Government nor the Court questioned his competence before the Supreme Court. It is interesting to note that R v Inland Revenue Comrs ; National Federation of Self-Employed and Small Businesses Ltd was the first and most important PIL in revenue matters in the U.K. It was followed by our Supreme Court in S.P. Gupta & Ors v President of India & Ors (AIR 1982 SC 149). Lord Denning specifically referred to the article on “ Locus standi. The major problem in revenue law… Who can challenge the legality of a tax concession?” published in the New Law Journal  NLJ 181).
(c) The CAG. He subscribes to an oath or affirmation which is the same for the Judges of the Supreme Court. He, like the Supreme Court Judges, is mandated by the Constitution “to uphold the Constitution of India”. The CAG subscribes to an oath or affirmation which is the same for the Judges of the Supreme Court. He, like the Supreme Court Judges, is mandated by the Constitution “to uphold the Constitution of India”. The executive and the CAG have distinct constitutional roles. Not friendship, but clear role perception should govern the interactions between the executive and the CAG. He provides Parliament an opportunity to weigh the executive which is accountable and responsible to it.
(iv) When the Government has power to exempt, why can’t the Board by a Circular confer some benefit on the assessee even if it is against the law declared by the Supreme Court?
Ans. It was settled by Magna Carta and by legislation in the reigns of Edward I and Edward III that taxation required Parliament’s consent. Neither it is possible to tax nor to untax without Parliament’s consent. There is a great constitutional principle at work. We are neither to be taxed nor untaxed through an executive act. Walton J observed in Vestey v Inland Revenue Comrs :
“I conceive it to be in the national interest, in the interest not only of all individual taxpayers which includes most of the nation, but also in the interests of the Revenue authorities themselves, that the tax system should be fair.... One should be taxed by law, and not be untaxed by concession ... A tax system which enshrines obvious injustices is brought into disrepute with all taxpayers accordingly, whereas one in which injustices, when discovered, are put right (and with retrospective effect when necessary) will command respect and support”
Exemptions from taxation are done only in terms of the statutory power. Under the Income-tax Act, 1961, exemptions are controlled by the statutory power. Rules and Notifications are under specific Parliamentary control. In short, it can be said that the Executive government per se has absolutely no power to exempt from taxation if it is chargeable under the law. As a matter of constitutional principle it can be asserted that not even the whole cabinet has the authority to forgo a single pie of revenue, or to grant exemption unless it has the authority to do so under the law. We know that irrevocable demands are often written off. But this is merely the means to transfer such demands to the register of dead demands to be periodically examined if recovery could be possible within the period of limitation.
(iv) Was it ever in doubt that Supreme Court orders are superior to Board Circulars?
It was never in doubt that the Supreme Court orders are superior to Board Circulars. But the right question to ask is: Should an administrative act survive when it goes counter to the statute or the decision of the Supreme Court, and jurisdictional High Court (and, it is submitted, even the decision of any other High Court if there is no contrary view yet taken).
(v) The whole issue in Dhiren Chemical was to explain the meaning of the term “duty has already been paid”.
Ans. Yes, but in deciding this issue the reasoning adopted is broad spectrum. The decision of the Constitution Bench was complete even without para 11, of that Case which had been relied upon in Azadi Bachao, and was later on explained in Kalyani and Ratan. What is stated in Ratan is integral to the very rationes decidendi of the Case.
(vi) Where have we gone from the relevant observations in Ranadey Micronutrients v Collector of Central Excise - 2002-TIOL-184-SC-CX, and Paper Products ltd. v Commissioner of Central Excise - 2002-TIOL-84-SC-CX ?
The following points deserve to be noted:
(a) In Collector of Central Excise vs Usha Martin Industries 2002-TIOL-400-SC-CX, the Division Bench of 2 Hon’ble Judges relied on Ranadey Micronutrients v Collector of Central Excise - 2002-TIOL-184-SC-CX for the proposition it stated thus:
“Through a catena of decisions this Court has pronounced that Revenue cannot be permitted to take a stand contrary to the instructions issued by the Board. It is a different matter that an assessee can contest the validity or legality of a departmental instruction. But that right cannot be conceded to the department, more so when others have acted according to such instructions.”
The Paper Products ltd. v Commissioner of Central Excise - 2002-TIOL-84-SC-CX, which was decided on August 24, 1999, relied on Collector of Central Excise, Patna v. Usha Martin Industries [2002-TIOL-400-SC-CX] and Ranadey Micronutrients v. Collector of Central Excise [2002-TIOL-184-SC-CX]. Collector of Central Excise, Patna v. Usha Martin Industries (2002-TIOL-400-SC-CX) was over-ruled by the subsequent decision of the Constitution Bench in Dhiren Chemical's case. Hence the observations in Ranadey Micronutrients v Collector of Central Excise and Paper Products ltd. v Commissioner of Central Excise are no longer good.
(b) The decision of the Constitution Bench is binding on the Benches with lesser number of Judges [ A. R. Antulay v. R. S. Nayak, Triveniben v. State of Gujarat.
(c) The view taken in Ratan is in tune with modern tax jurisprudence.
(vii) Can/should the assessee seek a clarification from the Court whether a Board Circular is valid or not?
Ans. No, our courts have no advisory jurisdiction which can be invoked by a taxpayer.
(viii) ‘And a hypothetical situation can be conceive: imagine a situation where a Commissioner issues a notice charging that the Board Circular is wrong and so the assessee is liable to pay some tax – this litigation takes about 10 years to reach the Supreme Court and finally is held in favour of Revenue – this assessee who had been issue a notice will have to pay the tax for all these years, while the extended period of limitation will not be applicable to all the assessees who were not issued with the notice!’
Ans. But it turns on what can reasonably be done under the statute as interpreted by the courts. If law appears to the government inexpedient or unfair, or not in tune with government’s policy, it can be got amended. In the Preface to the Eighth Edition of Kanga & Palkhivala’s Income Tax there is a graphic account of legislative fecundity in the field of the income-tax law in our country. The laws of Indirect Taxes are no different.