The writ petition has been filed challenging the clarification of the
first respondent in Ref. No.VAT Cell/18033/2007 (VCC No.750) dated 21.06.2007 on
the ground that the first respondent has no powers to issue a circular or
clarification under the TNVAT Act.
2. The Learned Senior Counsel Mr.A.Thiagrajan appearing for the petitioner
contended that the first respondent has no powers under the TNVAT Act to issue
any circular or clarification. He contended that even though there was section
28 A under the repealed TNGST Act, no such powers have been granted to the first
respondent. The learned Senior counsel also contended that the second respondent
has issued a notice proposing to reverse the Input Tax Credit on the purchase of
capital goods used in the course of manufacturing activity based on the
clarification of the first respondent without quoting the same. Since the first
respondent is the superior most officer, any clarification issued by him without
authority would prejudice the minds of the assessing officers who are duty bound
to apply their mind independently and pass orders. The Learned senior counsel
further contended that the definition of capital goods under section 2(11) of
the TNVAT Act is very clear to cover the crane as the same as essential to lift
the boilers. Therefore, whenever a reply has been given, the second respondent
has to apply his mind independently and pass order and therefore unless the
impugned clarification issued without authority is set aside, serious prejudice
would be caused to the petitioner and therefore sought the quashing of the
impugned clarification.
3. The Learned Government Advocate appearing for the respondents placing
the written arguments on record contended that since the cranes are neither
vehicles nor machinery, they cannot be termed as capital goods falling under the
definition of capital goods under section 2(11) and therefore the clarification
is in order and according to law. The Government Advocate further contended
that the notice has been issued by the 2nd respondent on his own and since there
is no irregularity in the circular, the writ petition is liable to be dismissed.
4. Heard both counsels.
Section 2 (11) of the TNVAT Act reads as follows:
" Capital Goods" means,-
(a) plant, machinery, equipment, apparatus, tools, appliances or
electrical installation for producing, making extracting or processing of any
goods or for extracting or for bringing about any change in any substance for
the manufacture of final products;
(b) pollution control, quality control, laboratory and cold storage
equipments;
(c) components, spare parts and accessories of the goods specified in (a)
and (b) above;
(d) moulds, dies, jigs and fixtures;
(e) refractors and refractory materials;
(f) storage tanks; and
(g) tubes, pipes and fittings thereof;
used in the State for the purpose of manufacture, processing, packing or storing
of goods in the course of business excluding civil structures and such goods as
may be notified by the Government.
5. The definition 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 issue on hand is whether cranes can be classified as
capital goods.
6. 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.
7. Upon perusal of the notice dated 03.04.2010 and the impugned
clarification dated 21.06.2007, the clarification does not just stop with
classification and rate of tax, it further proceeds to declare that the Hoists
and Cranes do not fit in the definition of Capital Goods. The Notice also
contains similar contents and therefore it cannot be accepted that the notice
has been issued by the second respondent on his own.
8. Now coming to the clarification impugned in the writ petition, there is
no provision in the TNVAT Act enabling the first respondent to issue any
circular or clarification. As rightly contended by the Learned Senior Counsel,
the enabling provision under the TNGST Act was done away in the TNVAT Act which
came into effect from 01.01.2007. The Act consists of Seven Schedules. The
schedules also indicate the rate of tax applicable for goods in the schedules
with code number. Whenever any particular goods cannot be categorized to fall
under a particular schedule, the same would fall in the residual entry. In the
present case, the issue is not rate of tax but whether the goods are used in the
course of manufacturing Activity. For claiming ITC, the rate of tax and the
entry under which it falls unless exempted is irrelevant. When the schedules
specify the rate of tax applicable to the respective goods, the first respondent
unless there is any specific provision will not have any powers to issue any
circular or clarification. Similarly, the first respondent also cannot classify
that the goods would fall into one particular entry.
9. While dealing with the scope of Circulars issued by commissioner,
Central Excise, this Court in the judgment reported in 1992 (57) ELT 211 has
held as follows:
19. The last point which has to be decided is whether the first and third
respondents have jurisdiction to issue such circulars which bind the quasi-
judicial authorities without leaving any room for exercising their quasi-
judicial powers. The respondents can take umbrage, only under Section 37B of the
Act. Sri K.Parasaran argues that section 37B should be to the classification of
excisable goods or with reference to levy of duties of excise on such goods. In
other words, it is argued that the words 'all such goods' are relatable only to
the classification of excisable goods. If the argument of the Revenue with
regard to the scope of section 37B is accepted, it will only mean that the
second respondent can give any direction to any of the statutory authorities and
direct them to impose duty in a particular manner. I am clearly of the opinion
that could not have been the intention of the Legislature. The quasi-judicial
authorities are certainly supposed to apply the charging provisions to be facts
of a case and find out whether the goods are assessable and if so what would be
the assessable value. Certainly section 37B does not enable the second
respondent to give a direction that in respect of advances/deposits, notional
interest is definitely chargeable and includible in the assessable value in all
cases, notwithstanding the fact whether the same had an effect on the price,
directly or indirectly or did not have such an effect...
10. In the judgment reported in [1994] 210 ITR 129; [1994] 4 SCC 375, the
Apex Court has held as follows (page 135 in 210 ITR):
The fact that the circular to which Shri Salve has referred is one which
had been issued in exercise of the powers conferred by section 119 of the Act
has no significance insofar as the point under consideration, namely, whether
the circular can override or detract from the provisions of the Act is
concerned, inasmuch as what section 119 has empowered is to issue orders,
instructions or directions for the 'proper administration' of the act or for
such other purposes specified in sub-section (2) of the Section. Such an order,
instruction or direction cannot override the provisions of the Act; that would
be destructive of all the known principles of law as the same would really
amount to giving power to a delegated authority to even amend the provision of
law enacted by Parliament. Such a contention cannot seriously be even raised.
11. In the judgment reported in 39 VST 229 (Mad) this Court following the
Apex Court has held that the Circular cannot override the provisions of the Act.
12. In the Judgment reported in [2010] 35 VST 103 (Mad), this court has
held as under:
"I agree with the view expressed by this Court holding that the clarification
issued is without jurisdiction. Given the admitted fact that there is no legal
authority on the respondents to issue the clarification and there being no
statutory provisions to that effect, it being non est in the eye of law, I do
not find any justification in the prayer seeking the quashing of the
clarification as ultra vires the provisions of the Act. I can only say that the
clarification, whether it is in favour of the Department or the assessee can
have no effect at all to have any binding effect on the assessing authority in
the assessment proceedings. Consequently, the Assessing Authority has to assess
the claim of the assessee independently on the basis of the materials produced
before him. The petition seeking clarification and the clarification given by
the first respondent have no legal sanction, hence, are of little significance
and consequence as far as the assessment proceedings are concerned.
13. Even though this court held that the authorities do not have any power
to issue any clarification, the same was not quashed as it was treated as non
est in the eye of law.
14. In the Order in W.P.No.26395 of 2012 (CDJ 2012 MHC 5354, this Court
while dealing with Circular No.22 dated 20.10.2011, held as follows:
4. As it is clear that the Circular, dated 20.10.2011, issued by the
office of the Commissioner of Commercial Taxes, Chennai, cannot abridge or
overrule the provisions of Rule 11(2) of the Tamil Nadu Value Added Tax Rules,
2007, this Court finds it appropriate to set aside the impugned order of the
first respondent, dated 7.8.2012. Hence, it is set aside. The first respondent
is directed to consider the form 'W' refund claim filed by the petitioner,
manually, and pass appropriate orders thereon, on merits and in accordance with
law, as expeditiously as possible. The writ petition is ordered accordingly. No
costs. Connected M.P.No.1 of 2012 is closed.
15. The Division Bench of this Court in the Common Judgment dated
17.07.2013 in the batch of cases in W.P.No.4042 of 2008 (batch) has held as
follows:
"22. That apart, as pointed out by the learned Senior counsel Mr.Aravind
P.Dattar, at the time when the circular/clarification was issued, there was no
enabling power under the VAT Act to issue such circulars or clarifications,
which would bind the assessing authorities. The power to issue clarification and
advance ruling was conferred on a State Level Authority comprising of the
Commissioner of Commercial Taxes and two Additional Commissioners by insertion
of Section 48A to the VAT Act by amendment Act 26 of 2011 w.e.f., 27.09.2011.
Therefore, on the date when the clarification was issued based on which the
petitioners are now called upon to pay tax at 14.5%, there was no enabling power
to issue such clarifications. In fact, this issue was considered by a Division
Bench of this Court in Texy One Private Limited vs. The Principal Commissioner
[(2012) 52 VST 377 Madras, wherein the Division Bench held that on the date when
the circular was issued, the Commissioner did not have statutory powers to issue
such circular and the net result is that the circular has no statutory force.
23. In the light of the above discussion and taking note of the decisions
cited supra, in our view the circular issued by the Commissioner though stated
to be without jurisdiction, the circular having been issued by the highest
officer in the department, the assessing officers, who are subordinate officers
cannot be expected to take a different view and therefore, no useful or fruitful
purpose would be served in directing the petitioners to avail the remedy under
the Act and therefore, these writ petitions questioning the classification of
the goods are held to be maintainable before this Court on account of the
reasons recorded above. This conclusion of ours is fortified by the decision of
the Hon'ble Supreme Court in State of U.P. vs. Indian Hume Pipe Co. Ltd.,
9[1977] 39 STC 355)."
16. Therefore, from a conjoint reading of the above judgments and the
provisions, it is clear that the 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. In the result, the Writ Petition is allowed. No costs.
27.03.2014
To
1. The Commissioner of Commercial Taxes,
Ezhilagam,
Chepauk,
Chennai.
2. The Assistant Commissioner,
Office of the Assistant Commissioner,
Commercial Tax,
Tiruverumbur.