IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 26.2.2010
CORAM:
THE HONOURABLE MR.JUSTICE P.JYOTHIMANI
W.P.Nos.11159 and 19375 of 2004 and 6261 of 2005
W.P.No.11159 of 2004
Essar Shipping Ports & Logistics Limited
(formerly known as Essar Shipping Ltd.)
New No.77/56, C.P.Ramaswamy Road
Abhiramapuram, Chennai 600 018.
(formerly at Chennai-House, Chennai-108) .. Petitioner
(Amended by order dated 22.12.2009
made in W.P.M.P.No.715 of 2009)
Vs.
The Commercial Tax Officer (FAC)
Rattan Bazaar Assessment Circle
First Floor, Kuralagam Annexe
Chennai 600 108. .. Respondent
PRAYER: Petition under Article 226 of the Constitution of India for issue of writ of Certiorari to call for the records on the files of the respondent herein in RC.859/2000 97-98, dated 26.3.2004 and to quash the same.
W.P.No.19375 of 2004
Chemplast Sanmar Limited
Plant No.III
Raman Nagar, Mettur Dam .. Petitioner
Vs.
1. The Deputy Commercial Tax Officer
Sankari.
2. Poompuhar Shipping Corporation Ltd.
No.473, Anna Salai
Chennai 600 035. .. Respondents
PRAYER: Petition under Article 226 of the Constitution of India for issue of writ of Mandamus to direct the first respondent to forbear from proceeding further pursuant to his TNGST.No.3241159/97-98, dated 31.5.2004 to impose a sales tax under Section 3A of the Tamil Nadu General Sales Tax Act, 1959, on the freight received from the second respondent herein under the agreement dated 10.7.1995 and the agreement dated 14.7.1997 by way of freight charges for the Vessel 'Sanmar Pioneer' by the second respondent herein.
W.P.No.6261 of 2005
Chemplast Sanmar Limited
Plant No.III
Raman Nagar, Mettur Dam .. Petitioner
Vs.
1. The Commercial Tax Officer (FAC)
Omalur.
2. Poompuhar Shipping Corporation Ltd.
No.473, Anna Salai
Chennai 600 035. .. Respondents
PRAYER: Petition under Article 226 of the Constitution of India for issue of writ of prohibition, prohibiting the first respondent from proceeding to impose a sales tax on freight charges received by the petitioners under Time Charter Party Agreement dated 10.7.1995 and 27.4.1996 as proposed by him in his pre-assessment notice in TNGST.No.3241159/96-97, dated 17.1.2005.
For Petitioners : Mr.C.Natarajan, Sr.Counsel
for Mr.N.Inbarajan
For respondent : Mr.Haja Nazirudeen
in WP.No.11159/2004 Spl. Government Pleader (Tax)
and 1st respondent in
WP.Nos.19375/2004
and 6261/2005
ORDER
The pivotal issue involved in all these cases pertains to whether Charter Parties, Voyage Charter Parties and Bare Boat Charter Parties result in transfer of right to use the ships and if so, whether the charter hire charges realised in the case of Time Charter Parties and freight earnings realised in respect of Voyage and Bare Boat Charter Parties are taxable under Section 3-A of the Tamil Nadu General Sales Tax Act (for brevity “the Act”), when the Charter Party Agreements provide for inter-State coastal movement or continuous movement outside the country in the course of international trade.
2. Incidentally, it has also to be decided in these cases as to whether the respondent/Department has committed jurisdictional error in taxing charter transactions previously held to be not taxable in respect of the petitioners by the Tamil Nadu Sales Tax Appellate Tribunal, Additional Bench, Chennai for the assessment years 1992-1993 to 1995-1995.
3.1. While all the petitioners are companies incorporated under the Companies Act, 1956, the petitioner in W.P.No.11159 of 2004 is engaged in shipping business, which fundamentally involves entering into that of Time, Voyage and Bare Boat Charter Parties and the petitioner in other writ petitions is involved mainly in the business of manufacture and marketing of PVC resin and chemicals, having manufacturing unit at Mettur.
3.2. During the assessment year 1997-1998, the petitioners entered into Charter Party Agreements with charterers, including M/s.Poompuhar Shipping Corporation Limited, providing their vessels on charter. By virtue of the Charter Party Agreement, the petitioners realised charter hire charges in the case of Time Charter Parties and freight earnings in respect of Voyage and Bare Boat Charter Parties.
3.3. It is the case of the petitioners, especially the petitioner in W.P.No.11159 of 2004, that they have also effected sales of certain ships, apart from having miscellaneous sales involving sale of oil drums, fridge, furniture and sale of paper. It is stated that the petitioner received lease rental earnings consequent to the leasing of a water circulation and treatment plant at Hazira, Gujarat.
3.4. In all these cases, it is stated that their activities did not confer them the status of dealer under Section 2(g) of the Act and the petitioners have not registered under the provisions of the Act and none of the shipping companies which are engaged in the activities as that of the petitioners have registered under the provisions of the Act.
3.5. In respect of the other two writ petitioners, the object of the said Charter Party Agreement was to ensure loading of coal at various ports, viz., Visakhapatnam, Paradeep and Haldia situated in the States of Andhra Pradesh, Orissa and West Bengal respectively and ensure delivery of the coal at Ports inside Tamil Nadu such as Tuticorin and Chennai. On unloading, the vessel would be sent back to ports earlier mentioned situated outside the State of Tamil Nadu for the purpose reloading of the ship with coal and therefore, the vessels of the petitioner, viz., M.V.Sanmar Pioneer clearly moved inter-State from the States such as Andhra Pradesh, Orissa and West Bengal to the State of Tamil Nadu and again sailed to other States.
3.6. It is the common case of the petitioners that entering into such Charter Party Agreements will not result in transfer of right to use of the ship due to various conditions under the Charter Party Agreements, viz., that the Captain and crew of the ship are appointed by the petitioners; that in the event of the charterer not satisfied with the conduct of the crew, only a complaint can be made to the petitioners and it was for the petitioners to take action; that the charterer has no control over the ship, since it is under the exclusive control of the Captain; that the obligation to pay salaries to the Captain and wages to the crew is with the petitioners; apart from an obligation to insure the vessel and to ensure that the charter party agreements do not result in the demise of the ship.
3.7. It is stated that for the first time in the year 1997, the Commercial Tax Department has proposed to impose tax on the charter transactions, on the basis that it would result in transfer of rights to use the ship and therefore, the consideration is taxable under Section 3-A of the Act. Accordingly, the petitioner in W.P.No.11159 of 2004 was assessed under Section 3-A of the Act for the assessment years 1992-1993 to 1994-1995 by orders dated 29.1.1998, 26.3.1999 and 30.6.1999 respectively.
3.8. Aggrieved by the said orders of assessment, the petitioner in W.P.No.11159 of 2004 preferred first appeals under Section 31 of the Act before the Appellate Assistant Commissioner (CT) I. During the pendency of the said appeals, the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, [2000] 119 STC 182 : (2000) 6 SCC 12 has held as follows:
“The States, in exercise of power under Entry 54 of List II, read with Article 366(29-A) (d), are not competent to levy sales tax on the transfer of right to use goods which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export.”
3.9. Therefore, based on the said judgment, the First Appellate Authority has allowed the appeals of the petitioner, holding that the petitioners are not liable. However, the State of Tamil Nadu preferred second appeals before the Tamil Nadu Sales Tax Appellate Tribunal, Additional Bench, Chennai in S.T.A.Nos.772 to 774 of 2001. These appeals were dismissed by the Tribunal by common order dated 25.6.2001 accepting the stand of non-liability of the petitioners following the decision of the Constitutional Bench of the Supreme Court supra.
3.10. It is stated that in spite of the same, further orders of assessment were passed for the years 1995-1996 and 1996-1997 against which the petitioners filed first appeals before the Appellate Assistant Commissioner (CT) I, which were allowed on 27.7.2001 by a common order and the State once again filed second appeals in S.T.A.Nos.1704 and 1705 of 2001 before the Tamil Nadu Sales Tax Appellate Tribunal, Additional Bench, Chennai, which were dismissed on 5.4.2002 by upholding the non liability of the petitioners and holding that the State of Tamil Nadu has no jurisdiction to tax.
3.11. It is stated that as against the orders of the Tribunal, the State Government has preferred Tax Case (Revisions) before the Tamil Nadu Taxation Special Tribunal in T.C.(R) Nos.250 to 252 of 2002 and the same are pending and insofar as the assessment years 1995-1996 and 1996-1997 are concerned, the petitioners are not aware as to whether any such tax cases are filed before the Tribunal.
3.12. The petitioner in W.P.Nos.19375 of 2004 and 6261 of 2005 is a registered assessee under the provisions of the Tamil Nadu General Sales Tax Act and the Central Sales Tax Act. When for the first time the respondent/Department proposed to raise tax demand on inter-State coastal shipping for the assessment year 1997-1998, the same has been challenged in W.P.No.19375 of 2004 and while admitting the writ petition, an order of injunction has been granted which continued till the date of taking up the writ petition for final disposal.
3.13. In W.P.No.6261 of 2005, the same company has prayed for a direction to prohibit the Commercial Tax Department from proceeding with the proposed assessment notice dated 17.1.2005 on the same grounds as raised in W.P.No.11159 of 2004.
3.14. In respect of the petitioner in W.P.No.11159 of 2004, the respondent/Department by notices dated 26.7.2002 and 19.8.2002 has required the petitioner to produce books of accounts for the year 1997-1998 for which suitable reply was given on 17.9.2002 stating that they are not registered dealers under the provisions of the Act and that there was no taxable transaction as confirmed by the Tamil Nadu Sales Tax Appellate Tribunal. In spite of it, voluminous documents were produced before the respondent/Department on 17.9.2002. However, the respondent/ Department has issued a pre-assessment notice dated 10.1.2003 proposing to bring to tax the charter hire charges and freight charges realised during the year 1997-1998, apart from the sale proceeds in respect of one ship and other miscellaneous sales. The respondent/ department also proposed to bring to tax the transactions entered into by the petitioner as well as M/s.South India Shipping Corporation Limited, which were amalgamated with effect from 1.4.1996 consequent to the order of this Court dated 17.4.1998 approving the scheme of amalgamation in C.P.No.293 of 1997.
3.15. For the pre-assessment notice dated 10.1.2003, the petitioner has submitted objections on 28.2.2003 stating that the charter party agreement entered did not result in transfer of right attracting Section 3-A of the Act; that in all these cases, it is the inter-State transactions outside the State of Tamil Nadu and therefore, respondent/Department has no jurisdiction; that as per the judgment of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, [2000] 119 STC 182: (2000) 6 SCC 12, the petitioner could not be made liable; that the decision of the Tamil Nadu Sales Tax Appellate Tribunal is binding on the respondent/Department as per the principles laid down by the Supreme Court in Union of India v. Kamalakshmi Finance, AIR 1992 SC 711; that on the date of agreement of sale, on the date of the execution of the instrument of sale and on the date of delivery, the ship in question was not in Tamil Nadu, etc.
3.16. However, the respondent/Department has not considered the said objections and passed the impugned order of assessment for the year 1997-1998, dated 26.3.2004, which is assailed on various grounds, including that the same is passed in violation of principles of natural justice; that the order is passed against the decisions of the Tamil Nadu Sales Tax Appellate Tribunal in S.T.A.Nos.772 to 774 of 2001, dated 25.6.2001 and S.T.A.Nos.1704 and 1705 of 2001, dated 5.4.2002 which are binding on the respondent/Department, more so when the said orders of the Tribunal are based on the decision of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, supra; that the impugned assessment order is wholly without jurisdiction; that the petitioner is not involved in any transactions of sale under the Charter Party agreements since the possession, custody and control of the Vessels are with the petitioner.
4.1. On the other hand, it is the stand of the respondent/ Department, as it is seen in the counter affidavit filed, that the writ petitioner in W.P.No.11159 of 2004 was found not only leasing ships during the year 1997-1998, but also selling ships and other articles like oil drums, papers, fridge and furniture. It is stated that the petitioner has also leased out the water treatment plant at Gujarat and since the agreements were executed at Chennai, the respondent/Department had assessed the lease receipts for the year 1997-1998 under Section 3-A of the Act.
4.2. While it is admitted that the Tribunal has admitted the verdict in the case of 20th Century Finance Corpn. Ltd. v. State of Maharashtra, supra, as applicable to the facts and circumstances of the case, it is stated that the Supreme Court in the said case has held that when goods are available, irrespective of the place where they are located, the State in which the agreement has been entered alone has the power to assess the transactions and therefore, the respondent/Department also relied upon the said judgment of the Supreme Court for making such assessment.
4.3. It is stated that the transaction is not mere transportation of goods and the leasing of ship cannot be termed as incidental or ancillary to the main business, since the petitioner has no other main business. It is also stated that against the orders of the Tribunal, the Tax Case (Revisions) have been filed and the same have been transferred to the High Court. By relying upon the above judgment of the Supreme Court, supra, it is stated by the respondent/Department that the situs of transaction is Tamil Nadu and therefore, it is well within the powers of the respondent/Department.
5.1. Likewise, in respect of W.P.Nos.19375 of 2004 and 6261 of 2005, it is stated that the petitioner in the assessment year 1997-1998 has received Rs.14,49,00,757/- towards chartering and hiring charges and have not disclosed the same and therefore, the first respondent issued the pre-assessment notice proposing to levy tax at the rate of 11% on the said turnover, apart from penalty. It is stated that to the pre-assessment notice instead of filing the objections, the petitioner has straight-away approached this Court and therefore, these writ petitions are premature.
5.2. It is stated that in these cases the agreements were entered at Chennai and the agreements provide that the charterer has right to sub-lease the vessel; that the charterer should pay for fuel; that the charterer at the port of delivery and the owners at the port of re-delivery shall take over and pay for all fuel remaining on board the vessel; that the charterer should pay for the use and hire of the said vessel at the agreed rate; that the charterer has liberty of flying their own house flag, and according to the respondent/Department, by virtue of the various powers of the charterers under the Charter Party Agreements, there is a transfer of right to use the vessel and as such the hiring charge received from the charterer attracts tax liability under Section 3-A of the Act.
5.3. It is stated that the petitioner having its base in the State of Tamil Nadu entered into contract with Poompuhar Shipping Corporation Limited, which is also in the State and the chattel involved being a ship, simply because it travels outside the State of Tamil Nadu, it does not mean that the transactions are inter-State in nature.
5.4. Further, it is stated that the claim of the said petitioners relying upon the order of the Appellate Assistant Commissioner (CT) IV dated 18.1.2002 in A.P.No.162 of 2001 and the order of the Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), Chennai in S.T.A.No.772 of 2001 etc., dated 25.6.2001 in respect of similar cases is solely based on the evidence adduced by the parties and therefore, it is applicable based on the facts and circumstances of the case and the decision rendered by the Tribunal in that case cannot be automatically applied for arriving at any conclusion in respect of the petitioners.
6.1. Based on the above said pleadings, Mr.C.Natarajan, learned Senior Counsel appearing for the petitioner would submit that applying the principle of precedents laid down in Union of India v. Kamalakshmi Finance, AIR 1992 SC 711 and on the basis of judicial discipline, inasmuch as the higher authorities of the respondent/Department, namely the Tamil Nadu Sales Tax Appellate Tribunal in respect of the petitioner has rejected the claim of the respondent/Department to impose tax under Section 3-A of the Act and when ultimately, the State has preferred Tax Case (Revisions) which are pending before the Court, in all fairness, the respondent should await the decision of the High Court in the Tax Case (Revisions) and as an authority which is a party to the Tamil Nadu Sales Tax Appellate Tribunal, the respondent/Department is bound to follow the said decision of the Tribunal, which is valid as on date.
6.2. Even on the merits of the case, it is his submission that such charter hire charges cannot be taxed under Section 3-A of the Act by relying upon the judgment of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, supra, based on which the Tribunal itself has rejected the claim of the respondents.
7.1. Per contra, it is the contention of the learned Special Government Pleader that as against the orders of assessment which are challenged in W.P.No.11159 of 2004, there is an effective right of appeal, while in other cases, viz., W.P.Nos.19375 of 2004 and 6261 of 2005, the challenge is only to pre-assessment notices and in all fairness, the petitioner should have filed its objections.
7.2. It is his submission that individual cases are depending upon individual merits and facts. It is his submission that as far as the binding nature of the order of the Tribunal, it is on the facts of the case the individual cases are decided and the judgment of the Supreme Court relied upon by the learned Senior Counsel for the petitioners reported in Bhopal Sugar Industries Ltd. v. Income Tax Officer, AIR 1961 SC 182 is not applicable to the facts of the case. According to him, each of the assessment year forms a separate unit by itself and the decision has to be arrived at on factual matrix and ultimately, the assessing authority has to decide the individual issues.
7.3. He would also distinguish the various judgments relied upon by the learned Senior Counsel for the petitioners, including the judgment of the Bombay High Court in Sunflag Iron and Steel Co. Ltd. v. Additional Collector of Central Excise, Nagpur, 2003 [162] ELT 105 (Bom.).
7.4. It is his submission that the order of the Tribunal is not forming part of a precedent since the set of facts are different and distinguishable. He would also rely upon the judgment of the Supreme Court in Uttaranchal Road Transport Corporation and others v. Mansaram Nainwal, 2007-1-LW-99 (SC) to substantiate his contention that the order of the Tribunal relating to assessment order based on facts and the jurisdictional fact has been determined and decided and therefore, the writ petition is not maintainable.
8. I have heard the learned Senior Counsel for the petitioners and the learned Special Government Pleader (Taxes) for the respondent/ Department and given my anxious thought to the issue involved in these cases.
9. Broadly speaking, the issues covered in these writ petitions are relating to the charges either in the form of hire charges or freight earnings regarding Time Charter Parties or Voyage Charter Parties or Bare Board Charter Parties. Based on the Charter Party Agreements entered by the petitioners, who own various vessels, with others, including M/s.Poompuhar Shipping Corporation Limited, the vessels of the petitioners were hired to those parties for the purpose of transporting of goods, etc., outside the State of Tamil Nadu for which freight charges and hire charges are received by the petitioners. The question which is to be decided of course in the Tax Case (Revisions) pending before this Court is as to whether such charges received by way of transactions could be deemed to be a transfer so as to attract tax under Section 3-A of the Act.
10. Section 3-A of the Act, which is as follows, contemplates levy of tax on the right to use any goods and such levy is imposed provided there is a transfer of right:
“Section 3-A. Levy of tax on the right to use any goods.-
(1) Notwithstanding anything contained in sub-sections (2-A), (2-B), (2-C), (3), (4), (7) or (8) of Section 3, or Section 7-A but subject to the other provisions of this Act including the provisions of sub-section (1) of Section 3, every dealer referred to in item (viii) of clause (g) of Section 2 shall pay, for each year, a tax on his taxable turnover relating to the business of transfer of the right to use any goods for any purpose at the rates mentioned in sub-section (2), (2-A) or (2-C) of Section 3 or, as the case may be, in Section 4.
(2) The taxable turnover of the dealer, of the business of transfer of the right to use any goods for any purpose, shall, on and from the 1st day of April 1986, be arrived at after deducting the following amounts from the total turnover of that dealer:-
(a) all amounts involved in respect of goods involved in the business of transfer of the right to use any goods for any purpose, in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India or in the course of inter-State trade or commerce;
(b) all amounts for which any goods specified in the First Schedule or Second Schedule are purchased from registered dealers liable to pay tax under this Act and used in the same form in the transfer of the right to use such goods for any purpose; and
(c) all amounts relating to sale of any goods involved in the business of transfer of the right to use, which are specifically exempted from tax under any of the provisions of the Act.”
11. A Full Bench of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, [2000] 119 STC 182 : (2000) 6 SCC 12, while construing the situs of deemed sale in the light of the Constitutional provisions, especially with reference to Article 366(29-A) (d) of the Constitution of India and various Sales Tax Acts, including the Tamil Nadu General Sales Tax Act, has held as follows:
“27. Article 366(29-A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods.”
The conclusion arrived at by the Supreme Court is as follows:
“35. As a result of the aforesaid discussion our conclusions are these:
(a) The States in exercise of power under Entry 54 of List II read with Article 366(29-A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export.
(b) The appropriate legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e., where the written agreement transferring the right to use is executed.
(c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use.
(d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods.
(e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of the legal fiction engrafted in clause (29-A)(d) of Article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial.”
12. In the common order dated 25.6.2001 passed by the Tamil Nadu Sales Tax Appellate Tribunal in S.T.A.Nos.772 to 774 of 2001, which relates to the petitioner in W.P.No.11159 of 2004, it is true that, on fact, the Tribunal has found that charter by demise is different from Time Charter and Voyage Charter, in the sense that in the former case the possession and control of the ship is relinquished by the owner, while in the latter case the possession of the ship is never parted by the owner of the ship and held that it does not result in transfer of right to use the ship and relying upon the judgment of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, supra, it was held as follows:
“15. In view of the discussions made above, we are of the opinion that the transactions in dispute squarely attract Section 3-A(2)(a) of the Tamil Nadu General Sales Tax Act and as the transfer of right to use has not been proved beyond doubt and as no fresh facts have been brought to our notice for consideration we are inclined to dismiss the State Appeal on the turnover in dispute.”
13. In the impugned assessment order passed by the respondent/ Department, subject matter of dispute in W.P.No.11159 of 2004, while considering the claim of the petitioner that the Tribunal order in identical issue in respect of the petitioners for the earlier years is binding on the respondent/Department, the respondent/Department has construed the same judgment of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, supra, to hold that the judgment of the Supreme Court would prevail over the decision of the Tribunal, in the following words:
“Similarly when it comes to the question of proposed imposition of tax on the transaction of transfer of right to use any goods where such deemed sales take place, the assessee has raised its objection for more scores than one; the more significant of which is the order of the Tribunal in the identical issue of the earlier years. The SC’s decision prevails over the decision of the Tribunal.”
14. In Union of India v. Kamalakshmi Finance, AIR 1992 SC 711, a Full Bench of the Apex Court, while dealing with the order of assessment passed by the Assistant Collector under Central Excise and Salt Act, 1944 not following the order of the Collector (Appeals) and also the decision of the Central Excise and Gold Control Appellate Tribunal and upholding the judgment of the High Court which has made some harsh remarks against the Assistant Collector, has held as follows:
“7. ….. The position now, therefore, is that, if any order passed by an Assistant Collector or Collector is adverse to the interests of the Revenue, the immediately higher administrative authority has the power to have the matter satisfactorily resolved by taking up the issue to the Appellate Collector or the Appellate Tribunal as the case may be. In the light of these amended provisions, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector or the Appellate Tribunal, as the case may be, even where he may have some reservations on its correctness. He has to follow the order of the higher appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under Section 35-E(1) or (2) to keep the interests of the department alive. If the officers view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail.
8. We have dealt with this aspect at some length, because it has been suggested by the learned Additional Solicitor General that the observations made by the High Court, have been harsh on the officers. It is clear that the observations of the High Court, seemingly vehement, and apparently unpalatable to the Revenue, are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assessee-public without any benefit to the Revenue. We would like to say that the department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and the utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them.”
So, the Supreme Court in that case has held that even if the Assistant Collector has some reservation on the correctness of the order of the Collector (Appeals) or the Tribunal, he has to follow since there are other remedies available under law for the Revenue.
15. A Division Bench of the Madras High Court in Sri Rajendra Mills Limited v. Joint Commercial Tax Officer, Salem, [1971] Vol.XXVIII STC 483 has held that merely because the Department has preferred tax cases, it would not amount to automatic stay of the order of the Tribunal and so long as the order of the Tribunal is not set aside, the Appellate Assistant Commissioner is bound to follow and give effect to the same, in the following words:
“The turnover in question relating to what is stated to be lending of cotton is the subject-matter of an appeal before the Appellate Assistant Commissioner of Commercial Taxes. The matter relates to the year 1967-68. For the earlier year, we are told that a similar turnover was considered by the Tribunal, which was of opinion that the transactions amounted to lending and they were not sales. When the appeal in respect of the year 1967-68 is pending, we do not think it desirable and necessary to deal with the matter under Article 226 of the Constitution. Normally, the assessee should be compelled to resort to the statutory remedy. In fact, in this case, he has availed himself of it and he must await the result.
But an apprehension is expressed on behalf of the assessee that because a tax case has been filed against the Tribunal’s decision relating to the year 1967-68, the Appellate Assistant Commissioner might feel that he was not bound by the view of the Tribunal. We consider that in the hierarchy of authorities set up under the Act, the Tribunal is superior to the Appellate Assistant Commissioner, who is bound by the orders of the Tribunal. The orders of the Tribunal will be as effective as the orders of this Court so far as their binding character on the Appellate Assistant Commissioner is concerned. Merely because a tax case has been filed by the department, it does not mean it acts as a kind of stay of operation of the order of the Tribunal. So long as that order of the Tribunal is not set aside, the Appellate Assistant Commissioner is bound to give effect to it, and if he fails to do it and by-passes it on the ground that the department has filed an appeal, it will be really a contempt of the Tribunal’s order. In the circumstances, therefore, we should think that the Appellate Assistant Commissioner will, as he is bound to, follow the Tribunal’s view. It is, of course, open to the Appellate Assistant Commissioner to take his own view on the facts, but, so far as the law propounded by the Tribunal is concerned, it is binding and it should be applied by the Appellate Assistant Commissioner to the facts before him.
Subject to these observations, the petition is dismissed. No costs.”
16. K.Raviraja Pandian,J. in Ragam Polymers v. Commercial Tax Officer, Ice House Assessment Circle, Chennai-600 028, [2008] 12 VST 43 (Madras), on the same line, has held as follows:
“17. The action of the assessing officer in passing the impugned assessment order, which has been passed without any regard to the direction given by the Appellate Assistant commissioner, having regard to the statutory hierarchical scheme and the binding nature of the order passed by the appellate authority as envisaged in the various decisions above referred to, cannot be legally sustainable and it has to be set aside with a specific direction to the assessing officer to follow the directions given by the Appellate Assistant Commissioner in his proceedings dated 17-7-2001. In the given set of facts, I can also take support of the ratio laid down in the case of Union of India v. Kamlakshi Finance Corporation reported in [1991] 55 ELT 433 (SC) to state that it is not as if the Revenue is left without any remedy. Even assuming for a moment the order of the Appellate Authority is not in accordance with law, the Revenue can very well take the order on appeal and there are provisions as stated in the earlier paragraphs in which the superior officers are vested with the suo motu powers to call for, rectify the defects, if any, in the orders passed under the provisions of the Act. Of course, as stated by the Supreme Court, in the above said process, there will be some delay in conclusion of the proceedings, for that matter, the assessing officer cannot ignore the directions given by the appellate authority.”
17. A Division Bench of the Bombay High Court in Sunflag Iron and Steel Co. Ltd. v. Additional Collector of Central Excise, Nagpur, 2003 [162] ELT 105 (Bom.), considering the binding effect of judicial hierarchy, by narrating various judgments, has held as follows:
“9. Turning then to the binding nature of the judgments of the CEGAT, we find that the proposition has never been doubted that the judgments of the CEGAT are binding on the Revenue Authorities. In the case of Morarji Gokuldas Spinning Weaving Co. Ltd. and Anr. v. Union of India and Ors., reported in 1981 (8) ELT 429 (Bom.), it was pointed out by a learned Single Judge of this court that an order passed by the Central Government in exercise of its revisional powers (under the law as it stood when no appeal was provided) was binding on the Excise Authorities. In the case of Collector of Central Excise, Bombay-I v. Pharmaceutical Capsules Laboratories, Bombay reported in 1986 (25) ELT 211, which was a case after the CEGAT was established, the CEGAT itself took a view that judgments of the CEGAT are binding on the Revenue Authorities and even the fact that they had merely filed an appeal against a particular judgment did not detract from its binding nature.
10. In the case of Hico Products Ltd. v. Collector of Customs, reported in 1988 (36) ELT 308 it was reiterated that unless the orders of the CEGAT are stayed or reversed by a superior forum, the decisions cannot be ignored or brushed aside by quasi judicial authorities in the Department. Though these are decisions of the CEGAT, we agree with the view taken therein. The judgment of the Madras High Court in the case of Sree Rajendra Mills Ltd. v. Joint Commercial Tax Officer, Salem, [1978 (2) E.L.T. (J 551) (Mad.) = 1971 Vol.28 STC 483] holds similarly under the Sales Tax Act. To similar effect are the observations of the Andhra Pradesh High Court in the case of Koduru Venkata Reddy v. Land Acquisition Officer and R.D.O. Kavali, (1987) 67 STC 424 and State of Andhra Pradesh v. Commercial Tax Officer and Anr., 1988 Vol.63 Company Cases 273. In the case of Ram Singh and Sons Engineering Works and Anr. v. The State of Uttar Pradesh and Anr., 1977 STC Vol.39 424, the Allahabad High Court had taken the same view. Though these judgments were with respect to decisions of the High Court and their binding nature, the principle is the same, namely, enforcement of judicial discipline and prevention of chaos.
11. Thus a conspectus of these judgments leaves no doubt in our minds that the judgments and orders rendered by the CEGAT are binding on all Excise Officers unless they are set aside by this Court or by the Supreme Court in appeal.
12. By its judicial hierarchy, the judgment of the CEGAT binds the Revenue Officers. By virtue of Section 37B of the Act, administratively issued Circulars/Orders and trade notices equally bind the Revenue Officers. In such a situation, assuming there is a conflict between a Circular, order or trade notice issued under Section 37B of the Act and a binding judgment of the CEGAT, we have no hesitation in holding that it would be the judgment of the CEGAT which ought to be followed by the Revenue Officers. The Supreme Court in a recent judgment in Government of Andhra Pradesh and Ors. v. A.P. Jaiswal and Ors. – 2001 AIR SCW 101 had occasion to consider the application of the principle of stare decisis to judgments of Tribunals. Observes the Supreme Court (vide-paragraph 24):
“24. Consistency is the cornerstone of the administration of justice. It is consistency which creates confidence in the system and this consistency can never be achieved without respect to the rule of finality. It is with a view to achieve consistency in judicial pronouncements, the Courts have evolved the rule of precedents, principle of stare decisis etc. These rules and principles are based on public policy and if these are not followed by Courts then there will be chaos in the administration of justice, which we see in plenty in this case. This Court in the case of S.I. Rooplal v. Lt. Governor through Chief Secretary, Delhi (1999) 7 Scale 466 : (2000 AIR SCW 19) held thus at pages 24-25 of AIR SCW:
“At the outset, we must express our serious dissatisfaction in regard to the manner in which a Coordinate Bench of the tribunal has overruled, in effect, an earlier judgment of another Coordinate Bench of the same tribunal. This is opposed to all principles of judicial discipline. If at all, the subsequent Bench of the tribunal was of the opinion that the earlier view taken by the Coordinate Bench of the same tribunal was incorrect, it ought to have referred the matter to a Larger Bench so that the difference of opinion between the two Coordinate Benches on the same point could have been avoided. It is not as if the latter Bench was unaware of the judgment of the earlier Bench but knowingly it proceeded to disagree with the said judgment against all known rules or precedents. Precedents which enunciate rules of law form the foundation of administration of justice under our system. This is a fundamental principle which every Presiding Officer of a Judicial Forum ought to know, for consistency in interpretation of law alone can lead to public confidence in our judicial system. This Court has laid down time and again precedent law must be followed by all concerned; deviation from the same should be only on a procedure known to law. A subordinate Court is bound by the enunciation of law made by the superior Courts. A Coordinate Bench of a Court cannot pronounce judgment contrary to declaration of law made by another Bench. It can only refer it to Larger Bench if it disagrees with the earlier pronouncement.”
The reason for saying so is quite obvious. The Circulars/orders or trade notices are not binding on the assessees at all and their efficacy and legality is always open for challenge at the instance of them. As far as the judgments rendered by the CEGAT are concerned, they are equally binding on the assessees as well as the Department. In a contest, therefore, the Circular’s/guidelines/orders or trade notices issued under Section 37B must necessarily yield. Thus, we hold that all officers functioning under the Act are bound by the judgments rendered by the CEGAT as long as such judgments are not stayed or reversed by a superior forum i.e. the High Court or the Supreme Court. We also hold that if at all there is a situation of conflict between a Circular/guideline/order or trade notice issued under Section 37B of the Act and a binding judgment of the CEGAT, it is the binding judgment of the CEGAT which has to be followed by the authorities under the Act. The observations of the Division Bench of this Court in the case of Yashwant Sahakari Sakhar Karkhane Ltd. v. Union of India and Ors., reported in 1986 (26) ELT 904 (Bom.) fully support the view which we are inclined to take. It is an elementary proposition that an administrative circular issued by an authority, however high, can never override a binding judgment of judicial or quasi judicial authority. This is the quintessence of rule of law.”
18. A Constitutional Bench of the Supreme Court in Bhopal Sugar Industries Ltd. v. Income Tax Officer, AIR 1961 SC 182, under similar circumstances, while upholding the concept of binding nature of the judicial hierarchy, has held as follows:
“8. We think that the learned Judicial Commissioner was clearly in error in holding that no manifest injustice resulted from the order of the respondent conveyed in his letter dated March 24, 1955. By that order the respondent virtually refused to carry out the directions which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessments made by him. Such refusal is in effect a denial of justice, and is furthermore destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. If a subordinate tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice and we have indeed found it very difficult to appreciate the process of reasoning by which the learned Judicial Commissioner while roundly condemning the respondent for refusing to carry out the directions of the superior tribunal, yet held that no manifest injustice resulted from such refusal.
9. It must be remembered that the order of the Tribunal dated April 22, 1954, was not under challenge before the Judicial Commissioner. That order had become final and binding on the parties, and the respondent could not question it in any way. As a matter of fact the Commissioner of Income-tax had made an application for a reference, which application was subsequently withdrawn. The Judicial Commissioners was not sitting in appeal over the Tribunal and we do not think that, in the circumstances of this case, it was open to him to say that the order of the Tribunal was wrong and, therefore there was no injustice in disregarding that order. As we have said earlier such a view is destructive of one of the basis principles of the administration of justice.”
19. Even though it is true that in these cases the Supreme Court has issued certain directions, ultimately the binding nature of the hierarchy of the quasi-judicial authorities has been manifestly explained in no uncertain terms.
20. The reliance placed by the learned Special Government Pleader (Taxes) on the decision in Uttaranchal Road Transport Corporation and others v. Mansaram Nainwal, 2007-1-LW-99 (SC) has no application to the facts of the present case. While broadly explaining the concept of “precedent”, the Supreme Court has held that every observation made by the Court cannot be deemed to be a precedent, which is certainly a celebrated concept of “precedent” as laid down by the Supreme Court. But, on the facts of the present case, there is a decision of the Tribunal in respect of one of the petitioners and in respect of other petitioners it is not in much dispute that the facts are similar and in such circumstances, the question is not that of precedent, but the binding nature of the order of the higher authorities on a lower authority.
21. The principle that the assessing authority has to decide individually in respect of the assessment on the facts and circumstances of the case is also not in dispute. But, as repeated more than once, on the factual matrix itself, the higher authority has come to a conclusion in favour of the petitioners and while the State has filed Tax Case (Revisions) which are pending before this Court, in all fairness, the respondent/ Department ought to have waited till a finality is arrived at. In fact, the stand of the assessing authority in the impugned assessment order interpreting the judgment of the Supreme Court in favour of the Revenue is also the subject matter to be decided in the Tax Case (Revisions).
22. In such circumstances, I do not propose to go into the factual aspect of every case in this batch, suffice to state that the respondent/Department should await the result of the Tax Case (Revisions) pending before this Court in respect of the same issue and not to proceed either with the pre-assessment notices or the assessment order.
In the result, on the ground of judicial discipline and binding nature of judicial hierarchy, these writ petitions are disposed directing the respondent/Department not to proceed with the impugned assessment order or the pre-assessment notices, as the case may be, till the Tax Case (Revisions) filed by the State against the order of the Tamil Nadu Sales Tax Appellate Tribunal in S.T.A.Nos.772 to 774 of 2001 are disposed by this Court. It is made clear that after the disposal the Tax Case (Revisions), it is open to the respondent/Department to proceed in accordance with law and based on the order passed in the Tax Case (Revisions). No costs. Consequently, W.P.M.P.No.2656 of 2007 in W.P.No.11159 of 2004, W.P.M.P.No.23311 of 2004 in W.P.No.19375 of 2004 and W.P.M.P.No.6874 of 2005 in W.P.No.6261 of 2005 are closed.
sasi
To:
1. The Commercial Tax Officer (FAC)
Rattan Bazaar Assessment Circle
First Floor, Kuralagam Annexe
Chennai 600 108.
2. The Deputy Commercial Tax Officer
Sankari.
3. The Commercial Tax Officer (FAC)
Omalur