JUDGMENT
G.C. Bharuka, J.
1. This case rather raises an important question of law of far reaching consequences having great bearing on the administration of the Karnataka Sales Tax Act, 1957 (hereinafter in short “the Act”). This question has arisen particularly in the context of section 3A of the Act which has authorized the Commissioner of Commercial Taxes to issue instructions and clarifications under given circumstances. In purported exercise whereof, it appears, he had been making all sorts of communications with the dealers which have been compiled in volumes overweighing the texts of the Act and the Rules and notification framed/issued thereunder creating more confusions in this branch of tax administration, then really clearing the doubts surrounding the rates of taxes. This is being continued unabated despite the fact that this Court has deprecated such practice more than once. Therefore it is high time that the power of the Commissioner should be clearly delineated and overstepping in this regard be denounced and annulled.
2. The facts of the present case present an apt example to demonstrate as to how the Commissioner had been acting outside his statutory authority hereby unwarrantedly flooding this Court to examine his uncalled for views in the matters pertaining assessments of tax under the Act. The petitioner in the present case is a partnership firm which is registered under the State as also the Central Sales Tax Act, 1956. It deals in dyes and chemicals. For the assessment year 1993-94 the firm was subjected to an assessment under section 9(2) of the Central Act read with section 12(2) of the Act, issued by the respondent-Additional Deputy Commissioner, whereunder it was subjected to a tax liability of Rs. 84,851. The said demand notice (annexure C) was served on it on May 22, 1995. If it had any grievance against the legality of the said order, it had a right to file appeal within 30 days. But no appeal was preferred. Thus the order of assessment become final. Subsequently, on July 7, 1995, the petitioner addressed a letter to the respondent-Commissioner, purporting to seek clarification under section 3A(2) of the Act, calling in question the legality of the aforesaid assessment order which in law had already attained its finality. Strangely, the Commissioner without caring to ascertain the extent of his statutory function under section 3A and presumably under a misconceived motion that he being the head of the Administration under the Act has a power to do “everything and anything” under umbrella, of section 3A, proceeded to examine the validity of the aforesaid assessment order, and, by the impugned communication dated September 6, 1995 (annexure A) informed the petitioner that according to him there is no illegality therein. The petitioner taking advantage of the Commissioner’s communication, has come up before this Court for quashing of the assessment order as also the impugned communication (annexure A) by alleging that the said communication is a statutory clarification in terms of section 3A(2) and as such its validity cannot be examined by any authority or Tribunal constituted under the Act and his remedy lies only to this Court under extraordinary writ jurisdiction.
3. The aforesaid practice in many a case is the modus operandi, which had been adopted by a section of well-advised assesses in order to make out a ground for by-passing the statutory remedies and over-burdening this Court with the task of examining the questions of fact and law depriving it of having views of the statutory authorities who are supposed to have better expertise in special statutory provisions, and the prevalent practices, behaviour trends and activities of the commercial world. Such indiscriminate replies given by the Commissioner to each and every communication made to him has, apart from flooding this Court with unwarranted litigations, to a large extent has proved counter-productive to the revenue, since, when this Court is called upon to examine the legality of the issues covered by the purported clarifications on the ground that with the issuance of the clarifications the dealer has been deprived of his remedies under the Act, this Court in most of such cases felt persuaded to issue rule and grant interim orders.
4. Now to appreciate the nature and extent of function which has been assigned to the Commissioner under section 3A of the Act, I would do better by quoting the said section at the threshold, which reads as under :
“3-A. Instructions to subordinate authorities. – (1) The State Government and the Commissioner may from time to time, issue such orders, instructions and directions to all officers and persons employed in the execution of this Act as they may deem fit for the administration of this Act, and all such officers and persons shall observe and follow such orders, instructions and directions of the State Government and the Commissioner :
Provided that no such orders, instructions or directions shall be issued so as to interfere with the discretion of any appellate authority in the exercise of its appellate functions.
(2) Without prejudice to the generality of the foregoing power, the Commissioner may, on his own motion or on an application by a registered dealer liable to pay tax under the Act, if he considers it necessary or expedient so to do, for the purpose of maintaining uniformity in the work of assessments and collection of revenue, clarify the rate of tax payable under this Act in respect of goods liable to tax under the Act, and all officers and persons employed in the execution of this Act shall observe and follow such clarification.
……………..
(3) All officers and persons employed in the execution of this Act, shall observe and follow such administrative instructions as may be issued to him for his guidance by the Deputy Commissioner within whose jurisdiction he performs his functions.”
5. Sub-section (1) of section 3A is in substance in para materia with section 119 of the Income-tax Act, 1961. Moreover, the purported clarifications are all sought to be justified only under sub-section (2) of section 3A of the Act, since sub-section (1) provides for issuance of orders, instructions and directions to the officers and persons employed in execution of the Act for its administration. In the context of section 119 of the Central Act recently the Supreme Court in the case of Kerala Financial Corporation v. Commissioner of Income-tax has held that :
“14. The fact that the circular to which Shri Salve has referred is one which had been issued in exercise of powers conferred by section 119 of the Act has no significance in so far 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 at even amend the provision of law enacted by Parliament. Such a contention cannot seriously be even raised.”
Therefore, it goes without saying that the extent of the power of issuing instructions under sub-section (1) of section 3A of the Act has to be necessarily understood in the light of what the Supreme Court has said as above.
6. Now, I come to the material part of section 3A, i.e., sub-section (2) thereof. The first question that needs to be decided in the context of this sub-section is the nature of function which has been assigned to the Commissioner therein. This provision has been engrafted in the statute to ensure clarity and certainty in respect of rate of tax applicable to variety of taxable goods. The object clearly is that in cases where the respective entries made in the Schedule to the Act even on a fair and reasonable reading thereof, still leaves doubt as to the rate which can be made applicable to the particular taxable goods, on being approached either by the dealer or even suo motu, the Commissioner can clear the doubts in this regard by making it certain both for the tax-payers and the authorities under the Act so that the same may uniformly be applied to the dealings in such goods. This provision falls in the category of “removal of doubts or difficulty clauses” which as a sound legislative practice are incorporated by the Legislature by delegating its part of its functions to a specified authority to attend to the doubts genuinely emerging from its Acts to ensure proper and effective administration thereof.
7. In the case of Jalan Trading Co. Private Ltd. v. Mill Mazdoor Sabha a five-Judge Bench of the Supreme Court, while dealing with the constitutional validity of section 37 of the Payment of Bonus Act, 1965 has held that the power to remove the doubt of difficulty by altering the provisions of the Act would in substance amount to exercise of legislative authority. Even otherwise, the power to prescribe the rate of tax conferred on an authority has always been held as a species of delegated legislation. Under the impugned sub-section (2) of section 3A, when the Commissioner on being satisfied about the existence of the circumstances requiring his clarification regarding rate of tax payable in respect of certain goods, in so clarifying he would be exercising only a delegated legislative function. But this delegation is not assailable on the ground of excessiveness because it can be exercised for a very limited and well defined purpose. The sub-section itself provides for sufficient safeguards and guidelines subject to which alone the said power can be exercised. The pre-requisites are :
(i) On being informed regarding the necessity of clarification pertaining to rate of tax in respect of given goods he has, on proper construction of entries by applying judicially pronounced rules of construction has to ascertain as to whether any prudent man can entertain any doubt about the taste of tax which would be applicable in respect of the said goods;
(ii) if he comes to the conclusion that the respective entries even on a fair and reasonable construction can still leave doubt or difficulty in ascertainment of rate of tax in respect of such goods, it is then and then only that he can issue the requisite clarification; and
(iii) such clarification has to be solely for the purpose of maintaining uniformity in the work of assessment and collection of revenue.
8. From the above discussion, it is obvious that if the conditions precedent are found to be existing for exercise of legislative function under sub-section (2) of section 3A of the Act the clarification issued pursuant thereto will take the colour of law binding all the officers and persons employed in the execution of the Act.
9. In the case of Straw Products v. Income-tax Officer, Bhopal , while examining the scope of section 6 of “Taxation Laws (Extension to Merged States and Amendment) Act, 1949, it was held by the Supreme Court that “exercise of the power to make provisions or to issue directions as may appear necessary to the Central Government is conditioned by the existence of a difficulty arising in giving effect to the provisions of any Act, Rule or Order. The section does not make the arising of the difficulty a matter of subjective satisfaction of the Government; it is a condition precedent to the exercise of power and existence of the condition if challenged must be established as an objective fact.”
10. Two Division Benches of this Court in the case of S. N. Gondakar v. Commissioner of Commercial Taxes [1983] 54 STC 190 and G. S. Sunagar and Brothers v. Commissioner of Commercial Taxes [1991] 82 STC 288, have held that the circulars issued by the Commissioner specifying the rate of tax in respect of a commodity is binding on all those who are charged with the duty to implement the provisions of the Act and it is not open to them to ignore such circulars. Therefore, these clarifications or circulars have to be held as of general nature having a binding effect that of the law. Communications made in the form of replies to the queries cannot be said to be statutory clarifications issued pursuant to the delegated legislative function contemplated under sub-section (2) of section 3A of the Act.
11. The said aspect of the matter has been laid down by latter Division Bench decision of this Court in the case of Lipton India Limited v. State of Karnataka wherein it had to observe that :
“It is difficult to appreciate how the reply of the Commissioner dated April 2, 1992 to the appellant can ever be construed as suo motu clarification by the Commissioner about the rate of tax payable and that the said clarification can be said to have been made to officers and persons employed in the execution of the Act, who have to follow such clarification. The said reply given by the Commissioner was not in exercise of any suo motu power. Secondly, it was not a clarification issued in connection with any rate of tax. Thirdly, it was not addressed to any of the subordinate officers. Mr. Chidambaram, in this connection submitted that it can be said to be a clarification saying that it will not be a nil rate of tax but would be maximum rate of 30 per cent. No such instruction to any subordinate officer was found in the reply dated April 2, 1992. The said letter has nothing to do with the rate of tax payable under the Act. The reply was in connection with the appellants’ query whether the exemption from sales tax would be available to its products under the notification annexure B. It must be held that the said reply of the Commissioner of Commercial Taxes dated April 2, 1992, addressed to the appellant by any stretch of imagination cannot be said to be instruction issued by the Commissioner under section 3A(2) to its subordinates.”
Subsequently, I also had an occasion to examine the same aspect in the case of Sri Vinayaka Agency v. State of Karnataka . In the said case the learned Government Advocate on being confronted to produce the clarification of the circular/clarification on the issues involved in the said case had to fairly concede that no statutory clarifications in terms of section 3A(2) of the Act had been issued and a gist (annexure A in those writ petition) which was being used for the administration of the Act by the statutory authorities had been extracted from the compilation of various communications made from the office of the Commissioner pursuant to individual queries of the dealers. On these facts and after noticing the observations of the Division Bench in Lipton’s case , I was constrained to observe that :
“In this background, as noticed above, I can only say that the Commissioner and its office should henceforth forbear from sending replies to individual queries having bearing on assessments under the Act and communicating the gist thereof as guidelines to the statutory assessing authorities except in a manner provided under section 3A of the Act.”
12. Accordingly it is held that none of the communication made by the Commissioner or from his office pursuant to individual queries of dealers or any person whosoever he may be, shall be treated as a statutory clarification/circular in terms of section 3A(2) of the Act and it will not bind any one, may be the tax-payer or the authorities constituted under the Act.
13. Further, I have already held that the circulars/clarifications issued under section 3A(2) of the Act being of the nature of the statutory instruments having status of law meant to be observed and implemented by all governed by the provisions of the Act either as by way of compliance or by way of enforcement thereof, cannot be acted upon as law unless the same has been notified to the public at large in a mode and manner known to law. In Harla case it has been held that :
“Natural justice requires that before a law can become operative it must be promulgated or published. It must be broadcast in some recognisable way so that all men may know what it is; or, at the very least, there must be some special rule or regulation or customary channel by or through which such knowledge can be acquired with the exercise of due and reasonable diligence. The thought that a decision reached in the secret recesses of a chamber to which the public has no access and to which even their accredited representatives have no access and of which they can normally know nothing, can nevertheless affect their lives, liberty and property by the mere passing of a resolution without anything more is abhorrent to civilized man. It shocks his conscience. In the absence therefore of any law, rule, regulation or custom, we hold that a law cannot come into being in this way. Promulgation or publication of some reasonable sort is essential.”
14. Applying the said test to the issue involved in the present case and practice which has either been followed by the Commissioner for replying to individual queries by sitting in his chamber as privileged communication can hardly be said to be of any statutory value much less to bind anyone. It is high time when the Commissioner, if he intends to exercise his delegated legislative function under section 3A(2) of the Act he should see that he would do so only on being satisfied about existence of pre-conditions as set out above. He should ensure that statutory clarifications are notified to the persons who are expected to abide by it. In my opinion the best manner which can inspire confidence, accuracy and dependability and can have a presumptive value of due communication can be through its publication in the official gazette.
15. At the end, I find it essential to meet the question raised by Mr. D’Sa on behalf of the Commissioner in the context of section 3(2) and particularly its proviso, which, inter alia, authorises the registered dealers liable to pay tax under the Act, to address applications to the Commissioner in prescribed manner accompanied with requisite fee in order to elucidate clarifications regarding rate of tax payable in respect of taxable goods. Mr. D’Sa has posed the question that in case such an application is made by a dealer and after going through the contents thereof, even if the Commissioner forms an opinion that no clarification is called for in terms of section 3A(2) of the Act, none the less, as the minimum courtesy demands, the dealer has to be favoured with a reply in this regard. I agree with Mr. D’Sa. The application has to be acknowledged. But if the Commissioner finds that no statutory clarification regarding rate of tax in the sense I have discussed above, is necessary to be made, then his reply should bear his opinion only to that extent without repeating what the Legislature has already expressed under the Act and the Schedules thereto. If he purports to answer to the queries made to him travelling beyond the four corners of the impugned provisions, then he will be merely expressing his personal view having no statutory sanction behind the same.
16. To sum up it is held that :
(i) A statutory clarification under section 3A(2) of the Act can be issued only in respect of rate of tax payable under the Act in respect of goods liable to be taxed under the Act;
(ii) Such clarifications can be issued only if on a fair reading of the respective provisions/entries pertaining to rate of tax under the Act and the Schedules thereto, genuinely raises a doubt regarding the rate of tax applicable to any taxable goods;
(iii) The clarification should spell out the reasons which has prevailed with the Commissioner to issue the same, so that, if challenged, its validity can be scrutinized from its very contents;
(iv) All such clarifications should be notified in the official gazette;
(v) The authorities under the Act who intends to rely on any such statutory clarifications in any notice or order issued/passed under the Act or Rules framed thereunder should quote such clarifications in extenso, so that this Court when any such notice/order is subjected to judicial review under the writ jurisdiction, can find the clarification handy; and
(vi) No authority under the Act, shall treat the purported gist of the replies of the Commissioner sent to the dealers or their representatives, pursuant to their individual queries having bearing on any aspect of administration of the Act as a statutory clarification under section 3A(2) of the Act, so as to bind them in any manner.
17. For the said reasons, to close, it is held that the communication (annexure A) is wholly illegal having been issued without any authority of law and it is accordingly quashed. It is clarified that the said communication on its quashing will not in any way affect the validity or finality of the order of assessment passed against the petitioner and the demands created thereunder can be enforced in accordance with law. Since in substance, the endeavour of the petitioner by seeking the quashing of the impugned communication (annexure A) was to get the order of assessment and demand notice (annexure C) quashed and he having failed in his this misconceived design, the writ petition stands dismissed. On the facts of the case, I refrain to pass any order as to costs.
18. Let copy of this order be handed over to the learned Additional Government Advocate, for communication and needful.
19. Writ petition dismissed.