IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 15/02/2005
Coram
The Hon'ble Mr.MARKANDEY KATJU, Chief Justice
and
The Hon'ble Mr.Justice D.MURUGESAN
Writ Appeal No. 3995 of 2004
and
Writ Petition Nos. 36203 & 36204 of 2003
and
W.P.M.P.Nos. 43943 & 43944/2003
Tvl.Pizzeria Fast Foods Restaurant
(Madras) Pvt. Ltd.,
No.85, Santhome High Road,
Chennai - 600 028. ... Appellant
-VS-
1. Commissioner of Commercial Taxes
Ezhilagam, Chepauk,
Chennai - 600 005.
2. Commercial Tax Officer,
Valluvar Kottam Assessment Circle,
Chennai - 600 006.
3. Tamil Nadu Taxation Special Tribunal
rep. by its Registrar,
2nd floor, Singaravelar Maligai,
Chennai. ... Respondents
W.P.No. 36203 & 36204 of 2003
Tvl.Pizzeria Fast Foods Restaurant
(Madras) Pvt. Ltd.,
G 2/3, Gee Gee Emerald,
312, Valluvar Kottam High Road,
Chennai - 600 034. ... Petitioner in
both the petitions.
vs.
1. Tamil Nadu Taxation Special Tribunal
Singaravelar Maligai II Floor,
Chennai.
Rep. by its Registrar.
2. Commissioner of Commercial Taxes,
Ezhilagam, Chepauk,
Chennai - 600 005.
3. Commercial Tax Officer,
Valluvar Kottam Assessment Circle,
Chennai - 600 006. ...Respondents in
both the petitions.
Appeal filed under Clause 15 of the Letters Patent against the order
passed in W.P.No.6266 of 2004 dated 16.03.2004 and writ petitions filed under
Article 226 of the Constitution of India praying for the issue of writ of
certiorari for the reasons s d therein.
!For appellant in W.A.
& petitioner in W.Ps ::: Mr.Arvind P. Datar
Senior counsel for
Mr.R.Raghavan
^For Respondents in
both the writ appeal
& writ petitions ::: Mr.T.Ayyasamy
Special Govt.Pleader
(Taxes)
:J U D G M E N T
THE HONOURABLE THE CHIEF JUSTICE
Heard the learned counsel for the parties.
2. Writ Petition No. 36203 of 2003 has been filed for a writ of
certiorari to quash the impugned order passed by the first respondent, the
Tamil Nadu Taxation Special Tribunal, Chennai in O.P.No.918 of 2003 dated
24.11.2003.
3. Writ Petition No. 36204 of 2004 has been filed for a writ of
certiorari to quash the impugned order passed by the first respondent in
O.P.No.1347 of 2003 dated 24.11.2003. The Tribunal has passed common order in
both the above cases. Before the T nal, the petitioner sought to quash the
impugned clarification No.156 of 2003 in D.Dis.Acts. Cell-II/31073/2003 dated
26.06.2003 issued by the Commissioner of Commercial Taxes under Section 28-A
of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as ‘the
Act’).
4. The Tribunal dismissed both the petitions for assessment years
1999-2000 and 2000-2001 on the ground that the clarifications are binding on
the parties, and alternatively it was open to the petitioner to challenge the
correctness of the clarifica before the statutory authorities under the Act.
5. Writ Appeal No.3995 of 2004 has been filed against the impugned
order of the learned single Judge dismissing W.P.No.6266 of 2004 on the ground
of alternative remedy under the Act. It has been pointed out in the writ
appeal that the learned single ge was wrong in dismissing the writ petition on
the ground of alternative remedy, since the assessment order has been passed
on the basis of the clarification dated 26.06.2003 under Section 28-A of the
Act and the said clarification issued by the first r espondent is the subject
matter of challenge before this Court in W.P.Nos.36203 & 36204 of 2003.
6. The facts of the case are that the petitioner is a private limited
company and runs a chain of fast food restaurants under the name and style
“Pizza Hut”. The petitioner company sells pizza and other food preparations
at its restaurants. It also ides hot and cold beverages like soft drinks,
tea, coffee etc. The petitioner has been registered as a dealer under Tamil
Nadu General Sales Tax Act, 1959. It is alleged that initially the
assessments of the petitioner were completed for the assessment y ears
1999-2000 and 2000-2001 by levying sales tax under Section 3D of the Act,
which specifically applies to hotels and restaurants. It is alleged that
until 01.04.2004, the levy of sales tax on the sale of food and drinks in any
hotel was at a flat rate of 2%. Section 3D applies to all hotels/restaurants
wherein the total turnover was not less than Rs.25 lakhs, but, Star Hotels
were subject to a higher rate of tax. It is alleged that after the
assessments were completed, the petitioner received pre-rev ision notices on
25th June 2002 calling upon it to show cause as to why the assessments for
both years should not be revised and the sale of pizza should not be taxed at
16% as against the initial levy of 2%. The petitioner filed its objections
before th e third respondent/Commercial Tax Officer, Valluvar Kottam
Assessment Circle, Chennai – 600 006. The third respondent/Commercial Tax
Officer pointed out that the pre-revision notices were on the basis of a
clarification dated 16.03.2002 which directed th at branded pizza should be
taxed at 16% and unbranded pizza at 8% and this clarification was issued by
the Commissioner of Commercial Taxes (second respondent in the writ
petitions). The same view was reiterated in another clarification dated
20.12.2002.
7. In view of the above two earlier clarifications dated 16.3.2002
and 20.12.2002, the petitioner sought for a clarification from the second
respondent under Section 28-A of the Act, as to the proper rate of tax. The
request for clarification was fi in terms of Form XIV under Rule 26A of the
Tamil Nadu General Sales Tax Act Rules. In the said application, the
petitioner pointed out that until 01.04.2002, Section 3D of the Act read: –
” Section 3D. Payment of tax by hotels, restaurants and sweet stalls: –
(1) Notwithstanding anything contained in sub-section(1) of Section 3 every
dealer whose total turnover is not less than twenty five lakhs of rupees for
the year on the first point of sale of food and drinks in hotels, restaurants,
sweet stalls and any o ther eating houses other than those falling under item
20 of PART-C of the first schedule, shall pay tax at the rate of 2 per cent on
the taxable turnover.
Explanation:- For the purpose of computing the total turnover under the
sub-section, the purchase turnover liable to tax under Section 7-A shall be
added to the sales turnover”
8. The contention of the petitioner was that before 01.04.2002,
Section 3D made no distinction between branded and unbranded food and drinks.
Sale of all types of food and drinks in hotels and restaurants would be taxed
only at 2% of the taxable tur r, except star hotels. Therefore, it would not
be proper to levy sales tax at 16% on pizza by treating them as branded goods
under Entry 4(iii), Part-E of the First Schedule.
9. The petitioner also pointed out that Section 3D was drastically
amended on 01.04.2002, and after the amendment, it read as: –
” Section 3-D. Payment of tax by hotels, restaurants and sweet stalls: –
(1) Notwithstanding anything contained in sub-section (1) of Section 3, every
dealer whose total turnover is not less than ten lakhs of rupees for the year
shall pay tax at the rate of two per cent on the first point of sale of ready
to eat unbranded goo ds including sweets, savouries, unbranded non-alcoholic
drinks and beverages served in or catered indoors or outdoors by hotels,
restaurants, sweet stalls, clubs, caterers and any other eating house other
than those falling under item 29 of the Part-C of the first schedule.
Explanation (1): – For the purpose of computing the total turnover under this
sub-section, the purchase turnover liable to tax under Section 7-A shall be
added to the sales turnover.
Explanation (2): – For the purpose of computing the total turnover under this
sub-section, the sales turnover of all business units in a common premises
sharing the common kitchen or common employees shall be added to the sale
turnover of the business un it having higher turnover.”
10. The petitioner contended that the amended section levied sales
tax at 2% on unbranded foods and drinks served in hotels and restaurants, and
therefore, the distinction between branded and unbranded foods thus became
applicable only after 01.04.2
11. The petitioner further submitted that even after the amendment,
the pizzas sold by it are not branded with any mark or name. Pizzas are sold
in restaurants just like idly, dosa, vada, etc. Sale of these products in a
restaurant cannot be treated a sale of ‘branded food’.
12. In response to the petitioner’s request the Commissioner/second
respondent issued the impugned clarification no.156/2003 dated 26.06.2003.
The clarification refers to the pleas raised by the petitioner, and the
operative portion of the clarifica reads: –
” It is seen that the restaurant Tvl.Pizza Hut, have registered their products
under Trade and Merchandise Marks Act, 1958 for pizza, pie preparations made
from cereals, for food for human consumption. Therefore, sale of the branded
products registered u nder TMM Act, such as pizza, etc. falls outside the
ambit of Section 3D of the Act, and is, therefore, taxable at 16% under Entry
No.3(1) in Part-E of the first schedule to the TNGST Act 1959. For the period
prior to 01.04.2002 also, the liability is und er Entry No.4 (iii) of Part-E
of the First Schedule to the TNGST Act, 1959, taxable at 16%.”
13. The petitioner aggrieved by this clarification filed O.P.Nos.918 and 1347
of 2003 before the Tribunal to quash the above clarification no.156 of 2003.
The Tribunal dismissed the petitions on the ground that the clarification
issued under Section 28-A of the TNGST Act could be challenged before the
assessing authority. The Tribunal held that even if the assessing authority
passed an order against the assessee, the same should be assailed only in the
appeal. The Tribunal referred to its own Full Bench decision in O.P.Nos.1334
and 1336 dated 25.01.2001, which stated that whatever be the clarification
issued, it would bind the parties who had sought for the clarification. The
Tribunal also referred to an earlier decision of the Division Bench of this C
ourt in W.P.No.10709 of 1999 which stated that a clarification issued under
Section 28A of the TNGST Act could be assailed in appeal as well as before the
assessing officer on the basis of proper evidence. Therefore, without going
into the merits of the clarification, the Tribunal declined to interfere and
dismissed the petitions.
14. Learned senior counsel for the petitioner Mr.Arvind Datar submitted that
the impugned clarification is contrary to the statutory provisions of Section
3D of the Act as applicable prior to 01.04.2002, and the section, as extracted
above, levied a fl at rate of tax of 2% on the sale of all food and drink in
hotels with turnover of more than Rs.25 lakhs per annum, whereas the sale of
food and drinks in star hotels is taxed at a higher rate. It is also
submitted by the learned senior counsel that Secti on 3D, the charging
section, made no distinction between the branded or unbranded food. It is
only after it was amended on 01.04.2002 that the section levied a flat tax at
2% on unbranded food and drinks in hotel and restaurants.
15. Learned senior counsel further submitted that the Tribunal was
not justified in holding that the clarification could be challenged before the
assessing officer and the appellate authorities under the Act. He contended
that the clarification/circ s are binding on all the officers in the
department, and hence, directing the petitioner to challenge the correctness
of the circular before the assessing authority or appellate authority would be
an exercise in futility, because the Commissioner of Comm ercial Taxes, who
issued the circular, is a higher authority than the assessing officer or
appellate authority.
16. In order to substantiate his contentions, learned senior counsel
for the petitioner referred to several decisions of the Supreme Court, as well
as other High Courts.
17. In Filterco v. CST, (1986) 2 SCC 103, the Supreme Court was
concerned with a clarification issued under Section 42B of the Madhya Pradesh
General Sales Tax Act, 1958. The above section empowered the Commissioner to
make an order determining the e of tax on such goods in the case of any
dispute. Like Section 28-A of the Tamil Nadu Act, the order passed by the
Commissioner was binding on all the authorities except the appellate
authority. In that case, the High court dismissed the writ petition o n the
ground that the assessee had an alternate remedy by way of appeal under the
Act. The Supreme Court held that the High Court ought not have dismissed the
writ petition in such a case. It observed that the order passed by the
Commissioner would be bi nding on the assessing authorities, and although
technically it would be open to the assessee to file an appeal, it would be a
mere exercise in futility when a superior officer like the Commissioner passed
an order determining the rate of tax.
18. In Union of India v. Ahmedabad Electricity Company Ltd., (2003)
158 ELT 3 = (2003) 134 STC 24 an objection was raised that the writ petition
against a circular ought not to be entertained. The Supreme Court held that
once a circular is issued, a bjection to the same before a subordinate officer
would be a futile attempt. It was further held that the impugned circular
could not have been challenged before the departmental authorities as they
would be bound by it, and accordingly, the High Court, was entitled to
entertain the writ petition challenging the circular under Article 226 of the
Constitution of India. Even though the above said decision was rendered in
the context of the Central Excise Act, in our opinion the same principle would
apply to the petitioner’s case.
19. Similarly, in Vam Organic Chemicals Ltd. v. State of Uttar
Pradesh, (2003) 132 STC 8 the Allahabad High Court held that when the
subordinate authorities are bound by a circular, no purpose will be served by
asking the petitioner to appear before assessing authority who will feel bound
by the circular issued by the Government of Uttar Pradesh.
20. In Sri Rajarajeswari Parboiled Rice Industry v. CTO, (1999) 115
STC 99, the Andhra Pradesh High Court held that a circular which is binding on
the assessing authority will also inhibit the appellate authority from taking
a different view. Even the statutory provision states that the Commissioner’s
circular is not binding on the appellate authority, he is administratively
subordinate to the Commissioner and therefore, will be inhibited from taking a
different view. The Andhra Pradesh High Court followed the decision of the
Supreme Court in Filterco v. CST (supra).
21. A similar view was taken by the Karnataka High Court in Arif
Transport v. CTO, (1999) 116 STC 207.
22. In another decision of the Andhra Pradesh High Court, it was held
that once the highest authority constituted under the Act has pre-determined
the question and directed all subordinate authorities to interpret a
notification in a particular mann the statutory remedy of appeal and revision
ceased to be an effective alternative remedy (vide Etikoppaka Co-operative
Agricultural Society Ltd., v. Union of India, 1979 ELT (J533).
23. Learned senior counsel also relied on the decision of this Court
in Madras Bar Association v. Central Board of Direct Taxes, (1995) 216 ITR
240. In the above decision, this Court was concerned with a circular issued
by the Central Board of Direc xes which sought to bring contracts for
rendering professional services within the purview of Section 194C of the
Income Tax Act, 1961 requiring deduction of income tax at source. The
circular expanded the scope of Section 194C. The counsel for the depar tment
had submitted that the correctness of the circular could be canvassed before
the assessing authorities. Alternatively, the assessing authorities could be
directed to dispose off the assessment without reference to the circular.
This Court held that such a direction or disposal would not do any real or
effective justice to the parties who have approached the Court, and the threat
imposed by such circulars was real and substantial and had the consequence and
effect of a constrained influence on the authorities functioning under the
Act. This Court further held that having regard to the authority which issued
the circular and the source of power, the threat could not be completely
erased except by quashing and setting aside the circular.
24. Before dealing with the questions involved in these cases, we may
refer to Section 28-A of the Act, which states: –
“Power to issue clarification by Commissioner of Commercial Taxes: –
(1) The Commissioner of Commercial Taxes on an application by a registered
dealer, may clarify any point concerning the rate of tax under the Act. Such
clarification shall be applicable to the goods specified in the application.
Provided that no such application shall be entertained unless it is
accompanied by proof of payment of such fee, paid in such manner, as may be
prescribed.
(2) The Commissioner of Commercial Taxes may, if he considers it necessary or
expedient so to do, for the purpose of uniformity in the work of assessment
and collection of tax, clarify any point concerning the rate of tax under this
Act or the procedure relating to assessment and collection of tax as provided
for under this Act.
(3) All persons working under the control of Commissioner of Commercial Taxes
shall observe and follow the clarification issued under sub-section (1) and
sub-section (2)”
Amendment to the above Act was inserted from 6.11.1997 by the Tamil Nadu
General Sales Tax (6th Amendment) Act, 1997.
25. A perusal of the above provision shows that the Commissioner can
clarify any point concerning the rate of tax under the Act, and in view of
sub-section (3) all persons working under the control of the Commissioner have
to observe and follow the ification issued by him. In our opinion, this power
of the Commissioner to issue clarification does not mean that the Commissioner
can override or amend provisions of the Act or rules made thereunder.
26. It may be noted that a clarification can only be issued on an
application by a registered dealer regarding the rate of tax on any goods. It
seems that the purpose of inserting Section 28-A was that some businessmen
wanted to know their tax liabi , so that they could make financial and other
arrangements accordingly. In a business, a businessman has to do planning so
that he can earn profits. For doing such planning, he obviously would like to
know what would be his tax liability so that he can t ake it into account when
doing his financial planning for the business. Hence, for the above said
purpose, he can apply to the Commissioner to clarify any point regarding the
rate of sales tax on a taxable commodity.
27. It may be noted that the rates of tax are mentioned in the
Schedules to the Act. The charging sections are Section 3 and other following
provisions of the Act. It is well settled that a Schedule to an Act is part
of the Act itself and hence has tutory force. The Commissioner, who is only
an executive authority, cannot over-ride the provisions of the Act itself.
That being so, in our opinion, the direction issued by the Commissioner under
Section 28-A of the Act cannot override the rate of tax f ixed in the
Schedules to the Act.
28. As regards, sub-section (3) of Section 28-A, in our opinion this
provision only means that when the sales tax authorities are fixing the rate
of tax in their executive capacity, they shall follow the circular of the
Commissioner under Section 2 However, when the sales tax authorities are
acting in a judicial or quasi-judicial capacity, in our opinion, they cannot
be bound by the order of the Commissioner, because to take a contrary view
would mean interference by the executive in a judicial fu nction. When the
assessing authority under the Sales Tax Act (or the appellate authority)
decides a case, he is functioning in a judicial capacity (even though he may
be a sales tax authority). Hence, when he is acting in a judicial capacity,
he should n ot feel bound by any clarification issued by the Commissioner, as
such clarifications under Section 28-A are not binding on him when he is
functioning in a judicial capacity, and they are only binding when he is
functioning in an administrative capacity, when initially fixing the rate of
tax on a specific commodity.
29. In Kerala Financial Corporation v CIT, (1994) 210 ITR 129, the Supreme
Court held that the circulars issued by the Central Board of Direct Taxes
under Section 119 of the Income Tax Act, 1961, could not override or detract
from the provisions of the A ct, as that would be destructive of all known
principles of law and would be giving a power to the executive authority to
amend the provisions of the Act. In our opinion, the same principle will
apply to Section 28-A of the Act also. The Commissioner can not take a view
which is contrary to the provisions of the Act or rules made thereunder as
interpreted by the Courts or the statutory authorities under the Act when they
are performing judicial or quasi judicial functions (vide Sales Tax Officer v.
Shree Durga Oil Mills Ltd, 1998 (97) ELT 202 (206).
30. In our opinion, though the circular issued by the Commissioner
under Section 28-A is not binding on the assessing authority or appellate
authority, yet we cannot overlook the fact that since the Commissioner is a
superior authority to the assess officer or appellate authority, it would be
impracticable to expect the subordinate authority to take a view contrary to
the view expressed by the Commissioner. Hence, in our opinion, the plea of
alternative remedy cannot be accepted in such a case, and if the petitioner
contends that the clarification has been issued contrary to the provisions of
the Act or rules made thereunder, it will always be open to question the same
under Article 226 of the Constitution of India.
31. In the present case, the petitioner was served with a
pre-revision notice on the basis of a circular issued on 18.3.2002, which
stipulated that branded pizza could be taxed at 16%. Accordingly the
assessments which had been initially completed a hich levied a tax of 2% under
Section 3D of the Act were sought to be revised and tax at 16% was proposed to
be levied. A plain reading of Section 3D, as it existed prior to 01.04.2002,
indicates that it levies a tax on all foods and drinks sold in hotel s and
restaurants having a total turnover of not less than Rs.25 lakhs at a flat
rate of 2%. The section made no distinction as to whether the food and drink
that was sold was branded or unbranded. Section 3D introduced the concept of
sale of unbranded good and drink only in the amended provisions, which came
into effect on 01.04.2002. Hence, in our opinion, it was clearly not
permissible for the Commissioner of Commercial Taxes to issue a clarification
that branded pizza would be taxed at 16%.
32. As pointed out by the Supreme Court in the Kerala Financial
Corporation Ltd. case (supra) this would really tantamount to amending the
TNGST Act itself by a clarification issued under Section 28-A. A direction to
levy tax at 16% when the chargin ction prescribes a flat rate of 2% is, in our
opinion, not permissible. The impugned clarification is clearly contrary to
the provisions of Section 3D as it stood prior to 01.04.2002. Therefore, the
impugned clarification no.156/2003 dated 26.6.2003 is l iable to be quashed.
33. In the present case, the Tribunal has referred to a decision of
its own Full Bench in O.P.Nos.1334 to 1336 of 2000 dated 25.01.2001. In that
case, it was held that the clarification would bind the party which sought for
it, but at the same time ould be open to the assessee to canvass the
correctness of the clarification before the assessing officer or the appellate
authority. In the impugned order of the Tribunal, reference was also made to
a decision of a Division Bench of this Court in W.P.No .10709 of 1999 dated
24.6.1999. The Division Bench had held that a clarification issued under
Section 28-A was not an adjudication and the clarification could be assailed
before the assessing officer and before the appellate authority. In our
opinion, th e attention of the Full Bench of the Tribunal and the Division
Bench of this High Court was not drawn to the various decisions of the Supreme
Court referred to above. It has been repeatedly held in those decisions that
a clarification or a circular can b e challenged under Article 226. It has
been pointed out therein that once a clarification or circular is issued by a
superior authority, it would be an exercise in futility to ask the assessee to
raise an objection to the circular before an inferior auth ority, vide the
Constitution Bench decision of the Supreme Court in Filterco v. CST (supra).
Subsequently, it was also held by the Supreme Court that clarifications or
circulars could be challenged before the High Court under Article 226 of the
Cons titution, since the remedies of appeal or revision would be futile or not
efficacious. In view of these decisions of the Supreme Court, the views taken
by the Full Bench of the Tribunal and by the Division Bench of this Court do
not lay down the correct law.
34. In W.A.No.3995 of 2004, the appellant/petitioner was issued a
pre-assessment notice on 31.10.2003 for the assessment year 2001-2002 whereby
the Commercial Tax Officer proposed to levy tax at 16% on branded pizza based
on two earlier clarifications da ted 18.08.2001 and 20.12.2002. In the writ
miscellaneous petitions (W.P.M.P. Nos. 43943 & 43944 of 2003 in
W.P.Nos.36203 & 36204 of 2003) the petitioner had prayed for injunction
against this pre-assessment notice, and a Division Bench of this Court gran
ted stay of recovery. Pending the writ petition, the third respondent
proceeded to finalise the assessment order with express reference to the above
two circulars. Since the earlier writ petitions were pending, the appellant
filed W.P.No.6266 of 2004 cha llenging the assessment order. The learned
single Judge dismissed the writ petition on the short ground of an alternate
remedy being available to the petitioner.
35. It has already been observed by us that once circular/clarifications are
issued by a superior authority, an appellate remedy to a lower authority would
be futile, and not efficacious. Hence, we cannot agree with the learned
single Judge in this respe ct.
36. It may be mentioned that the dispute in the present case is only in
respect of the tax liability prior to 01.04.2002. As regards the tax
liability subsequent to 01.04.2002, the matter is pending before the statutory
appellate authorities, and hence, we are not expressing any opinion about the
same, except to say that the impugned circular should not be treated as
binding on the said authorities as they are exercising judicial function.
37. In view of the above, we quash the circular no.156/2003 dated 26.06.2003
insofar as it relates to the tax liability for the period prior to 01.04.2002
to pay sales tax at 16%, and the assessment order dated 10.12.2003. The order
of the Tribunal dated 24.11.2003 is set aside. The writ appeal and the writ
petitions are allowed. No costs. Consequently, W.P.M.Ps are closed.
Index:Yes
Internet:Yes
pv/
Copy to:
1. Commissioner of Commercial Taxes
Ezhilagam, Chepauk,
Chennai – 600 005.
2. Commercial Tax Officer,
Valluvar Kottam Assessment Circle,
Chennai – 600 006.
3. Tamil Nadu Taxation Special Tribunal
rep. by its Registrar, 2nd floor, Singaravelar Maligai,
Chennai.