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CASE NO.: Appeal (civil)  2342-2362 of 2001

PETITIONER: Commissioner of Customs, Calcutta etc.           

RESPONDENT: M/s Indian Oil Corporation Ltd. & Anr.           

DATE OF JUDGMENT: 17/02/2004

BENCH: P. VENKATARAMA REDDI.

JUDGMENT: JUDGMENT

P. VENKATARAMA REDDI, J.

       I am in agreement with my learned sister that without  entering into the merits of the contentions advanced, the  Revenue’s appeal is liable to be dismissed in the light of the  Circular dated 14-8-1991 issued by Central Board of Excise  and Customs which is traceable to the power conferred on  the Board by Section 151-A of the Customs Act. The purpose  of this separate opinion is only to highlight certain doubts I  have entertained as to the correctness of the proposition laid  down in the two Dhiren  Chemical  Industries  cases\027one  decided by the Constitution Bench and the other by a three  Judge Bench. The absence of reasoning in both these  decisions has aggravated my doubts and made me ponder  over the possible implications of the said judgments.  Hence  I felt impelled to express the thoughts passing in my mind  and my prima facie views, hoping that the legal position will  perspicuously be laid down by a Constitution Bench sooner  or later.  For the time being, I have refrained from  persuading my learned Sister to refer the matter to a larger  Bench as the decision in the instant case need not rest on  the principle enunciated in the said two decisions.          I have no reservations in accepting the principle that  the circulars issued by the Board under Section 151 (A) of  the Customs Act or Section 37 (B) of the Central Excise Act  are generally binding on the Revenue.  Normally, the  instructions issued by the superior authorities on  administrative side cannot fetter the exercise of quasi  judicial power and the statutory authority invested with such  power has to act independently in arriving at a decision  under the Act (vide:  Sirpur Paper Mills Ltd. Vs.  Commissioner of Wealth Tax, Hyderabad [(1970) 1  SCC 795]. However, when there is a statutory mandate to  observe and follow the orders and instructions of the Board  in regard to specified matters, that mandate has to be  complied with.  It is not open to the adjudicating authority  to deviate from those orders or instructions which the  statute enjoins that it should follow.  If any order is passed  contrary to those instructions the order is liable to be  struck  down  on that very ground. That is what has been held in  some of the cases referred to by my learned sister.  Extending this principle which flows from the statutory  provision contained in Section  151 (A) of the Customs Act  or a pari-materia provision in other fiscal enactments,  this  Court also held that it is not open to the department to      file an appeal against the order passed in conformity with  the circular. To this extent I have no difficulty in

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understanding the rationale of the decisions of this Court  leaving apart for the time being the decisions in which a        somewhat different note was struck.  However, I am unable  to reconcile myself to the view that even after the highest  Court settles the law on the subject, the view expressed by  the Central Board on the same point of law should still hold  the field until and unless it is revoked.         As is evident from Section 151-A the Board is  empowered to issue orders or instructions in order to ensure  uniformity in the classification of goods or with respect to  levy of duty.  The need to issue such instructions arises  when there is a doubt or ambiguity in relation to those  matters.  The possibility of varying views being taken by the  customs officials while administering  the Act may bring  about uncertainty and confusion. In order to avoid this  situation, Section 151A has been  enacted on the same lines  as Section 37(A) of the Central Excise Act.  The apparent  need to issue such circulars is felt when there is no  authoritative pronouncement of the Court on the subject.  Once the relevant issue is decided by the Court at the  highest level, the very basis and substratum   of the circular  disappears. The law laid down by this Court will ensure  uniformity in the decisions at all levels.  By an express  constitutional provision, the law declared by the Supreme  Court is made binding on all the Courts within the territory  of India (vide Article 141).  Proprio  vigore the law is binding  on all the tribunals and authorities.   Can it be said that even  after the law is declared by the Supreme Court the  adjudicating authority should still give effect to the circular  issued by the Board ignoring the legal position laid down by  this Court? Even after the legal position is settled by the    highest Court of the land, should the customs authority  continue to give primacy to the circular of the Board?   Should Section 151(A) be taken to such extremities?  Was it  enacted for such purpose? Does it not amount to  transgression of constitutional mandate while adhering to a  statutory mandate?  Even after the reason and rationale  underlying the circular disappears, is it obligatory to  continue to follow the circular?  These are the questions  which puzzle me  and these are the conclusions which follow  if the observations of this Court in the two cases of DHIREN   Chemical Industries are taken to their logical conclusion.         I am of the view that in a situation like this, the  Customs authority should obey the constitutional mandate  emanating from Article 141 read with Article  144 rather  than adhering to the letter of a statutory provision like  Section 151-A of the Customs Act. The Customs authority  should act subservient to the decision of the highest  constitutional Court and not to the circular of the Board  which is denuded of its rationale and substratum under the  impact of the authoritative pronouncement of the highest  Court.  Alternatively, Section 151 A has to be suitably read  down so that the circulars issued would not come into  conflict with the decision of this Court which the Customs  authorities are under a Constitutional obligation to follow. I can perceive of no principle or authority to  countenance the view expressed in Dhiren Chemicals case  that regardless of the interpretation placed by this Court,  the Circulars which give a different interpretation would still  survive and they have to be necessarily followed by the  statutory functionaries. The opinion expressed in the case of  Hindustan Aeronautics Vs. Commissioner of Income  Tax, Karnataka [(2000) 5 SCC 365] seems to project a  correct view, though that decision cannot prevail over the  Constitution Bench decision in Dhiren Chemical

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Industries. The unintended results that may follow from  the verdict of this Court in Dhiren chemical Industries is  another aspect that has worried me. Let us take a case  where in accordance with the instructions in the Circular of  the Board, the adjudicating authority has to decide the case  against the assessee, but as per the decision of this Court,  the Assessee’s contention has to be accepted by the  adjudicating authority. If the proposition laid down in  Dhiren Chemical Industries has to be followed, the  adjudicating authority should pass an order in terms of the  Circular holding the issue in favour of Revenue, knowing  fully well that on a challenge by the assessee, it is liable to  be set aside in appeal. The assessee will then be driven to  file an appeal to get rid of an obviously illegal order. Is it all  contemplated by Section 151-A? As far as the present case is concerned, there is no  direct decision of the Supreme Court which has taken a view  different from what was expressed in the Circular of 1991.  As clarified by my learned sister, the decision of this Court in  Garden Silks case has no direct bearing on the issue  involved in this case. It did not construe the 1988 rules.  Hence, the doubts expressed by me in regard to the  correctness of the principle laid down in Dhiren Chemical  Industries case need not necessarily be resolved in the  instant case. Still, the observation in Dhiren Chemical  Industries was sought to be pressed into service to counter  the contention of the appellant that a cloud has been cast on  the Circular in the wake of the Tribunal’s order in  Panchmahal Steel case and therefore the Circular had  been eclipsed. Whether the Tribunal’s order stands on the  same footing as the decision of this Court, insofar as its  impact on the Circular is concerned is one aspect which will  have to be considered in an appropriate case. Here, that  issue need not be probed further. I agree with my learned  sister that the order of the Tribunal being an exparte one, it  does not take precedence over the binding circular under  Section 151-A and I may add that the Tribunal’s decision is  not so categorical and clear as to strike at the root of the  Circular in its application to the facts of the present case.  Hence, there is no need for further discussion on this point. Before parting, I would like to point out that the basis  on which the circulars of the Central Board are placed on a  high pedestal seems to have its origin in Navnit Lal’s case  [AIR 1965 SC 1375]. In that case, a Constitution Bench of  this Court was examining the constitutional validity of  Sections 2, 6A(e) and 12(1B) inserted in the Income Tax Act  of 1922 by the Finance Act of 1955. These Sections provided  that any payment made by a closely held Company to its  shareholder by way of advance or loan to the extent to  which the Company possessed accumulated profits shall be  treated as dividend taxable under the Act and this would  include any loan or advance made in the relevant year prior  to the assessment year, 1955-56, if such loan or advance  remained outstanding on the 1st day of the previous year  relevant to the assessment year 1955-56. In order to  mitigate the rigour of the provision to some extent, the  Central Board of Revenue issued a circular under Section  5(8) of the Act to the effect that if any such outstanding  loans or advances of past years were repaid on or before  30th June, 1955, they would not be taken into account in  determining the tax liability of the shareholders who  received such loans or advances. The Court after pointing  out that the circular would be binding on all officers and  persons employed in the execution of the Act, observed  thus:

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"In other words, past transactions which would  normally have attracted the stringent provisions of  Section 12(1B) as it was introduced in 1955, were  substantially granted exemption from the  operation of the said provisions by making it clear  to all the companies and their shareholders that if  the past loans were genuinely refunded to the  companies, they would not be taken into account  under Section 12(1B)."

No proposition was laid down in that case that even if  the circular was clearly contrary to the provisions of the Act  it should prevail. On the other hand, the learned Judges  were inclined to view the circular as granting the benefit of  exemption from the operation of the impugned provisions  subject to fulfillment of certain conditions. Navnit Lal’s case  was referred to and construed in two cases decided by   Benches of two learned Judges. The first one was the case of   Ellerman Lines Ltd. Vs. Commissioner of Income Tax,  West Bengal [AIR 1972 SC 524] and the other is K.P.  Varghese Vs. I.T. Officer, Ernakulam [AIR 1981 SC  1922]. In both these cases it was assumed that Navnit  Lal’s case was an authority for the proposition that even if  the directions given in the circular clearly deviate from the  provisions of the Act, yet, the Revenue is bound by it. These   three decisions were repeatedly referred to and relied on in  the subsequent decisions in which the issue arose as regards  the binding nature of the circulars either under the Income  Tax Act or under the Central Excise Act. In between, there  was the three Judge Bench decision in Sirpur Paper Mills  Ltd. Vs. Commissioner of Wealth Tax [(1970) 1 SCC  795] in which Section 13 of the Wealth Tax Act  corresponding to Section 5(8) of the Income Tax Act, 1922  fell for consideration. This Court took the view that the  instructions issued by the Board may control the exercise of  the power of the departmental officials in matters  administrative but not quasi-judicial. There is yet another  decision of a three Judge Bench which seems to make a dent  on the weight of the proposition that the circulars of the  Board, even if they are plainly contrary to the provisions of  the Act, should be given effect to and binding on the  authorities concerned in the administration of the Act. That  is the case of Keshavji Ravji & Co. Vs. I.T.  Commissioner [(1990) 2 SCC 231]. Venkatachaliah, J (as  he then was) speaking for the Court observed thus: "Sri Ramachandran contended that circular of  1965 of the Central Board of Direct Taxes was  binding on the authorities under the Act and  should have been relied upon by the High Court in  support of the Court’s construction of Section  40(b) to accord with the understanding of the  provision made manifest in the circular.

This contention and the proposition on which it  rests, namely, that all circulars issued by the  Board have a binding legal quality incurs, quite  obviously, the criticism of being too broadly  stated. The Board cannot preempt a judicial  interpretation of the scope and ambit of a  provision of the ’Act’ by issuing circulars on the  subject. This is too obvious a proposition to  require any argument for it. \005\005\005.

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\005The Tribunal, much less the High Court, is an  authority under the Act. The circulars do not bind  them. But the benefits of such circulars to the  assesses have been held to be permissible even  though the circulars might have departed from the  strict tenor of the statutory provision and  mitigated the rigour of the law. But that is not the  same thing as saying that such circulars would  either have a binding effect in the interpretation of  the provision itself or that the Tribunal and the  High Court are supposed to interpret the law in  the light of the circular. There is, however,  support of certain judicial observations for the  view that such circulars constitute external aids to  construction. \005"

       In Bengal Iron Corporation Vs. C.T.O. [(1994)  Supp. 1 SCC 310] a two Judge Bench considered the effect  of a G.O. issued by the State Government  clarifying that  cast iron castings fall within sub-item (i) of item No.2 of the  iii schedule to A.P.General Sales Tax Act. The assessee’s  contention that the benefit should be given in terms of the  said G.O. was not accepted by this Court. This is what the  Court said at para 19. "Now coming to G.O.Ms. 383, it is undoubtedly of  a statutory character but, as explained  hereinbefore the power under Section 42 cannot  be utilized for altering the provisions of the Act  but only for giving effect to the provisions of the  Act. Since the goods manufactured by the  appellant are different and distinct goods from  cast iron, their sale attracts the levy created by  the Act. In such a case, the government cannot  say, in exercise of its power under Section 42(2)  that the levy created by the Act shall not be  effective or operative. In other words, the said  power cannot be utilized for dispensing with the  levy created by the Act, over a class of goods or a  class of persons, as the case may be. For doing  that, the power of exemption conferred by Section  9 of the A.P. Act has to be exercised."

In C.S.T. Vs. Indra Industries [(2000) 9 SCC 66] a  three Judge Bench referred to the above case and  purported to distinguish it as follows: "The observations in para 18 of the judgment in  Bengal Iron Corpn. at best, apply only when a  case of estoppel against a statute is made out."         In Wilh, Wilhelmsen Vs. C.I.T. [(1996) 9 SCC 161]  a two Judge Bench having referred to Section 5(8) of I.T.  Act, 1922 observed thus: "The provision is clear. It requires no elaboration.  It is, however, evident that the power so  conferred on Central Board of Revenue has to be  exercised for the purpose of and within the four  corners of the Act."

I have referred to these cases to demonstrate that a  common thread does not run through the decisions of this  Court. The dicta/observations in some of the decisions need  to be reconciled or explained. The need to redefine  succinctly the extent and parameters of the binding  character of the circulars of Central Board of Direct Taxes or  Central Excise looms large. It is desirable that a Constitution  Bench hands down an authoritative pronouncement on the

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subject.