IMPORTANT POINT
Reopening of assessment is not permissible by mere change of the opinion in the assessing officer. Merely because the Commissioner changes his view/opinion and according to him it was review of the earlier decision that cannot have any effect on any assessment which has been completed on the basis of the earlier circular.

Headnote:(i) Karnataka Sales Tax Act, 1957 — Section 5-C as amended by insertion of a proviso w.e.f. 1-4-2000 and Sections 12A, 21 and 3A read with Rule 6(4) of Karnataka Sales Tax Rules, 1957 — Levy of tax on transfer of right to use goods — Assessment of escaped turnover — Appellants are dealers registered under the Act — Their business activities inter alia include business of leasing machinery, equipment and motor vehicles — Originally levy was on ‘taxable turnover’ — An amendment was brought in 1992 in Section 5-C substituting the expression ‘total turnover’ for ‘taxable turnover’ — On 12-4-1996, a Circular was issued in terms of Section 3-A of the Act providing that the goods which have suffered tax under Section 5 of the Act cannot be again taxed in terms of Section 5-C — Subsequently, on 23-10-1999 another Circular was issued stating that the earlier Circular did not reflect the actual position in law — It was stated that there was no bar on the transaction being taxed in terms of Section 5 and 5-C of the Act — On 1-4-2000, Section 5-C was amended by insertion of a proviso which reiterated the view expressed in the Circular dated 12-4-1996 — Whether revenue was justified in re-opening the complete assessment on basis of subsequent Circular — (No) — Whether High Court was justified in holding that Circular dated 23-10-1999 is valid and that Circular No. 5/1996-97 dated 12-4-1996 was inoperative — (No).
       Held : A bare reading of the Circular dated 23.10.1999 shows that it was a review of the earlier Circular and that the Commissioner was of the view that the position of law explained in the earlier Circular did not state the correct position in law and, therefore, the revised instructions were issued. There was a direction to the concerned Joint Commissioner to immediately initiate action under Section 21 to revise the assessment orders. It was further stated that if any order passed under Section 21 or appeal order under Section 20 was contrary to the instructions issued, the same were to be referred to him for initiating action under Section 22-A of the Act. This leaves no manner of doubt that the subordinate officers had no option but to comply with the directions given. (Para 19)
       The issues can be looked at from a different angle. Undisputedly, the 1996 Circular was binding on the revenue authorities as is spelt out in the case of 12.4.1996 and 23.10.1999 Circulars. The assessments were completed on the basis of 12th April, 1996 Circular. Merely because the Commissioner changes his view/opinion and according to him it was review of the earlier decision that cannot have any effect on any assessment which has been completed on the basis of the 1996 Circular. (Para 23)
       That being so, the question of re-opening the assessment by mere change of opinion is entirely impermissible. (Para 24)
       Though these aspects need not be taken note of in view of the conclusion that the proviso was clarificatory in nature and operated with effect from the date Section 5-C was amended i.e. 1.4.1986 yet this is an additional factor to set aside the High Court’s judgment. (Para 25)
       It is stated by a long line of decisions that reopening of assessment is not permissible by mere change of the opinion in the assessing officer. Here it has not been disputed that the Circular dated 23.10.1999 was on account of change of opinion of the Commissioner that too while reviewing the earlier Circular. It could not be brought to our notice as to which provision permitted the review. (Para 26)
       (ii) INTERPRETATION OF STATUTES — Proviso to Section — Normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment — Normally, a proviso does not travel beyond the provision to which it is a proviso — It carves out an exception to the main provision to which it has been enacted as a proviso and to no other — Karnataka Sales Tax Act, 1957 — Section 5-C, Proviso.
       Held : When one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject matter of the proviso. The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case. It is a qualification of the preceding enactment which is expressed in terms too general to be quite accurate. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule. “If the language of the enacting part of the statute does not contain the provisions which are said to occur in it you cannot derive these provisions by implication from a proviso.” (Para 14)
       A proviso to a section cannot be used to import into the enacting part something which is not there, but where the enacting part is susceptible to several possible meanings it may be controlled by the proviso. (Para 16)

JUDGMENT

Dr. Arijit Pasayat, J. — Leave granted in special leave petitions.

2. Challenge in these appeals is to the legality of the judgment rendered by a Division Bench of the Karnataka High Court holding that the Circular dated 23.10.1999 (Circular No.31/1999-2000) is valid and Circular No.5/1996-97 dated 12.4.1996 was inoperative.

3. Background facts in a nutshell are as follows:

Appellants are dealers registered under the Karnataka Sales Tax Act, 1957 (in short the ‘Act’). Their business activities inter-alia include business of leasing machinery, equipment and motor vehicles.

Section 5-C of the Act deals with levy of tax on transfer of the right to use the goods which is treated as a transfer for the purpose of levy of sales tax within the State.

4. Originally the levy was on “taxable turnover”. An amendment was brought in 1992 to the said provision substituting the expression “total turnover” for “taxable turnover”. The same was questioned by several assessees. A Division Bench of the High Court by its judgment in Shetty Leasing India Pvt. Ltd. vs. Union of India and Ors. (1996 (100) STC 533) struck down the provision. On 1.4.1986, Section 5-C was again amended with retrospective effect restoring the original position i.e. substituting the expression “taxable turnover” for “total turnover”. On 12.4.1996, a Circular was issued in terms of Section 3-A of the Act providing that the goods which have suffered tax under Section 5 of the Act cannot be again taxed in terms of Section 5-C. In other words, where the goods have suffered tax on the actual sale cannot attract levy of tax again. The circular, as noted above, was issued under Section 3-A of the Act read with Rule 6(4) of the Karnataka Sales Tax Rules, 1957 (in short the ‘Rules’). Subsequently, on 23.10.1999 another Circular was issued stating that the earlier Circular did not reflect the actual position in law and, therefore, there was no bar on the transaction being taxed in terms of Sections 5 and 5-C. On 1.4.2000 Section 5-C was amended by insertion of a proviso which in essence re-iterated the view expressed in the Circular dated 12.4.1996.

5. Keeping in view the directions contained in the Circular of 23.10.1999 re-assessment proceedings were initiated and/or action in terms of Section 21 for revision was initiated. Both these actions related to completed assessments.

6. A learned Single Judge while dealing with challenge to Circular dated 23.10.1999 held that the Circular of 12.4.1996 did not indicate the correct position in law and, therefore, there was no bar in the Circular dated 23.10.1999 clarifying the position and indicating the correct position. However, it was held that the revenue was bound by the incorrect Circular. Therefore, for the assessment years 1996-97 to 1999-2000 till the date of the subsequent Circular, no action could be taken against the assessees. But the position prior to that i.e. from 1.4.1986 till 31.3.1996 the assessees were not entitled to any relief. This view was taken primarily on the ground that even incorrect circular binds the revenue. The Division Bench held the incorrect circular does not bind the revenue and that the law declared by this Court has a binding effect.

7. Learned counsel for the appellants submitted that both the orders of the learned Single Judge and the judgment of the Division Bench do not take into effect of the proviso which is in essence a legislative declaration of a clarificatory nature. The proviso in terms recognizes the correctness of the Circular dated 12.4.1996. In any event, there could not have been any re-opening of the assessment because of mere change in opinion of the Commissioner. When two opinions were expressed in the two circulars it is nothing but a change in the opinion and it is impermissible for the revenue to re-open the complete assessment on the basis of the subsequent Circular.

8. The fact that the proviso was by way of a clarification is clear from the fact that at the first i

Click Here to Read the rest of this document

2007 Supreme(SC) 452

Cases Referred (10)