Union Of India vs Karvy Stock Broking Ltd.

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2015 Supreme(SC) 1384

SUPREME COURT OF INDIA
A.K. SIKRI, ROHINTON FALI NARIMAN, JJ.
Union Of India And Ors. - Appellants
Versus
M/s. Karvy Stock Broking Ltd. – Respondent
Civil Appeal No. 6911 of 2005
Decided on : 23-07-2015.

Important Points

A circular clarifying tax liability is invalid if it forecloses the discretion of quasi-judicial authorities in deciding a case, as prohibited by the proviso to Section 37B of the Central Excise Act, 1944.

Subject

Tax Law - Service Tax

Act Referred

CENTRAL EXCISE ACT: S.37(b)
FINANCE ACT: S.66

Headnote

(A) Finance Act, 1994 - Section 66(2) - Service Tax - Business auxiliary services - Notification No. 13 of 2003 - Exemption of commission agents - Circular dated 05.11.2003 - Mutual fund distribution - Taxability - Proviso to Section 37B of the Central Excise Act, 1944 - Validity of circulars - Clarification that forecloses discretion or judgment of a quasi-judicial authority while deciding a particular lis under particular circumstances is impermissible - High Court's decision setting aside such circular upheld.

Facts of the case:
Notification No. 13 of 2003-Service Tax was issued exempting 'Business auxiliary services provided by a commission agent' from service tax. Subsequently, a circular dated 05.11.2003 was issued clarifying that commissions received on mutual fund distribution were liable to service tax, as they did not fall within the expression 'business auxiliary services'. The High Court set aside this circular on the ground that it foreclosed the discretion of the quasi-judicial authority.

Findings of Court:
The court found no error in the judgment of the High Court, which held that the circular was contrary to the proviso to Section 37B of the Central Excise Act, 1944, as it limited the judgment to be exercised by the quasi-judicial authority.

Issues: Whether a circular clarifying the taxability of a specific activity is valid if it amounts to foreclosing the discretion of a quasi-judicial authority under the proviso to Section 37B of the Central Excise Act, 1944.

Ratio Decidendi: A circular that forecloses the discretion or judgment of a quasi-judicial authority while deciding a particular matter is invalid and unsustainable in law, particularly when such action is prohibited by the proviso to Section 37B of the Central Excise Act, 1944.

Result: Appeal dismissed.

Legal Category Hierarchy

Advocates Appeared:
For the Appellant : Mr. K. Radhakrishnan, Ms. Nisha Bagchi, Ms. B. Sunita Rao, Ms. Pooja Sharma, Mr. P. Parmeswaran, Adv.
For the Respondent: Mr. Tarun Gulati, Mr. R. Chandrachud, Mr. Kishore Kunal, Mr. Nikhil Nayyar, Adv

ORDER :

The undisputed facts are that the Government had issued Notification No. 13 of 2003-Service Tax whereby it exempted the 'Business auxilliary services provided by a commission agent' from the service tax leviable thereon under sub-Section (2) of Section 66 of the Finance Act, 1994. Thereafter, circular dated 05.11.2003 was issued in which it is stated that having regard to some doubts that had arisen regarding application of service tax on the activity of mutual fund distribution, it was clarified that the commission received by distributors on mutual fund distribution would be liable to service tax as it would not fall within the expression 'business auxilliary services'. This circular dated 05.11.2003 has been set aside by the High Court in the impugned judgment on the ground that it amounts to foreclosing discretion or judgment that may be exercised by the quasi judicial authority while deciding a particular lis under particular circumstances. The High Court referred to the proviso to Section 37B of the Central Excise Act, 1944, which categorically states that such kind of circulars cannot be issued. We, thus, do not find any error in the impugned judgment. This appeal is accordingly dismissed.