LAKSHMI COFFEE CURING WORKS Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) WE have heard the petitioner's learned counsel at considerable length and we have also heard the learned Government Advocate who represents the respondent in detail and on merits. For all intents and purposes, these petitions were more than fully argued and this Court would have decided the same on merits, as it would have been required to do. Towards the fag end of the argument however one aspect surfaced which brought to our immediate notice the fact that the petitioner may be placed in an incongruous position if we were to decide these petitions on merits one way or the other because what was submitted by the petitioner's learned counsel was that on a verification of the records from his client's possession it is confirmed that the appeals whereby the petitioners have questioned the validity of the tax imposed on them are yet to be decided by the Tribunal. Therefore, if for any reason the petitioners were to loose on merits before this Court and, on the other hand were to succeed before the Tribunal they would be in a position whereby the department upholds the non-levy of tax but at the same time, the court upholds the penalty that has been imposed on them on the ground of non-declaration of the very commodity, namely, the timber for the purpose of tax. After hearing both the learned counsel we are of the considered view that the two issues which are inter-related and inter-twined virtually cannot be divorced from each other in so far as the question of penalty can only follow a final decision that the goods in question were taxable. There are certain finer points of law which needs to be looked into because there may be a situation in which a tax would be leviable but it is not necessary ipso facto that a penalty should follow.

(2.) THE controversy had arisen with regard to the non-declaration by the petitioners of the subject-matter of timber that was sold by them which in turn was realised from the shabe trees in the estate. Among other things, the petitioner's learned counsel drew our attention to the reply dated August 30, 1994 addressed to the Deputy Commissioner of Commercial Taxes (Assessments), Hassan, wherein they have referred to a clarification issued by the Office of the commissioner of Commercial Taxes, Karnataka, dated January 3, 1992 wherein there is a reference to the sale of shabe trees by a dealer who has cultivated and grown such trees on his land whether sold as standing trees agreed to be severed or sold after cutting is exempt from tax under the Karnataka Sales Tax Act, 1957. The contention raised was that the petitioners who are a limited company have shown the amount realised in the Balance Sheet and Profit and Loss account and admittedly that it was from this background that the department came to know about this transaction and that consequently, it was wrong on the part of the department to either suspect or conclude that there was any attempt to evade tax on the petitioner's part. The submission proceeds on the footing that the petitioners genuinely believed that the amount realised from these contracts was not susceptible under the Karnataka Sales Tax Act, 1957 and that this was the reason why the same were not offered for tax. We refrain from saying anything with regard to the merits or otherwise of these contentions because as has emerged in the course of the argument from both sides, there is much to be said on either side. Ultimately, the petitioners were required to pay the tax and their appeals are pending before the Tribunal on this issue.

(3.) WE need to make a deliberate mention of the aspect of law which was seriously debated by the learned counsel on both sides. Whereas Mr. Ramabhadran vehemently contended that it is more than well-settled law that circulars or clarifications issued by the department would bind the department and that consequently, the court must accept the position that an assessee would be solely and wholly guided by such circulars, the learned Government Advocate on the other hand was quick to point out that while the courts have repeatedly said that such circulars do bind the department and it is obvious that the reason for this was in order to ensure a level of uniformity in interpretation, that the courts have been very clear about the fact that such circulars do not bind a court but more importantly that there can be no estoppel against statute in so far as the circular cannot run contrary to the provisions of law nor can the circular be interpreted or applied in a manner that is derogatory thereto. This is an aspect of the law which the departmental authorities and the Tribunal are required to bear in mind.