REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4233 OF 2007

STATE OF TAMIL NADU & ANR. — APPELLANTS

VERSUS

INDIA CEMENTS LTD. & ANR. — RESPONDENTS

J U D G M E N T

D.K. JAIN, J.:

1. This appeal is directed against the final judgment and order dated 22nd  

December, 2006 rendered by the High Court of Judicature at Madras in  

W.P.Nos.13697 and 13698 of 2002.  By the impugned judgment, while  

setting  aside  the  order  dated  19th April,  2002 passed  by  the  Taxation  

Special Tribunal (for short “the Tribunal”) in O.P. Nos. 322 and 351 of  

2002, the High Court has held that the first respondent viz.  M/s India  

Cements Ltd. is entitled to the benefit of deferral of sales tax as claimed  

by them under the interest free sales tax deferral scheme, introduced by  

the State of Tamil Nadu under G.O.Ms.No.119 dated 13th April,  1994  

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issued by the Commercial Taxes & Religious Endowments Department  

of the State.

2. Before we traverse the facts, which have given rise to the present appeal,  

in order to appreciate the issue involved, it would be expedient to refer to  

the relevant State Government orders/memorandum notified from time to  

time, in exercise of powers conferred under Section 17A of the Tamil  

Nadu General  Sales  Tax Act,  1959 (for  short  “the TNGST Act”)  and  

Section 9(2)  of  the  Central  Sales  Tax  Act,  1956 (for  short  “the  CST  

Act”).

2.1 With a view to promote industrialisation, the Government of Tamil  

Nadu had declared 105 taluks of the State as industrially backward for the  

purpose of grant of interest free sales tax loan, interest free sales tax deferral,  

state  capital  subsidy  etc.   In  furtherance  thereof  and  to  correct  regional  

imbalances in industrialisation, vide G.O.Ms. No.500 dated 14th May, 1990,  

the  Government  declared  30  taluks  from  amongst  the  105  industrially  

backward  taluks  to  be  industrially  most  backward  taluks,  offering  them  

further incentives.   It was directed that the new industries to be set up in  

these 30 most backward taluks as also in the three industrial complexes of  

State  Industries  Promotion  Corporation  of  Tamil  Nadu  (for  short  “the  

SIPCOT”) at three named places,  in addition to the existing concessions,  

would be entitled to full waiver of sales-tax dues for a period of five years  

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upto a ceiling of the total investment made in the fixed assets.  It was also  

stipulated  that  existing  units  in  these  areas/complexes  undertaking  

expansion/diversification shall  also be entitled to deferral  of sales tax for  

nine years, limited to 80% of the additional investment made in fixed assets.  

However, the benefit of sales tax deferral to the new units was to the full  

extent of the total investment made in the fixed assets.  The scheme was  

subject to the sales tax payable on products manufactured by the capacity  

created by expansion/diversification units only.   

2.2 Subsequently, certain clarifications were issued vide G.O.P.No.92 CT  

dated 22nd February,  1991 and G.O.P.No.396 dated 10th September,  1991  

whereby benefit of deferral of payment of sales-tax payable was extended to  

all industries to be set up anywhere in Tamil Nadu having an investment of  

`100 crores and above on sale of the products manufactured by the industry  

for a period of twelve years from the date of commencement of production  

on or after 18th July, 1991 upto a ceiling of 100% of the value of fixed assets,  

after deducting the quantum of tax under the CST Act for the same period  

and subject to production of eligibility certificate to be issued by SIPCOT.  

By  G.O.Ms.No.376,  dated  27th October,  1992,  in  exercise  of  powers  

conferred by clause (a) of sub-section 5 of Section 8 and sub-section 2 of  

Section  9  of  the  CST  Act,  the  Government  extended  the  benefit  of  

remission/deferral  of  tax  payable  under  the  CST  Act,  as  similar  to  

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G.O.P.No.92 dated 22nd February 1991, to the new industries as well as to  

the  existing  industries,  on  the  same  conditions  prescribed  under  

G.O.P.No.92.   These  government  orders  were  followed  by  another  

G.O.M.No.43, Industries (MIG-II) Department, dated 13th December, 1992  

whereby special incentives were introduced for mega industries, subject to  

fulfilment of the prescribed conditions.   

2.3 It appears that with a view to protect the revenue and also to increase  

the  production  level  of  industries  which  were  interested  in  availing  

concessions  of  deferral  of  sales  tax,  the  State  Government  vide  

G.O.Ms.No.119,  dated  13th April,  1994,  imposed  certain  conditions  and  

issued  directions  that  were  required  to  be  complied  with  by  the  

expansion/diversification units for availing sales tax benefits.  For the sake  

of ready reference, the relevant portion of the said G.O. is extracted below:

“3. The Government after careful examination, have decided  to  accept  the  suggestions  of  the  special  Commissioner  and  Commissioner of Commercial Taxes as they protect the Revenue  and also help to increase the production level of the industries  availing the  concession.   Accordingly,  the  Government  direct  that –

i) The industry will be eligible for sales tax deferral only if  in  a  financial  year  production  exceeds  the  base  production  volume  which  is  the  highest  annual  production in the 3 years prior to expansion.

ii) When  the  actual  production  in  the  industry  in  any  financial  year exceeds the base production volume, the  industry would be eligible  for  deferral  of  sales  tax for  sales made in that year in excess of the base sales volume  

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under  Tamil  Nadu  General  Sales  Tax,  which  is  the  highest of the actual annual sales in the last 3 years prior  to expansion.

iii) The  above  conditions  are  applicable  in  cases  where  expansion unit is a separate unit located elsewhere or a  part of the existing plant.

iv) The specifications of base production/sales volumes are  applicable even in the case of allegedly new unit having  been started by the same management  or ownership or  where the substantial controlling capital is put in by the  same group of companies.

v) The base production volume and the base sales volume  will  have  to  be  worked  out  and  incorporated  in  the  eligibility certificates at the time of issue by SIPCOT and  District Industries Centres.”

3. The  first  respondent,  engaged  in  the  manufacture  and  marketing  of  

cement  in  the  States  of  Tamil  Nadu and Andhra Pradesh  was having  

manufacturing units at Sankari and Sankar Nagar.  By their letters dated  

13th March,  1996,  4th March,  1997  and  24th September,  1997  they  

proposed to set up an expanded unit at Dalavoi village, Sendurai taluk to  

avail  the  benefit  of  sales  tax  deferral  scheme  under  G.O.Ms.No.119,  

dated 13th April  1994.  On being approached,  on 13th February,  1998,  

SIPCOT issued the requisite eligibility certificate to the first respondent,  

inter-alia,  mentioning that:  (i)  the first  respondent  will  be eligible  for  

deferral  of  sales tax not  exceeding  `205.13 crores (later  on revised to  

`270.21 crores), interest free for a period of twelve years from the month  

in  which  the  first  respondent’s  unit  commenced  its  commercial  

production i.e. from 1st July, 1997 to 31st May, 2009 (cl.3); (ii) deferral of  

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sales tax will only be on the increased volume of production/sales; (iii)  

for the purpose of determining the increased volume of production, the  

base figure would be the highest of the volume of production/sale in the  

company  in  any  one  of  the  year  during  the  last  three  years;  (iv)  till  

reaching the  volume of production/sale  specified earlier,  the  company  

would  continue  to  pay  tax  and  any  liability  in  excess  of  the  

production/sale  specified  therein  alone  will  be  eligible  for  deferment  

(cl.5.3); (v) the deferral scheme will be applicable to the unit/company  

only  as  long  as  it  manufactures  products  for  which  the  essentiality  

certificate  had  been  issued  (cl.6)  and  (vi)  violation  of  any  of  the  

conditions  as  stipulated in  the  eligibility  certificate  and the  connected  

government orders will result in withdrawal of deferral facility in entirety  

(cl.7).  In compliance of clause 5.2 of the eligibility certificate, on 12th  

April, 2000, the first respondent entered into an agreement with the Zonal  

Assistant  Commissioner,  Commercial  Taxes,   undertaking  to  comply  

with the Base Production Volume and Base Sales Volume (hereinafter  

referred  to  as  “BPV”  and  “BSV”  respectively)  as  indicated  in  the  

essentiality certificate.

4. The first respondent continued to remit the sales tax until they reached  

the level of BSV, viz. the highest of the actual annual sales in the last  

three years prior to the expansion, stating that they had also reached, in  

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the financial year, BPV, viz. the highest production in the last three years  

prior to the expansion and submitted its return claiming the deferral of  

tax on the sale in excess of BSV.

5. The Assistant Commissioner of Commercial Taxes, issued a notice dated  

19th March, 2002, inter alia, informing the first respondent that once the  

BSV is reached, then the eligibility for availment of deferral under the  

eligibility certificate dated 13th February, 1998 would be available only  

for the unit at Dalavoi and the deferral could not be stretched to include  

the production of other units and accordingly, directed the respondent to  

pay  a  sum  of  `5322.14  lakhs  which  had  been  availed,  in  excess,  as  

deferral of sales tax.  The respondent was also informed that they could  

avail of deferral of sales tax after reaching the BSV/BPV for all the units  

whichever is earlier and then they could avail deferral for expansion unit  

at Dalavoi only.  On 21st March, 2002 the Assistant Commissioner issued  

an erratum to the earlier notice dated 19th March, 2002 to the effect that  

the words ‘units whichever is earlier and then they can avail deferral for  

expansion unit’ should be read as ‘units whichever is later and then they  

can avail deferral for expansion unit’.

6. In  its  reply  to  the  notice  dated  19th March,  2002,  as  quoted  in  the  

impugned  judgment,  the  first  respondent  submitted  that:-  (i)  

G.O.Ms.No.119  dated  13th April,  1994  cannot  be  read  as  completely  

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nullifying  the  purpose,  purport  and  effect  of  G.O.P.No.92  dated  22nd  

February, 1991; (ii) the aim of G.O.Ms.No.119 was to ensure that the  

entrepreneur  maintains  the  tax  payment  obligation  prior  to  the  new  

industry so that only incremental sale volume is entitled to deferral and  

(iii) the new industry which is a separate industrial undertaking, with the  

sole  investment  infrastructure  utilities,  management  and  work  force  

already determined,  had suffered by treating this  as  an expansion and  

even if it were an expansion, logically tax can only be collected on the  

base sale volume and further sale volume beyond the base volume should  

be treated as a result of the expansion investment.  

7. In the meanwhile, consequent to the erratum issued in notice dated 21st  

March, 2002, the Assistant Commissioner issued a revised notice dated  

22nd March, 2002, informing the first respondent that they had availed  

deferral  before  they  had  reached  the  BPV,  which  is  violative  of  the  

conditions laid down in the eligibility certificate.  The respondent was  

thus, informed that they were liable to pay an amount of `5873.51 lakhs  

as excess availment of deferral of sales tax for the period from 1998-1999  

to 2001-2002.  

8. Aggrieved  by  the  said  demand  notice,  the  first  respondent  filed  O.P.  

No.322 of 2002 before the Tribunal seeking quashing of the said notice.  

Subsequently, they filed another O.P.No.351 of 2002 to declare clause  

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5.3 of the eligibility certificate dated                   13 th February, 1998 as  

ultra vires the Notification No.II(1)/CTRE/158/91 in G.O.P.No.396 dated  

10th September  1991  and  Notification  No.II(1)/CTRE/213/92  in  

G.O.Ms.No.376 dated 27th October, 1992.  In both the said petitions, it  

was  contended that  clauses  3(i)  and (ii)  of  G.O.Ms.No.119 dated  13th  

April, 1994 as well as the consequential qualification prescribed in the  

eligibility certificate dated 13th February, 1998 in paragraph 5.3 would  

offend  the  spirit  and  object  of  the  sales-tax  deferral  scheme,  if  the  

conditions in agreement dated 12th April, 2000 are construed to mean that  

the holder of the eligibility certificate would be eligible for the benefit of  

deferral  scheme  only  when  they  achieve  both  the  BPV/BSV  levels  

together and not otherwise.

9. Relying on an earlier  decision of the High Court  dated 5th December,  

2001, in the case of Madras Cement Limited, wherein it was held that the  

Government Order makes it clear that even if the sales of the unit had  

reached the BSV, they would be eligible for deferral of sales tax on sales  

made  in  that  year  only  when  they  reached  the  BPV,  the  Tribunal  

dismissed both the original petitions.  Thus, the Tribunal held that before  

the first respondent could claim deferral of sales tax, both the BPV and  

BSV shall  have to be reached.   In other words,  if  the BSV had been  

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reached earlier but BPV had not been reached, the said respondent will  

not be entitled to get the deferral facility, till they achieve BPV.

10.Being aggrieved, the first respondent preferred Writ Petitions No.13697  

and 13698 of 2002 before the High Court.   As afore-stated,  the High  

Court  has  allowed  the  writ  petitions.   Reversing  the  decision  of  the  

Tribunal, the High Court observed thus:

“21.5   A  combined  reading  of  clauses  3(i)  and  (ii)  of  G.O.Ms.No.119,  Commercial  Taxes  and  Religious  Endowments Department, dated 13-4-1994 and paragraph 5.3  of Eligibility Certificate  dated 13-2-1998 in the case of M/s.  India Cements Ltd., and para 10 of the Eligibility Certificate  dated 22-12-1998 in the case of M/s. Hindustan Motors Limited  and the terms and conditions incorporated in the consequential  agreements in both the cases, would go to show that the word  “when”  mentioned  in  clause  3(ii)  of  G.O.Ms.No.119,  Commercial  Taxes  and  Religious  Endowments  Department  dated 13-4-1994,  if  read as “if”  or “after” whatever the case  may be, the BPV which is the highest production of the last  three years prior to the expansion should be achieved by the  holder of the eligibility certificate for every assessment year of  the total number of years, viz., 12 years in the case of deferral  and 5 years in the case of waiver, besides reaching BSV in that  particular  year.   By  insisting  that  the  BSV  should  also  be  reached,  the  Revenue  of  the  State  gets  protected  in  every  assessment year during the entire period of deferral or waiver.

21.6 To  determine  the  date  from  which  such  benefit  of  deferral or waiver would follow, viz., from the date of reaching  BPV or from the date of reaching BSV, or whichever is earlier  or whichever is later,  in the light of the intention behind the  schemes,  clause 3(ii)  of  G.O.Ms.No.119, Commercial  Taxes  and  Religious  Endowments  Department,  dated  13-4-1994  cannot be construed to mean that the benefit would flow only  from  the  date  of  reaching  the  BPV,  not  from  the  date  of  reaching the BSV, as the object of the schemes is to increase  

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the productivity, but without compromising with the revenue of  the State.

21.7 As per the rules of interpretation applicable to the case of  fiscal laws, the words must say what they mean and nothing  should  be  presumed  or  implied.   Applying  the  said  plain  interpretation  and  reading  the  word  “when”  even  plainly  as  “when”, the blending of two clauses 3(i) and 3(ii) as suggested  by  us  above,  by  way  of  harmonized  and  reasonable  construction,  is  inevitable,  as  the  same  cannot  be  ruled  out  keeping in mind the intention behind the schemes and the goal  to achieve the same in the public interest, viz. to improve the  production  in  the  most  Backward  and  backward  Areas,  certainly without compromising with  the revenue of the State,  in whatever manner, the word “when” found in clause 3(ii) is  read whether as “when” of “if” or “after” as the case may be.  The  above  interpretation  is,  in  our  considered  opinion,  unavoidable  because  any  other  construction  would  lead  to  absurdity frustrating the object behind the scheme.”

11.Hence the instant appeal by the State of Tamil Nadu, in which SIPCOT  

has been arrayed as proforma respondent No.2.

12. Mr.  Rajiv  Dutta,  learned  senior  counsel  appearing  for  the  State  

strenuously  urged  that  the  only  interpretation  that  could  be  given  to  

clause  3(ii)  of  G.O.Ms.No.119  dated  13th April,  1994,  which  is  also  

reflected in the eligibility certificate and the agreement entered into by  

the first respondent, is that both the base production volume (BPV) and  

base sales volume (BSV) had to be reached before the first respondent  

could claim deferral of sales tax.   According to the learned counsel, it  

was only after the BPV was reached that the right of deferral accrued and  

therefore,  if  the  BSV  had  been  reached  earlier,  even  then  the  first  

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respondent was not entitled to get the deferral facility till the BPV had  

been reached.  In other words, whichever condition is reached later it is at  

that stage that industry concerned will get the right to defer the payment  

of sales tax, pleaded the learned counsel.  Referring to para 5.3 of the  

Eligibility Certificate, which provides that “the company is eligible for  

deferral of sales tax only on the increased volume of production/sale”,  

learned  counsel  submitted  that  the  SLASH in  between  the  words  

production and sale shows that till both the BPV and BSV were achieved,  

the first respondent could not claim the benefit of deferral of sales tax  

scheme.  It was submitted that the word “when” employed in clause 3(ii)  

of  G.O.Ms.119  also  shows  that  only  in  the  year  where  the  industry  

reaches both the BPV and BSV, that it would be eligible for the benefit  

of sales tax deferral.

13. Per contra, Mr. M. Chandrasekharan, learned senior counsel appearing  

for  the  first  respondent  submitted  that  clause  3(i)  of  G.O.Ms.No.119  

prescribes the qualification for availing the sales tax deferral and clause  

3(ii)  of  the  said  G.O.  enables  the  expansion/diversified  unit,  of  the  

existing industry to avail the benefit of sales tax deferral either from the  

date of achieving the BSV or BPV, whichever is earlier, in that financial  

year.   It  was  contended  that  if  BSV is  achieved  earlier  and  BPV is  

reached later in the financial year, the benefit of sales tax deferral should  

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date back to the earlier date of achieving BSV and similarly if the BPV is  

achieved earlier and BSV is achieved later,  it  should date back to the  

earlier date of achieving BPV and only then the object of deferral scheme  

can  be  achieved.   According  to  the  learned  counsel,  any  other  

interpretation would frustrate the object of the scheme.  Learned counsel  

also urged that even if the word “when” as appearing in clause 3(ii) is  

read  as  “after”  even  then  the  first  respondent  would  be  eligible  for  

deferral  of  sales  tax  on  the  sales  in  excess  of  BSV  after  the  actual  

production of  the  unit  in  the  financial  year  exceeds  the  BPV and the  

benefit  should  date  back  to  the  date  of  reaching  the  BSV.   Learned  

counsel  also  argued  that  in  light  of  the  Circular  dated  1st May,  2000  

issued under Section 28A of the TNGST Act, clarifying the position as to  

when  the  benefit  of  deferral  of  sales  tax  scheme  would  follow,  the  

revenue  cannot  be  permitted  to  contend  that  in  order  to  avail  of  the  

benefit of sales tax deferral the industry must reach both BPV and BSV  

and not when either of the two is reached earlier, as contemplated in the  

circular.  In support of the proposition that a beneficial and promotional  

exemption  should  be  liberally  construed,  reliance  was  placed  on  a  

decision  of  this  Court  in  Commissioner  of  Customs  (Preventive),   

Mumbai Vs. M. Ambalal & Company1.

1 (2011) 2 SCC 74

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14.Thus, the short question which falls for consideration is whether the first  

respondent would be eligible for sales tax deferral in any financial year  

for the sales made in that year in excess of the base sales volume (BSV)  

as  soon  as  they  exceed  the  BSV or  only  when  their  production  also  

exceeds the base production volume (BPV) in that year?   

15. The source of the sales tax deferral scheme is traceable to Section 17A of  

the  TNGST  Act  which  enables  the  Government  to  notify  deferred  

payment of tax for new industries, etc. subject to such restrictions and  

conditions as may be deemed fit.  Therefore, the scheme in question has a  

statutory flavour.  From a comparative reading of G.O.P.No.92 dated 22nd  

February, 1991 and G.O.Ms.No.376 dated 27th October, 1992 on the one  

hand and G.O.Ms.No.119 dated 13th April, 1994, the eligibility certificate  

issued thereunder as also the consequential agreement entered between  

the  parties  on  the  other  hand,  it  is  evident  that  G.O.P.No.92  and  

G.O.Ms.No.376  is  the  source  of  power  to  grant  exemption  and  

G.O.Ms.No.119  lays  down  the  methodology  and  the  machinery  to  

implement  the  scheme.   These  are  complementary  to  each  other.  

Therefore,  the  terms  and  conditions  stipulated  in  the  schemes;  the  

eligibility  certificate  as  also the  consequential  agreement,  between the  

first respondent and the revenue, having the statutory force, undoubtedly  

violation of any one of the terms and conditions thereof would disentitle  

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the beneficiary of the benefit of the sales tax deferral scheme. With this  

background, we may now advert to the core issue viz. the interpretation  

of  clauses  3(i)  and  3(ii)  of  G.O.Ms.No.119  dated  13th April,  1994,  

extracted above.  At this juncture, it  will also be expedient to refer to  

paragraph 5.3 of the eligibility certificate issued to the first respondent, to  

which reference was made by learned counsel for the State.  It reads as  

follows :

“5.3.  The company is  eligible  for deferral  of  sales  tax  only on the increased volume of production/sale.  For the  purpose  of  determining  the  increased  volume  of  production, the base figure would be the highest of the  volume of production/sale in the company in any one of  the year during the last 3 years.  Till reaching the volume  of production/sale  specified earlier  the company would  continue  to  pay  tax  and  any  liability  in  excess  of  the  production/sale specified above alone will be eligible for  deferment.”  

16. A conjoint reading of clauses 3(i) and (ii) of G.O.Ms.No.119 dated 13th  

April,  1994,  and  paragraph  5.3  of  eligibility  certificate  dated  13th  

February,  1998  would  show  that  the  object  of  the  conditions  with  

reference  to  reaching  of  BPV  is  to  ensure  that  the  concerned  unit  

achieves the highest production and sale of the existing unit in the last  

three years prior to the commencement of the commercial production in  

the  expansion  unit,  resulting  in  higher  revenue  on  higher  sales.   The  

benchmark  for  availing  the  benefit  of  the  sales  tax  deferral  scheme  

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having been fixed both with reference to the production as also to the  

sales, in our opinion, it is immaterial whether the unit concerned reaches  

BPV or the BSV earlier.   In our view, the word “when” employed in  

clause  3(ii)  of  G.O.Ms.No.119,  whether  read  as  “if”  or  “after”  only  

signifies that in order to avail of the benefit of sales tax deferral for sales  

made in the year in excess of the BSV, the industry must achieve in that  

year the BPV, which is the highest production of the last three years prior  

to the expansion, for every assessment year of the total number of years,  

viz., 12 years, besides reaching BSV in that particular year.  It is obvious  

that by insisting that the BSV should also be reached, the revenue of the  

State gets protected in every assessment year during the entire period of  

deferral and, in fact, the industry gets the benefit of deferral only on sales  

which are in excess of the BSV.  It is pertinent to note that if for any  

reason the beneficiary  ultimately  fails  to  achieve  the  BPV during the  

financial  year,  the  benefit  of  deferral  of  sales  tax availed of  by  it  on  

achieving BSV becomes refundable forthwith along with interest thereon.  

In our opinion, in light of the intention behind the schemes, clause 3(ii)  

of  the  G.O.Ms.No.119  cannot  be  construed  to  mean  that  the  benefit  

would flow only from the date of reaching the BPV and not from the date  

of reaching the BSV, particularly when the main object of the schemes is  

to increase the productivity without compromising with the revenue of  

the State.  Any other interpretation of the said GOM would frustrate the  

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object of the scheme.  It is now well established principle of law that if a  

plain meaning given to the provision for the purpose of considering as to  

whether the applicant had fulfilled the eligibility criteria as laid down in  

the  notification  or  not  is  found  to  be  clear,  purpose  and  object  the  

notification  seeks  to  achieve  must  be  given  effect  to.   (See:  G.P.  

Ceramics  Private  Limited  Vs.  Commissioner,  Trade  Tax,  Uttar   

Pradesh2.)

17. In  any  event,  we  feel  that  the  decision  of  the  High  Court  cannot  be  

flawed with in light of the circular dated 1st May, 2000 issued by the  

office of the Principal Commissioner and Commissioner of Commercial  

Taxes,  Chennai,  in exercise of power conferred on him under Section  

28A of the TNGST Act.  For the sake of ready reference, the relevant  

portion of the circular is extracted below:

“As  per  GOMs  No.119,  CT  &  RE/13.4.1994  as  regards  expansion cases it was decided that the past revenue shall be  protected obtained prior to expansion.  The BPV/BSV is fixed  on the basis of highest annual production/sales in the 3 years  prior to expansion.  Thus the industries will  have to pay the  taxes  due  upon  the  turnover  and  until  the  Base  Production  Volume/Base  Sales  volume  mentioned  in  the  Eligibility  Certificate is achieved.  The BPV/BSV shall have to be worked  out and incorporated in the Eligibility Certificate by SIPCOT  and  other  district  centres  as  per  above  Government  order.  Hence  if  the  details  are  not  available  the  particulars  of  production/sales for prior three years shall be ascertained from  the books of the dealers and Eligibility Certificate got amended  to  incorporate  the  particulars  to  avoid  any  dispute.   As  per  decision  of  Tamil  Nadu  Taxation  Special  Tribunal  in  

2 (2009) 2 SCC 90

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O.P.1229/1230/1231/98  dated  23.11.1998.   Mercury  Fittings  (P) Ltd.  It was held that GOM No.119/CTRE/13.4.1994 (sic)  contemplate  the  liability  to  pay  tax  with  reference  to  Base  Production Volume or Base Sales Volume whichever is reached  earlier  and the  liability  for deferral  is  only with reference to  volume of Sales and not with reference to taxes paid on sales  for  the  base  year.  Thus  all  Deputy  Commissioners  and  Assistant Commissioners shall thoroughly verify all expansion  cases and satisfy themselves that taxes have been paid until the  BPV/BSV has been achieved.”

(Emphasis supplied by us)

18.It is manifest from the highlighted portion of the circular that as per the  

clarification  issued  by  the  Commissioner  of  Commercial  Taxes,  in  

exercise of the power conferred on him under Section 28A of the TNGST  

Act,  the  benefit  of  sales  tax deferral  scheme would be available  to  a  

dealer from the date of reaching of BPV or BSV, whichever is earlier, as  

is pleaded on behalf of the first respondent.  It is trite law that circulars  

issued by the revenue are binding on the departmental  authorities  and  

they  cannot  be  permitted  to  repudiate  the  same on the  plea  that  it  is  

inconsistent with the statutory provisions or it mitigates the rigour of the  

law.

19. In  Paper  Products  Ltd.  Vs.  Commissioner  of  Central  Excise3,  while  

interpreting Section 37-B of the Central Excise Act, 1944, which is in  

pari materia with Section 28A of the TNGST Act, this Court had held  

that the circulars issued by the Central Board of Excise & Customs are  

3 (1999) 7 SCC 84

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binding  on  the  department  and  the  department  is  precluded  from  

challenging the correctness of the said circulars, even on the ground of  

the same being inconsistent with the statutory provision.  It was further  

held that  the department is  precluded from the right  to file an appeal  

against  the  correctness  of  the  binding  nature  of  the  circulars  and  the  

department’s  action has to  be consistent  with the circular  which is  in  

force at the relevant point of time.

20. In  Collector  of  Central  Excise,  Vadodara  Vs.  Dhiren  Chemical   

Industries4, a Constitution Bench of this Court had held that if there are  

circulars issued by the Central Board of Excise & Customs which place a  

different  interpretation  upon a  phrase  in  the  statute,  the  interpretation  

suggested  in  the  circular  would  be  binding  upon  the  revenue  even  

regardless of the interpretation placed by this Court.

21. Similarly, in Commissioner of Customs, Calcutta & Ors. Vs. Indian Oil   

Corpn. Ltd. & Anr.5, dealing with the circular issued by the Board under  

Section 151-A of the Customs Act, 1962, which is again in pari materia  

with Section 28A of the TNGST Act, Ruma Pal, J., had opined that the  

circular  will  be binding primarily on the basis  of  the language of the  

statutory provisions buttressed by the need of the adjudicating officers to  

maintain  uniformity  in  the  levy  of  tax/duty  throughout  the  country.  

4 (2002) 2 SCC 127 5 (2004) 3 SCC 488

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Although  in  the  same  judgement,  while  concurring  with  the  view  

expressed by Ruma Pal,  J.,  on the facts  of  that  case,  P.  Venkatarama  

Reddi,  J.,  entertaining  certain  doubts  as  to  the  correctness  of  the  

proposition laid down by the Constitution Bench in  Dhiren Chemical   

Industries (supra),  had  observed  that  there  was  a  need  to  redefine  

succinctly  the  extent  and  parameters  of  the  binding  character  of  the  

circulars of the Central Board of Direct Taxes or Central Excise etc., by  

another Constitution Bench, yet the learned Judge did not disagree with  

the proposition that it is not open to the revenue to file an appeal against  

the order passed by an appellate authority which is in conformity with a  

departmental  circular.   In  fact,  His  Lordship  went  on  to  observe  that  

when there is a statutory mandate to observe and follow the orders and  

instructions of CBEC 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.

22. In Commissioner of Central Excise, Bolpur Vs. Ratan Melting & Wire  

Industries6, a Constitution Bench of this Court has clarified the confusion  

created on account of the view expressed in para 11 of Dhiren Chemical   

6 (2008) 13 SCC 1

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Industries (supra), on the question of binding effect of judgment of this  

Court vis-a-vis State and Central Government circulars thus:

“7. Circulars and instructions issued by the Board are no doubt  binding in law on the authorities under the respective statutes,  but when the Supreme Court or the High Court declares the law  on  the  question  arising  for  consideration,  it  would  not  be  appropriate for the court  to direct  that the circular should be  given effect to and not the view expressed in a decision of this  Court or the High Court.  So far as the clarifications/circulars  issued by the Central Government and of the State Government  are concerned they represent merely their understanding of the  statutory provisions.  They are not binding upon the court.  It is  for the court to declare what the particular provision of statute  says and it is not for the executive.  Looked at from another  angle, a circular which is contrary to the statutory provisions  has really no existence in law.”

23. In the present case, it is not the case of the revenue that circular dated 1st  

May, 2000 is in conflict with either any statutory provision or the deferral  

schemes announced under the afore-mentioned government orders.  We,  

therefore, hold that the said circular is binding in law on the adjudicating  

authority under the TNGST Act.

24.For the reasons afore-mentioned, we do not find any merit in this appeal  

and the same is dismissed accordingly.

25.However, in the facts and circumstances of the case, the parties are left to  

bear their own costs.

.……………………………………               (D.K. JAIN, J.)  

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                             .…………………………………….              (H.L. DATTU, J.)

NEW DELHI; APRIL  21, 2011. (RS)

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