There was a settled position of law that revenue is bound by the its circulars or clarification issued under Section 37B of the Central Excise Act. The principle behind such legal proposition is very simple- is an assessee has acted based on a circular issued by revenue, the revenue must not be allowed in the court of law to plead that the circular is illegal and punish the assessee for following its own circular/instruction. By no stretch of imagination this proposition is unjust or illegal. Yes, it was also provided that if the revenue feels that the circular or instruction is illegal or not as per the provision of law, it can always withdraw the circular. The court held,
“We need to made it clear that, regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue.”
This judgment has been clarified in CCE v. Ratan Melting & Wire Industries. The clarification is strange. It is overruling judgment in the name of clarification. Further such clarified overruling has come from a coordinate bench. Without going into such question as to whether a judgment can be overruled in the name of clarification or whether a coordinate bench can or should take this exercise, this author would like to go into the reasoning of such pronouncement.
In para 6 of the judgment, the court ruled that a circular which is contrary to the provision of law has really no existence in law. If such circular has no existence in law, how can it be binding on the revenue or on anybody. The court has not clarified on this point.
Further, the court has stated that department can take a stand against a circular before Supreme Court. If the department can take a stand before Supreme Court, in appellate proceeding- it can certainly take a stand against the circular before Assistant Commissioner in original proceeding. What is left in the proposition that department is bound by its circular?
The most unfortunate part of this judgment is the reasoning for reaching to such conclusion. The court says in para 7,
“to lay content with the circular would mean that the valuable right to challenge would be denied to him and there would be no scope adjudication by the High Court or the Supreme Court. That would be against the very concept of majesty of law declared by this Court and the binding effect in terms of Article 141 of the Constitution.”
Here we are in a peculiar situation. Revenue issue a circular against the law. Although it can withdraw the circular anytime, revenue will not withdraw the circular- but will challenge the circular to uphold the majesty of law. Strange.
The moment revenue takes a stand against a circular, the court can ask- why don’t you withdraw the circular. Where is the need to quash it?
The most unfortunate part of this exercise is that assessee’s appeal is dismissed. It is dismissed because department want to take stand against its own circular. It is dismissed because Supreme Court can change its view. And the assessee is presumed to know the law. He should have presumed that he should not follow the departmental circular as department will take challenge its own circular. He should have presumed that Supreme Court can review its judgment.
Such changing face of law creates a strange situation. When as assessee replies to a Show Cause Notice or files an appeal before Tribunal, he raises points which are in his favour at the time of reply or filing the appeal. By the time appeal comes up for hearing for final disposal, most of the points he has raised has lost its relevance, for they have been overruled. He cannot raise new points, which was not raised before the original authority.
Courts have power to review its own orders. However, review should be done in a manner so as not to punish the assessees who has acted as per the judgments. Majesty of law depends upon faith of people in law. Let us not shake that.
(Views expressed are personal views of the author.)
Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on firstname.lastname@example.org , Web: www.rajeshkumar.co.in