Aathees Wetcasting Materials (P) Ltd. Vs Commercial Tax Officer (Madras High Court)
The Madras High Court addressed a writ petition filed by Aathees Wetcasting Materials (P) Ltd. challenging an assessment order and a consequential demand notice issued by the Commercial Tax Officer. The petitioner, a manufacturer of cement cover block stones, had initially been assessed at a tax rate of 5% following an inspection in 2012. This assessment was partially upheld by the appellate authority, and the Assessing Officer (AO) also gave effect to the appellate order. However, the AO subsequently issued a fresh show cause notice based on a change of opinion, proposing to assess the petitioner’s goods at a higher rate of 14.5%. Despite the petitioner’s detailed reply, the AO passed the impugned order in 2019, reclassifying the goods and applying the higher tax rate. The petitioner argued that the AO lacked the authority to reopen the assessment after it had been subject to appeal and given effect to, suggesting that the AO should have filed a further appeal if aggrieved.
A key argument presented by the petitioner relied on a clarification issued by the Deputy Commissioner (CT), Madurai (East), classifying concrete cover blocks under a schedule attracting a 5% tax rate. The AO, in the impugned order, dismissed this clarification, stating that the Deputy Commissioner lacked the authority to issue it and instead classified the goods under a different category taxable at 14.5%, citing a circular from the Commissioner of Commercial Tax. However, the Madras High Court sided with the petitioner. The court noted that the clarification relied upon by the petitioner originated from a higher authority (Deputy Commissioner) than the Assessing Officer. Furthermore, this clarification had not been rescinded or challenged by higher authorities. Therefore, the court held that the Deputy Commissioner’s clarification was valid and binding on the Assessing Officer. Consequently, the High Court found the AO’s impugned order, which arbitrarily disregarded the official clarification from a superior authority, to be arbitrary and a colorable exercise of power. The writ petition was allowed, and the impugned assessment order and demand notice were set aside, emphasizing the principle that tax authorities are bound by the official clarifications issued by their higher officials and cannot arbitrarily reclassify goods contrary to such directives.
