NEW DELHI: The Supreme Court has declared that the revenue authorities cannot water down its own circulars and take a contrary stand, as failure to maintain predictability in taxation laws can “potentially lead to a chaotic situation”.
A bench of Justices Surya Kant and J B Pardiwala also said that “maintaining predictability in taxation law is of utmost importance and, for this reason, the court should not accept an argument by the Revenue that waters down its own circular as this would fall squarely within the contours of the prohibition."
“It goes without saying that the Revenue’s stance against its own circular can potentially lead to a chaotic situation where, with one hand, the Revenue would lay down instructions on how to interpret the relevant statutes and rules, and with the other hand, it would promptly disobey those very directions,” the top court said.
The bench also clarified that the Department’s hands are tied with regard to its circulars, though no such prohibition operates on Courts and Tribunals as "it is incumbent upon the adjudicatory bodies to ascertain the correct position of law unencumbered by the Revenue’s interpretation as crystallized in its administrative directions".
The apex court's judgement came on an appeal by excise and service tax department against a 2017 order of the Customs, Excise and Service Tax Appellate Tribunal, Chandigarh that set aside its show cause notice issued to Merino Panel Product on the ground that it had adopted an incorrect method of valuing related party transactions.
The court said that if the show cause notice issued is found to be contrary to the CBEC Circular of July 1, 2002, it would prima facie result in abrogation of the uniformity and consistency which is strongly emphasised upon in its earlier judgements.
However, in this case, the SC upheld the show cause notices issued by the commissioner to Merino while clearing the air on calculating related party transactions, which involves an arrangement between two parties that have a pre-existing business relationship.
