Azam Laminators (P.) Limited vs Authority to Issue Clarification

Thottathil B. Radhakrishnan, J.—The writ petition under article 226 of the Constitution of India and the appeals under the Kerala Value Added Tax Act, 2003, for short, "the KVAT Act", are against an order of clarification issued u/s 94 of that Act. The learned senior counsel Smt. Nalini Chidambaram appearing on behalf of the petitioner in the writ petition at the outset referred to Comptroller and Auditor-general of India, Gian Prakash, New Delhi and Another Vs. K.S. Jagannathan and Another, to persuade us to decide once for all on the question which was the subject-matter of the clarification. On the basis of that precedent, she rightly points out that the High Court would be within its power to issue a writ in the nature of mandamus or to pass orders and give necessary directions in order to prevent injustice in terms of the statutory public duty in relation to something which the High Court can do by itself on being shown that the public authority or the statutory authority concerned has failed to discharge its duties in that regard. While that proposition is salutary, we may note that it was so laid down while exercising the authority in relation to a case of scheduled caste persons, who were in the category of Selection Grade Auditors in the Department of Indian Audit and Accounts Service. The entire issue in that case was decided by the court. However, in the case in hand, the prime question that would have to be ultimately decided is as to whether the product dealt with by the dealers, who are the appellants before us, would fall under a particular entry of the KVAT Act, chargeable at rate that applies in terms of that entry. In our view, it is not advisable to decide on such an issue relating to the nature of a product. That is an issue that has to be first decided by the statutory authority.

The fact of the matter remains that there were repeated clarificatory orders issued by the Commissioner, who was then the authority u/s 94 of the KVAT Act. Ultimately, the Commissioner issued an order holding that the product falls under the entry that generated a high rate of tax under the KVAT regime. The dealers were before this court in O.T. Appeal No. 7 of 2008, which was ordered by judgment dated 10th June, 2008, inter alia, holding that the Commissioner had not focused attention on the relevant issues, having particular regard to the law laid by the apex court in different precedents referred to therein, including Keckitt Benckiser (India) Ltd. v. Commissioner, Commercial Taxes [2008] 15 VST 10 (SC).

Having regard to the nature of the contentions raised in ground A of the captioned writ petition, we have thoroughly examined the file of the establishment that has led to the impugned clarification. Remember, by the aforenoted judgment dated June 10, 2008, this court had remitted the issue for consideration of the Commissioner, essentially de novo. The Department file shows that the Commissioner had recorded on January 15, 2012 that there was some hearing and that samples were given. We are not sure whether the said entry is actually on January 15, 2012 since the inscription of the date is not legible to that effect.

Be that as it may, section 94 of the KVAT Act underwent amendment with effect from April 1, 2009 whereby, the competent authority to decide on the request for clarification was constituted as a Three Member Committee. That being so, the Commissioner''s exercise of hearing the parties would have been a futile exercise in terms of the statutory provisions. If he had heard the arguments and seen the samples, that could have been at any time after November 1, 2008 to which date, the case stood posted at one point of time and after that, the only entry seen is one noted above. This means that whatever had happened till that point of time cannot be treated as due hearing either as personal hearing extended by a single officer or as a matter of institutional hearing. We say this because, the Department file further shows that Mr. Anil Kumar appeared and that the matter was re-heard on September 26, 2012. Mr. Anil Kumar is the learned advocate, who was appearing for the dealers before the authority, even going by the Vakalath Nama available in the Department files. Now looking into files further, we see that the notice of hearing is shown to have been despatched on September 18, 2012 fixing 10.30 a.m. on September 26, 2012 as the time of hearing. The date so fixed was a Wednesday. Postal acknowledgment to Sri Anil Kumar''s endorsement shows that the postal article was delivered on September 21, 2012 with two holidays in between them. In the common course of human conduct, we can fairly envision the preparation that Mr. Anil Kumar, advocate, Ernakulam, could have to make his effective appearance at 10.30 a.m. on September 26, 2012 before the authority. We cannot but therefore, agree to the pleadings on behalf of the appellants in the appeals and the petitioner in the writ petition that there was no effective hearing and all that Mr. Anil Kumar could have reasonably and probably done was to request for an adjournment. We see that the files indicate that the Commissioner of Commercial Taxes has been prompted by the Deputy Commissioner (Law) at Ernakulam to expeditiously decide on the matter. The Deputy Commissioner also appears to have indicated that the clarification would have far reaching consequences and the learned Special Government Pleader (Taxes) has informed that the directions contained in the judgment rendered in the earlier round have to be complied within a period of two months. On the totality of facts and circumstances and on preponderance of probabilities on the basis of the affidavit and pleadings in the writ petition, we are of the view that in the case in hand, no proper opportunity of hearing was extended to the dealers in terms of section 94 of the KVAT Act.

In the aforesaid view of the matter, we may record for the sake of convenience that the learned senior advocate appearing on behalf of the dealers pointed out the entry at serial No. 2 in the Third Schedule to the KVAT Act, vis-a-vis, the entries at Tariff item 0802 90 in Chapter 8 of the Central Excise Tariff Act, 1985. Reference was also made on behalf of the dealers to the judgment of the honourable Supreme Court of India in Crane Betel Nut Powder Works Vs. Commissioner of Customs and Central Excise, Tirupathi and Another, and Commissioner of Central Excise and Customs, Gundur v. Crane Betel Nut Powder Works [2010] 251 ELT 118 (Trib.-Bang). Now, we also record the submission made on behalf of the learned Government Pleader that the Central excise tariff has escaped the notice of the authority, though such provisions as they now stand were brought in after the Supreme Court had rendered the decision in Crane Betel Nut Powder Works Vs. Commissioner of Customs and Central Excise, Tirupathi and Another, . We do not express anything in either way on any matter touching the merit of the rival contentions, having regard to the nature of the conclusions arrived at on the question of hearing. In the result, the O.T. appeals and the writ petition are ordered setting aside the impugned order and leaving open all issues enabling the competent authority in terms of section 94 of the KVAT Act to decide on the question as to the issuance of clarification following due procedure, after hearing necessary parties in terms of the prescriptions contained in that statutory provision. We are sure that the appropriate authority will expedite a final decision in the matter and issue its decision within a reasonable time-frame. The parties are directed to mark appearance in the office of the competent authority for clarification at 10.30 a.m. on January 18, 2014. The authority will then proceed to take further steps for appropriate compliance of the requirements u/s 94 of the KVAT Act and decide on the issue after hearing the necessary parties and adverting to all necessary issues, including the relevant aspect of the products and such other questions as may be necessary for just and complete decision at that time. Let this process be taken and final orders passed on or before March 31, 2014. The impugned clarification order and penalty orders are set aside. Resultantly, assessment orders on the basis of such clarification will stand suspended until conclusion of proceedings following this judgment.