M/S. BINANI INDUSTRIES LIMITED vs. ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE AND ORS.

CIVIL APPEAL No. 1784/2007Supreme Court[2007] 4 S.C.R. 79704 April 2007Bench: 2 JudgesAuthor: ARIJIT PASAYAT, S.H. KAPADIA26 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s. Binani Industries Limited, is a dealer registered under the Karnataka Sales Tax Act, 1957. Their business includes leasing machinery, equipment, and motor vehicles. Section 5-C of the Act levies tax on the transfer of the right to use goods. Initially, tax was levied on "taxable turnover." An amendment in 1992 changed this to "total turnover," which was struck down by the High Court. On April 1, 1986, Section 5-C was amended retrospectively to restore "taxable turnover." On April 12, 1996, a Circular was issued stating that goods already taxed under Section 5 could not be taxed again under Section 5-C. On October 23, 1999, another Circular was issued, stating the earlier one was incorrect and there was no bar to taxing transactions under both Sections 5 and 5-C. Subsequently, reassessment proceedings were initiated based on the 1999 Circular. A Single Judge held the revenue was bound by the 1996 Circular for assessment years 1996-97 to 1999-2000, but not prior to that. A Division Bench held the incorrect Circular did not bind the revenue.

What did the Supreme Court hold?

The Supreme Court allowed the appeals, setting aside the High Court's judgment. The Court held that the Circular dated 23.10.1999 was a review of the earlier Circular and indicated that the Commissioner believed the earlier position was incorrect. However, the Court found that reassessment proceedings initiated based on this subsequent Circular were impermissible. The Court reasoned that the 1996 Circular was binding on revenue authorities, and assessments completed on its basis could not be affected by a mere change of opinion by the Commissioner. Reopening assessments solely on the basis of a change of opinion is entirely impermissible. The Court noted that the 1999 Circular was issued due to a change of opinion by the Commissioner while reviewing the earlier Circular, and it was not brought to their notice which provision permitted such a review. The Court concluded that the judgments of the learned Single Judge and the Division Bench were indefensible and needed to be set aside.

What were the issues?

1. Whether reassessment proceedings initiated based on a subsequent circular (dated 23.10.1999) which superseded an earlier circular (dated 12.04.1996) are permissible, when the earlier circular had been followed for completed assessments. Assessee's Contention: The assessee argued that the issuance of the 1999 Circular represented a mere change of opinion by the Commissioner and that it was impermissible for the revenue to reopen completed assessments based on such a change in opinion. They contended that the revenue should be bound by the earlier, albeit incorrect, circular. Revenue's Contention: The revenue, through its subsequent circular and actions, asserted that the 1996 Circular did not reflect the correct legal position and that the law declared by the Supreme Court had a binding effect, overriding any incorrect circulars. They sought to reopen assessments based on the corrected legal position.

Which sections of the Income-tax Act were involved?

Section 5-C,Section 3-A,Section 5,Section 21,Section 20,Section 22-A,Section 12-A

AI-generated summary — verify with the full judgment below

MIS. BINANI INDUSTRIES LIMITED v. ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE AND ORS. APRIL 04, 2007 [DR. ARIJIT PASA Y AT AND S.H. KAPADIA, JJ.] Karnataka Sales Tax Act, 1957: Sections 3-A, 5 and 5-C. A B Sales Tax-A Ys 1987-88 to 1996-97-Levy of sales tax-The assessee C was a dealer registered under the Sales Tax Act-His business activities inter-alia included business of leasing machinery, equipment and motor vehicles-Section 5-C of the Act dealt with levy of tax on transfer of the right to use the goods which were treated as a transfer for the purpose of levy of sales tax within the State-Originally, the levy was on "taxable turnover"- D An amendment was brought in 1992 to the said provision substituting the expression ''total turnover'' for ''taxable turnover' '-The same was questioned by several assesses-A Division Bench of the High Court struck down the provision-On 1.04.1986, Section 5-C was again amended with retrospective effect restoring the original position i.e. substituting the expression "taxable turnover" for "total turnover"-On 12.04.1996, a Circular was issued in E terms of Section 3-A of the Act providing that the goods

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