M/S Linde INDIA Limited vs. The Assistant Commissioner

Facts

M/s Linde India Limited (the petitioner) was registered under the Rajasthan Value Added Tax Act, 2003 (RVAT Act) and the Central Sales Tax Act, 1956. The petitioner manufactured and sold industrial and rare gases, classifying them as 'Industrial Inputs' under Entry 35 of Schedule IV of the RVAT Act, attracting a 5% tax rate. The respondent-revenue conducted a survey on December 21, 2016, and reclassified the petitioner's products. The revenue treated the filling of two or more gases in a single cylinder as a mixture of gases, taxable under residual entries (Entry 78 of Schedule V, later Entry 29 of Schedule V) at 14.5%. This led to an assessment order dated October 31, 2017, levying differential tax, interest, and penalty for AY 2011-2012 to AY 2016-2017. Appeals were rejected by the Appellate Authority and the Rajasthan Tax Board, which relied on a Clarification dated August 3, 2017, issued by the Commissioner, Commercial Taxes. The penalty was deleted, but additional tax and interest were upheld.

Held

The Court held that the question of law framed is to be answered in favour of the petitioner-assessee and against the respondent-revenue. The Court found that the long-standing classification of the petitioner's products as 'Industrial Inputs' under Entry No. 35 of Schedule IV was disturbed solely based on the Commissioner's Clarification dated August 3, 2017. The Court noted that this clarification was issued after the repeal of the RVAT Act and was not supported by any technical or expert report. The Court emphasized that in indirect tax matters, a long-standing classification cannot be altered based on personal opinion or knowledge; the revenue must discharge its burden of proof with cogent evidence. The Court also held that departmental circulars or clarifications are not binding on quasi-judicial bodies like the Appellate Authority and the Tax Board when exercising their judicial functions. Furthermore, a clarificatory circular can only be applied retrospectively if it is beneficial to the assessee. Since the revenue failed to discharge its burden to prove that the mixture of gases would not be covered under Entry No. 35, the levy of additional tax and interest could not be sustained. The impugned orders of the Tax Board and other authorities were quashed and set aside.

Key Issues

1. Whether specific entry no. 35 of Schedule-IV of the RVAT Act covers 'Argon, Carbon Dioxide, Oxygen, Hydrogen, Carbon gases as “Other non metals?” (Question of law). Petitioner's arguments: The gases produced and sold by the petitioner fall under Entry No. 35 of Part B of Schedule-IV. The revenue's reclassification, based on selling different gases in a single container, is flawed. The Commissioner's Clarification dated August 3, 2017, which formed the basis for the reclassification, was issued after the RVAT Act was repealed, lacked reasoning, and was based on a query that was different from the issue at hand. The clarification could not be applied retrospectively, especially when the regular assessing authority had consistently accepted the petitioner's classification. The burden of proof lies with the revenue to demonstrate that the products do not fall under Entry No. 35, a burden which the revenue failed to discharge by not obtaining expert opinions or evidence. The reliance on the Commissioner's clarification by quasi-judicial bodies is improper. Respondent's arguments: Not recorded in the judgment.