High Court of Karnataka
CIT & JCIT vs. Ranka and Ranka
Sections 40A(3), 260A, 268A
N. Kumar & Ravi Malimath, JJ.
ITA No. 3191 of 2005
2nd November, 2011
Counsel appeared :
Indra Kumar & E Sanmathi Indrakumar, for the Appellant : Shankar & M. Lava, for the Respondent
JUDGEMENT
1. The appeal is preferred by the revenue challenging the order passed by the Tribunal deleting the disallowance made under Section 40A(3) of the Income Tax Act, 1961 and accordingly allowing the appeal of the assessee.
2. The total tax effect which is the subject matter of this appeal is Rs.4,87,730/-. At the time of hearing, the learned Counsel for the assessee raised a preliminary objection stating that in view of instruction No.3/2011 issued on 09.02.2011, the revenue is precluded from filing the appeals where the tax effect does not exceed Rs.10 lakhs before the High Court. Therefore, it was contended that as the subject matter of the appeal i.e., the tax effect is Rs.4,87,730/- which is less than Rs.10 lakhs, this appeal filed under Section 260A of the Income Tax Act, 1961 is not maintainable and it is liable to be dismissed on that short ground. In view of the aforesaid preliminary objection, the same is considered as a preliminary point.
3. The learned Senior Counsel Sri.Indra Kumar appearing for the Revenue contended that instruction No.2/2011 expressly states at clause (11) that the instructions will apply to appeals filed on or after 09.02.2011. However, the cases where appeals have been filed before 09.02.2011 will be governed by the instructions on this subject, operative at the time when such appeal was filed. The instruction which was operating on the day the present appeal is filed, was instruction No.2/2005 which prescribed a monetary limit of Rs.4 lakhs. Therefore, as the tax effect is Rs.4,87,730/-, as it was above the monetary limit prescribed under instruction No.2/2005, the appeal filed under Section 260A of the Act is maintainable and instruction No.3/2011 is not applicable to the present case.
4. Per contra Sri.A.Shankar, learned Counsel appearing for the assessee submitted that instruction No.3/2011 was issued on 09.02.2011 and clause (11) of the said circular makes it only prospective. It is settled law that a circular which is beneficial to an assessee is to be applied retrospectively and only if the instruction or circular issued is oppressive to the assessee, it has to be construed prospectively as held by the Apex Court and therefore, notwithstanding clause (11) of instruction No.3/2011, the benefit conferred to the assessee under the said instruction has to be extended retrospectively to all pending cases before the date of issue of the said circular and therefore, he submits as the tax effect is less than Rs.10 lakhs, this appeal is liable to be dismissed on that short ground.
5. In the light of the aforesaid contentions, the point that arise for our consideration is.- “Whether instruction No.3/2011 dated 09.02.2011 is prospective only or whether it applies to pending appeals before the High Court on the day the instruction was issued?”
6. This concept of prescribing the monetary limit for preferring an appeal by the Revenue is not new. It is invoked from 1992. The instruction No.1777 dated 04.11.1987 prescribed a monetary limit of Rs.25,000/- for departmental appeals in Income Tax matters before the Appellate Tribunal, Rs.50,000/- for filing reference, to the High Court and Rs.1,50,000/-for filing appeals, to the Supreme Court. Subsequently, the said circular was superseded by the Board’s instruction No.1903 dated 28.10.1992. Subsequently, in super-session of the above instruction, instruction No.1979 dated 27.03.2000 came to be issued revising the monetary limits prescribing Rs.1 lakh as the limit before the Appellate Tribunal, Rs.2 lakhs before the High Court and Rs.5 lakhs before the Supreme Court. The said circular was issued on 27.03.2000. On 27.05.2004 one more circular was issued clarifying certain aspects of circular No.1979. Thereafter in partial modification of the above instructions, instruction No.2/2005 was issued on 24.10.2005 revising the monetary limit for prescribing appeals before the Tribunal to Rs.2 lakhs, to the High Court under Section 260A of the Act to Rs.4 lakhs and in respect of appeals before the Supreme Court at Rs.10 lakhs.
7. In supersession of the above instructions, the instruction No.5/2008 was issued providing that appeals will henceforth be filed only in cases where the tax effect exceeds monetary limits given hereunder: Sl. No. Appeals in Income-tax matters Monetary Limit (in Rs.) 1 Appeal before Appellate Tribunal 2,00,000/2 Appeal under Section 260A before High Court 4,00,000/3 Appeal before Supreme Court 10,00,000/-Clause (4) explains the meaning of the tax effect as under: “Tax effect” means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as “disputed issues”). However, the tax will not include any interest thereon. Similarly, in loss cases notional tax effect should be taken into account. In the case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.”
8. Having regard to the confusion which prevailed till the date of issue of the said instruction regarding how the tax effect is to be calculated in respect of the assessee when a common order is passed for several assessment years, the position was clarified as under at clause (5): “The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issue in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal shall be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issue exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals will be filed only with reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one year, appeal shall be filed in respect of all assessment years even if the “tax effect” is less than the prescribed monetary limits in any of the year(s). If it is decided to file appeal in respect of the year (s) in which “tax effect” exceeds the monetary limit prescribed.”
9. Similarly, in order to protect the interest of the Revenue when benefit is given to the assessee in case of monetary limit and the very same question arising in future in order to avoid the plea of resjudicata, clause (6) came to be introduced which reads as under: “In a case where appeal before a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above, the Commissioner of Income-tax shall specifically record that “even though” the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this instruction”. Further, in such cases, there will be no presumption that the Income-tax Department has acquiesced in the decision on the disputed issues. The Income-tax Department shall not be precluded from filing an appeal against the disputed issues in the case of the same assessee for any other assessment year, or in the case of any other assessee for the same or any other assessment year, if the tax effect exceeds the specified monetary limits.”
10. Similarly for the plea of acquiescence or estoppel sought to be set out by the assessee when either the revenue did not file appeal or withdrew the appeal, the interest of the revenue was protected by introducing clause (7) which reads as under: “In the past, a number of instances have come to the notice of the Board, whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year, by not filing an appeal on the same disputed issues. The Departmental representatives/counsel must make every effort to bring to the notice of the Tribunal or the Court that the appeal in such cases was not filed or not admitted only by reason of the tax effect being less than the specified monetary limit and therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any precedent value.”
11. However, the right to prefer an appeal even in cases where the tax effect is less than the monetary limit in the following cases finds a place at clause (8) which reads as under: “Adverse judgments relating to the following should be contested irrespective of the tax effect: (a) Where the Constitutional validity of the provisions of an Act or Rule are under challenge. (b) Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires. © Where Revenue Audit objection in the case has been accepted by the Department.”
12. Clause (11) which deals with application of the circular reads as under: “This instruction will apply to appeals filed on or after 15th of May, 2008. However, the cases where appeals have been filed before 15th of May, 2008 will be governed by the instructions on this subject, operative at the time when such appeal was filed.”
13. In clause (12), it is made clear that this circular is issued under Section 268A(1) of the Income Tax Act, 1961, thereby giving statutory recognition to this circular.
14. Similar to the above, the CBDT issued one more instruction No.3/2011 dated 09.02.2011 fixing the monetary limit as: (1) Appeal before the Appellate Tribunal – Rs.3,00,000-00 (2) Appeal under Section 260A before the High Court – Rs.10,00,000 (3) Appeal before the Supreme Court – Rs.25,00,000. The various paras in the two circulars are similar to what has been stated above. Now the question for consideration is whether the Instruction No.3/2011 is applicable to pending proceedings or is it only prospective, as expressly stated in clause (11) thereof.
15. The learned Counsel for the revenue brought to our notice the judgments of several High Courts which have taken the view that the circulars issued from time to time by the department prescribing the monetary limit for preferring appeal is only prospective and is not applicable to the pending proceedings. In other words, the circular which is invoked on the date of filing of the appeal is to be taken into consideration which necessarily do not apply to cases which are filed prior to the issue of that instruction. However, the learned counsel for the assessees brought to our notice the judgments of the various High Courts which have taken the contrary view, i.e., it applied to pending appeals also. The judgments relied on by the revenue are as under:- The Madras High Court in the case of CIT vs. Kodananad Tea Estates Co., (2005) 275 ITR Pg 244 (Mad). The Kerala High Court in the case of CWT vs. John L. Chackola (2011) 337 ITR 385 (ker) and the Chattisgarh High Court in the case of CIT vs. Navbharat Explosives Co., Pvt. Ltd., (2011) 337 ITR 515 (Chattisgarh), have held that:- “The maintainability of appeals/references at the instance of the revenue is to be considered on the basis of circulars/instructions prevailing at the relevant time when the appeal/reference was made and instruction issued, vide circular dated May 15. 2008. is prospective and it has no application whatsoever to any proceedings initiated before May 15. 2008 and the same remain undecided and pending after May 15. 2008.”
The Punjab and Haryana Court in the case of CIT vs Varindera Construction Co., (2011) 331 ITR 449 (P and H) held as under: “(10). After due consideration of the rival contentions, we are in agreement with the contention raised on behalf of the Revenue. Circular laying down monetary limit controls the filing of the appeals and not their hearing. Appeals filed as per the applicable limit at the time of filing cannot be governed by circular applicable at the time of hearing. We respectfully differ from the view taken by the Bombay High Court as followed by this Court. The object of the circular under section 268A as already mentioned is only to govern monetary limit for filing of the appeals. There is no scope for reading the circular as being applicable to pending appeals. Even the Hon’ble Bombay High Court held that the circular was not retrospective. It only observed that having regard to the falling money value and choking Court docket, policy of monetary limit was needed to be adopted for pending matters. The document referred to as circular dated June 5, 2007, in our view, has not been properly appreciated. It only says that the Department was not following instructions as to monetary limit while filling the appeals and should examine whether pending appeals which did not conform to the prescribed monetary limits should be withdrawn. The said memorandum was purportedly issued on a direction of the High Court and was applicable only to cases pending in the Bombay High Court. The same cannot be read to mean that in all High Courts, all pending appeals were to be examined in the light of the monetary limits applicable on the date of hearing and not on the date of filing.”
16. Per contra learned Counsel for the assessee relied on the following judgments: The Bombay High Court in the case of CIT vs. Pithwa Engg. Works reported in (2005) 276 ITR 519 has opined thus: One fails to understand how the Revenue can contend that so far as new cases are concerned, the circular issued by the Board is binding on them and in compliance with the said instructions, they do not file/references if the tax effect is less than Rs.2 lakhs. But the same approach is not adopted with respect to the old referred cases even if the tax effect is less than Rs.2 lakhs. In our view, there is no logic behind this approach. This Court can very well take judicial notice of the fact that by passage of time money value has gone down, the cost of litigation expenses has gone up, the assessees on the file of the Department have increased; consequently, the burden on the Department has also increased to a tremendous extent. The corridors of the superior courts are choked with huge pendency of cases. In this view of the matter, the Board has rightly taken a decision not to file references if the tax effect is less than Rs.2 lakhs. The same policy for old matters needs to be adopted by the Department. In our view, the Board’s circular dated 27th March, 2000, is very much applicable even to the old references which are still undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with decades old references having negligible tax effect.
The Madhya Pradesh High Court in the case of CIT vs. Ashok Kumar Manibhai Patel and Co. reported in (2009)
317 ITR 386 (MP) followed the aforesaid judgment rendered by the Bombay High Court and extended the benefit to the assessee.
The Delhi High Court in the case of CIT vs. P.S.Jain and Co. reported in (2011) 335 ITR 591 (Delhi) also followed the aforesaid judgment of the Bombay High Court. Again the Delhi High Court in the case of CIT vs. Delhi Race Club Ltd in ITA No.128/2008 dated 03.03.2011, followed the aforesaid judgment and extended the benefit to the assessee.
The Bombay High Court in CIT vs. Madhukar K.Inamdar (HUF) reported in (2009) 318 ITR 149 (Bom) has held as under: One fails to understand how the Revenue, on the face of the above clear instructions of the Central Board of Direct Taxes, can contend that the Circular dated May 15, 2008, issued by the Central Board of Direct Taxes is applicable to the cases filed after May 15, 2008, and in compliance thereof, they do not file appeals, if the tax effect is less than Rs.4 lakhs; but the said circular is not applicable to the cases filed prior to May 15, 2008, i.e., to the old pending appeals; even if the tax effect is less than Rs.4 lakhs. In our view, there is no logic behind this belief entertained by the Revenue. This Court can very well take judicial notice of the fact that by passage of time money value has gone down, the cost of litigation expenses has gone up filing of cases at the instance of Revenue has increased: consequently, the burden on the Department has also increased to a tremendous extent. The corridors of the superior courts are choked with huge pendency of cases. The litigation expenses have also increased manifold. In this view of the matter, the Board has rightly taken decision not to file appeals if the tax effect is less than Rs.4 lakhs so as to reduce burden of the Department as well as of that of the tribunals and courts. The same policy for old matters needs to be adopted by the Department so as to achieve the object of the policy laid down by the Central Board of Direct Taxes.
It would be in the public interest if the Revenue concentrates on the cases wherein tax effect is substantially high rather than running after the assessees wherein the tax impact is less than Rs.4 lakhs considering the cost of litigation and other administrative cost which may be much more than the tax recovery. At this juncture, it will be relevant to note that the Central Board of Direct Taxes has also issued a Circular on June 5, 2007, directing the Department to examine all appeals pending before this Court on case to case basis with further direction to withdraw cases wherein the criteria of monetary limits as per the prevailing instruction is not satisfied, unless the question of law involved or raised in appeal or referred to the High Court for opinion is of a recurring nature required to be settled by the higher Court.
The aforesaid Circular makes it clear that on the date of issuance of Circular, prevailing instructions fixing monetary limit will hold good even for pending cases. Adopting the same approach, we are of the considered view that the Central Board of Direct Taxes Circular dated May 15, 2008, would be very much applicable to the pending cases requiring department to withdraw cases wherein the tax effect is less than the prescribed monetary limits.” From the aforesaid judgments, it is clear that there is divergent views insofar as these circulars prescribing monetary limit, being treated as prospective or retrospective. In other words, do they apply to pending matters anterior to the issue of the said instructions.
The circular No.1/2009 dated 27.03.2009 states that there is a prescribed dispute resolution mechanism in the Income Tax Act. In this regard the Central Board of Tax cases has issued instructions from time to time directing the departmental officers not to file appeals if the tax effect is less than the monetary limit prescribed by it. The Hon’ble Supreme Court of India in Berger Paints Limited vs. CIT reported in (2004) 266 ITR 99, held that if the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge the correctness in the case of other assessee without just cause. The department’s appeals are being dismissed by judicial authorities on the consideration that the disputed issue was not agitated in the case of the same assessee or in the case of any other assessee. The underlining object of the Board’s resolution is to reduce litigation in similar cases with a view to bring the Revenue’s right to file or not to file appeal. The new Section 268A of the Income Tax Act was inserted by Finance Act, 2003 with retrospective effect from 01.04. 1999. The said provision reads as under: 268A. Filing of appeal or application for reference by income-tax authority.-
(1) The Board way, from time to time, issue orders, instructions or directions to other income-tax authorities, fixing such monetary limits as it may deem fit, for the purpose of regulating filing of appeal or application for reference by any income-tax authority under the provisions of this Chapter.
(2) Where, in pursuance of the orders, instructions or directions issued under sub-section (1), an income- tax authority has not filed any appeal or application for reference on any issue in the case of an assessee for any assessment year, it shall not preclude such authority from filing an appeal or application for reference on the same issue in the case of(a) the same assessee for any other assessment year; or (b) any other assessee for the same or any other assessment year.
(3) Notwithstanding that no appeal or application for reference has been filed by an income-tax authority pursuant to the orders or instructions or directions issued under sub-section (1), it shall not be lawful for an assessee, being a party in any appeal or reference, to contend that the income-tax authority has acquiesced in the decision on the disputed issue by not filing an appeal or application for reference in any case.
(4) The Appellate Tribunal or Court, hearing such appeal or reference, shall have regard to the orders, instructions or directions issued under sub-section (1) and the circumstances under which such appeal or application for reference was filed or not filed in respect of any case. (5) Every order, instruction or direction which has been issued by the Board fixing monetary limits for filing an appeal or application for reference shall be deemed to have been issued under subsection (1) and the provisions of sub-sections (2), (3) and (4) shall apply accordingly.
19. In the case of CIT vs. OSCAR LABORATIES P.LTD (STR VOL 324 Pg. 115 at 144) the Punjab and Haryana High Court has referred to the objects for enacting Section 268-A of the Act, which reads as under: “36. Aimed at alleviating and remedying the aforesaid predicament of the Revenue, the Finance Act, 2008, inserted section 268A into the 1961 Act. This conclusion of ours is clearly derivable from the objects recorded in the Bill introduced in Parliament for the promulgation of the Finance Act, 2008. An extract of the objects recorded in the Bill pertaining to the insertion of section 268A into the 1961 Act, is reproduced hereunder: [(2008) 298 ITR (st) 170] The proposed section seeks to provide that the Board may, from time to time, issue orders, instructions or directions to other income tax authorities, fixing such monetary limits as it may deem fit, for the purpose of regulating filing of appeal or application for reference by any incometax authority under the provisions of this Chapter XX.
It is further proposed to provide that where, in pursuance of the orders, instructions or directions issued under sub- section (1), an income-tax authority has not filed any appeal or application for reference on any issue in the case of an assessee for any assessment year, it shall not preclude such authority from filing an appeal or application for reference on the same issue in the case of (a) the same assessee for any other assessment year; or (b) any other assessee for the same or any other assessment year.
It is also proposed to provide that notwithstanding that no appeal or application for reference has been filed by an income-tax authority pursuant to the orders or instructions or directions issued under sub-section (1), it shall not he lawful for an assessee, being a party in any appeal or reference, to contend that the income-tax authority has acquiesced in the decision on the disputed issue by not filing an appeal or application for reference in any case.
It is also proposed to provide that the Appellate Tribunal or Court hearing any appeal or reference had filed under this Chapter, shall have regard to the orders, instructions or directions issued by the Board from time to time either before or after the insertion of this section and the circumstances in which such appeal or application for reference was filed or was not filed in any case; and accordingly the Tribunal or Court shall decide the, appeal or the reference on the merits of the issue consideration. It is also proposed to provide that every order, instruction or direction which has been issued by the Board fixing monetary limits for filing an appeal or application for reference shall be deemed to have been issued under sub-section (1) and the provisions of subsections (2), (3) and (4) shall apply accordingly. This amendment will take effect retrospectively from 1st April 1999.”
20. Interpreting this provision, the Division Bench of the Punjab and Haryana High Court in the above case of CIT VS. OSCAR LABORATORIES P. LTD. (2010) 324 ITR 115 (PandH) held as under: “Under Section 268A(1) of the Income Tax Act 1961, the Central Board of Direct Taxes has been authorised to issue orders, instructions or directions to the income-tax authorities, laying down monetary limits for purposes of filing appeals. As a consequence of the insertion of section 268A in the Act orders, instructions or direction issued on the subject of monetary limits for filing appeals must be deemed to have attained statutory status. There can be no dispute that every requirement under the mandate of law, leads to a consequential statutory obligation to comply with the requirement. Sub-section (5) of Section 268A mandates that instructions, orders or directions, even issued earlier, i.e., prior to the insertion of section 268A in the 1961 Act, by the Finance Act, 2008 fixing monetary limits for filing of appeals, shall be deemed to have been issued under subsection (1) of section 268A of the 1961 Act. This conclusion emerges from the fact that section 268A of the 1961 Act was introduced with retrospective effect from April 1, 1999. Accordingly, instructions, orders or directions issued even prior to the insertion of section 268A of the 1961 Act must be deemed to have statutory status, if they were issued after April 1, 1999. All issues prejudicial to the Revenue, in cases where an appeal was not filed by the Revenue must, therefore, be deemed to have been done, away with, after the inclusion of section 268A into the 1961 Act. After the introduction of section 268A into the 1961 Act, section 260A of the 1961 Act cannot be read independently. Sections 260A and 268A of the 1961 Act will now have to be interpreted reading the two harmoniously, so as to give effect to the two provisions keeping in mind the objects and the reasons on the basis whereof section 268A was inserted into the 1961 Act. The Department of Revenue having chosen on its own volition, the monetary limits for filing appeals to challenge orders passed in favour of assessee, cannot be heard to deviate therefrom when the Revenue itself lays down the monetary limits. A harmonious construction of sub-section (1) of section 260A of the 1961 Act, and sub-section (1) of section 268A of the 1961 Act would inevitably lead to the conclusion that the Revenue can prefer appeal if a case raises a substantial question of law, subject to the monetary limits stipulated by the Central Board of Direct Taxes. It is open to the Revenue to prefer an appeal only on the four grounds specified in paragraph 3 of the instruction dated March 27, 2000, and on no other ground, in cases where the tax effect was less than that prescribed therein.” National Litigation Policy
21. In this background, it is necessary to notice the “National Litigation Policy Document Released”. The Centre has formulated the National Litigation Policy to reduce the cases pending in various courts in India under the National Legal Mission to reduce average pendency time from 15 years to 3 years. It reads as under: “Introduction Whereas at the National Consultation for Strengthening the Judiciary toward Reducing Pendency and Delays held on the 24th and 25th October, 2009 the Union Minister for Law and Justice, presented resolutions which were adopted by the entire Conference unanimously and wherein the said Resolution acknowledged the initiative undertaken by the Government of India to frame the National Litigation Policy with a view to ensure conduct of responsible litigation by the Central Government and urges every State Government to evolve similar policies.
The National Litigation Policy is as follows: The Vision/Mission 1. The National Litigation Policy is based on the recognition that Government and its various agencies are the pre-dominant litigants in courts and Tribunals in the country. Its aim is to transform Government into an Efficient and Responsible litigant. This policy is also based on the recognition that it is the responsibility of the Government to protect the rights of citizens, to respect fundamental rights and those in charge of the conduct of Government litigation should never forget this basic principle. “Efficient Litigant” Means Focusing on the core issues involved in the litigation and addressing them squarely. Managing and conducting litigation in a cohesive, coordinated and time-bound manner. Ensuring that good cases are won and bad cases are not needlessly persevered with. A litigant who is represented by competent and sensitive legal persons: competent in their skills and sensitive to the facts that Government is not, an ordinary litigant and that a litigation does not have to be won at any cost. “Responsible Litigant” Means That litigation will not be resorted to for the sake of litigating. That false pleas and technical points will not be taken and shall be discouraged. Ensuring that the correct facts and all relevant documents will be placed before the Court. That nothing will be suppressed from the Court and there will be no attempt to mislead any Court or Tribunal. Government must cease to be a compulsive litigant. The philosophy that matters should be left to the courts for ultimate decision has to be discarded. The easy approach, “Let the Court decide.” must be eschewed and condemned-.
The purpose underlying this policy is also to reduce Government litigation in courts so that valuable Court time would be spent in resolving other pending cases so as to achieve the Goal in the National Legal Mission to reduce average pendency time from 15 years to 3 years. Litigators on behalf of Government have to keep in mind the principles incorporated in the National mission for judicial reforms which includes identifying bottlenecks which the Government and its agencies may be concerned with and also removing unnecessary Government cases. Prioritisation in litigation has to be achieved with particular emphasis on welfare legislation, social reform, weaker sections and senior citizens and other categories requiring assistance must be given utmost priority. In respect of filing of appeals in Revenue matters it is stated as under: “G) Appeals in Revenue matters will not be filed: a) if the stakes are not high and are less than that amount to be fixed by the Revenue Authorities: b) if the matter is covered by a series of judgments of the Tribunal or of the High Court which have held the field and which have not been challenged in the Supreme Court: c) where the assessee has acted in accordance with long standing industry practice: d) merely because of change of opinion on the part of jurisdictional officers. Review Of Pending Cases A) All pending cases involving Government will be reviewed. This Due Diligence process shall involve drawing upon statistics of all pending matters which shall be provided for by all Government departments (including PSUs). The Office of the Attorney General and the Solicitor General shall also be responsible for reviewing all pending cases and filtering frivolous and vexatious matters from the meritorious ones. B) Cases will be grouped and categorized. The practice of grouping should be introduced whereby cases should be assigned a particular number of identity according to the subject and statute involved. In fact, further sub-grouping will be also be attempted. To facilitate this process, standard forms must be devised which lawyers have to fill up at the time of filing of cases. Panels will be set up to implement categorization, review such cases to identify cases which can be withdrawn. These include cases which are covered by decisions of courts and cases which are found without merit withdrawn. This must be done in a time bound fashion.”
22. The Government has formulated the National Litigation Policy with a view to ensure conduct of responsible litigation by the Central Government and urges every State Government to evolve similar policies. Its aim is to transform Government into an efficient and responsible litigant. Efficient litigant means ensuring that good cases are won and bad cases are not needlessly persevered with. The litigation should not be resorted to for the sake of litigating. Government must cease to be a compulsive litigant. The philosophy, “that matters should be left to the Courts for ultimate decision”, has to be discarded. The easy approach, “Let the Court decide,” must be eschewed and condemned. The purpose underlying this policy is also to reduce Government litigation in courts so that valuable Court time would be spent in resolving other pending cases, so as to achieve the Goal in the National Legal Mission to reduce average pendency time from 15 years to 3 years. All pending cases involving Government has to be reviewed with the intention of filtering frivolous and vexatious matters from the meritorious one. Panels have to be set up to implement categorization, review such cases, to identify cases, which can be withdrawn. These include cases which are covered by decisions of courts and the cases which are found without merit. Such cases have to be withdrawn. This must be done in a time bound fashion. Instruction No.3/11 is issued subsequent to the aforesaid National Litigation Policy. A perusal of the aforesaid policy makes it clear that though the said instruction was issued as a measure for reducing litigation, it was issued in supersession of the earlier instruction enhancing the monetary limits and prescribing certain conditions. The very fact that clause 11 provides that this instruction will apply to appeals filed on or after 9th February 2011 and where appeals have been filed before that date, the same will be governed by the instructions on this subject, operative at the time when the said appeal was filed, makes it clear that the said instruction is not applicable to the pending proceedings. The National Litigation Policy provides that appeals in Revenue matters should not be filed if the stakes are not high and are less then that amount to be fixed by the revenue authorities, it equally provided that cases which are found without merit should be withdrawn. Similarly, cases which are covered by the decision of the Courts also have to be withdrawn. For that purpose, a Nodal Officer has to be appointed and all pending cases have to be reviewed and frivolous and vexatious matters have to be filtered from the meritorious cases and the same are withdrawn. In other words, the National Litigation Policy dealt with pending cases and wanted the pending cases to be reduced by way of withdrawal, so that valuable time of the Courts would be spent in resolving other pending cases so as to achieve the goal in the National Legal Mission to reduce average pendency from time from 15 years to 3 years.
The National Litigation Policy expressly stated that the Government must cease to be a compulsive litigant. The philosophy, that the matters should be left to the Courts for ultimate decision is to be discarded and the easy approach that ‘let the Court decide”, must be eschewed and condemned. The Revenue has not applied its mind in this direction. No attempt is made to reduce the pendency of the litigation by filtering frivolous and vexatious matters from meritorious ones and said cases are withdrawn. The only measure taken for reducing the litigation is, by raising the monetary limit. However, as the same is made prospective, it had no application to the pending cases. Therefore, the said Instruction No.3/11 do not fulfill the requirement prescribed by the National Litigation Policy. It only partially satisfies the requirement in respect of future litigation. Under the aforesaid instruction, the crucial date is the date of filing of the appeal. It is that date when the tax effect is less than the monetary limit prescribed, the Revenue is precluded from filing such appeals. Though the date of filing of the appeal may be the criteria, that by itself would not provide a rationale sufficient to distinguish between pending cases and cases to be filed in future. The earlier monetary limit was fixed in the year 2005. So it is after six years, the monetary limit is enhanced. If only the instruction No.3/11 had been made applicable to the pending cases also, as laid down in the National Litigation Policy, the object of the policy would have been fulfilled. One of the ways of giving effect to the said policy is to make that instruction applicable retrospectively to all pending appeals as on the date of the circular. It would substantially serve the object of the policy.
It is in this context, the question arises, when the instruction expressly states that benefit of the said policy is prospective, still can the Courts place a construction on such instruction so as to make it retrospective. In this context, the Apex Court in the case of COMMISSIONER OF CENTRAL EXCISE, BANGALORE vs. MYSORE ELECTRICAL INDUSTRIES LTD, reported in 2006 (204) ELT 517 SC, dealing with the question how a beneficial circular is to be construed, has approached this question in the following manner. At paragraph 13 of the judgment, it is stated that the learned Counsel further submitted that the circular being oppressive and against the respondent, has to apply only prospectively and cannot be applied retrospectively. In other words, a beneficial circular has to be applied prospectively. Thus, when the circular is against the assessee they have a right to claim the enforcement of the same prospectively. It is further submitted that for the period in question, trade notices had been issued classifying the circuit breakers under Heading No.85.35 or 85.36. When the approved classification was proposed to be revised to reclassify the Single Panel Circuit Breakers under Heading No.85.37 of the tariff, such re-classification can take effect only prospectively from the date of communication of the show cause notice proposing re-classification.
26. Following this judgment, the Apex Court in the case of SUCHITRA COMPONENTS LTD., vs. COMMISSIONER OF CENTRAL EXCISE, GUNTUR reported in 2007 (208) ELT 321 SC, held as under: “The point raised by the learned Counsel for the appellant is covered by the recent judgment of this Court in Civil Appeal No.4488 of 2005. Commissioner of Central Excise. Bangalore v. M/s. Mysore Electricals Industries Ltd., reported in 2006 (204) E.L.T. 517 (S.C.). In the said judgment. This Court held that a beneficial circular has to be applied retrospectively while oppressive circular has to he applied prospectively. Thus, when the circular is against, the assessee, they have right to claim enforcement of the same prospectively.”
27. In the instant case, the Instruction No.3/11 is more beneficial than Instruction No.2/05. If instruction No.3/11 is also made applicable to the pending appeals before this Court, it would grant relief to the assessee. Apart from granting relief to the assessee, if number of appeals pending before this Court are disposed of on the basis of the said circular, the precious time which would be saved by this Court could be better utilized for deciding disputes where tax effect is enormous. That apart, the duration, an appeal takes in this Court would be reduced as desired by the National Litigation Policy.
28. It is also not out of context to mention that periodically, the Revenue introduces what is called as Karvivadh Samadhan Scheme and Voluntary Disclosure of Income Scheme to annul black money and to give benefit to persons who are not prompt in filing returns and paying tax. But unfortunately, persons who are paying tax regularly but have succeeded before the Tribunal in showing that there is no tax liability, are made to face these litigations, instead of concentrating their time and energy in productive work. Under these circumstances, we are of the view that it is settled law that any notification issued under this fiscal legislation granting exemption from payment of tax has to be construed strictly. Any Circulars/Instructions issued conferring benefit on the assessees who are still to come to Court and who already inside the Court, at any rate, if such a benefit is given to pending matters, it would be only in the nature of one time settlement, which most of the financial institutions through out the country extend to defaulters who have borrowed money and who refuses to pay the same.
29. It is also not out of place to mention herein that the Parliament wanted to grant statutory recognition to these Orders/Instructions/Circulars, issued by the Department from time to time retrospectively to take care to protect the interest of the Revenue by introducing sub-section (2) and (3) in Section 268-A of the Act. This benefit conferred on these assessees would be only in the nature of one time settlement because if the same issue arises for consideration in the subsequent years and the tax effect is more than Rs.10 lakhs, it is not open to them to plead that either the department is estopped from claiming such amount or that the order passed by this Court dismissing the appeals on the ground that the tax effect being within the monetary limit would come in the way of the Department proceeding against the assessee. The circular also makes it clear that in the pending appeals, where constitutional validity of the provisions of the Act or Rule are under challenge, or where Board’s order, notification, instruction or circular has been held to be illegal or ultra vires or whether Revenue Audit Objection in the case has been accepted by the Department, notwithstanding the fact that the tax effect is less then the monetary limit fixed under the aforesaid circular, still it is open to the Department to request the Court to permit them to prosecute such appeals. Thus, the Department has to apply its mind in all the pending appeals and point out to the Court, which are those appeals in which they intend to prosecute. Therefore sufficient safeguards have been made to protect the interest of the public revenue. By this approach we would be saving the time of the Court, the time of the Department and public time in general and giving effect to the Nation Litigation Policy, 2011, so that it can be used for better and productive purpose.
It is our experience that in most of the cases, the levy of tax is made by placing such interpretation on the provision of the Act, so as to defeat the very object of those provisions. The Parliament with the best of intention, as incentive to trade and industry, has extended several benefits under the Act. Without properly appreciating the context and the object with which those provisions are enacted, the department has interpreted those provisions preventing those, benefits reaching the persons to whom it was intended. In most of the cases, the Tribunal has come to the rescue of those assessee, has interpreted those provisions in proper perspective and have extended the benefit to the assessee. It is against those orders, most of the appeals are filed mechanically as compulsive litigation without any sense of responsibility. It is our experience that most of the appeals which are filed by the Revenue are frivolous and vexatious. The majority of the appeals are filed with the sole object of leaving it to the Courts for ultimate decision. The approach is, ‘let the Court decide’. The authority who decides to prefer the appeal is not prepared to take the responsibility. There is an attempt to save their skin, so that tomorrow they are not held responsible in any manner. It is this approach, which is to be eschewed and condemned, as stated in the National Litigation Policy. It is yet another ground for us to make this circular applicable to the pending proceedings.
Yet another anomaly which requires to be noticed is, if a Tribunal where the number of cases which are pending are more, decides the appeal, subsequent to these latest circulars and the amount involved is less than Rs.10 lakhs, the assessee in such cases get the benefit of the latest circular. However, if the Tribunal has decided a case expeditiously or in Tribunals where the pendency is less and if the subject matter of the appeal preferred by the Revenue in such cases is more than Rs.4 lakhs and less than Re.10 lakhs, the assessees in those appeals are denied the benefit of the latest circular. In other words, where there is huge pendency of cases in the Tribunal or Court, an appeal filed earlier is disposed of after the circular, the benefit accrues to the assessee. However, In Tribunals and the Courts where the pendency of cases is less, an appeal tiled recently is decided before the circular or where assessee co-operates with the Court in speed disposal of the appeal and the appeal is disposed of before the date of circular, he is denied the benefit of the circular. Therefore the benefit to which the assessee is entitled to should not be dependant on the date of the decision, over which neither the assessee nor revenue has no control. In this context, the circular would be discriminatory, if it is held to be prospective only. It could be saved from such vice of discrimination by holding it as retrospective. Though the circular/instruction 3/11 is issued by the Department in pursuance of the power conferred under the statutory provisions while issuing such circular/instruction, the Department has not kept in mind the object with which such circulars/instructions are issued from time to time. The object sought to be achieved by such circulars/instructions and also the law declared by the Apex Court, the National Litigation Policy 2011 as well as the various schemes introduced by the Department granting relief to persons who have not even filed returns and paid taxes, are kept in mind, to bring the circular/instruction in harmony with the National Litigation Policy, it would be appropriate to hold that the benefit of such circular/instruction also applies to the pending cases in appeal in various Courts and Tribunals on the date of the circular/instruction. For the aforesaid reasons, we pass the following
ORDER
(i) Instruction No.3/11 is also applicable to the pending appeals. (ii) As the tax effect in the instant case is less than Rs.10 lakhs, the appeal stands dismissed on the ground of monetary limit, without expressing any opinion on the merits of the claim, making it clear that the Department is at liberty to proceed against the assessee in future, if there any amount due from the assessee, on similar issue and if it is above the monetary limit prescribed. Parties to bear their own costs.
[Citation : 352 ITR 121]
