Holding

Reopening completed assessments on the basis of a later circular reflecting a change of opinion is impermissible; the proviso in Section 5‑C is merely clarificatory and does not permit retrospective reassessment.

Summary

Binani Industries Ltd, a dealer engaged in leasing machinery and vehicles, challenged the Karnataka Revenue Department’s reopening of its sales‑tax assessments for assessment years 1996‑97 to 1999‑2000 on the ground that the later circular of 23 Oct 1999, which overruled the earlier 12 Apr 1996 circular, could not be used to alter completed assessments. The issue turned on whether a change of opinion reflected in a subsequent circular, and the clarificatory proviso inserted in the 1996 amendment of Section 5‑C, could retrospectively affect assessments already finalized under the earlier circular. The Supreme Court held that a mere change of opinion by the Commissioner, even if expressed in a later circular, does not empower the revenue to reopen completed assessments, and that the proviso was merely clarificatory and did not confer retrospective power to reassess. Consequently, the High Court’s judgment was set aside and the appeals were allowed. The Court affirmed that reopening assessments by mere opinion change is impermissible and that the revenue is bound by the correct legal position as clarified by the Court.

Issues considered

Whether a later circular that changes the revenue’s interpretation can be used to reopen assessments already completed under an earlier circular.
Whether the proviso inserted in the amendment of Section 5‑C of the Karnataka Sales Tax Act is clarificatory and has retrospective effect.
Whether the revenue authority is bound by an earlier circular even if it is later declared incorrect.
Whether a change of opinion of the Commissioner constitutes a valid ground for revising assessments under the Act.

Legislation cited

Karnataka Sales Tax Act, 1957s. 12-A, s. 21, s. 3-A, s. 5, s. 5-C
Karnataka Sales Tax Rules, 1957s. 6(4)

Subjects

sales taxKarnataka Sales Tax ActSection 5-Ccircularsassessment reopeningprovisostatutory interpretationretrospective effectrevenue authoritychange of opinion

Judgment

MIS. BINANI INDUSTRIES LIMITED A
v.
ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, VI CIRCLE,
BANGALORE AND ORS.

APRIL 04, 2007
B
[DR. ARIJIT PASAYAT AND S.H. KAPADIA, JJ.]

Karnataka Sales Tax Act, 1957: Sections 3-A, 5 and 5-C.

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 which have suffered
tax under Section 5 of the Act could not be again taxed in terms of Section
5-C-!n other words, where the goods had suffered tax on the actual sale
cannot attract levy of tax again-The Circular was issued under Section 3-
A of the Act read _with Rule 6(4) of Sales Tax Rules-Subsequently, on F
23.10.1999 another Circular was issued stating that the earfier Circular did
not reflect the actual position in law and, therefore, there was no bar on the
transaction being taxed in terms of Sections 5 and 5-C-On 1.04.2000,
Section 5-C was amended by insertion ofa proviso which in essence reiterated
the view expressed in the Circular dated 12.04.1996-Keeping in view the
directions contained in the Circular of 23.10.1999 reassessment proceedings G
were initiated and/or action in terms of Section 21 for revision was initiated-
A Single Judge while dealing with the challenge to the Circular dated
23.10.1999 held that the Circular of 12.04.1996 did not indicate the correct
position in law and, therefore, there was no bar in the Circular dated
797 H
i
798 SUPREME COURT REPORTS [2007) 4 S.C.R.

A 23.10. 1999 clarifying the position and indicating the correct position-
However, it was held that the revenue was bound by the incorrect Circu/ar-
Therefore, for the assessment years 1996-97 to 1999-2000 till the date of the
subsequent Circular, no action could be taken against the assessee-But the
position prior to that i.e. from 1.04.1986 till 31.03.1996 the assessee was not
B entitled to any relief-However, The Division Bench held that the incorrect
Circular did not bind the revenue and that the law declared by this Court
had a binding effect-Correctness of-Held: Reopening of an assessment is
not permissible by mere change of the opinion of the assessing officer-The
Circular dated 23.10.1999 was on account of change of opinion of the
Commissioner and that too while reviewing the earlier Circular-High Court's
C judgment set aside-Karnataka Sales Tax Rules, 1957, R. 6(4).
Interpretation of Statutes:

Provisd-Meaning and effect of-Held: Normally, a proviso does not
travel beyond the provision to which it is a proviso-It carves out an
D exception to the main provision to which it is a proviso and to no other
provision.

Words & Phrases:

''Taxable turnover' '-Meaning of-In the context of Section 5-C of the
E Karnataka Sales Tax Act, 1957.

The appellants were dealers registered under the Karnataka Sales .Tax
Act, 1957. Their b\lsiness activities inter-at;a included business of leasing
machinery, equipment and motor vehicles.

p 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 purp<)se of levy of sales
tax within the State.

Originally, the levy was on "taxable turnover". An amendment was
brought in 1992 to the said provision substituting the expression "total
G turnover" for "taxable turnover". The same was questioned by several
assessees. A Division Bench of the High Court struck down the provision.
On 1.04.1986, Section 5-C was again amended with retrospect~ve effect
restoring the original position i.e. substituting the expression "taxable · ~-
turnover" for "total turnover". On 12.04.1996, a Circular was mued in terms
H of Section 3-A of the Act providing that the goods which have suffered tax
DINAN! INDUSTRIES LTD v. ASSISTANT COMMNR. OF COMMERCIAL TAXES, V1 CIRCLE, BANGALORE 799

under Section 5 of the Act could not be again taxed in terms of Section 5-C. A ,·
In other words, where the goods had suffered tax on the actual sale cannot
attract levy of tax again. The Circular was issued under Section 3-A of the
Act read with Rule 6(4) of the Karnataka Sales Tax Rules, 1957. Subsequently,
on 23.10.1999 another Circular was issued stating that the earlier Circular
did not reflect the actual position in law and, therefore, there was no bar on
the transaction being taxed in terms of Sections 5 and 5-C. On 1.04.2000, B
Section 5-C was amended by insertion of a proviso which in essence reiterated
the view expressed in the Circular dated 12.04.1996.

Keeping in view the directions contained in the Circular of23.10.1999
reassessment proceedings were initiated and/or action in terms of Section C,
21 for revision was initiated. Both these actions related to completed
assessments.

A Single Judge while dealing with the challenge to the Circular dated
23.10.1999 held that the Circular of 12.04.1996 did not indicate the correct
position in law and, therefore, there was no bar in the Circular dated D ,
23.10.1999 clarifying the position and indicating the correct position.
j However, it was held that the revenue was bound by the incorrect Circular.
Therefore, for the assessment years 1996-97 to 1999-2000 till the date of
the subsequent Circular, no action could be taken against the assessees. But
the position prior to that i.e. from 1.04.1986 till 31.03.1996 the assessees
were not entitled to any relief. E
The Division Bench held that the incorrect Circular did not bind the
revenue and that the law declared by this Court had a binding effect. Hence
theappeaL

On behalf of the appellant, it was contended that when two opinions were F.
expressed in the two Circulars it was nothing but a change in the opinion and
it was impermissible for the revenue to reopen the completed assessment on
the basis of the subsequent Circular.

Allowing the appeals, the Court
G.
HELD: 1.1. A bare reading of the Circular dated 23.10.1999 shows that
it was a review of the earlier Circular and that the Commissioner was of the
view that the position of law explained in the earlier Circular did not state the
correct position in law and, therefore, the revised instructions were issued.
There was a direction to the concerned Joint Commissioner to immediately H:
(

i'
800 SUPREME COURT REPORTS [2007] 4 S.C.R.

A initiate action under Section 21 of the Kamataka Sales Tax Act, 1957 to revise
_.. \,

the assessment orders. It was further stated that any order passed under
Section 21 or appeal order under Section 20 was contrary to the instructions
issued, the same were to be referred to him for initiating action under Section
22-A of the Act. This leaves no manner of doubt that the subordinate officers
had no option but to comply with the directions given. [Para 24) [817-E-F]
B
1.2 The notices issued under Section 12-A of the Act initiating the
assessment proceedings clearly show that they were on t~e basis of the --"'.

instructions issued. [Para 25) (817-G] ""
2.1. The issues can be looked at from a different angle. Undisputedly,
c the 1996 Circular was binding on the revenue authorities as it spelt out in
12.04.1996 and 23.10.1999 Circulars. The assessments were completed on
the basis of the 12.04.1996 Circular. Merely because the Commissioner
changes flis view/option and according to him it was a review of the earlier
decision that cannot have any effect on any assessment which has been
D completed on the basis of the 1996 Circular. [Para 28] [821-F]

2.2. That being so, the question of reopening the assessment by mere.
change of...opinion is entirely impermissible. [Para 29] [821-G)

Commissioner of Trade Tax, UP. v. Kajaria Ceramics Ltd [2005) 11 SCC
E 149 and Shetty Leasing India Pvt. Ltd v. Union of India, (1996) 100 STC
533 (Ban), referred to.

Addi. Commissioner (Legal) v. Jyoti Trades [1999] 2 SCC 77, held
inapplicable.

F Ahmedahad Manufacturing & Calico Printing Co. Ltd v. S. G. Mehta
AIR [1963) SC 1436, cited.

2.3 Though these aspects need not be taken note of in view of the'
conclusion that the proviso was clarificatory in nature and operated with effect
from the date Section 5-C was amended i.e. 1.04.1986 yet this is an additional
G factor to set aside the High Court's judgment. [Para 30] [821-H]

3. It is stated by a long line of decisions that reopening of an assessment
is not permissible by mere change of the opinion of the assessing officer. ·
~
Here it has not been disputed that the Circular dated 23.10.1999 was on
account of change of opinion of the Commissioner and that too while reviewing
H
BINANI INDUSTRIES LTD"· ASSISTANT COMMNR. OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE
801
>
-;.
the earlier Circular. It could not be brought to the notice of this Court as to A
which provision permitted the review. [Para 31] [822-A-B]

4.1. The normal function ofa proviso is to except something out of the
enactment or to qualify something enacted therein which but for the proviso
would be within the purview of the enactment [Para 16] [811-C-DJ
B
Zile Singh v. State ofHaryana, (2004] 8 SCC 1, Mullins v. Treasurer of
Survey, [1880] 5 QBD, Shah Bhojraj Kuverji Oil Mills and Ginning Factory
,., v. Subhash Chandra Yograj Sinha, AIR (1961) SC 1596 and Calcutta
Tramways Co. Ltd v. Corporation of Calcutta, AIR (1965) SC 1728 and West
Derby Union v. Metropolitan Life Assurance Co. (1897) AC 647 HL, referred
to. c
4.2. Normally, a proviso does not travel beyond the provision to which it
is a proviso. It carves out an exception to the main provision to which it is a
proviso. It carves out an exception to the main provision to which it has been
enacted as a proviso and to no other. [Para 16] [811-G]
D
j A. N. Sehgal v. Raje Ram Sheoram, AIR (1991) SC 1406, Tribhovandas
Haribhai Tamboli v. Gujrat Revenue Tribunal, AIR (1991) SC 1538 and Kera/a
State Housing Board v. Ramapriya Hotels (P) Ltd., [1994] 5 SCC 672,
referred to.
E
5. A proviso to a Section cannot be used to import into the enacting part
something which is not there, but where the enacting part is susceptible to
several possible meanings it may be controlled by the proviso.
[Para 21) [812-D]

Ali M K. v. State ofKera/a, [2003] 11 SCC 632, Union ofIndia v. Sanjay F
Kumar Jain, [2004] 6 SCC 708, Forbes v. Git, (1992) 1 AC 256, R v. Taunton,
St. James 9 B & C 836, In Re. Barker 25 QBD 285 and Jennings v. Kelly,
(1940) AC 206, referred to.

Coke upon Littleton 18th Edition 146, referred to.
G
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1784 of 2007.

From the Final Judgment an.d Order dated 06.10.2005 of the High Court
f of Karnataka at Bangalore in Writ Appeal Nos. 5271 & 5724 of2002.

WITH H
'
i
802 SUPREME COURT REPORTS (2007] 4 S.C.R.
"'(

A C.A. Nos. 1785-1794 of2007 and 1369 & 1370 of2006. -'<

R.F. Nariman and Harish Chander, Sanjay Kumar, N.N. Keshwani, S.G.
Shivram, N.D.B. Raju, Bharathi Raju, Goodwill lndeevar, Kavin Gulati, Ruby
Singh Ahuja, Debmalya Banerje, Manu Agarwala, Manik Karanjawala, M. .
~

Yogesh Kanna, V.N. Raghupathy, T.V. Ratnam, Atul K. Alur, Sanjay R. Hedge,
B Subramonium Prasad, Anant Bhushan Kanade, R.K. Gupta and Ariban
Guneshwar Sharma for the appearing parties.
,.,
The Judgment of the Court was delivered by .....

DR. ARIJIT PASAYAT, J. !._Leave granted in special leave petitions.
c
2. Challenge in these appeals is to the legality of the judgment rendered
b)'.a Division Bench of the Karnataka High Court holding that the Circular
dated 23. l 0.1999 (Circular No.31/1999-2000) is valid and Circular No.5/1996-97
.-
dated 12.4.1996 was inoperative.

D 3. Background facts in a nutshell are as follows:
'>
4. Appellants are dealers registered under the Kamataka Sales Tax Act,
·~
1957 (in short the 'Act'). Their business activities inter-alia include business
of leasing machinery, equipment and motor vehicles.

E 5. Section 5-C of the Act deals with levy of tax on transfer of the right
to use the goods which is treated as a transfer for the purpose of levy of sales
tax within the State.

6. Originally the levy was on "taxable turnover". An amendment was
brought in 1992 to the said provision substituting the expression "total
F turnover" for "taxable turnover". The same was questioned by several
assessees. A Division Bench of the High Court by its judgment in Shetty ,,_-
Leasing India Pvt. Ltd v. Union ofIndia and Ors., (1996) 100 STC 533, struck
down the provision. On 1.4.1986, Section 5-C was again amended with
retrospective effect restoring the original position i.e. substituting the expression
G "taxable turnover" for "total turnover". On 12.4.1996, a Circular was issued in
terms of Section 3-A of the Act providing that the goods which have suffered . -.
tax under Section 5 of the Act cannot be again taxed in terms of Section 5-
C. In other words, where the goods have suffered tax on the actual sale
cannot attract levy of tax again. The circular, as noted above, was issued ":lo.
under Section 3-A of the Act read with Rule 6(4) of the Kamataka Sales Tax
H
-- -"'!-
DINAN! INDUSTRIES LTD v. ASSIST ANT COMMNR. OF COMMERCIAL TAXES. VJ CIRCLE, BANGALORE (PASAY AT, J. I

Rules, 1957 (in short the 'Rules'). Subsequently, on 23.10.1999 another Circular A
803

was issued stating that the earlier Circular did not reflect the actual position
in law and, therefore, there was no bar on the transaction being taxed in terms
of Sections 5 and 5-C. On 1.4.2000 Section 5-C was amended by insertion of
a proviso which in essence re-iterated the view expressed in the Circular dated
12.4.1996.
B
7. Keeping in view the directions contained in the Circular of23.10.1999
re-assessment proceedings were initiated and/or action in terms of Section 21
..-. for revision was initiated. Both these actions related to completed assessments.

8. A learned Single Judge while dealing with challenge to Circular dated
23.10.1999 held that the Circular of 12.4.1996 did not indicate the correct Ci

- position in law and, therefore, there was no bar in the Circular dated 23.10.1999
clarifying the position and indicating the correct position. However, it was
held that the revenue was bound by the incorrect Circular. Therefore, for the
assessment years 1996-97 to 1999-2000 till the date of the subsequent Circular,
no action could be taken against the assessees. But the position prior to that D
i.e. from l.4.1986 till 31.3 .1996 the assessees were not entitled to any relief.
..,.f
This view was taken primarily on the ground that even incorrect circular binds
the revenue. The Division Bench held the incorrect circular does not bind the
revenue and that the law declared by this Court has a binding effect.

9. Learned counsel for the appellants submitted that both the orders of E
the learned Single Judge and the judgment of the Division Bench do not take
into effect of the proviso which is in essence a legislative declaration of a
clarificatory nature. The proviso in terms recognizes the correctness of the
Circular dated 12.4.1996. In any event, there could not have been any re-
opening of the assessment because of mere change in opinion of the
Commissioner. When two opinions were expressed in the two circulars it is
F
nothing but a change in the opinion and it is impermissible for the revenue
to re-open the complete assessment on the basis of the subsequent Circular.

10. The fact that the proviso was by way of a clarification is clear from
the fact that at the first instance only 12 days after Section 5-C was amended, G
the Circular was issued. In essence, the principle of contemporaneous
expression applies to the facts of the case. The Circular dated 23.10.1999 is
~-
in essence review of the earlier Circular which is impermissible in law. The
Circular itself states that those are "revised instructions" and, therefore,
cannot have any retrospective force and in any event cannot permit re-
H
.. r.
i (

804 SUPREME COURT REPORTS (2007) 4 S.C.R.

A opening of complete assessment either by way of re-assessment proceedings
~ --
or by exercise of revisional powers.

11. In response, learned counsel for the revenue submitted that the true ~

nature of the proviso has been kept in view. The High Court's conclusions
are irreversible. There is no question of proviso being clarificatory in nature.
B According to him, the proviso can be applicable with effect from the date of
introduction because that Would determine the taxable event for the assessment
x
year· in question and the subsequent period.
c'

12. It is stated that the Circular was not binding on the assessing
authorities and they could take their independent view.
c
13. At this juncture, it would be necessary to take note of Sections 5-
C, I2~A and 21. They read as follows: ......
"5-C. Levy of tax on the transfer of the right ,to use any goods:
Notwithstanding anything contained in su~-section (I) or sub-section
D (3) of Section 5, but subject to sub-sections (5) and (6) of the said
·~
Section, every dealer shall pay for each year a tax under this Act on ;...
his (taxable turnover in respect of t~e transfer of th~ right to use any
goods mentioned in .column (2) of the Seventh Schedule' .
for ·any
purpose (whether or not for a specified period) at the rates specified
E in the corresponding entries in column (3) of the said Schedule.

Provided that no tax shall be ·levied ~der this section ifthe goods
in respect of which the right to use is tra~sferred, have been subjected
to tax under section 5. .'

12-A. Assessment of escaped turnover: -( 1) If the assessing authority
F has reason to believe that the whole or any part of the turnover of
~
a dealer in respect of any period has escaped assessment to tax or has
been under-assessed or has been assessed at a rate lower than the
rate at which it is assessable under this Act or any deductions or
exemptions have been wrongly allowed in respect thereof, the assessing
G ·authority may, notwithstanding the fact that the whole or part of such ~

escaped turnover was already before the said authority at the time of
the original assessment or re-assessment but subject to the provisions
of sub-section (2), at any time within a period of eight years from the •\i,,,
expiry of the year to which the tax relates, proceed to assess or re-
assess to the best of its judgment the tax payable by the dealer in
H
BINANI INDUSTIUES LIDv. ASSISTANTCOMMNR. OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE (PASAYAT, J. J 805
,_
........, respect of such turnover after issuing a notice to the dealer and after A
making such enquiry as it may consider necessary.

(I-A) In making an assessment under sub-section (l) the assessing
authority may, if it is satisfied that the escape from assessment is due
to wilful non-disclosure of assessable turnover by the dealer, direct
the dealer to pay, in addition to the tax assessed under sub section B
(I), a penalty not exceeding (an amourit equivalent to the tax due) the
tax so assessed:

,-. Provided that no penalty under this sub-section shall be imposed
unless the dealer affected has had a reasonable opportunity of showing
cause against such imposition. c
(2) In computing the period of limitation for assessment of the escaped
turnover under this Section, the time during which an assessment has
been deferred on account of any stay order granted by any Court or
other authority in any case, or by reason of the fact that an appeal
or other proceeding is pending before the Appellate Tribunal or the D
High Court or the Supreme Court, shall be excluded:
f
Provided that nothing contained in this Section limiting the time
within which any action may be taken or any order, assessment or re-
assessment may be made, shall apply to an assessment or re-
assessment made on the assessee or any person in consequence of,
E I

or to give effect to, any finding, direction or order made under Sections
20, 21 , 22, 22A, 23 or 24 or any judgment, or order made by the
Supreme Court, the High Court, or any other Court.

21. Revisional powers of Joint Commissioners.:
F
(1) The Deputy Commissioner may of his own motion call for and
-f examine the record of any order passed or proceeding recorded under
the provisions of this Act by an Commercial Tax Officer subordinate
to him for the purpose of satisfying himself as to the legality or
propriety of such order or as to the regularity of such proceeding in G
so far as it is prejudicial to the interests of the revenue and may pass
such order with respect thereto as he thinks fit.

(2) the Joint Commissioner may of his own motion call for and examine
~ the record of any order passed or proceeding recorded under the
provisions of this Act by any officer not above the rank of a Deputy H
i
806 SUPREME COURT REPORTS (2007) 4 S.C.R.
....
A Commissioner, for the purpose of satisfying himself as to the legality
-'<'"
or propriety of such order or as to the regularity of such proceeding
in so far as it is prejudicial to the interests of the revenue and pass
such order with respect there to as he thinks fit.
-;

(3) In relation to an order of assessment passed under this Act, the
B power under sub-sections (1) and (2) shall be exercisable only within
a period of four years from the date on which the order was passed.
A
(4) No order shall be passed under sub-section (1) or sub-section (2)
enhancing any assessment, unless an opportunity has been given to ....
the assessee to show cause against the proposed enhancement.
c
(5) The power under this Section shall not be exercisable in respect
. of matters subjected to· appeal under Section 20.

(6) Every order passed in revision under this Section shall subject to
the provisions of Sections 22 to 24 and 25-A be final.
D Explanation: For the purposes of this section, 'record' shall include
all records relating to any proceedings under this Act available at the
time of examination by the Joint Commissioner." ''-....

14. A copy of the Budget speech introducing the amendment was
E placed on record by learned counsel for the parties. The Finance Minister's
spe~ch shows that the proviso was intended to provide additional benefit or
relief. The proviso appears to h&ve been introduced as a clarificatory measure.
There is no mention as to the date after which benefit can be granted in
respect of the goods which have suffered tax. Therefore, the assessment
period concerned as sought to be introduced by the revenue has no
F foundation. The proviso clearly states that once the goods have suffered the
tax they would not be subject to tax again. As observed by this Court in Zile
Singh v. State of Haryana and Ors., [2004] 8 SCC 1 for the purpose of
determining that the proviso is clarificatory or not, the date when it is introduced
is relevant. Paras 11 to 21 of the judgment are relevant and they read as
G follows:

11. According to the appellant, the disqualification imposed by Section
13-A(l)(c) of the First Amendment remained in operation only for a
period of one year and would have in ordinary course ceased to
~
operate on the expiry of the period of one year from 5-4-1994. The
H citizens were justified in arranging their affairs including the
BINANI INDUSlRIES L1D v. ASSISTANT COMMNI\. OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE (PASAY AT. J. I 807

enlargement of their families keeping in view the provision of law as A
it stood. However, the Second Amendment Act effective from 4-10-
1994 made a difference. On that day, the legislature specifically
provided that a person having more than two children on or after the
expiry of one year shall stand disqualified. This period of one year,
in the submission of the appellant, should be calculated from 4-10-
1994 and not 5-4-1994 and if that be done the birth of the child on 13- B
8-1995 would not attract the disqualification.

12. This plea of the appellant raises a few interesting questions, such
as, the nature of the amendment i.e. whether it is at all retrospective
in operation, and if not, whether the provision as amended by the C
Second Amendment applies to the appellant.

13. It is a cardinal principle of construction that every statute is prima
facie prospective unless it is expressly or by necessary implication
made to have a retrospective operation. But the rule in general is
applicable where the object of the statute is to affect vested rights or D
to impose new burdens or to impair existing obligations. Unless there
are words in the statute sufficient to show the intention of the
legislature to affect existing rights, it is deemed to be prospective only
- "nova constitutio futuris formani imponere debet non praeteritis" a
new law ought to regulate what is to follow, not the past. (See
Principles of Statutory Interpretation by Justice G.P. Singh, 9th Edn., E
2004 at p. 438.) It is not necessary that an express provision be made
to make a statute retrospective and the presumption against
retrospectivity •. 1ay be rebutted by necessary implication especially in
a case where the new law is made to cure an acknowledged evil for
the benefit of the community as a whole (ibid., p. 440).
f.
14. The presumption against retrospective operation is not applicable
to declaratory statutes............. In determining, therefore, the nature of
the Act, regard must be had to the substance rather than to the form.
If a new Act is "to explain" an earlier Act, it would be without object
unless construed retrospectively. An explanatory Act is generally G
passed to supply an obvious omission or to clear up doubts as to the
meaning of the previous Act. It is well settled that if a statute is
curative or merely declaratory of the previous law retrospective
operation is generally intended.... An amending Act may be purely
declaratory to clear a meaning of a provision of the principal Act
H
'808 SUPREME COURT REPORTS (2007] 4 S.C.R.

A which was already implicit. A clarificatory amendment of this nature
will have retrospective effect (ibid., pp. 468-69).

15. Though retrospectivity is not to be presumed and rather there is
presumption against retrospectivity, according to Craies (Statute Law,
7th Edn.), it is open for the legislature to enact laws having
B retrospective operation. This can be achieved by express enactment
or by necessary implication from the langu<>ge employed. If it is a
necessary implication from the language employed that the legislature
intended a particular section t~ have a retrospective operation, the
courts will give it such an operation. In the absence of a retrospective
ope~ation hav.ing been expressly given, the courts may be called upon
c to construe the provisions and ans.wer the question whether the
legislature had sufficiently expressed that intention giving the statute
retrospectivity. Four factors are suggested as relevant: (i) general
scope and purview of the statute; (ii) the remedy sought to be applied;
(iii) the fonner state of the law; and (iv) what it was the legislature
D contemplated. (p. 388) The rule against retrospectivity does not extend
to protect from the effect of a repeal, a privilege which did not amount
to accrued right. (p. 392)

16. Where a statute is passed for the purpose of supplying an obvious
omission in a fonner statute or to "explain a fonner statute, the
E subsequent statute has relation back to the time when the prior Act
was passed. The rule against retrospectivity is inapplicable to such
legislations as are explanatory and declaratory in nature. A classic
illustration is the case ofAttorney General v. Pougett, (Price at p.
392). By a Customs Act of 1873 (53 Geo. 3, c. 33) a duty was imposed
upon hides of 9s 4d, but the Act omitted to state that it was to be
F 9s 4d per cwt., and to remedy this omission another Customs Act (53
Geo. 3, c.. 105) was passed later in the same year. Between the passing
of these two Acts some hides were exported, and it was contended
that they were not liable to pay the duty of 9s 4d per cwt., but
Thomson, C.B., in giving judgment for the Attorney General, said: (ER
G ·p. 134)
"The duty in this instance was, in fact, imposed by the first Act;
but the gross mistake of the ornissiori of the weight, for which
the sum expressed was to have been payable. occasioned the
amendment made by the subsequent Act: but that had reference
H
BlNANl INDUSTRIES LTD v. ASSISTANT COMMNR. OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE (PASAYAT, I. ) 809

to the former statute as soon as it passed, and they must be A
taken together as if they were one and the same Act:" (Price at
p. 392)
17. Max.well states in his work on Interpretation of Statutes (12th Edn.)
that the rule against retrospective operation is a presumption only,
and as such it "may be overcome, not only by express words in the B
Act but also by circumstances sufficiently strong to displace it" (p.
225), if the dominant intention of the legislature can be clearly and
doubtlessly spelt out, the inhibition contained in the rule against
perpetuity becomes of doubtful applicability as the "inhibition of the
rule" is a matter of degree which would "vary secundum materiam" (p. C
226). Sometimes, where the sense of the statute demands it or where
there has been an obvious mistake in drafting, a court will be prepared
to substitute another word or phrase for that which actually appears
in the text of the Act (p. 231 ).

18. In a recent decision of this Court in National Agricultural Coop. D
Marketing Federation of India Ltd v. Union of India: [2003] 5 SCC
23, it has been held:

"that there is no fixed formula for the expression of legislative intent
-.·• "·· to give retrospectivity to an enactment. Every legislation whether
prospective or retrospective has to he subjected to the question E
of legislative competence. The retrospectivity is liable to be
decided on a few touchstones such as: (i) the words used must
expressly provide or clearly imply retrospective operation; (ii)
the retrospectivity must be reasonable and not excessive or
harsh, otherwise it runs the risk of being struck down as
~· unconstitutional: (iii) where the legislation is introduced to F
overcome a judicial decision, the power cannot be used to subvert
the deCision without removing the statutory basis of the
decision. There is no fixed formula for the expression of legislative
intent to give retrospectivity to an enactment. A validating clause
coupled with a substantive statutory change is only one gf the
methods to leave actions unsustainable under the un-amended G
statute, undisturbed. Consequently, the absence of a validating
clause would not by itself affect the retrospective operation of
the statutory provision, if such retrospectivity is otherwise
apparent".
H
I

-1

810 SUPREME COURT REPORTS (2007) 4 S.C.R.

A 19. The Constitution Bench in Shyam Sunder v. Ram Kumar, (2001] ,,,.,, "'"'
8 SCC 24, has held: [SCC p. 49, Pira 39]

"Ordinarily when an enactment declares the previous law, it
requires to be given retroactive effect. The function of a
declaratory statute is to supply an omission or· to explain a
B previous statute and when such an Act is passed, it comes into
effect when the previous enactment v::is passed. The legislative
power to ~nact law includes the power to declare what was the A
previous law and when such a declaratory Act is passed,
invariably it has been held to be retrospective. Mere absence of
use of the word 'declaration' in an Act explaining what was the
c law before may not appear to be a declaratory Act but if the
court finds an Act as declaratory or explanatory, it has to be
construed as retrospective." [P. 2487].

20. In Bengal Immunity Co. Ltd v. State ofBihar, [1955] 2 SCR 603,
Reydon case was cited with approval. Their Lordships have said:
D (SCR pp. 632-33)

"It is a sound rule of construction of a statute firmly established in \.
England as far back as 1584 when Reydon case was decided that-

' ... for the sure and true interpretation of all statutes in general
E (be they penal or beneficial, restrictive or enlarging of the coinmon
law) four things are to be discerned and considered-
1st What was the common law before the making of the Act.
2nd. What was the mischief and defect for which the common
law did not provide.
F
3rd. What remedy Parliament hath resolved and appointed to
y·
cure the disease of the Commonwealth, and
4th. The true reason of the remedy; and then the office of all the
judges is always to make such construction as shall suppress
G the mischief, and advance the remedy, and to suppress subtle
inventions and evasions for continuance of the mischief, and
pro privato commodo and to add force and life to the cure and
remedy, according to the true intent of the makers of the Act,
pro bono publico' ." ~

H 21. In Allied Motors (P) Ltd v. CIT, (1997] 3 SCC 472 certain unintended
BINANllNDUSTRIES LTD v. ASSISTANT COMMNR. OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE (PASAY AT, J. I 811
.- consequences flowed from a provision enacted by Parliament. There A
was an obvious omission. In order to cure the defect, a proviso was
sought to be introduced through an amendment. The Court held that
literal construction was liable to be avoided if it defeated the manifest
object and purpose of the Act. The rule of reasonable interpretation
should apply.
B
"A proviso which is inserted to remedy unintended consequences
,,. and to make the provision workable, a proviso which supplies an
...
_
obvious omission in the section and is required to be read into the
section to give the section a reasonable interpretation, requires to be
treated as retrospective in operation so that a reasonable interpretation
can be given to the section as a whole." (SCC pp. 479-80, para 13)
c
15. The Budget Speech speaks of the goods "already been subjected
to tax under the Act" and does not even by implication state that in order
to be entitled to the benefit the goods ought to have been taxed after a
particular date. It is purely on the event of goods having suffered tax once D
or in other words the taxable event having taken place once.
,;
-r
16. The normal function ofa proviso is to except something out of the
enactment or to qualify something enacted therein which but for the proviso
would be within the purview of the enactment. As was stated in Mullins v.
Treasurer ofSurvey, (1880) 5 QBD 170, referred to in Shah Bhojraj Kuverji Oil E
Mills and Ginning Factory v. Subhash Chandra Yograj Sinha, AIR (1961)
SC 1596 and Calcutta Tramways Co. Ltd v. Corporation of Calcutta, AIR
( 1965) SC 1728; when one finds a proviso to a section the natural presumption
is that, but for the proviso, the enacting part of the section would have
included the subject matter of the proviso. The proper function of a proviso
is to except and to deal with a case which would otherwise fall within the F
general language of the main enactment and its effect is confmed to that case.
It is a qualification of the preceding enactment which is expressed in terms
too general to be quite accurate. As a general rule, a proviso is added to an
enactment to qualify or create an exception to what is in the enactment and
ordinarily, a proviso is not interpreted as stating a general rule. "If the G
language of the enacting part of the statute does not contain the provisions
which are said to occur in it you cannot derive these provisions by implication
from a proviso." Said Lord Watson in West Derby Union v. Metropolitan Life
).
Assurance Co., (1897) AC 647 (HL). Normally, a proviso does not travel
beyond the provision to which it is a proviso. It carves out an exception to
the main provision to which it has been enacted as a proviso and to no other. H
812 SUPREME COURT REPORTS (2007] 4 S.C.R.

A (See A.N. Sehgal and Ors. v. Raje Ram Sheoram and Ors., AIR (1991) SC
1406), Tribhovandas Haribhai Tamboli v. Gujarat Revenue Tribunal and
Ors., AIR (1991) SC 1538 and Kera/a State Housing Board and Ors: v.A
Ramapriya Hotels (P)Ltd and Ors., [1994] 5 SCC 672.

17. "This word (proviso) hath divers operations. Sometime it worketh a
B qualification or limitation; sometime a condition; and sometime a covenant"
(Coke upon Littleton 18th Edition, 146)

18. "If in a deed an earlier clause is followed by a later clause which
destroys altogether the obligation created by the earlier clause, the later
clause is to be rejected as repugnant, and the earlier clause prevails .... But if
C the later clause does not destroy but only qualifies the earlier, then the two
are to be re~d together and effect is to be given to the intention of the parties
as disclosed by the deed as a whole" (Per Lord Wrenbury in Forbes v. Git,
(1922) IA.C. 256).

D 19. A statutory proviso "is something engrafted on a preceding
enactment" (R. v. Taunton, St James, 9 B. & C. 836).

20. "The ordinary and proper function of a proviso coming after a \..
general enactment is to limit that general enactment in certain instances" (per
Lord Esher in Re Barker, 25 Q.B.D. 285).
E 21. A proviso to a section cannot be used to import into the enacting
part something which is not there, but where the enacting part is susceptible
to several possible meanings it niay be controlled by the proviso (See Jennings
v. Kelly, (1940) A.C. 206).

F 22. The above position was highlighted in Ali MK. & Ors. v. State of
Kera/a and Ors., [2003] 11 SCC 632 and Union ofIndia v. Sanjay Kumar Jain,
[2004J 6sec10s. y·
23. The stand of the revenue does not appear to be very consistent.
Though in the counter affidavit before the High Court it was stated that the
G Circular is not binding on ~he authorities, it is conceded by learned counsel
for the State Government that it is in fact binding on the dep~ent officials.
The Circulars read as follows:

"COMMISSIONER OF COMMERCIAL TAXES CIRCULAR No. 5/96- \.
97 dated 12.4.1996
H
BINANI INDUSTRIES LTO v. ASSIST ANT COMMNR. OF COMMERCIAL TAXES, VI CIRCLE. BANGALORE [PASAY AT. J. I 813

Sub: Salient features of the Amendments effective from 1.4.1996- reg. A
Ref:- I.Govt. Notification No. DPAL 15 LGN 96, Dated 21.3.1996
published in Karnataka Gazatte Extraordinary Part IV Section 2B, dated
21.3.1996.

2. Govt. Notifications No. FD35 CSL 96 (1 to 25) dated 30.03.96 B
3. Govt. Notifications No. FD 85 CET 96 (1 to 3) dated 30.03.96.

4. Govt. Notifications No. FD 4 CRC 96 dated 30.03.96

As per the Kamataka Taxation laws (Second Amendment) Act,
1996, amendments are effected to provisions of the below mentioned C
Acts;

(i) Kamataka Tax on Luxuries Act, 1979.

(ii) Kamataka Tax on Professions, Trades, Callings and Employments
Act, 1976.
D
(iii) Karnataka Entertainments Tax Act, 1958.

(iv) Kamataka Agricultural Income Tax Act, 1957.

(v) Karnataka Sales Tax Act, 1957.

2. Salient features of the amendments are explained hereunder for
E
guidance and compliance. (Specific mention is made about the
amendments which are introduced with retrospective effect and in all
other cases, the amendments take prospective effect, i.e., w.e.f. 1.4.1996):

:ia<: xx xx xx
F
Amendment of Section 5-C- Levy of tax on the transfer of the right
to use any goods.

16. Section 5-C in force prior to this amendment prescribed 'total
turnover" as the basis for levy of tax. The High Court of Karnataka
in the judgment rendered in the case of Mis Shetty Leasing (India) G
Ltd. v. Union of India, 100 STC 533, had struck down Section 5-C as
beyond the competence of State Legislature. The amendment now
) introduced substitutes the whole of Section 5-C with retrospective
effect from 01.4.86 so as to overcome the aforesaid judgment. The
newly substituted section prescribes ''taxable turnover' as the basis H
814 SUPREME COURT REPORTS [2007] 4 S.C.R.

A for levy of tax. Assessments, if any, completed adopting the basis of
'taxable turnover' for levy of tax, stand automatically validated by the
validation Clause at Section 7 of the Amendment Act. In all such
cases, it would be in order for the assessing authorities to pursue
action for realization of the taxes levied by issuance of simple notices,
without going in for rectifications, re-assessments or revisions.
B
17. Computation of taxable turnover for the purposes of Section 5-C
now substituted, would have to be in accordance with the provisions
of Rule 6(4) of KST Rules, 1957. Accordingly, among other things,
where goods e.g. motor vehicles, machinery, etc. specified in Second
Schedule are purchased from registered dealers in Kamataka and are
c given on lease, such lease involving transfer of the right to use the
KST suffered goods would be eligible for exemption in tenns of clause
(i) of sub rule (4) of Rule 6.
18. All the 15 categories of goods specified in the Seventh Schedule
are made liable to tax at the uniform rate of 4%".
D
''No. RFD. CR53/97-98

Office of the Commissioner of

Commercial Taxes in Karnataka,
E
Bangalore 560 009

dated 23.10.1999

COMMISSIONER OF COMMERCIAL TAXES CIRCULAR No. 31199-
p 2000

Sub: KST Act, 1957 Amendment of Section 5-C by Karnataka Taxation
Laws (Amendment Act 1996) - certain instructions -reg.
Ref: Commissioner of Commercial Taxes Circular No. 5 of 1996-97
G dated April 1996.
In Commissioner of Commercial Taxes Circular No. 5of1996-97,
dated 12 April, 1996, while explaining the salient features of the
amendments effected to the provisions of Karnataka Sales Tax Act,
1957 by Karnataka Taxation laws (Second Amendment) Act, 1996 at
paras 16 and 17, the position of law relating to Section 5-C of the
H
BINANI INDUSTRIES LTD v. ASSIST ANT COMMNR. OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE (PASAY AT, l. I 815

K.arnataka Sales Tax Act, 1957 as amended by the said Amendment A
Act was stated to be as follows:
"16. Section 5-C in force prior to this amendment prescribed
"total turnover" as the basis for levy of tax. The Hon'ble High
Court of Kamataka in the judgment rendered in the case of
Mis Shetty Leasing (India) Ltd. v. Union of India, 100 STC 533 B
had struck down Section 5-C as beyond the competence of State
legislature. The amendment now introduced substitutes the whole
of Section 5-C with retrospective effect from 01.4.1986 so as to
overcome the aforesaid judgment. The newly substituted section
prescribes 'taxable turnover' as the basis for levy of tax. C
Assessments, if any, completed adopting the basis of 'taxable
turnover' for levy of tax, stand automatically validated by the
validation clause at section 7 of the Amendment Act. In all such
cases, it would be in order for the assessing authorities to
pursue action for realization of the taxes levied by issuance of
simple notices, without going in for rectification, re-assessments D
or revisions.
17. Computation of taxable turnover for the purpose of Section
5-C now substituted, would have to be in accordance with the
provisions of Rule 6(4) ofKamataka Sales Tax, 1957. Accordingly,
among other things, where goods e.g. motor vehicles, machinery E
etc., specified in second schedule are purchased from registered
dealers in Kamataka and are given on lease, such lease involving
transfer of the right to use the KST suffered goods would be
eligible for exemption in terms of clause (i) of sub-rule (4) of Rule
6."
F
2. On a review of the said circular, it is noticed that the position or
law explained therein in respect of section 5-C does not state the
correct position of law for the following reasons:
(i) There is a distinction between a contract of sale as defined
in section 4 of the Sale of Goods Act, 1930 and a transfer of the G
right to use goods for any purposes. While in a transaction of
'sale' as defined under Sale of Goods Act, there is transfer of
ownership in goods and in a transaction involving transfer of
)
the right to use goods, there is no such transfer of ownership
in goods. Consequent to insertion of clause 29-A (d) to Article H
816 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 366 of the Constitution of India by 46th Amendment to the
Constitution, Kamataka Sales Tax Act, I 957 was amended w.e.f.
01.4.1996 to treat the transfer of the right to use goods as
deemed sale for the purposes of levy of tax on such transaction.
,.
(ii) Section 5-C of the Karnataka Sales Tax Act, I 957 is an
B independent charging section. Section 5-C contemplates levy of
tax on taxable turnover in respect of transfer of the right to use
any goods specified in Seventh Schedule of the Act for any

c
- purposes (whether or not for specified period). There is nothing
in Section 5-C to indicate that the goods which are subject to
tax on their transfer o.f the right to use (lease) cannot be subject
to tax under.section 5-C when right to use. such goods are again
transferred after the expiry of the specified period for which it
was hired earlier. Therefore, the levy under the said provision is
multipoint in nature. The very goods when leased otit more than
once, such transaction attract levy every time they are leased
D out.
(iii) As the Section 5-C starts with non-obstante clause namely
"notwithstanding anything contained in sub section 9 I or sub-
section (3) of Section 5", the goods, in respect of which right
to use goods is ~ansferred, even though have been subjected
E to tax under the said sub-sections of Section 5, they shall be
liable to tax under Section 5-C. In other words, the goods which
have suffered tax under Section 5 are not excluded from the
purview of Section 5-C when right to use of such goods are
transferred.

F In view of the above, the following revised instructions are issued:

(i) Section 5-C was substituted retrospectively w.e.f. 01.4. I 986 by
· amending Karnataka Taxation Laws (Second Amench,nent) Act, 1996.
The newly substituted section 5-C provides for levy of tax on the
'taxable turnover' in respect of transfer of the right to use any goods
G specified in seventh schedule to the Act for any purposes (whether
ot'not for specified period}..

(ii) The tax under section 5-C shall be levied on taxable turnover in
respect of transfer of right to us~ any goods specified in the schedule
notwithstanding that such goods have already been subjected to tax
H under any of the provisions of the Act including section 5-C.
BINAN I INDUSTIUES LTD >. ASSISTANT COMMNR. OF COMMERCIAL TAXES, VI CIRCLE. BANGALORE (PASAY AT, l. J 817

(iii) In determining the taxable turnover for the purposes of section 5- A
C the amounts for which the goods whose right to use in transferred
has been purchased from another registered dealer liable to pay tax
under sub-section 91 or sub-section (3) of Section 5, shall not be
deducted from the total turnover determined.

(iv) Assessments, if any completed before 01.4.1996 adopting the B
basis of 'taxable turnover' for levy of tax stand automatically validated
by the validation clause at section 7 of the Amendment Act.

(v) Assessments if any completed by allowing the deductions of the
amounts relatable to goods purchased from another registered dealer
liable to tax, such assessments shall be referred to the concerned Joint C
-Commissioner of Commercial Taxes (Admn.), immediately for initiating
action section 21 to revise the assessment order in accordance with
these instructions.

(vi) Where any order passed under Section 21 or appeal order under
Section 20 is contrary to instructions issued in this circular, such D
-; orders shall be referred to the Commissioner immediately for initiating
,, ;

action under section 22-A.

Sd/-

(V.MADHU) E
Commissioner of Commercial Taxes".

24. A bare reading of the Circular dated 23.10.1999 shows that it was
a review of the earlier Circular and that the Commissioner was of the view that
the position of law explained in the earlier Circular did not state the correct F
position in law and, therefore, the revised instructions were issued. There was
a direction to the concerned Joint Commissioner to immediately initiate action
under Section 21 to revise the assessment orders. It was further stated that
if any order passed under Section 21 or appeal order under Section 20 was
contrary to the instructions issued, the same were to be referred to him for G
. initiating action under Section 22-A of the Act. This leaves no manner of
doubt that the subordinate officers had no option but to comply with the
directions given.
)

25. The notices issued under Section 12-A of the Act initiating the
assessment proceedings clearly show that they were on the basis of the H
818 SUPREME COURT REPORTS [2007) 4 S.C.R.

A instructions issued.

26. As observed by this Court in Commissioner of Trade Tax, U.P. and
Anr. v. Kajaria Ceramics Ltd, [2005] 11 SCC 149 there are various Circulars,
some are binding and some are not binding. Though strong reliance was
placed by learned counsel for the revenue on Addi. Commissioner (Legal)
B and Anr. V. Jyoti Traders and Anr., [1999] 2 sec 77 a close reading of the
decision shows that it does not support the stand of the revenue and on the
contrary support the stand of the appellants.

27. Particular reference may be made to paragraphs 22 and 25 which read
as follows: ·
c
"22. In Ahmedabad Manufacturing & Calico Printing Co. Ltd. v. S.G.
Mehta, ITO (AIR 1963 SC 1436) in its assessment to income tax for
the year 1952-53, the appellant, a company had been granted under
the provisions of the finance Act, 1952, a rebate on a portion of its
profits of the previous year, that is, 1951 which it had not distributed
D as dividends to its shareholders. In the next assessment year 1953-54,
the appellant used a part of the aforesaid undistributed profits for
declaring dividends. As the law then stood, nothing could be done
by the Revenue Authorities to withdraw the rebate earlier granted on
the ground of the profits being utilized in declaring dividends in a
E later year. From l.4.1956, however, there was a change in the law as
sub-section (10) of section 35 of the Income Tax Act, 1922 was
brought into force then. By an order made on 27-3-1958, under the
sub-section; the aforesaid rebate was withdrawn and the appellant
was called upon to refund it. The appellant then applied to the High
Court at Bombay for a writ to quash the order of 27-3-1958 on the
F ground that sub-section (10) was not applicable to the facts of this
case. That application was dismissed by the High Court. The appeal
in the Supreme Court was against this decision of the High Court at
Bombay dismissing the application. Now sub-section ( 10) of Section
35 of the Income Tax Act was enacted by the Finance Act of 1956.
G That sub-section, insofar as it is necessary to state for the purpose
of this case, provided that where in any of the Assessment Years
1948-49 to 1955-56, a rebate of income tax was allowed to a company
under the Finance Act prevailing in that year on a part of its total
income

H "and subsequently the amount on which the rebate of income
)

BINANI INDUSTRIES LID'" ASSISTANT COMMNR. OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE IPASAYAT, J. I 819
- -,._
J
tax was allowed as aforesaid is availed of by the company, A
wholly or partly, for declaring dividends in any year ... the
Income Tax Officer shall re-compute the tax payable by the
company by reducing the rebate originally allowed".
The sub-section in substance permits a rebate duly allowed in any
year before it came into force to be withdrawn if "subsequently" the B
amount on which the rebate was allowed "is availed of" for declaring
dividends in any year. The appellant contended that the sub-section
did not apply unless the amount on which the rebate was granted was
-"""
availed of for declaring dividends after the sub-section had come into
force, that is, after 1-4-1956 and, therefore, it did not apply to the
present case. It was said that if it were not so, the sub-section would c
be given a retrospective operation and the rule was that it was to be
presumed that a statute dealing with substantive rights was not to
have operation. This Court, per majority (3:2), held that sub-section
(10) of Section 35 was intended to have a retrospective operation and
was applicable to the present case. Sarkar, J. who was in majority, in D
his concurring judgment, observed as under:
"t
.~
"There is no dispute that by sub-section (10) the legislature
intended to penalise a case where subsequent to its enactment,
the amount on which rebate had been granted was utilised in
declaration of dividends. Now is there any reason to think that E
the legislature did not want to impose the penalty also on those
who had earlier utilised the amount in declaration of dividends?
There was no special merit in these latter cases. And I also think
that they formed the majority of the cases. The grant of rebate
having been stopped after March 31, 1956, there was no occasion
to provide for cases of such grant thereafter. All these F
circumstances lead me to the view that the intention of the
legislature was to penalise the cases of utilisation of amounts on
which rebate had been granted in payment of dividends which
had happened before the sub-section came into force. The
remedy which the sub-section provided would largely fail in any G
other view. The general scope and purview of the sub-section
and a consideration of the evil which it was intended to remedy
lead me to the opinion that the intention of the legislature clearly
~ was that the sub-section should apply to the facts that we have
in this case".
H
t
f

820 SUPREME COURT REPORTS [2007] 4 S.C.R.
-'r-
A 25. The two decisions in the cases of Ahmedabad Manufacturing &
. I
Calico Printing Co. Ltd. and Biswanath nmnjhunw_alla are more closer
to the issue involved in the present case before us. They laid down
that it is the language of the provision that matters and when the
meaning is clear, it has to be given full effect. In both these cases, this
Court held that the proviso which amended the existing provision
B gave it retrospectivity. When the provision of law is explicit, it has to
. ' operate fully and there could not be any limits to its operation. This ,,.
Court in Biswanath Jhunjhunwalla case said that if the l~nguage ;A_

expressly so states or clearly implies, retrospectivity must be given to -i
the provision. Under Section 34 of the Income Tax Act, 1922, it is the
c service of the notice which is the sine qua non, an indispensable
requisite, for the initiation of assessment or reassessment proceedings
where income had escaped assessment. That is not so in the present
case. Under sub-section (1) of Section 21 of the Act before its
f·• amendment, the assessing authority may, after issuing notice to the
dealer and making such inquiry as it may consider necessary, assess
D or reassess the dealer according to law. Sub-section (2) provided that
except as otherwise provided in this section, no order for any \.,
assessment year shall be made after the expiry of 4 years from the end
of such year. However, after the amendment, a proviso was added to
sub-section (2) under'which the Commissioner of Sales Tax authorises
E the assessing authority to milke assessment or reassessment before
the expiration or's years from the end of such year notwithstanding
that such assessment or reassessinent may involve a change of opinion.
The proviso came into force w.e.f. 19-2-1991. We do not think that
sub-section (2) and the proviso added to it leave anyone in doubt that
as on the date when the proviso came into force, the Commissioner
F of Sales tax· could authorise inaking of assessment or reassessment
before the expiration of 8 years from the end ·of that particular
· assessment year. It is immaterial if a period for assessment or
reassessment under sub-section (2) of Section 21 before the addition
of the said proviso had expired.· Here, it is the completion of assessment
or reassessment under Section 21 which is to be done before the
G !;
expiration of 8 years of.that particular assessment year. Read as it is,

.. these provisions would 'mean that the assessment for the year 1985-
86 could be reopen.ed up- to 31-3-1994. Authorisation by the -~
Commissioner of Sales ·l'ax and completion of assessment or
reassessment under sub-section (I) of Section 21 have to be completed
H within 8 years of the particular assessment year. Notice to the assessee
DINAN! INDUS'TRIES LTD "· ASSIST ANT COMMNR. OF COMMERCIAL TAXES, VI CIRCLE, BANGALORE [PASAY AT. J. I 821
... follows the authorisation by the Commissioner of Sales Tax, its service A
on the assessee is not a condition precedent to reopen the assessment.
It is not disputed that a fiscal statute can have retrospective operation.
If we accept the interpretation given by the respondents, the proviso
added to sub section (2) of Section 21 of the Act becomes redundant.
Commencement of the Act can be different than the operation of the B
Act though sometimes, both may be the same. The proviso now
added to sub-section (2) of Section 21 of the Act does not put any
embargo on the Commissioner of Sales Tax not to reopen the
assessment if the period, as prescribed earlier, had expired before the
proviso came into operation. Ode has to see the language of the
provision. If it is clear, it has to be given its full effect. To reassure C
oneself, one may go into the intention of the legislature in enacting
such provision. The date of commencement of the proviso to Section
21 (2) of the Act does not control its retrospective operation. Earlier
the assessment/reassessment could have been completed within four
years of that particular assessment year and now by the amendment
adding the proviso to Section 21 (2) of the Act it is eight years. The D
only safeguard being that it is after the satisfaction of the Commissioner
of Sales Tax. The proviso is operative from 19-2-1991 and a bare
reading of the proviso shows that the operation of this proviso relates •
and encompasses back to the previous eight assessment years. We
need not refer to the provisions of the Income Tax Act to interpret the E
proviso to Section 21 (2) the language of which is clear and
unambiguous and so is the intention of the legislature. We are, thus,
of the view that the High Court was not right in quashing the sanction
given by the Commissioner of Sales Tax and notices issued by the
assessing authority in pursuance thereof."
F
28. The issues can be looked at from a different angle. Undisputedly,
the 1996 Circular was binding on the revenue authorities as is spelt out in the
case of 12.4.1996 and 23.10.1999 Circulars. The assessments were completed
on the basis of 12th April, 1996 Circular. Merely because the Commissioner
changes his view/opinion and according to him it was review of the earlier
decision that cannot have any effect on any assessment which has been G
completed on the basis of the 1996 Circular.

29. That being so, the question of re-opening the assessment by mere
change of opinion is entirely impermissible.

H
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822 SUPREME COURT REPORTS (2007] 4 S.C.R.

A 30. Though these aspects need not be taken note of in view of the
conclusion that the proviso was clarificatory in nature and operated with
effect from the date Section 5-C was amended i.e. I .4. I 986 yet this is an
additional factor to set aside the High Court's judgment.

3 I. It is stated by a long line of decisions that reopening of assessment
B is not permissible by inere change of the opinion in the assessing officer. Here
it has not been disputed that the Circular dated 23.10.19~9 was on account
of change of opinion of the Commissioner that too while reviewing the earlier .:.:
Circular. It could not be brought to our notice as to which provision permitted ~...
the review.
c 32. Learned counsel for the State submitted that the power is inherent
because the authority can correct his own mistaken impression about the
interpretation. Prima facie, the plea is without substance and cannot be
accepted. That question is of academic interest in view of what has been
stated above. The judgments of the learned Single Judge as affirmed by the
Division Bench are indefensible, need to be set aside which we direct. The
appeals are allowed. Costs made easy.

v.s.s. Appeal allowed.