Can evidence be clarified in board's ruling?

EXPERT EYE

A very fundamental proposition in law was laid down by the Supreme Court recently in a judgment in a Customs case where the board had given a ruling which predetermined a matter of evidence.

The court held that if something is a matter of evidence before the adjudicating authority, it must be allowed to be presented before and judged by that authority. It cannot be decided in advance in a circular issued by the Central Board of Excise and Customs.

In the case of Tata Teleservices Ltd. vs. Commissioner of Customs, 2006 (194) ELT 11 (SC), the goods imported were fixed wireless terminals or fixed telephones but working on cellular technology. The issue was whether the exemption meant for cellular phones could be available to fixed wireless terminals, which worked on the principle of cellular technology.

The circular of the board limited it to only hand-held mobile phones, saying that in market parlance, only mobile phones are known as cellular phones.

In other words, it had to be determined whether fixed wireless terminals working on cellular technology could be called cellular phones. The Supreme Court observed that whether scientific definition or market parlance would be applicable for determining the issue was a matter of evidence, which could be decided only by the adjudicating authority and not pre-determined by a circular of the government.

The fact is that in market parlance when one talks of cellular phone one means hand-held mobile phones. Scientifically speaking, cellular technology used in fixed wireless terminal working on cellular technology is based on the same principle as hand-held cellular phones. The Department of Telecommunication confirmed this. The circular of the government, however, preferred market parlance over scientific definition.

Two theoretical points are involved in this case. The first issue is about the choice between market parlance and scientific definition. The Supreme Court has assigned a more predominant role to market parlance compared with scientific definition. The proponents of market parlance argue that scientifically, a product may be something, but in market parlance, it may be known as another.

In a matter of taxation, market parlance will prevail. The Department of Telecommunication may consider a fixed wireless terminal working on cellular technology as a cellular phone but this is not what it is understood in common parlance. In common parlance, a cellular phone refers to hand-held mobile phones. Can the board be precluded from saying what the market parlance understanding is? Then how does the Board issue a circular?

On the second issue, this judgment almost says that a government circular cannot determine classification of products in the tariff. So it has rekindled the dying issue of whether a board's circular is binding or not. This issue has almost been settled by several judgments.

The present judgment of the Supreme Court in the Tata Teleservices case (Supra) has in a sense gone against the principle settled by the above judgments. No reference has been made in this judgment to all the previous case laws. The net impact has been quite damaging to the tradition in the revenue department where officers were following classification circulars given by the Board. And this certainty principle has the approval of the Supreme Court itself.

The conclusion is that we are back to the realm of uncertainty about classification circulars. One has to realise that classification circulars have to adduce some reasons. One of the important reasons is about why we should consider scientific definition or market parlance or statutory definition.

Without such a discussion, a circular can be hardly issued. This judgment of the Supreme Court may have to be appealed against before the same Constitutional Bench, which is considering the bigger issue of the binding nature of the board's circular.