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PETITIONER:

MOHAN BREWERIES & DISTILLERIES LTD. ETC. ETC.

Vs.

RESPONDENT:

COMMERCIAL TAX OFFICER, MADRAS & ORS.

DATE OF JUDGMENT: 09/09/1997

BENCH:

S.P. BHARUCHA, K.T. THOMAS, V.N. KHARE

ACT:

HEADNOTE:

JUDGMENT:

THE 9TH DAY OF SEPTEMBER, 1997

Present:

Hon'ble Mr. Justice S.P Bharucha

Hon'ble Mr. Justice K.T. Thomas

Hon'ble Mr. Justice V.N. Khare

G.L. Sanghi, Sr.Adv., A.T.M. Sampath, Adv. with him for the

appellants.

V.R. Reddy, Sr. Adv., V.Krishnamurthi and T. Harish Kumar,

Advs. with him for the Respondents.

J U D G M E N T

The following Judgment of the Court was delivered:

WITH

(C.A. No. 5106/97, 5122/97, 5123/97, 5124/97, 5125/97,

5126/97, 5127-28/97, 5129/97, 5130/97, 5131-5133/97)

J U D G M E N T

S.P. BHARUCHA, J.

These are appeals against the judgments and orders of

Division Benches of the High Court at Madras in tax revision

cases that involve the same issue, name, whether the excise

duty on potable liquor manufactured by the appellants, paid

by the purchasers thereof, is includible in the taxable

turnover of the appellants for the purpose of levy of tax

under the Tamil Nadu General Sales Tax Act.

The appellants manufacture Indian Made Foreign Liquor

(IMFL) on the strength of licences issued to them under the

provisions of the Tamil Nadu Indian Made Foreign spirits

(Manufacture ) Rules, 1981. manufacture, supply and sale of

the IMFL is governed the Tamil Nadu prohibition Act, 1937

(now referred to as 'the Act') , the Tamil Nadu Indian-Made

Foreign spirits Indian Made Foreign Spirit (Manufacture)

Rules, 1981 (now referred to as the 'wholesale Rules' and

the 'Manufacture Rules' respectively).

By reason of Section 17-C of the Act, (introduced by an

amendment in 1983), the Tamil Nadu state Marketing

Corporation Limited, a corporation wholly owned and

controlled by the Government of State of Tamil Nadu, had at

the relevant time the exclusive privilege of supplying by

wholesale IMFL for the whole of that State. Section 18-A

provides for excise duty on liquor. Sub-Section 91) therefor

reads thus:

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" (1) An excise duty or

countervailing duty of such amount

as the State Government may, by

notification in the Fort St George

Gazette specify from time to time

shall, if they so direct, be levied

on all liquors and intoxicating

drugs permitted to be imported,

exported, transported,

manufactured, issued from any

manufactory or institution or sold,

under the provisions of this Act or

any rule, notification, licence or

permit issued thereunder."

Section 18-B provides for excise duty on excisable

articles. It reads, so far as is relevant, thus:

" 18-B . Excise duty or

countervailing duty on excisable

articles-Notwithstanding anything

contained in Section 18-A, with

effect on an from the date of the

commencement of the Tamil Nadu

Prohibition (Amendment) Act, 1981,

an excise duty or countervailing

duty at such rate not exceeding

rupees thirty per proof liter as

the State Government may, from time

to time, by notification specify,

shall be levied only under this

Sectional] on all excisable

articles-

xxx xxx xxx

(d) manufactured under any licence

granted under this Act;

(e) manufactured at any distillery,

blending unit or brewery licensed

or established under this Act;

(f) issued from a distillery,

blending unit, brewery or warehouse

licensed or established under this

Act."

Section 18-C, so far as is relevant, reads thus :

"18-C, How duty may be imposed.

The excise duty or the

countervailing duty under section

18-B may be levied in one or more

of the following ways :-

(a) by duty of excise to be charged

in the case of spirits or beer

either on the quantity produced in,

or passed out of a distillery,

blending unit, brewery or

warehouse licensed or established

under this Act, or in accordance

with such scale of equivalents,

calculated on the quantity of

materials used or by the degree of

attenuation of the wash or wort, as

the case may be, as may be

prescribed.

Rule 22 of the manufacture Rules, as amended on 4th

October, 1982, reads thus :

"22. payment of excise duty and

vend fee -

(1) An excise duty, at such rate as

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the state Government may prescribe

from time to time, shall be paid by

the person who removes the goods

from a manufactory, on the stock of

Indian-made Foreign Spirits so

removed from the manufactory.

(2) A vend fee of rupees two per

bulk liter shall be paid by the

licensee on all stocks of Indian-

made Foreign Spirits issued from

the manufactory."

Rule 15 (1) of the Wholesale Rules, amended at the same

time, reads thus :

"15. Payment of excise duty and

vend fee.- (1) The licensee shall

pay the excise duty on the stock of

Indian-made Foreign Spirits removed

by him from a manufactory in the

State as required under sub-rule

(1) of rule 22 of the Tamil nadu

Indian-made Foreign Spirits

(manufacture) Rules, 1981 or the

countervailing duty on the stock of

countervailing duty on the stock of

Indian-made Foreign Spirits

imported from a manufactory outside

the State or the excise duty or

countervailing duty as the case may

be , on the stock of Indian-made

Foreign spirits removed by him from

a bonded warehouse licensed under

the Tamil Nadu Indian-made Foreign

Spires (Storage-in-Bond) Rules,

1981."

These amendments were given retrospective effect from

23rd May, 1981.

It was contended on behalf of the appellants in their

writ petitions before the High Court that the liability to

pay excise duty upon the basis of the aforesaid provisions

lay not upon them but upon the Tamil Nadu State Marketing

Corporation (TASMAC). TASMAC had submit an application for

its requirement of IMFL and thereupon the excise duty

thereon was assessed. TASMAC paid the amount thereof

directly. The appellants neither collected the excise duty

from the wholesaler nor had they the statutory or

contractual authority to realise the same from it. The

appellants were not, therefore, liable to pay sales tax on

excise duty which was neither part of the sale price nor

consideration for the Sale. In the principal judgment,

followed in the other cases, the High Court, primarily

basing itself upon the decision of this Court in Mc Dowell &

Company Limited vs. The Commercial Tax Officer, 1985 (3)

S.C.R. 791, rejected the contentions on behalf of the

appellants and dismissed the writ petitions. Hence these

appeals.

It is convenient at this stage to set out certain

provisions of the Tamil Nadu General Sales Tax Act, 1959

(now referred to as "the Sales Tax Act") . Section 2(r), and

Explanation (1-A) thereto, read thus :

" Section 2(r) "turnover" means the

aggregate amount for which goods

are bought or sold, or delivered or

supplied or otherwise disposed of

in any of the ways referred to in

clause (n), by a dealer either

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directly or through another, on his

own account or on account of others

whether for cash or for deferred

payment or other valuable

consideration, provided that the

proceeds of the sale by a person of

agricultural or horticultural

produce, other than tea, and rubber

natural rubber latex and all

varieties and grades of raw rubber

grown within the State by himself

or on any land in which he has an

interest whether as owner,

usufructuary mortgagee, tenant or

otherwise, shall be excluded from

his turnover;

xxx xxxx xxxx

Explanation (1-A) - Any amount

charged by a dealer by way of tax

separately without including the

same in the price of the goods

bought or sold shall not be

included in the turnover.

Section 2(n) defines "sale" to mean "every transfer of

the property in goods (other than by way of a mortgage,

hypothecation, charge or pledge) by one person to another in

the course of business for cash, deferred payment or other

valuable consideration ...................... "

Section 3 provides for the levy of tax on sales or purchase

of goods.

Learned counsel for the appellants submitted that, by

virtue of the provisions of the Act and the Rules

aforementioned, particularly Rule 22 of the Manufacture

Rules, the manufacturer of the IMFL was not liable for the

payment of the excise duty thereon. The imposition of the

excise duty thereon. The imposition of the excise duty by

reason of Rule 22 was squarely on the party who removed the

IMFL from its manufacturory, namely, TASMAC. The

manufacturer could not, by reason of Rule 22, seek to

recover the excise duty from the party so removing the IMFL.

The element of the excise duty did not enter into the

turnover of the manufacturer and, accordingly, no sales tax

was payable on the element of excise duty. Learned counsel

cited the JUDGMENT of this Court in Union of India and

others vs. Bombay Tyre International Ltd. and others, 1984

(1) S.C.C. 467, and emphasised the reference to their

judgments of the Federal Court in The Central Provinces and

Berar Sales of Motor Spirit and Lubricants Taxation Act and

Province of Madras vs. Boddu Paidanna and sons. In learned

counsel's submission, the observations therein supported the

argument that the imposition of excise duty was upon the

party who removed the IMFL from the factory. Learned counsel

submitted that the ratio of the judgment in Mc Dowell &

Company Limited vs. The Commercial Tax officer, 1985 (3)

S.C.R. 791, (the second Mc Dowell case), upon which the High

Court had relied, was restricted to the Andhra Pradesh rules

therein mentioned and was inapposite to the provisions which

are before us. Learned counsel sought to draw assistance

from Explanation (1A) to Section 2(r) of the sales Tax Act.

Learned counsel submitted that Rule 22 itself was a

representation to the manufacturer and even the Sales Tax

authorities had been misled by it; in their submission, an

equitable estoppel arose against the respondent State which

prevented it from recovering sales tax from the manufacturer

on the element of excise duty.

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Excise duty is levied upon goods manufactured or

produced Entry 84 of List I and Entry 51 of List II of the

Seventh Schedule to the Constitution). Its incidence falls,

therefore, on the manufacturer or producer of the goods. The

collection of excise duty may be deferred to such later

stage as is, administratively or otherwise, most convenient.

In the case of Central Provinces and Berar Sales of

Motor Spirit an Lubricants Taxation Act, it was noted that

excise duty was a duty ordinarily levied on the manufacturer

or producer in respect of the manufacture or producer in

respect of the manufacture or production of the Commodity

tax. A distinction was made between the nature of the tax

and the point at which it was collected. It was subject to

the legislative competence of the taxing authority to impose

the duty at the stage which was most convenient and the most

lucrative, wherever it might be, but "that is a matter of

the machinery of collection, and does not affect the

essential nature of the tax". This was reiterated by the

Federal Court in Boddu Paidanna's case. In the Bombay

Tyre's case, this Court referred to the aformentioned two

authorities of the Federal Court and several authorities of

this Court to hold that excise duty was levied on

manufacture but it could be levied at any convenient stage

so long as the character of the impost, that is, that it was

a duty on the manufacture or production, was not lost. The

method of collection did not affect the essence of the duty

but only related to the machinery of collection of

administrative convenience. This Court said, "while the levy

in our country has the status of a constitutional concept,

the point of collection is located where the statute declare

it to be."

The liability to pay excise duty on the IMFL is,

therefore, that of the manufacturer thereof. Rule 22 only

provides a mode for collecting the excise duty, a mode which

is obviously convenient for it requires the party removing

the IMFL from the factory of its production to pay in

advance the excise duty thereon. That party might be the

manufacturer. That the Act provides in another section that

all IMFL should be supplied in the state of Tamil Nadu by

wholesale only through TASMAC does not, in out view, make

any difference to this position. It cannot be a reason for

holding that the primary obligation to pay excise duty is

that of TASMAC or that the manufacturer is absolved of the

obligation to pay excise duty.

We cannot agree with learned counsel for the appellants

that the second Mc Dowell case was based only upon the

provisions of the Andra Pradesh rules that were under

consideration. It is amply clear from the citation of the

authorities of this court in that judgement that it

elaborated upon the concepts of excise duty and concluded

that "the incidence of excise duty is directly relatable to

manufacture but its collection can be deferred to a later

stage as a measure of convenience of expediency". The Andra

Pradesh rules, it was held "did not detract from the

position that payment of excise duty is the primary and

exclusive obligation of the manufacturer and if payment be

made under a contract or arrangement by any other person it

would amount to meeting of the obligation of the

manufacturer and nothing more". Note was taken of the

argument that excise duty had never come into the hands of

the appellant and that the appellant and that the appellant

had no opportunity to turn it over his hands and, therefore,

the same could not be considered to be a part of its

turnover. It was held that the argument that "when the

excise duty does not go into the common till of the assesses

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and it does not become a part of the circulation capital, it

does not constitute turnover, is not the decisive test for

determining whether such duty would constitute turnover."

As we look at it, the primary obligation to pay excise

duty on the IMFL is of the manufacturer thereof. Rule 22

only provides for a convenient method for its collection.

When the excise duty is collected from a party removing the

IMFL from the factory from the factory of its production,

other than the manufacturer, the payment of excise duty that

party makes is in discharge of the obligation of the

manufacturer. That party does not, as it would ordinarily

do, pay the excise duty component along with the sale price

of the IMFL it purchases to the manufacturer; it pays the

sale price to the manufacturer and it pays the excise duty

into the Treasury for and on behalf of the manufacturer. In

effect, therefore, the element of excise duty does enter

into the turnover of the manufacturer just as much as it

would ordinarily do. The definition of "turnover" in

section 2(r) of the sales Tax Act, referring as it does to

"the aggregate amount for which goods are bought or sold"

and "whether for cash or..... other valuable consideration"

is wide enough to cover such excise duty. That the excise

duty does not physically enter the manufacturer's till is,

as held in the second Mc. Dowell case, not the decisive test

for determining whether or not it would be a part of the

manufacture's turnover.

The argument based on Explanation (1-A) of Section 2(r)

of the Sales Tax Act cannot be entertained because the

amount of excise duty was not charged by the appellants by

way of tax separately without including the same in the

price of the IMFL sold.

Insofar as the argument of equatable estoppel is

concerned, the short answer, in our view, is that,

admittedly, no representation had been made by any sales Tax

authority, and, given the construction that we have placed

upon it, Rule 22 itself cannot be said to be a

representation that could have misled the appellants.

In the premises, the appeals are dismissed, with costs.