Civil Appeal No 570 of 1983
From the Judgment and Order dated 6121982 of the High Court of Andhra Pradesh in Writ Petition No 798582
Soli J Sorabjee Harish N Salve Ravinder Narain and Mrs AK Verma for the Appellant
ST Desai B Parthasarthi and TVSN Chari for the Respondents
The following Judgments were delivered CHINNAPPA REDDY J While I entirely agree with my brother Rangnath Misra J in the judgment proposed to be delivered by him I wish to add a few paragraphs particularly to supplement what he has said on the fashionable  topic of tax avoidance
My excuse for inflicting this extra opinion is that the ingenious attempts to rationalise and legitimise tax avoidance have always fascinated and amused me and made me wonder how ready the minds are to adapt themselves and discover excuses to dip into the treasury
The shortest definition of tax avoidance that I have come across is the art of dodging tax without breaking the law
 Much legal sophistry and judicial exposition have gone into the attempt to differentiate the concepts of tax evasion and tax avoidance and to discover the invisible line supposed to exist which distinguishes one from the other
Tax avoidance it seems is legal tax evasion is illegal
Though initially the law was and I suppose the law still is there is no equity about a tax
There is no presumption as to a tax
Nothing is to be read in nothing is to be implied during 798 the period between the two world wars the theory came to be propounded and developed that it was perfectly open for persons to evade avoid income tax if they could do so legally
For some time it looked as if tax avoidance was even viewed with affection
Lord Sumner in Inland Revenue Commissioners vs Fishers Executorsl said  My Lords the highest authorities have always recognised that the subject is entitled so to arrange his affairs as not to attract taxes imposed by the Crown so far as he can do so within the law and that he may legitimately claim the advantage of any expressed term or of any emotions that he can find in his favour in taxing Acts
In so doing he neither comes under liability nor incurs blame
 Lord Tomlin echoing what Lord Sumner had said observed in Inland Revenue Commissioners vs Duke of West Minister2 follows type filing the prevalent attitude towards tax avoidance at that time Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than if otherwise would be
If he succeeds in ordering them so as to secure this result then however unappreciative the Commissioners of Inland Revenue or his fellow tax payers may be of his ingenuity
he cannot be compelled to pay on increased tax
 Then came World War II and in its wake huge profiteering and racketeering something which persists till today but on a much larger scale
The attitude of the Courts towards avoidance of tax perceptibly changed and hardened and in Lord Howard De Waldan vs Inland Revenue Commissionersa Greene MR dealing with the construction of an anti avoidance section said For years a battle of manoeuvre has been waged between the legislature and those who are minded to throw the 1  2  3 1942 IKB 389
799 burden of taxation off their own shoulders on to those Of their fellow subjects
In that battle the legislature has been worsted by the skill determination and resourcefulness of its opponents of whom the present appellant has not been the least successful
It would not shock us in the least to find that the legislature has determined to put an and to the struggle by imposing the severest penalities
It scarcely lies in the mouth of the tax payer who plays with fire to complain of burnt fingers
 Expressing the same sentiment and dissertating on the moral aspects of tax avoidance Lord Simon in Latilla vs Inland Revenue Commissioners1 said My Lords of recent years much ingenuity has been expended in certain quarters in attempting to devise met hods of disposition of income by which those who were prepared to adopt them might enjoy the benefits of residents in this country while receiving the equivalent of such income without sharing in the appropriate burden of British taxation
Judicial dicta may be cited which point out that however elaborate and artificial such methods may be those who adopt them are entitled  to do 60
There is of course no doubt that they are within their legal rights but that is no reason why their efforts or those of the professional gentlemen who assist them in the matter should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship
On the contrary one result of such methods if they succeed is of course to increase pro tanto the load of tax on the shoulders of the great body of good citizens who do not desire or do not know how to adopt these manoeuvres
 In several cases Griffith vs JP Harrizan Ltd2 Morgan vs Inland Revenue Commissioners 3 Public Trustee vs Inland Revenue Commissioners4 Lord Denning repeatedly referred to tax avoidance schemes 1 2 3 1963 Chancery 438
4 1965 Chancery 286
800 and described them as magic performance by lawyer turned magicians
Lord Harman almost in the same words as Lord Denning described a tax avoidance scheme as one which smells a little of the lamp and said  it is a splendid scheme it is almost too good to be true
In law quite too good to be true
It won t do Campbell vs Inland Revenue Commissioners1 Stamp J
In re Western s Settlements observed 
There must be some limit to the devices which this Court ought to countenance in order to defeat the fiscal intentions of the legislature
In my judgment these proposals overstep that limit
I am not pursuaded with this application represents more than a cheap exercise in tax avoidance which r ought not to sanction as distinct from a legitimate avoidance of liability to taxation
In Greenberg vs Inland Revenue Commissioners2 Lord Reid dealing with a scheme for tax avoidance by forward dividend stripping observed  
We seem to have travelled a long way from the general and salutary rule that the subject is not be taxed except by plain words
But I must recognise that plain words are seldom adequate to anticipate and forestall the multiplicity of ingenious schemes which are constantly being devised to evade taxation
Parliament is very properly determined to prevent this kind of tax evasion and if the courts find it impossible to give very wide meanings to general phrases the only alternative may be for Parliament to do as some other countries have done and introduce legislation of a more sweeping character which will put the ordinary well intentioned person at much greater risk than is created by a wide interpretation of such provisions as those which we are now considering 1 1967 Chancery 651
2 19713 All ER
135 801 I am inclined to think that the real explanation of these verbal difficulties may be that in legislation of such extreme complexity as we have here it is not humanly possible for a draftsman to preserve that consistency in the use of language which we generally look for
Indeed l sometimes suspect that our normal meticulous methods of statutory construction tend to lead us astray by concentrating too much 1 on verbal niceties and paying too little attention to the provisions read as a whole
 The march of the law against tax avoidance schemes continued and came a significant departure from the West minister and the Fisher Executor
principle
In WI Ramsay vs Inland Revenue Commissioners1 the House of Lords had to consider a scheme of tax avoidance which consisted of a series or a combination of transactions each of which was individually genuine but the result of all of which was an avoidance of tax
Lord Wilberforce with great force observed Given that a document or transaction is genuine the court cannot go behind it to some supposed underlying substance
This is the well known principle of Inland Revenue Commissioners vs Duke of Westminister
This is a cardinal principle but it must not be overstated or overextended
While obliging the court to accept documents or transactions found to be genuine as such it does not compel the court to look at a document or a transaction in blinkers isolated from any context to which it properly belongs
If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions or as an ingredient of a wider transaction intended as a whole there is nothing in the doctrine to prevent it being so regarded to do so is not to prefer form to sub stance or substance to form
It is the task of the court to ascertain the legal nature of any transaction to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions in tended to operate as such it is that series or combination which may be regarded
For this there is authority in the 1 11982 AB 300
802 law relating to income tax and capital gains tax See Chinn vs Hochstrasser and Inland Revenue Com missioners vs Plummer For the commissioners considering a particular case it is wrong and an unnecessary self limitation to regard themselves as precluded by their own finding that documents or transactions are not shams from considering what as evidenced by the documents themselves or by the manifested intentions of the parties the relevant transaction is
They are not under the Westminister doctrine or any other authority bound to consider individually each separate step in a composite transaction intended to be carried through as a whole
 Later again he observed  For the taxpayers it was said that to accept the revenue s wide contention involved a rejection of accepted and established canons and that if so general an attack upon schemes for tax avoidance as the revenue suggest is to be validated that is a matter for Parliament
The function of the courts is to apply strictly and correctly the legislation which Parliament has enacted if the taxpayer escapes the charge it is for Parliament if it disapproves of the result to close the gap
General principles against tax avoidance are it was claimed for Parliament to lay down
We were referred at our request in this connection to the various enactments by which Parliament has from time to time tried to counter tax avoidance by some general prescription
The most extensive of these is Income and Corporation Taxes Act 1970 sections 460 et seq
We were referred also to well known sections in Australia and New Zealand Australia Income Tax Assesment Act 1936 51 section 260 New Zealand Income Tax Act 1976 section 99 replacing earlier legislation
Further it was pointed out that the capital gains tax legislation starting with the Finance Act 1965 does not contain any provision corresponding to section 460
The intention should be 803 deduced therefore it was said to leave capital gains tax to be dealt with by hole and plug methods that such schemes as the present could be so dealt with has been con firmed by later legislation as to value shifting Capital Gains Tax Act 1979 section 25 et seq
These arguments merit serious consideration
In substance they appealed to Barwick CJ in the recent case of Federal Commissioner of Taxation vs Westraders Pty Ltd   354 355  I have a full respect for the principles which have been stated but I do not consider that they should exclude the approach for which the Crown contends
That does not introduce a new principle it would be to apply to new and sophisticated legal devices the undoubted power and duty of the courts to determine their nature in law and to relate them to existing legislation
While the techniques of tax avoidance progress and are technically improved the courts are not obliged to stand still
Such immobility must result either in loss of tax to the prejudice of other taxpayers or to Parliamentary congestion or most likely to both
To force the courts to adopt in relation to closely integrated situations a step by step dissecting approach which the par ties themselves may have negated would be a denial rather than an affirmation of the true judicial process
In each case the facts must be established and a legal analysis made legislation cannot be required or even be desirable to enable the courts to arrive at a conclusion which corresponds with the parties  own intentions The capital gains tax was created to operate in the real world not that of make belief
The significance of Ramsay as a turning point in the interpretation of tax laws in England and the departure from the strings of Westminister were explained in Inland Revenue Commissioners vs Burmah Oil Company Ltd1 where Lord Diplock said It would be disingenuous to suggest and dangerous 1 1982 STC 30 804 on the part of those who advise on elaborate tax avoidance schemes to assume that Ramsay s case did not mark a significant change in the approach adopted by this House in its judicial role to a pre ordained series of transactions whether or not they include the achievement of a legitimate commercial end into which there are inserted steps that have no commercial purpose apart from the avoidance of a liability to tax which in the absence of those particular steps would have been payable
The difference is in approach
It does not necessitate the overruling of any earlier decisions of this House hut it does involve recognising that Lord Hamlin s oft quoted dictum in IRC vs Duke of Westminister1 Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less then it otherwise would be tell us little or nothing as to what methods of ordering one s affairs will be recognised by the courts as effective to lesson the tax what would attach to them if business transactions were conducted in a straight forward way
 Lord Scarman said First it is of the utmost importance that the business community and others including their advisers should appreciate as my noble and learned friend Lord Diplock has emphasised that Ramsay s case marks a significant change in the approach adopted by this House in its judicial role towards tax avoidance schemes
Secondly it is now crucial when considering any such scheme to take the analysis far enough to determine where the profit gain or loss is really to be found The winds of change continued to blow and in Furniss vs Dawson2 Ramsay was reiterated
Lord Brightman observed The fact that the court accepted that each step in a transaction was a genuine step producing its intended legal 1 All ER
Rep 259 at 267
2 1984 1 Ali ER 530 805 results did not confine the court to considering each step in h isolation for the purpose of assessing the fiscal results
 He further said My Lords in my opinion the rationale of the new approach is this
In a preplanned tax saving scheme no distinction is to be drawn for fiscal purposes because none exists in reality between i a series of steps which are followed through by virtue of an arrangement which falls short of a binding contract and ii a like series of steps which and followed through because the participants are contractually bound to take each step seriatim
In a contractual case the fiscal consequences will naturally fall to be assessed in the light of the contractually agreed results
 In the same case Lord Fraser explained the principle of Ramsay as follows 
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 
_ __ The true principle of decision in Ramsay was that the fiscal consequences of a preordained series of transactions intended to operate as such are generally to be asertained by considering the result of the series as a whin and not by dissecting the scheme and considering each individual transaction separately  Lord Scarman in his characteristic style observed The law will develop from case to case
Lord Wilberforcc in WT Ramsay Ltd vs IRC  at 872  at 324 referred to the emerging principle  of the law
What has been established with certainty by the House in Ramsay s case is that the determination of what does and what does not constitute unacceptable tax evasion is a subject suited to development by judicial process
The best chart that we have for the way forward appears to me with great respect to all engaged on the map making process to be the words of Lord Diplock in IRC vs Burmah Oil Co Ltd 1982 STC 30 at 32 which my noble and learned friend Lord Brightman quotes in his speech
These words 806 have space in the law for the principle enunciated by Lord Tomlin in IRC vs Duke of Westminister 1936 AC I at 19 at 267 that every man is entitled if he can to order his affairs so as to diminish the burden of tax
The limits within which this principle is to operate remain to be probed and determined judicially
Difficult though the task may be for judges it is one which is beyond the power of the blunt instrument of legislation
Whatever a statute may provide it has to be interpreted and applied by the courts and ultimately it will prove to be this area of judge made law that our elusive journey s end will be a found  Lord Roskill put it even more forcefully The error if I may venture to use that word into which the courts below have fallen is that they have looked back to 1936 and not forward from 1982
They do not appear to have appreciated the true significance of the passages in the speeches in Ramsay s case  at 872 873 881  at 325 337 of Lord Wilberforce and Lord Fraser and even more important of the warnings in the Burmah Oil Case 1982 STC 30 at 32 39 given by Lord Diplock and Lord Scarman in the passages to which my noble and learned friend Lord Brightman refers and which I will not repeat
It is perhaps worth recalling the warning given albeit in another content by Lord Atkin who himself dissented in the Duke af Westminister s case in United Australia Ltd vs Barclays Bank Ltd1  When these ghosts of the past stand in the path of justice clanking their mediaeval chains the proper course for the judge is to pass through them undeterred  1936 a bare half century ago cannot be described as part of the Middle Ages but the ghost of the Duke of Westminister and of his transaction be it noted a single and not a composite transaction with his gardener and with other members of his staff has haunted the ad ministration of this branch of the law for too long
I confess that I had hoped that ghost might have found quietude with the decisions in Ramsay and in Burmah
Unhappily it 1  371941 AC I  29 807 has not
Perhaps the decision of this House in these appeals  will now suffice as exorcism Thus the ghost of Westminister in the words of Lord Roskill has been exercised in England
Should it be allowed to rear its head in India I have referred to the English cases at some length only to show that in the very country of its birth the principle of Westminister has been given a decent burial and in that very country where the phrase tax avoidance  originated the judicial attitude towards tax avoidance has changed and the smile cynical or even affectionate though it might have been at one time has now frozen into a deep C frown
The courts are now concerning themselves not merely with the genuineness of a transaction but with the intended effect of it for fiscal purposes
No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it
Some years ago a diverting attempt was made by a Correspondent to the London Times  to defend tax avoidance
He said The taxpayer is morally bound to obey the law but is not bound beyond the law for apart from the law taxation would be blackmail or racketeering
There is not behind taxing laws as there is behind laws against crime an in dependent moral obligation
When therefore the tax payer has obeyed the law he had done all that morality requires He had further said It is said that by avoiding a tax he throws a load on to some other taxpayer
But this is not quite accurate for the deficiency might be met by reducing expenditure is it not a good thing that there should be this last lawful remedy against oppressive taxation by a majority that human ingenuity can always find a way by which the minority can escape from tyrannical imposts
 The correspondent was answered by another s correspondent who described the former s defence of tax avoidance as an amusing 808 attempt to raise the art of tax avoidance to the moral level of political martyrdom and to make Hampdens of our modern tax dodgers 
Nor may we say are our tax dodgers Gandhiji is on the Dandi March to protest against the Salt Tax
In Commissioner of Income tax Gujarat vs A Raman  Co1 JC Shah JJ
speaking for himself and Sikri and Ramaswami JJ repeating almost verbatim the observations in Westminister and Fishers Executors observed Avoidance of tax liability by 80 arranging commercial affairs that charge of tax is distributed is not prohibited
A taxpayer may resort to a device to divert the income before it accrues or arises to him
Effectiveness of the device depends not upon considerations of morality but on the Legislative injunction in taking statutes may not except on period of penalty be violated but it may lawfully be cumvented
 The same Judge speaking for himself Ramaswami and Grover JJ in Commissioner of income tax Gujarat vs Kharwar2 expressely followed Westminister and observed The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction
If the parties have chosen to conceal by a device the legal relation it Is open to the taking authorities to unravel the device and to determine the true character of relationship
But the legal effect of a transaction cannot be displaced by probing into the substance of the transaction
We think that time has come for us to depart from the Westminister principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah J and similar observations made elsewhere
The evil consequences of tax avoidance are manifold
First there is substantial loss of much needed public revenue particularly in a welfare state like ours
Next there 1 19681 SCR 10
2 809 is the serious disturbance caused to the economy of the country by the piling up of mountains of blackmoney directly causing inflation
Then there is the large hidden loss to the community as pointed out by Master Sheatcraft in by some of the best brains in the country being involved in the perpetual war waged between the tax avoider and his expert team of advisers lawyers and accountants on one side and the tax gatherer and his perhaps not so skilful advisers on the other side
Then again there is the sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it 
Last but not the least is the ethics to be precise the lack of it of transferring the burden of tax liability to the shoulders of the guideless good citizens from those of the artful dodgers 
It may indeed be difficult for lesser mortals to attain the state of mind of Mr Justice Holmes who said Taxes are what we pay for civilized society
I like to pay taxes
With them I buy civilization
 But surely it is high time for tho judiciary in India too to part its ways from the principle of Westminister and the alluring logic of tax avoidance
We now live In a welfare state whose financial needs if backed by the law have to be respected and met
We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that It stands on no less moral plane than honest payment of taxation
In our view the proper way to construe a taking statute while considering a device to avoid tax is not to ask whether the provisions should be construed literally or liberally nor whether the transaction is not unreal and not prohibited by the statute but whether the transaction is a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it
A hint of this approach is to be found in the judgment of Desai J in Wood Polymer Ltd vs Bengal Hotels Limited1 where the learned judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax
It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation
It is upto the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of emerging  techniques of interpretation as was done in Ramsay Burma Oil and Dawson to expose the devices 1 810 for what they really are and to refuse to give judicial benediction
We agree with Ranganath Misra J that the appeal should be dismissed
RANGANATH MISRA J The appellant company a licensed manufacturer of Indian liquor at Hyderabad is in appeal by special leave questioning the dismissal of its writ petition by the High Court
Manufacture sale wholesale and retail as also storage and transport of liquor are regulated by the Andhra Pradesh Excise Act 1968  Excise Act  for short and the Andhra Pradesh Distillery Rules the Andhra Pradesh Indian Liquor Storage in Bond Rules and the Andhra Pradesh Foreign Liquor Rules and Indian liquor Rules all made under the Excise Act Excise duty  as defined in section 210 of the Excise Act is leviable on the manufacture of liquor and the manufacturer cannot remove the same from the distillery unless the duty imposed under the Excise Act has been paid
Buyers of Indian liquor from the appellant s distillery as alleged by it obtain distillery passes for release of liquor after making payment of excise duty and present the same at the distillery whereupon the bill of sale or invoice is prepared by the distillery showing the price of liquor but excluding the excise duty
The appellant s books of account also did not contain any reference to excise duty paid by the purchaser
The appellant paid Sales Tax payable by it under the Andhra Pradesh General Sales Tax Act 1957  Sales Tax Act  for short on the basis of its turnover which excluded excise duty
The Company was assessed to sales tax on the basis of its returns but later the Commercial Tax Officer was of the view that the Company had failed to include the excise duty paid on the liquor sold by it to wholesalers
The taking authority accordingly called upon the Company to show cause why assessments made may not be reopened
The appellant moved the High Court for quashing of such notice and having failed carried the matter in appeal to this Court
A Division Bench of this Court in Mc Dowell  Company Ltd etc
vs Commercial Tax Officer Vll Circle Hyderabad etc 1 1  811 examined the provision of the Excise Act and the Rules made there under as also the provisions of the Sales Tax Act
This Court took the view We hold that intending purchasers of the Indian liquor who seek to obtain distillery passes are also legally responsible for payment of the excise duty which is collected from them by the authorities of the excise department
This Court then proceeded to determine whether excise duty paid directly to the Excise authorities or deposited directly in the State Exchequer in respect of Indian liquor by the buyers before removing the same from the distillery could be said to form part of the taxable turnover of the appellant distillery
Precedents w ere referred to and the Court came to the conclusion that excise duty did not go into the common till of the appellant and did not become a part of the circulating capital
Therefore the Sales Tax authorities were not competent to include in the turnover of the appellant the excise duty which was not charged by it but was paid directly to the excise authorities by the buyers of the liquor
The appellant therefore succeeded before this Court and the notices issued by the Sales Tax authorities were quashed
The judgment of this Court was delivered on October 25 1976
Rules 76 and 79 of the Distillery Rules were amended with effect from August 4 1981
Rule 76a now provides No spirit or liquor manufactured or stored shall be removed unless the excise duty specified in rule 6 has been paid by a holder of D 2 licence before such removal It is not disputed that appellant is the holder of a D 2 licence under the law
Amended rule 79 1 provides 76 1
On payment of the excise duty by the holder of D 2 licence a distillery pass for the removal of spirit fit for human consumption may be granted in favour of any of the following persons only namely a a person holding a licence in the Andhra Pradesh or in other States for sale of spirit by wholesale or retail and when the spirit is to be transported or exported beyond the limits of the district in which the distillery is situ 812 ated to a person holding a permit signed by the Excise Superintendent of the district of destination or an officer of that district authorised in this behalf
b A person holding a permit signed by the Officer of any other State referred to in clause a above for the export of such spirit from the Andhra Pradesh into that State
c A person holding a permit signed by an Officer duly authorised in that behalf for export of such spirit to an Union Territory d A person holding a permit from the Excise Superintendent of any district in Andhra Pradesh or from officer referred to in clause a above of any other State to transport or export rectified spirits or wine to such district or State
 On the basis of the amended provisions the respondent Officer issued a notice to the appellant proposing to include a sum of Rs4490955240 representing the excise duty paid directly by buyers of appellant s liquor in the appellant s turnover for a part of the year 1982 83
Thereupon the appellant again moved the High Court for quashing of the notice
Reliance was placed on the earlier decision of this Court
The High Court very appropriately felt bound by the decision of this Court and considered the effect of the amended Rules and held that the primary liability to pay excise duty was indisputably of the holder of the D 2 licence
It further found that the turnover related to liquor excise duty which was payable by the appellant but had by amicable arrangement been paid by the buyer was actually a part of the turnover of the appellant and was therefore liable to be so included for determining liability for sales tax
On these findings the High Court dismissed the writ petition
When leave was granted by a Division Bench of this Court to appeal against the Judgment of the High Court the correctness of the decision in appellant s case reported in   was doubted and the matter was referred to a larger Bench
That is how the appeal came to be heard by us
813 Mr Sorabji appearing in support of the appeal at the very commencement of his submissions stated that there was no constitutional question involved in the appeal
He also fairly stated that the vires of the Excise Act and the Rules was not under challenge
Nor was the amendment of Rules in 1981 in dispute
The Federal Court In The Province of Madras vs Messrs Boddu Paidanna  Sons1 held There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence no matter what happens to it afterwards
whether it be sold consumed destroyed or given away
A taking authority will not ordinarily Impose such a duty because it is much more convenient administratively to collect the duty tax in the case of most of the Indian Excise Acts when the commodity leaves the factory for the first time and also because the duty is intended to be an indirect duty which the manufacture or producer is to pass on to the ultimate consumer which he could not do if the commodity had for example been destroyed in the factory itself
It is the fact of manufacture which attracts the duty even though it may be collected later   This view has been followed by this Court and the position has been put beyond doubt by a series of decisions
In RC Jall vs Union of India2 it has been observed The Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country
Subject always to the legislative competence of the taking authority the said tax can be levied at a convenient stage so long as the character of the impost is not lost
The method of collection does not affect the essence of the duty but only relates to the machinery of collection for administrative convenience
 1 2 1962 Suppl
3 SCR 436 814 In Re Sea Customs Act 1 this Court said With great respect we accept the principles laid down by the said three decisions  and 1945 FGR 179 in the matter of levy of an excise duty and the machinery for collection thereof In MS Guruswamy  Co etc
vs State of Mysore  ors 2 Sikri J as he then was spoke for the majority and stated the ratio thus These cases establish that in order to be an excise duty a the levy must be upon goods  and b the taxable event must be the manufacture or production of goods
Further the levy need not be imposed at the stage of production or manufacture but may be imposed later
 In Jullundur Rubber Goods Manufacturers  Association vs Union of India  Anr 3 Grover J after extracting a part of the Judgment in Jall s case supra spoke for the Court thus The above statement of law in no way supports the argument that excise duty cannot be collected from per sons who are neither producers nor manufacturers
Its incidence certainly falls directly on the production or manufacture of goods but the method of collection will not affect the essence of the duty In AB Abdul Kadir  Ors
vs State of Kerala 4 this Court restated the position thus Excise duty it is now well settled is a tax on articles produced or manufactured in the taxing country Generally speaking the tax is on the manufacturer on the producer yet laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production 2 1964 3 SCR 787
3 4  1 815 Thus 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 or expediency
On an examination of the provisions of the Excise Act the Rules framed thereunder and the pronouncements referred to above we are of the view that the conclusion of this Court at page 921 of the Reports that intending purchasers of the Indian liquors who seek to obtain distillery passes are also legally responsible for payment of the excise duty is too broadly stated
The duty was primarily a burden which the manufacturer had to bear and even if purchasers paid the same under the Distillery Rules the provisions were merely enabling and did not give rise to any legal responsibility or obligation for meeting the burden
We do not propose however to examine this aspect any further for the change in Rule 76 of the Distillery Rules has clearly affirmed the position that liability for payment of excise duty is of the manufacturer
Provisions of rules 80 81 82 83 and 84 do not militate against the conclusion that the payment of excise duty is a liability exclusively of the manufacturer
In these rules detailed provisions have been made regarding obtaining of distillery pass correct calculation and full payment of excise duty the manner of depositing such duty and ultimately issue of the spirit under the pass from the distillery
These rules therefore do not detract from the position that payment 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
It was the stand of the appellant before the High Court that it makes a condition precedent for the buyer of its finished goods that he the buyer pays the excise duty to the excise authorise directly and only on production of the receipted challan liquor is issued from the distillery by way of sale under the supervision of the excise authorities
In view of such an arrangement the excise duty paid by the buyer does not become a part of the turnover of the appellant Turnover  is defined in section 2s of the Sales Tax Act to mean the total amount set out in the bill of sale or if there is no bill of sale the total amount charged as the consideration for the sale 816 or purchase of goods whether such consideration be cash deferred payment of any other thing or value including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer whatever be the description name or object thereof
 The definition clearly indicates that the total amount charged as the consideration for the sale is to be taken into account for determining the turnover
Where a bill of sale is Issued and obviously the bill has to state the total amount charged as consideration the total amount set out therein is to be taken into account
In every transaction of sale there is bound to be a seller at one end and a buyer at the other and transfer or title in the goods takes place for a consideration
In Hindustan Sugar Mills vs Rajasthan State 1 this Court observed The test is what is the consideration passing from the purchaser to the dealer for the sale of the goods
It is immaterial to enquire as to how the amount of consideration is made up whether it includes excise duty or sales tax or freight
The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale  The Court proceeded to say take for example excise duty payable by a dealer who is a manufacturer
When he sells goods manufactured by him he always passes on the excise duty to the purchaser
Ordinarily it is not shown as a separate item in the bill but it is included in the price charged by him
The sale Price in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods
True the excise duty component of the price would not be an addition to the coffers of the dealer
as it would go to reimburse him 1 1979 I SCR 276 817 in respect of the excise duty already paid by him on the manufacture of the goods
But even so it would be part of the sale price because it forms a component of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser
There is no other manner of liability statutory or other wise under which the purchaser would be liable to pay the amount of excise duty to the dealer
And on this reasoning it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bill
 We would like to add that the position is not different when under a prior agreement the legal liability of the manufacturer dealer for payment of excise duty is satisfied by the purchaser by direct payment to excise authorities or to the state exchequer
In Paprica Ltd  Anr
vs Board of Trade 1 Lawrence J stated Whenever a sale attracts purchase tax that tax presumably affects the price which the seller who is liable to pay the tax demands but it does not cease to be the price which the buyer has to pay even if the price is expressed as X  plus purchase tax This Court in Messrs George Oakes P Ltd vs The State of Madras 2 quoted this extract with approval and also referred to the following passage in the Judgment of Goddard LJ in Low vs Norman Wright Builders Ltd 3 Where an article is taxed whether by purchase tax customs duty or excise duty the tax becomes part of the price which ordinarily the buyer will have to pay
The price of an ounce of tobacco is what it is because of the rate of tax but on a sale there is only one consideration though made up of cost plus profit plus tax
So if a seller offers goods 1 2  3 818 for sale it is for him to quote a price which includes the tax if he desires to pass it on to the buyer
If the buyer agrees to the price it is not for him to consider how it is made up or whether that seller has included tax or not So far as the purchaser is concerned he pays for the goods what the seller demands namely the price even though it may include tax
That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turnover
 Admittedly the bills issued by the appellant did not include the excise duty
As already found payment of excise duty is a legal liability of the manufacturer its payment ii a condition precedent to the removal of the liquor from the distillery and payment by the purchaser is on account of the manufacturer
According to normal commercial practice excise duty should have been reflected in the bill either as merged in price or being shown separately
As a fact in the hands of the buyer the cost of liquor is what is charged by the appellant under its bill together with excise duty which the buyer has directly paid on seller s account
The consideration for the sale is thus the total amount and not what is reflected in the bill
We are therefore clearly of the opinion that excise duty though paid by the purchaser to meet the liability of the appellant is a part of the consideration for the sale and is includible in the turnover of the appellant
The purchaser has paid the tax because the law asks him to pay it on behalf of the manufacturer
Mr Sorabji in the course of his submission relied on a Division Bench decision of this Court in Anand Swarup Mahesh Kumar vs The commissioner of Sales Tax
1 This Court was considering the liability for Sales Tax under the corresponding UP Act in respect of a dealer carrying on business at Mandi Anandganj Baraut in the District of Merrut
The Sales Tax authorities had included in the dealer s purchase turnover market fee  and the commission payable to the commission agent operating within the market area for the purpose of computing sales tax
The decision 1  819 turned on the definition of turnover of purchase  in the UP Act and the provision of the Adhiniyam and the Rules made thereunder
Market fee and commission payable to an agent are very different from excise duty and a very different position emerges in law in regard to them
No support is available from that decision for the appellant s case
We would like to point out that the relevant consideration is not whether the law permits the incidence of the duty to be passed on to the purchaser but whether there is a prohibition against the passing of it
If there is no bar the incidence would be passed on to the purchaser in accordance with normal commercial practice
Mr Sorabji built up an argument in support of the appellant s stand by referring to the amendment to the First Schedule to the Sales Tax Act
The relevant part of the Schedule provides thus  Item No Description of Point of levy
Rate of tax goods 26
All liquors other At the point than country liquor of the first sale 2 but including in the State
Vodka 1026 a not covered by 3 50 paise item b below in the rupee b Where the 3 25 paise consideration for in the rupee
the sale or purchase of liquor includes the duties of excise payable under the Andhra Pradesh Excise Act 1968
Apparently this amendment was brought about after the Judgment of this Court in the appellant s appeal in 1976 and the position has been further altered by amendment in 1984
Sale of liquor has now been made exigible to tax at every point other than the point of last 820 sale in the State
The argument advanced before this Court is that the appellant had already paid tax on the basis of 50p
in the rupee on the footing that the consideration for sale of its liquor did not include duty of excise payable under the Excise Act and the appellant cannot therefore be made liable for sales tax on a different footing
This contention too has no force
Such a stand had not been taken in the writ petition before the High Court and there has been no factual examination of the position as to whether the classification indicated is not intended to cover a totally different situation
For resolving the dispute as to whether excise duty is a part of the turnover reference to the Schedule ii indeed wholly irrelevant
Mr Sorabji relied heavily on the observations of Hidayatullah J as he then was speaking for the Court in the case of George Oakes Private Ltd  Ors
vs The State of Madras 1 where it was said It was pointed out by this Court in 12 STC 476 that the word price  in so far as the purchaser is concerned includes the tax also and that in laws dealing with sales tax turnover has in England and America also been held to include the tax
The reason for such inclusion is stated to be that dealer who realises the tax does not hand it over forth with to Government but keeps it with him and turns it over in his business before the parts with it
Thus the tax becomes for the time being a part of the circulating capital of the tradesman and is turned over in business
Again it was said that the price paid by the purchaser was not so much money for the article plus tax but a composite sum
Therefore in calculating the total turnover there is nothing wrong in treating the tax as part of the turnover because turnover  means the amount of money which is turned over in the business
 According to Mr Sorabji the excise duty had never come into the hands of the appellant and the Company had no occasion or opportunity to turn it over in its hands and therefore the same could never be considered as a part of its turnover
The obser 1 13 STC 98
821 vations made by this Court were in a very different setting and what was being considered was whether the additional tax levied under the Madras Act formed a part of the turnover
If we accept the observations of Hidayatullah J as laying down the test for general application it would be very prejudical to the Revenue as between the seller and the buyer by special arrangement a part of what ordinarily would constitute consideration proper could even be kept out and the turnover could be reduced and tax liability avoided
We are of the view that the conclusion reached in the appellant s case in  on the second aspect of the matter namely when the excise duty does not go into the common till of the assesses and it does not become a part of the circulating capital it does not constitute turnover is not the decisive test for determining whether such duty would constitute turnover
A further contention was advanced by Mr Sorabji as his last submission that it is open to every one to so arrange his affairs as to reduce the brunt of taxation to the minimum and such a process does not constitute tax evasion nor does it carry any ignominy
In support of this submission he relied on the observations of Shah J speaking for this Court in Commissioner of Income tax vs Raman and Co1 where it was said The law does not oblige a trader to make the maximum profit that he
can out of his trading transactions
Income which accrues to a trader is taxable in his hands income which he could have but has not earned is not made taxable as income accrues to him 
Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited
A taxpayer may resort to a device to divert the income before it accrues or arises to him
Effectiveness of the device depends not upon considerations of morality but on the operation of the Income tax Act
Legislative injunction in taxing statutes may not except on peril of penalty by violated but may lawfully be circumvented
 Support was also sought from the observations of the same learned Judge as he then was in the case of Commissioner of Income 1 822 tax Gujarat II vs BM Kharwar1 After quoting a passage from the judgment of the Privy Council in the case of Bank of Chettinad Ltd vs Commissioner of Income tax 2 this Court stated The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a trans action
If the parties have chosen to conceal by a device the legal relation it open to the taxing authorities to unravel the device and to determine the true character of the relationship But the legal effect of a transaction cannot be displaced by probing into the substance of the transaction
In Jiyajeerao Cotton Mills Ltd vs Commissioner of Income tax and Excise Profits Tax Bombay 3 this Court observed Every person is entitled so to arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make believe  The Gujarat High Court in the case of Commissioner of Income tax vs Sakarlal Balabhai 4 said Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth his income liable to tax but on which he avoids payment of tax by some artifice or device
Such artifice or device may apparently show the income as accruing to another person at the same time making it available for use and enjoyment to the assessee as in a case falling within section 44D or mask the true character of the income by disguising it as a capital receipt as in a case falling within section 44E or assume diverse other forms 
But there must be some artifice or device enabling the assessee to avoid payment of tax on what is really and in truth his income
If the assessee parts with his income producing asset so that the right to 1 2 3 4 823 receive income arising from the asset which theretofore belonged to the assessee is transferred to and vested in some other person there is no avoidance of tax liability no part of the income from the asset goes into the hands of the assessee in the shape of income or under any guise  This decision has been affirmed by this Court in Commissioner of Income tax vs Sakarlal Balabhai1 We may also recall the observations of Viscount Simon in Latilla vs I R 2 Of recent years much ingenuity has been expended in certain quarters in attempting to device methods of deposition of income by which those who were prepared to adopt them might enjoy the benefits of residence in this country while receiving the equivalent of such incomes without sharing in the appropriate burden of British taxation
Judicial dicta may be cited which point out that however elaborate and artificial such methods may be those who adopt them are entitled to do so
There is of course no doubt that they are within their legal rights but that is no reason why their efforts or those of the professional gentlemen who assist them in the matter should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship
On the contrary one result of such methods if they succeed is of course to increase pro tento the load of tax on the shoulders of the great body of good citizens who do not desire or do not know how to adopt these manoeuvres
Another consequence is that the Legislature has made amendments to our Income Tax Code which aim at nullifying the affectiveness of such schemes Tax planning may be legitimate provided it is within the framework of law
Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by 2 3 824 resorting to dubious methods
It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges
On this aspect one of us Chinnappa Reddy J has proposed separate and detailed opinion with which we agree
In our view therefore there is no merit in the appeal and the same is liable to be dismissed with costs
Hearing fee is assessed at Rs 5000
We would like to add that now that a clear picture of the situation has emerged the State of Andhra Pradesh should relationalise the law on the subject if necessary by making other a appropriate amendments
While granting leave and allowing stay of proceedings this Court had directed that bank guarantee be furnished for the tax to the satisfaction of the assessing authority and in the event of the respondent succeeding in the appeal the appellant do pay interest at 12 per annum
The respondent may now proceed to collect the dues of the State in accordance with law
SR Appeal dismissed


Summary:
Excise duty as defined in section 210 of the AP Excise Act 1968 is leviable on the manufacture of liquor and the manufacturer cannot remove the same from the distillery unless the duty imposed under the Excise Act has been paid
Buyers of Indian liquor from the appellant s distillery obtain distillery passes for release of liquor after making payment of excise duty and present the same at the distillery there upon the bill of sale or invoice is prepared by the distillery showing the price of liquor but excluding excise duty
The appellant s books of account also did not contain any reference to excise duty paid by the purchaser
The appellant there ore paid sales tax under the Andhra Pradesh General Sales Tax Act 1957 on the basis of turnover which excluded excise duty
This position was not accepted by the Sale Tax Authorities and the matter was contested right upto the Supreme Court
The Supreme Court in Mc Dowell  Company Ltd etc
vs Commercial Tax Officer VIIth Circle Hyderabad etc
reported in  held that the Sales Tax Authorities were not competent to include in the turnover of the appellant the excise duty which was not charged by it but was paid directly to the Excise 792 Authorities the buyers of the liquor inasmuch as the excise duty did not go into the common till of the appellant and did not become a part of the circulating capital
After the judgment of the Supreme Court Rules 76 and 791 of the AP Distillery Rules were suitably amended with effect from August 4 1981
Amended Rule 76a provides that No spirit of liquor manufactured or stored shall be removed unless the Excise duty specified in rule 6 has been paid by a holder of D 2 licence before such removal and the amended rule 791 provides that on payment of the excise duty by the holder of D 2 licence a distillery pass for the removal of spirit fit for human compensation may be granted in favour of any of the named persons therein
The appellant being a D 2 licence holder was served with a notice on the basis of the amended provisions by the respondent proposing to include a sum of Rs 4490953240 representing the excise duty paid directly by buyers of appellants  liquor in the appellants turnover for a part of the year 1982 83 Thereupon the appellant again moved the High Court for quashing the said notice
The High Court considered the effect of the amended Rules and held that the primary liability to pay excise duty was indisputably of the holder of the D 2 licence
The High Court dismissed the writ petition on the findings a that the turnover related to liquor and b that the excise duty which was payable by the appellant but had by amicable arrangement been paid by the buyer was actually a part of the turnover of the appellant and was therefore liable to be so included for determining liability for sales tax
When leave was granted by a Division Bench of the Supreme Court to appeal against the judgment of the High Court the correctness of the decision in appellants  case reported in   was doubted and the matter was referred to a larger Bench
Dismissing the appeal the Court  HELD Per Chinnappa Reddy J concurring 11 Much legal sophistry and Judicial exposition both in England and India have gone into the attempt to differentiate the concepts of tax evasion and tax avoidance and to discover the invisible line supposed to exist which distinguishes one from the other
Tax avoidance it seems is legal tax evasion is illegal
Though initially the law was and law still is there is no equity about a tax
There is no presumption as to a tax
Nothing is to be read in nothings to be implied during the period between the two world wars the theory came to be propounded and developed that it was perfectly open for persons to evade avoid income tax if they could do so legally
In the wake of World War II huge profiteering and racketeering became the order of the day something which persists till today but on a much larger scale
Therefore the attitude of the entire English Courts towards avoidance of tax perceptibly changed and hardened The march of the law against Tax avoidance schemes des 793 cribed as magic performance by lawyer turned magician continued and then came a significant departure from the West mininister and the Fisher Executors principle in 1982 and finally the ghost of West minister has been exercised in England
Thus in the very country of its birth the principle of West minister has been given a decent burial and in that very country where the phrase tax avoidance originated the judicial attitude towards tax avoidance has changed and the smile cynical or even affectionate though it might have been at one time has now frozen into a deep frown
The courts are concerning themselves not merely with the genuineness of a transaction but with the intended effect of it for fiscal purposes
No man now can get away with a tax avoidance project with the mere statement that there is nothing illegal about it
797 G H C 807 A D Inland Revenue Commissioners vs Fishers Executors   Inland Revenue Commissioners vs Duke of West minister 19361 AC 1 Lord Howard De Waldan vs Inland Revenue Commissioners  Latilla vs Inland Revenue Commissioners Griffiths vs JP Harrizan Ltd  Morgan vs Inland Revenue Commissioners 1963 Chancery 438 Public Trustee vs Inland Revenue Commissioners 1965 Chancery 286 Campbell vs Inland Revenue Commissioners 1967 Chancery 651 Greenberg vs Inland Revenue Commissioners 1971 3 All ER 136 WT Ramsay vs Inland Revenue Commissioners 11982 AC 300 Inland Revenue Commissioners vs Burmah Oil Company Ltd 1982 STC 30 Furniss vs Dawson   Commissioner of Income tax Gujarat vs A Raman  Co 19681 SCR 10 Commissioner of Income tax
Gujarat vs Kharwar referred to 2
The evil consequence of tax avoidance are manifold i there is substantial loss of much needed public revenue particularly in a welfare State like ours ii there is the serious disturbance caused to the economy of the country by the piling up of mountains of blackmoney directly causing inflation iii there is the large hidden loss to the community by some of the best brains in the country being involved in the perpetual war waged between the tax avoider and his expert team of advisers lawyers and accountants on the side and the tax gathered and his perhaps not so skillful advisers on the other side iv there is the sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it and v last but not least is the ethics to be precise the lack of it of transferring the burden of tax liability to the shoulders of the guideless good citizens from those of the artful doggers
808 H 809 A C 3
The proper way to construe a taxing statute while considering a device to avoid tax is not to ask whether the provisions should be construed literally or liberally nor whether the transaction is not unreal and not prohibited by the statute but whether the transaction is a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it
809 E F Wood Polymer Ltd vs Bengal Hotels Limited referred to
794 4
It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation
It is upto the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of emerging  techniques of inter pretation to expose the devices for what they really are and to refuse to give Judicial benediction
809 G H 810 A WT Ramsay vs Inland Revenue Commissioners   Inland Revenue Commissioners vs Burmah Oil Company Ltd 1982 STC 30 Furniss vs Dawson 1984 I All ER 530 quoted with approval
HELD Per Ranganath Misra J 1
Tax planning may be legitimate provided lt is within the framework of law Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods
It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges
823 H 824 A Commissioner of Income tax vs A Raman  Co 1968 67 ITR II SC J Commissioner of Income tax Gujarat II vs BM Kharwar SC Bank of Chettinad Ltd vs Commissioner of Income tax  Jiyajeerao Cotton Mills Ltd vs Commission of Income Tax and Excess Profits Tax Bombay Commissioner of Income Tax vs Sakarlal Balabhai referred to
Latilla vs IR quoted with approval
21 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 or expediency
815 A B The Province of Madras vs Ms Boddu Paidanna  Sons RC Jall vs Union of India 1962 Suppl
3 SCR 436 Re
Sea Custom Act 1964 3 SCR 787 Ms Guruswamy  Co etc
vs State of Mysore  Ors
  Jullundur Rubber Goods Manufacturers  Association vs Union of India  Anr   AB Abdul Kadir  Anr
vs State of Kerala referred to
22 On an examination of the provisions of the AP Excise Act the Rules were framed thereunder and the pronouncements of the Supreme Court it is clear that the conclusion of the Court in Mc Dowells  Company Ltd etc
vs Commercial Tax Officer Vllth Circle Hyderabad etc  at page 921 of 1973 1 SCR that intending purchasers of the Indian liquors who seek to obtain distillery passes are also legally responsible for payment of the excise duty is too broadly stated
The duty wag primarily a burden which the 795 manufacturer had to bear and even if the purchasers paid the same under the Distillery Rules the provisions were merely enabling and did not give rise to any legal responsibility or obligation for meeting the burden
815 B D The change in Rule 76 of the AP Distillery Rules has clearly affirmed the position that liability for payment of excise duty is of the manufacturer and the provisions of rules 80 to 84 do not militate against it
These rules do 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
815 D F 23 The definition of turnover in section 2s of the AP General Sales Tax Act which is to the effect
namely the total amount set out in the bill of sale or if there is no bill of sale the total amount charged as the consideration for the sale or purchase of goods whether such consideration be cash deferred payment or any other thing or value Including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer whatever be the description name or object thereof clearly indicates that the total amount charged as the consideration for the sale is to be taken into account for determining the turnover
Where a bin of sale is issued and obviously the bill has to state the total amount charged as consideration the total amount set out therein is to be taken into account
In every transaction of sale there is bound to be a seller at one end and a buyer at the other and transfer of title in the goods takes place for a consideration
815 H816 A C 24 Excise duty though paid by the purchaser to meet the liability of the appellant is a part of the consideration for the sale and is includible in the turnover of the appellant
The purchaser has paid the tax because the law asks him to pay it on behalf of the manufacturer
Here admittedly the bills issued by the appellant did not include the excise duty Payment of excise duty is a legal liability of the manufacture its payment is a condition precedent to the removal of the liquor from the distillery and payment by the purchaser is on account of the manufacturer
According to normal commercial practice excise duty should have been reflected in the bill either as merged in price or being shown separately
As a fact in the hands of the buyer the cost of liquor is what is charged by the appellant under its bill together with excise duty which the buyer has directly paid on seller s account
The consideration for the sale is thus the total amount not what is reflected in the bill
818 C F 25 True the excise duty component of the price would not be an addition to the coffers of the dealer as it would go to reimburse him in respect of the excise duty already paid by him on the manufacture of the goods
But even so it would be part of the sale price because it forms a component of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser There is no other manner of liability statutory or 796 otherwise under which the purchaser would be liable to pay the amount of excise duty to the dealer
And on this reasoning it would make no difference whether the amount of excise duty is included in the price changed by the dealer or is shown as a separate item in the bill The position is not different when under a prior agreement the legal liability of the manufacturer dealer for payment of excise duty is satisfied by the purchaser by direct payment to the excise authorities or to the State exchequer
816 G H 817 A D 26 The conclusion reached in the appellants  case in  on the second aspect of the matter namely when the excise duty does not go into the common till of the assessee and it does not become a part of the circulating capital it does not constitute turnover is not the decisive test for deter mining whether such duty would constitute turnover
The relevant consideration is not whether the law permits the incidence of the duty to be passed on to the purchaser but whether there is a prohibition against passing of it
If there is no bar the incidence would be passed on to the purchaser in accordance with normal commercial practice
819 A C 821 B C The Province of Madras vs Ms Boddu Paidanna  Sons  RC Jall vs Union of India 1962 Suppl
3 SCR 436 Re
Sea Customs Act   Ms Guruswamy  Co etc
vs State of Mysore  Ors  jullundur Rubber Goods Manufacturers  Association vs Union of India  Anr   AB Abbul Kadir  Ors
vs State of Kerala referred to
Hindustan Sugar Mills vs Rajasthan State 1979 I SCR 276 applied
Paprika Ltd  Anr
vs Board of Trade 944 All
ER 372 Love v Norman Wright Builders Ltd 1944 I All ER 618 quoted with approval
Ms George OakesP Ltd vs The State of Madras   Anand Swarup Mahesh Kumar vs The Commissioner of Sales Tax  discussed and distinguished
3A stand which has not been taken in the writ petition before the High Court cannot be allowed to be taken in the Supreme Court
Here the contention based on item 26 of the amended First Schedule to the Sales Tax Act that the appellant had already paid tax on the basis of 50 p in the rupee on the fooling that the consideration for its liquor did not include duty of excise pay able under the Excise Act and the appellant cannot therefore be made liable for sales tax on a different footing cannot be sustained
Such a stand had not been taken in the writ petition before the High Court and there has been no 797 factual examination of the position as to whether the classification indicated is not intended to cover a totally different situation
Further for resolving the dispute as to whether excise duty is a part of the turnover reference to the Schedule is indeed wholly irrelevant
820 A D George Oakes P Ltd  Ors
vs The State Madras 13 STC 98 distinguished