ivil Appeal Nos
248 251 of 1976
Appeals by Special Leave from the Judgment and Order dated 28 11 1975 of the Andhra Pradesh High Court in Writ Petitions Nos
1195 119875
CIVIL APPEALS Nos
934 936 of 1976
Appeals by Special Leave from the Judgment and Order dated 28 11 1975 of the Andhra Pradesh High Court in Writ Petitions Nos
3931 3944 and 402975
CIVIL APPEALS No 693 of 1976
Appeal by Special Leave from the Judgment and Order dated 28 11 1975 of the Andhra Pradesh High Court in Writ Petition No 679074
Soli Sorabji and KJ John for the Appellant CAs 248 25176
A Subba Rao for the Appellant CAs
934 93676
Babul Reddy and KJ John for the Appellant CA
69376
Niren De Attorney General for India PP Rao DV Sastry and TVSN Chari for the Respondents in CAs
248 25176 and CAs
934 93676
TVSN Chari for the Respondent In CA No 69376
The Judgment of the Court was delivered by JASWANT SINGH J
This batch of appeals by special leave which are directed against three separate judgments of the High Court of Andhra Pradesh at Hyderabad dismissing three sets of writ petitions Nos
1195 to 1198 of 19753931 3944 and 4929 of 1975 and 6790 of 1974 filed by the
appel lants to challenge certain orders of the sales tax authori ties made in respect of re determination of their  turnover for certain years under the Andhra Pradesh General Sales Tax Act 916 1957 hereinafter referred to as the Act  shah be disposed of by this judgment as they raise a common question as to whether the excise duty deposited directly in a State treas ury or a sub treasury by the purchasers of the Indian made foreign liquor called Indian liquor  before removing the said liquor from a distillery and the countervailing duty remitted directly to a State Treasury or a sub treasury by the purchasers of the aforesaid specie of liquor before removing it from a bonded warehouse can properly be said to form part of the turnover of he manufacturer and of the owner of the bonded warehouse respectively and as such liable to sales tax under the Act
The circumstances which have given rise to these appeals lie in a short compass and may be briefly stated The appel lants in the first two sets of Appeals Nos 248 to 251 of 1976 and 934 to 936 of 1976 carry on the business of manu facture of Indian liquors  in their distilleries estab lished in Andhra Pradesh under licences issued to them by the Commissioner of Excise under the Andhra Pradesh Excise Act 1968 Act 17 of 1968 and the rules made thereunder and sell their finished products to the wholesale dealers who in turn sell them to retail dealers
Under Rule 76 of the Andhra Pradesh Distillery Rules 1970 removal of any liquor manufactured or stored without prepayment of the excise duty specified in rule 6 is forbidden
Rule 77 of the Rules prohibits issue of any liquor until its quantity and strength have been duly verified by the distillery officer
Rule 579 of the Rules authorises the distillery officer on payment of excise duty to grant a distillery pass for remov al of the liquor fit for human consumption to the persons specified in the said rule including a person holding a licence for sale of liquor by wholesale or retail
Under Rule 81 of the Rules every application for a distillery pass for removal of liquor has to be addressed in writing to the distillery officer and has to be accompanied by a challan in original for payment of excise duty therefor and a general or special permit for the purpose of removal of the liquor
Rule 82 of the Rules enjoins the distillery officer upon tender of cash payment of excise duty by the applicant to fill up the challan for presentation with the cash at a treasury or sub treasury of the district in which the distillery is situate and the applicant for distillery pass to present the treasury receipt in token of his having made payment of the duty where after the distillery officer has to affix the said receipt to the counterfoil of form D 6
Rule 83 of the Rules casts responsibility upon an applicant for a distillery pass to make a correct calcula tion and full payment of the excise duty upon the liquor desired to be removed
Rule 84 of the Rules requires the distillery officer to issue the liquor under a pass in form D 6 sending a duplicate  thereof to the Excise Superintend ent of the district of destination on being satisfied that the applicant is entitled under the Rules to remove the liquor and has made payment of the requisite excise duty
Accordingly every buyer of the Indian liquor from either of the appellants  distilleries during the years in ques tion obtained the distillery pass for release of the liquor after making payment of the excise duty and presented the same at the concerned distillery whereupon bill of sale or invoice was prepared by the distillery showing the price of the liquor
The said bill did not include 917 the excise duty paid by the buyer
The appellants  books of accounts also did not contain any reference regarding the excise duty paid by the purchasers in the manner stated above
The appellants paid the sales tax in full as per final assessments made by the sales tax authorities under the Act
it appears that after the completion of the assessments of the sales tax under the Act for the years in question the Commercial Tax Officer felt that there had been a failure to include the excise duty paid on the aforesaid liquors vended by the appellants in their taxable turnover
Accordingly acting under the provisions of section 141 of the Act the Commercial Tax Officer issued notices in February 1975 to the appellants in the afore said first two sets of appeals to show cause why the assess ments be not reopened
Aggrieved by the said action of the Commercial Tax Officer the appellants filed writ petitions Nos
1195 to 1198 of 1975 and 3931 3944 and 4929 of 1975 in the High Court of Andhra Pradesh challenging the said notices which as already stated were dismissed by the High Court
The appellant in Appeal No 693 of 1976 is a firm which is a licensed wholesale dealer in liquors and owner of a bonded warehouse under the Andhra Pradesh Indian Liquor Storage in bond Rules 1969 where it stores or deposits Indian Liquors such as whisky brandy
gin etc
imported by it from various States outside the State of Andhra Pradesh without prepayment of countervailing duty or other fee and issues the same according to the rules to its customers
The modus operandi of the appellant is that it makes a bill for the value of the liquor required by an intending purchaser who thereafter pays the requisite countervailing duty in his own name and the Excise Officer incharge of the bonded warehouse grants him a pass entitling him to remove the liquor from the warehouse
According to the appellant it gets only the price of the liquor from its buyers
For the assessment year 1971 72 the Commercial Tax Officer Hydera bad III by its order dated August 16 1972 included the amount representing the countervailing duty paid by the purchasers in respect of the Indian liquors in bond which was not included in the bills of sale issued by the appel lant
On appeal the Assistant Commissioner by its order dated March 26 1973 deleted from the turnover of the appel lant the item pertaining to the excise duty paid directly by the purchasers holding that the excise duty so paid by the purchasers did not in the circumstances form part of the turnover of the appellant
Sometime thereafter the Sales Tax Appellate Tribunal by its order dated August 5 1974 passed in TA Nos 331 of 1973 and 5 of 1974 upheld the assessment made under similar circumstances by the Commer cial Tax Officer Vijayawada on the turnover of Ms Shaw Wallace  Co Thereupon the Deputy Commissioner Commer cial Taxes Hyderabad by virtue of the power vested in him under section 20 of the Act issued the impugned notice dated October 9 1974
to the appellant calling upon it to show cause why the order passed by the Assistant Commissioner Commercial Taxes on March 26 1973 should not be set aside and the original assessment order of the Commercial Tax Officer dated August 16 1972 restored
The appellant was also required to file objections and adduce evidence in support thereof within 7 days from the date of receipt of the impugned notice 918 Aggrieved by the notice the appellant flied a petition being petition No 6790 of 1974 before the High Court of Andhra Pradesh
seeking issue of an appropriate writ order or direction declaring that the appellant was not liable to pay sales tax on excise duty paid by the purchasers in their own names and restraining the Deputy Commissioner Commercial Taxes Hyderabad respondent in the appeal from taking further proceedings in pursuance Of the said notice
The said petition having been dismissed the appellant has as already stated come up in appeal to this Court
At the hearing of these appeals Mr Sorabji and the other counsel appearing on behalf of the appellants have assailed the aforesaid Judgments and orders of the High Court by urging in the first instance that the view taken by the High Court about the nature and character of excise duty and countervailing duty is not correct
They have also after trying in vain to argue for considerable length of time that on the true construction of the Andhra Pradesh Excise Act 1968 the Andhra Pradesh Distillery Rules 1970 the Andhra Pradesh Foreign and Indian Liquor Rules 1970 and the Andhra Pradesh Indian Liquor Storage in bond Rules 1969 a manufacturer of Indian liquors and an owner of a bonded warehouse are not primarily responsible for payment of the excise duty or countervailing duty as the case may be contended that a manufacturer and owner of the bonded ware house are not solely responsible for payment of the said duties and a purchaser of the liquor who obtains a distill ery pass or a werehouse pass and transport permit is also legally responsible for payment therefor and if he does pay the duty it is something which he does in discharge his own statutory liability and not something which he does for or on behalf or for the benefit of the manufacturer or the owner of the bonded warehouse
They have alternative ly contended that on a true construction of the expression turnover  as defined in section 21 s of the Act the determinative factor is the total amount set out in the bill of sale as consideration for the sale of the liquor and since the excise duty or the countervailing duty was direct ly paid by the purchasers to the excise authorities and did not at all form part of the consideration for the sale of the said liquor as set out in the bills of sale it was not permissible for the sales tax authorities to assess the turnover by roping therein something which was not set out in the bills of sale as consideration for the sales
They have lastly contended that in any event as the excise duty or the countervailing duty was at no time charged by the appellants for anything done in respect of the liquors sold but was charged by the excise authorities before removal of the liquors under the Andhra Pradesh Excise Act 1968 and the rules made thereunder it could not constitute a part of the turnover and taxed under the Act
Although some controversy was sought to be raised by counsel for the appellants regarding the nature and charac ter of the excise duty and countervailing duty but as rightly pointed out by the learned Attorney General the matter has been put beyond doubt by the decisions of this Court
In RC Jail vs Union of IndiaI after a review of the authorities bearing on the matter it was held by this Court as follows  1 1962 supp
3 SCR 436
918 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 taxing 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
 Again In re Sea Customs Act1 it was ob served The question with respect to excise duties was considered by this Court in the case of Amalgamated Coal fields Ltd vs Union of India AIR
After considering the previous decisions of the Federal Court In re
The Central Provinces and Berar Sales of Motor and Lubricant Taxation Act 1939 FCR 18 The Province of Madras vs Ms Boddu Paidanna and of the Judicial Committee of the Privy Council in Governor General in Council vs Province of Madras  this Court observed as follows at p 1287 With great respect we accept the principles laid down by the said three deci sions in the matter of levy of an excise duty and the machinery for collection thereof
Excise duty is primarily a duty on the produc tion or manufacture of goods produced or manufactured within the country
It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer that is ultimate incidence will always be on the customer
Therefore subject always to the legislative competence of the taxing authority the said tax can be levied at a convenient stage so long as the character of the impost that is it is a duty on the manufacture or production 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
 This will show that the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof
We may in this connection contrast sales tax which is also imposed with reference to goods sold where the taxable event is the act of sale
Therefore though both excise duty and sales tax are levied with reference to goods the two are very different imposes in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale
In neither case therefore can it be said that the excise duty or sales tax is a tax directly on the goods for in that event they will really become the same tax
It would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes like taxes on property and income 1  919 It is therefore clear that excise duty is a duty on the production or manufacture of goods produced or manufac tured within the country though as observed by one of us Khanna J in AB Abdul Kadir  Ors
vs State of Kerala1 laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production
The position with regard to the nature and character of countervailing duty has equally been made clear in a number of decisions of this Court
In Kalyani Stores vs The State of Orissa  Ors2 which was followed in Ms Mohan Meakin Breweries Ltd vs Excise  Taxation Commissioner Chandigarh  Ors
2 Shah J as he then was observed This brings us to the consideration of the meaning of the expression countervailing duties as used in Entry 51 List 1I of the Seventh Schedule to the Constitution
The expression countervailing duties has not been defined in the Constitution or the Bihar  Orissa Act 2 of 1915
We have therefore to depend upon its etymological sense and the context in which it has been used in Entry 51
In its etymological sense it means to coun ter balance to avail against with equal force or virtue to compensate for something or serve as an equivalent of or substitute for see Black s Law Dictionary 4th Edn
This would suggest that a countervailing duty is imposed for the purpose of counterbalancing or to avail against something with equal force or to compensate for something as an equiva lent
Entry 51 in List II of the Seventh Schedule to the Constitution gives power to the State Legislature to impose duties of excise on alcoholic liquors for human consump tion where the goods are manufactured or produced in the State
If also gives power to levy countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India
The fact that countervailing duties may be imposed at the same or lower rates suggests that they are meant to counterbalance the duties of excise imposed on goods manufactured in the State
They may be imposed at the same rate as excise duties or at a lower rate presumably to equalise the burden after taking into account the cost of transport from the place of manu facture to the taxing State
It seems therefore that countervailing duties are meant to equalise the burden on alcoholic liquors imported from outside the State and the burden placed by excise duties on alcohol ic liquors manufactured or produced in the State
If no alcoholic liquors similar to those imported into the State are produced or manufactured the right to impose counter balancing duties of excise levied on the goods manufactured in the State will not arise
It may therefore be accepted that countervail ing duties can only be levied if similar goods are actually produced or manufactured in the State on which excise duties are being levied
 1 1976 3 scc 219
2  3  921 Having seen that a provision can be inserted in the excise law for collection of the excise duty at a stage subsequent to the manufacture or production of the excisable article we shall now proceed to examine the main contentions raised by counsel for the appellants
We have first to see as to how far the contention of counsel for the appellants that apart from a manufacturer of Indian liquors and an owner of a bonded warehouse who in our opinion cannot but be regard ed as primarily responsible for payment of excise duty and countervailing duty respectively in view of sections 21 28  65 of the Andhra Pradesh Excise Act 1968 and rules 3 4 5 6 67  76 of the Andhra Pradesh Distillery Rules 1970 and condition No 9 of the Distillery Licence granted under rule 5 of these Rules rules 5  10 of the Andhra Pradesh Indian Liquor Storage
in bond Rules 1969 conditions Nos 7  10 of the licence granted in form BW 1 under rule 52
the phraseology of the application for receipt of liquor into the bounded warehouse prescribed by rule 92 and the terms of the counterpart agreement required to be executed by a licensee of an Indian liquor bonded warehouse under rules 32 and 52 of these Rules the buyers of the said liquors are also liable under the law for payment of the aforesaid duties can be sustained
For a proper deter mination of this question it is necessary to recall the provisions of the Andhra Pradesh Distillery Rules 1970 which have been set out in the earlier part of this judg ment
The said rules particularly rules 79 81 82 83 and 84 lend a good deal of support in our opinion to the contention of counsel for the appellants and make every intending buyer of the Indian liquor liable for payment of the excise duty before obtaining the distillery pass and lifting the quantity mentioned therein from 1he distillery
Accordingly agreeing with counsel for the appellants we hold that intending purchasers of the Indian liquors 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
The position in regard to the countervailing duty is nothowever dear though rule 101 of the Andhra Pradesh Indian Liquor Storage in bond Rules 1969 and rules 52 and 17 of the Andhra Pradesh Foreign and Indian Liquor Rules 1970 enable the intending buyers of Indian liquors to remove the same from a bonded warehouse on payment of the said duty to the excise authorities
This is not however sufficient to dispose of the matter
The real and pivotal question that requires to be determined is whether the excise duty or the countervailing duty as the case may be
paid directly to the excise authorities of the State or deposited directly in the State exchequer in respect of the Indian liquor by the buyers thereof before removing it from any of the aforesaid dis tilleries or the warehouse can be said to form part of the taxable turnover of the appellants as according to section 5 of the Act which is the charging section sales tax is required to be paid by the appellants on their turnover of the year
It will be useful at this stage to advert to the definitions of the words turnover  and sale  as given in clauses s and n of sub section 1 of section 2 of the Act
Shorn of unnecessary details these definitions run as under 922 turnover means the total amount set out in the bill of sale or if there is no bill of sale the total amount charg ed 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 descriptionname or object thereof  
    sale with all its grammatical varia tions and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or for any other valuable consideration 
In the instant case it is not disputed that excise duty or countervailing duty paid directly to the excise authorities by the purchasers of Indian liquors before removal thereof from the distilleries or the bonded warehouse on the strength of the distillery and warehouse passes was not included in the bills of sale as the consideration for the sales but 1hat alone according to the Attor ney General is not determinative of the matter
He has invited our attention to the second part of the definition of the word turnover  as set out above and has strenuous ly urged that as in addition to the price of the liquor set out in the bills of sale as consideration for the sales other sums charged by the dealer at the time of or before the delivery of the goods also form part of turnover and according to the well estab lished canon of construction a taxing stat ute has to be interpreted reasonably so that there is no evasion of the tax the phrase any sums charged by the dealer  occurring in the aforesaid definition of the word tur nover  must be construed as meaning any item of expense including the excise duty or the countervailing duty to which the buyers were put by the manufacturers of the liquors or the owner of the bonded warehouse
We find our selves unable to accept the construction sought to be put by him as it is opposed to the plain meaning of the said phrase
It will be advantageous here to refer to the decisions of this Court in
AV Fernandez vs The State of Kerala1 where Bhagwati J speaking for the Bench after quoting the observations made by Lord Russell of Killowen in Inland Revenue Commissioners vs Duke of Westminster2 which were approved by the Privy Council in the Bank of Chettinad vs Income Tax Commissioner3 observed It is no doubt true that in construing fiscal statutes and determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law
If the Revenue satisfies the Court that the case fails strictly within the provi sions of the law the subject can be taxed
If on the other hand the case is not covered within the four corners of the provisions of the taxing statute no tax can be 1  2 19361 ACI 24
3 AIR 1940 PC 183 923 imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter
We must of necessi ty therefore have regard to the actual provisions of the Act and the rules made thereunder before we can come to the conclu sion that the appellant was liable to assess ment as contended by the Sales Tax Authori ties
 Bearing in mind the principle set out in AV Fernan dez s case supra the phrase any sums charged by the dealer  has to be understood in its ordinary popular sense
So construing the phrase it means what is demand ed and collected or received by the dealer In the instant cases the excise duty or the countervailing duty has as already stated not been charged or received by the dealer but has been charged by the excise authorities and deposited directly by the buyers of the liquor in the State exchequer
It is therefore difficult to hold that excise duty or  countervailing duty was charged by the appellants
The reason for inclusion of tax or a duty in the turn over was explained in two decisions of this Court bearing the same cause title viz Messrs George Oakes Private Ltd vs The State of Madras  Ors
12 STC 476 and 13 STC 98
In the first of these cases it was observed  Under the definition of turnover the aggre gate amount for which goods are bought or sold is taxable
This aggre gate amount includes the tax as part of the price paid by the buyer
The amount goes into the common till of the dealer till he pays the tax
It is money which he keeps using for his business till he pays it over to Government
Indeed he may turn it over again and again till he finally hands it to Government
 In the other decision Hidayatullah J as he then was said In laws dealing with sales tax turn over has in England and America also been held to include the tax
The reason for such inclusion is stated to be that the 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 he parts with it
Thus the tax becomesfor the time being a part of the circulating capital of the tradesman and is turned over in his 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 In the instant cases the excise and countervailing duties did not go into the common tills of the appellants and did not become a part of their circulating capital
We are therefore of the view that the 9 1338SCI76 924 Sales Tax authorities were not competent to include in the turnovers of the appellants the excise duty and the counter vailing duty which was not charged by them but was closed by and paid directly to the excise authorities by the buyers of the liquors as stated above
The Full Bench decision of the High Court of Andhra Pradesh in The Government of Andhra Now Andhra Pradesh vs East India Commercial Co Ltd1 relied upon by the Revenue is clearly distinguishable
In that case it was the actual collection of certain sums as dharamam or charity by the dealer from the purchasers on the occasion of the sales that made the learned Judges to hold that they constitute part of the turnover
In Messrs George Oakes Private Ltd s case supra also the tax in question was collected by the registered dealer
We have therefore no hesitation in holding that the excise duty and the countervailing duty paid directly by the buyers of the Indian liquors as stated above did not consti tute a part of the turnovers of the appellants
For the foregoing reasons we allow the appeals and set aside the impugned judgments and orders
In the circum stances of the case we leave the parties to pay and bear their own costs of these appeals
PBR Appeals al lowed
1 8 STC 114


Summary:
Section 21s of the Andhra Pradesh General Sales Tax Act defines turnover to mean the total amount set out in the bill of Sale as the consideration for the sale or purchase of goods 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
The appellants in the first two sets of appeals are manufacturers of Indian liquors
A buyer of Indian liquor from the distilleries pays in the first instance the excise duty in the Treasury and obtains a distillery pass for the release of liquor
On presentation of the distill ery pass an invoice is prepared by the manufacturers showing the price of liquor
Neither invoice
nor the account books of the manufacturers show the excise duty paid by the purchasers
Under the system in vogue in the second set of appeals the appellant who is the owner of a bonded warehouse pre pares a bill for the liquor required by the purchaser who pays the countervailing duty in the Treasury in his own name and obtains a pass from the excise authorities for the removal of the liquor from the warehouse
In both the cases the Sales Tax Authorities included the excise duty in the taxable turnover of the appellants
The High Court dismissed the writ petition of the appel lants impugning the orders of the Sales Tax Officers
Allowing the appeal HELD 1 Excise duty and countervailing duty paid directly by the buyers for the Indian liquors did not con stitute a part of the turnovers or the appellants
924 C 2 The phrase any sums charged by the dealer  occur ring in the definition of turnover  has to be understood in its ordinary popular sense
So construed it means what is demanded and collected or received by the dealer
923 B In the instant case the excise duty or the countervail ing duty has not been charged or received by the dealer but has been charged by the excise authorities and deposited directly by the buyers of the liquor in the State exchequer
It cannot be said that the excise duty or the countervailing duty was charged by the appellants
In Ms George Oakes Private Ltd vs The State of Madras  Ors this Court held in relation to the definition of turn over that the aggregate amount includes the tax as part of the price paid by the buyer the amount goes into the common till of the dealer till he pays the tax it is the money which he keeps using for his business till he pays the tax it is the money which he keeps using for his busi ness till he pays it over to Government it becomes a part of the circulating capital of the tradesman and is turned over in his business
Secondly the price paid by the pur chaser was not so much money for the cause turnover means the amount of money which is turned over in the busi ness
923 E G 915 In the instant case the excise and the countervailing duties did not go into the common tills of the appellants and did not become a part of their circulating capital
The Sales tax authorities were not competent to include in the turn overs of the appellants the excise duty and the countervail ing duty which was not charged by them but was charged by and paid directly to the excise authorities by the buyers of the liquors
924 A A V Fernandez vs The State of Kerala  followed
RC Jail vs Union of India 1962 Supp
3 SCR 436 Sea Customs ACT   A B Abdul Kadir  Ors
vs State of Kerala  Kalyani Stores vs The State of Orissa  Ors   Ms Mohan Megkin Brewaries Ltd vs Excise  TaxatiOn Commisisoner Chandigarh  Ors  referred to
Messrs George Oakes Private Ltd vs The State of Madras  Ors
122 STC 476 and 13 STC 98 referred to and distinguished
The Government of Andhra now Andhra Pradesh vs East India Commercial Co Ltd 8 STC 114 distinguished