Civil Appeal No 2551 NT of 1988
From the Judgment and Order dated 771982 of the Allahabad High Court in STR No33 of 1982
AK Srivastava for the Appellant
RR Agarwal and CP Pandey for the Respondent
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
Special leave granted
The appeal is disposed of by the Judgment herein
The appeal relates to the assessment year 1976 77 period being 1476 to 3177 under the UP Sales Tax Act 1948 hereinafter called the Act
The dealer runs a Roller Flour Mills under the name and style of Ms Mool Chand Shyam Lal Roller Flour Mills Agra in which Atta Maida Suji Bran and Refraction are manufactured
For the manufacture of Atta Maida and Suji the wheat is supplied by the Food Corporation of India and Regional Food Controller under the UP Roller Flour Mills Regulation of use of Wheat Order
The sale price of the said wheat products ie Atta Maida Suji has been fixed by the State Government from time to time under UP Roller Flour Mills Ex Mill Price Control Order 1975 under the notifications issued by the Government
The State Government has further issued the notification No ST
460229 Wheat 127175 dated 28th June 1975 under the UP Roller Flour Mills Ex Mill Price Control Order 1975 fixing the ex mill price of the sales of wheat products and also authorised the mills in the said notification to realise the proportionate amount of octroi terminal tax purchase tax or sales tax duty or excise duty 752 payable by the mills on the wheat crushed in addition to the fixed ex mill price
The dealers have realised the amount of the wheat products as fixed by the UP Roller Flour Mills Ex Mill Price Control Order 1975 and have also realised the amount of the wheat sales tax or wheat purchase tax and octroi on the wheat used in the manufacture of wheat products for the sale of Atta Maida Suji Bran and refraction in accordance with the aforesaid notification
The dealers have further realised the proportionate amount of the wheat purchase tax and wheat sales tax and octroi as consideration of the sale price in addition to the sale price fixed by the State Government on the sales of wheat products
It is the case of the revenue that the amount of wheat sales tax and wheat purchase tax as well as the octroi paid by the dealers for the purposes of purchases of wheat which was used for the manufacture of wheat products has been kept in the separate account in the account books of the dealer
It is further the case of the revenue that the amount of wheat sales tax and wheat purchase tax which the dealer paid for the purposes of purchase of wheat was collected by the dealer as part of the sale price of the wheat products
For the assessment year 1976 77 the assessment order was passed on 22nd February 1979 under Rule 417 of the UP Sales Tax Rules read with section 183 of the Act for the period from 1476 to 3177 by which the assessing authority while passing the assessment order has accepted the contention of the dealer that the amount of the wheat purchase tax wheat sales tax and octroi charged separately by the dealer in the cash memo of sale of Atta Maida and Suji are the part of the turnover and included in the disclosed turnover of the dealer
The assessing authority in the regular assessment had treated this wheat purchase tax wheat sales tax and octroi which were paid by the dealer separately in the cash memos and the wheat products sold by the dealer as part of the ex mill price of the wheat product
The assessing authority had imposed the tax on this amount treating it as a part of the turnover of the dealer
But after the completion of the assessment the Assistant Commissioner Assessment issued a notice under section 15 A1qq of the Act to show cause as to why penalty should not be imposed in respect of the realisation of wheat purchase tax and wheat sales tax during the aforesaid period
A reply was filed by the dealer to the said notice
The Assistant Commissioner by his order dated 24th February 1979 imposed a sum of Rs25000 as penalty under section 15 A1qq
Section 15 A1qq reads as follows qq realises any amount as sales tax or purchase tax where no sales tax or purchase tax is legally payable or in excess of the amount of tax legally payable under this Act or 753 In the aforesaid circumstances after an inquiry as it may deem necessary the assessing authorities may direct that such dealer shall pay by way of penalty in addition to the tax if any payable by him mentioned therein
Against the aforesaid order of the Assistant Commissioner the dealer filed an appeal before the Deputy Commissioner Appeals
The Deputy Commissioner Appeals dismissed the appeal and confirmed the order of imposition of penalty
Against the said order of the Deputy Commissioner Appeals the dealer filed a second appeal before the Tribunal
The Tribunal also upheld the order of the lower authorities and dismissed the appeal
Against the judgment and order passed by the Tribunal the dealer moved the High Court by way of a revision
The High Court allowed the revision
The High Court held that on the facts found it should be examined if the excess realisation was of sales or purchase tax thus incurring penal liability under sub clause qq of sub section 1 of section 15 A or it was excess realisation of price over and above that the assessee was entitled to charge from its customers under Notification No 4602 of the Essential Commodities Act
It was urged that the assessee did not commit any breach of the Act
It was contended that the assessee was entitled to realise price and the purchase tax from customers under notification but if it realised more than it was excess realisation by way of price there would be breach of the Control Order for which no penalty could be levied under this Act
What the assessee has realised from customers was price and not tax
Section 15 A postulates as set out hereinbefore under clause qq certain conducts
As it is apparent from the provisions set out above that the realisation must be by the dealer of the amount as sales tax or purchase tax where no sales tax or purchase tax was legally payable or in excess of the amount of tax legally payable under the Act
Therefore it is necessary that realisation must be of the sales tax or purchase tax secondly that realisation must be in excess and thirdly the amount of tax should be legally payable under the Act
The High Court has construed the expression as in the beginning of the sub clause as significant
Penalty is leviable for excess realisation of tax therefore realisation of the amount should be as tax and not in any other manner
Then excess should be over and above the amount of tax legally payable
This expression obviously means tax payable under the Act rules or notification
Therefore realisation by the assessee from customers should not be of only sales or purchase but it should be of the tax legally payable
If the purchaser realises more money that by itself will not attract the penal provisions
In the instant case the High Court noted that it has been found that the dealer charged sales tax at 754 the rate of Rs5 per quintal
There is no finding that it was in excess of tax leviable or legally payable under the Act
The excess thus charged was in contravention of the provisions of the notification
But that alone was not sufficient for initiation or levy of penalty under subclause qq of section 15 A1 of the Act
It has to be realised as sales as purchase tax and the tax so charged must have been in excess of tax payable
The assessing authorities have not found in the instant case that Rs5 per quintal was in excess of tax payable under the Act
On behalf of the revenue our attention was drawn to sub clause b of sub section 2 of section 8 A of the Act
The said sub clause read as follows b Where sales tax is payable on any turnover by a dealer including a commission agent or any of the persons mentioned in the Explanation to clause c of Section 2 registered under this Act such a dealer may recover an amount equivalent to the amount of sales tax payable from the person to whom the goods are sold by him whether on his behalf or on behalf of his principal
 This is a method of realisation in case of indirect tax
Penalty can be levied or is leviable for realisation of excess of tax legally payable and not for contravention of section 8 A2b
Realisation of excess amount is not impermissible but what is not permissible is realisation of excess amount as tax
The High Court noted that the assessee did not act fairly in this case
By way of price it realised from its customers more than what is was entitled to under notification No 4602 but in order to avoid any consequences under the Essential Commodity such as suspension or cancellation of its licence etc
the excess realisation was shown as amount covered by Explanation II of the Notification
On these facts the High Court found that the provisions of section 15 A1qq were not applicable
It has to be borne in mind that the imposition of a penalty under the Act is quasi criminal and unless strictly proved the assessee is not liable for the same
In that view of the matter the High Court was right in the view it took
There is no scope for interference under Article 136 of the Constitution
The appeal therefore fails and is dismissed accordingly
There will be no order as to costs
RSS Appeal dismissed


Summary:
The respondent firm are manufacturers of dissolved acetylene gas and compressed oxygen gas
They were supplying these gases in cylinders at their factory gate
For taking delivery some consumers customers used to bring their own cylinders and take the delivery
Others used to have the delivery in the cylinders supplied by the respondent firm
For the purpose of such supply of cylinders certain rentals were charged by the firm and also to ensure that these cylinders are returned a certain amount as deposit used to be taken from the customers
On these deposits notional interest at 18 percent per annum was calculated
The Central Excise Authorities issued show cause notices to the respondent on the ground that the notional income on the deposit of cylinders and the rental are part of the assessable value and hence should be included in computing the assessable value
In their reply the respondent stated that the deposits from the buyers were only to ensure return of the gas cylinders from the customers
The Assistant Collector by his order dated 3rd June 1965 held that the respondent had to pay excise duty on the interest earned at 18 during the relevant period and that as the respondent had suppressed this fact from the revenue during the past 5 years the amount was includible and recoverable under Rule 8 read with Section 11A of the 
He also included the rentals of the cylinders in the value
In appeal the Collector upheld the order of the Assistant Collector but with certain modifications
762 The respondent appealed to the Central Excise and Gold Control Appellate Tribunal which allowed the appeal and held that the charge on account of rentals for the cylinders and the interest which accrued on the deposit for the cylinder are not relatable to the cost of manufacture of the goods and therefore under Section 4 deleted from the value rentals for the cylinders and the interest on the deposit
In the appeals to this Court it was contended on behalf of the Revenue that there are two different classes of buyers one class who brings their own cylinders and the others who get their supply through the cylinders of the suppliers and that different rates for these two classes of buyers constitute two different markets and are contemplated and permissible under the first proviso to Section 41a of the Act
Dismissing the Appeals  HELD 1
Section 41a proviso can be of no avail to the Revenue
There may be different classes of buyers for different classes of goods
In the instant case if the respondent company sold the gases to different classes of buyers then different prices may be charged
If the gases had been sold to different classes of buyers at different rates it is possible that there might be different markets for the same
The charges like rental for the cylinders and the notional interest income are for ancillary or allied services and that is not an activity of manufacture
766A B Union of India  Ors
vs Bombay Tyre International Ltd  and Asstt
Collector of Central Excise vs Madras Rubber Factory Ltd 1986 Supp SCC 751 referred to 2
It is well settled that levy under the Central Excises Salt Act is on manufacture
In the instant case the sale is of gases
The levy is on the manufacture of gases and the excisable goods are these gases
764GH 3
Gas being a commodity of peculiar nature has to be delivered by cylinders but these cylinders might be supplied either by the supplier as an ancillary activity or brought by the consumers or purchasers at their own risk and cost
For purchasers taking it in their own cylinders supplied by them there was no charge for them
This is not an activity for the manufacture of gases
This is ancillary to it but not incidental
765C In the instant case there are two different supplies
One is supply 763 of gases and the other is an incidental supply of cylinders on rent
The interest notional or real accruing on deposits for the safe return of cylinders as well as the rental would not constitute part of the assessable value
The Tribunal was right in the view it took
766C D