1 WP NO.1832 of 1997 lgc IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.1832 OF 1997 1 Rajarambapu Patil Sahakari ] Sakhar Karkhana Limited, ] At Post Rajaram Nagar, ] Taluka Walva, District Sangli, ] Sangli – 415 414, Maharashtra ] ] 2 Babanrao Shivaling Patil ] At post Rajaram Nagar, ] Taluka Walva, District Sangli, ] Sangli – 415 414, Maharashtra ]... Petitioners. Versus 1 State of Maharashtra ] ] 2 Sales Tax Officer, ] Class-I, C-862, Adm – 84 ] Sangli, Sadguru Building, ] Timber Area, Sangli – 415 41 ]... Respondents. Mr. Pradeep S Jetly with Mr. Atul S Tungare for the Petitioners. Mr. V A Sonpal, `A’ Panel Counsel, for the Respondents. CORAM : V C DAGA AND R M SAVANT, JJ. DATE : 3rd September 2010 JUDGMENT [PER R M SAVANT, J] : 1 The main question that arises in the above Petition is as to whether the State Excise Duty paid directly by the CL-II licence holders, the purchasers of country liquor from the Petitioners, who are the manufacturers, is to be included in the sale price to be exigible to the payment of sales tax under the Bombay Sales Tax Act, 1959. 2 WP NO.1832 of 1997 2 The facts necessary to be cited for adjudication of the above Petition can be stated thus :- Petitioner No.1 is a Co-operative Society registered under the provisions of the Maharashtra Co-operative Societies Act, 1960. Petitioner No.2 is the office bearer of the Petitioner No.1 through whom the above Petition has been filed. The Petitioners are inter alia engaged in the business of manufacture and sale of country liquor of which they have been issued licence known as CL-I licence under the Maharashtra Country Liquor Rules 1973 framed under the Bombay Prohibition Act, 1949. The Petitioners are registered under the provisions of the Bombay Sales Tax Act, 1959 (herein after referred to as the “the said Act”) as also the Central Sales Tax Act, 1956. The country liquor manufactured by the Petitioners for sale is exigible to State Excise Duty under the Bombay Prohibition Act, 1949 as also to the Sales Tax under the said Act. In so far as the sales tax is concerned, the country liquor is listed at Entry No.20 of Schedule C Part II of the said Act and the rate of tax thereon was 10% in between 01.10.1995 to 30.09.1996 and 13% from 01.10.1996 to the date of filing of the above Petition i.e. March 1997. The period for which there is a dispute and which is, therefore, the subject matter of the above Petition is the period from 01.10.1995 to 14.11.1996 and 15.11.1996 to 14.01.1997. It appears that country liquor was exempted from payment of whole of the sales tax under the said Act up to 30.09.1995 by virtue of Entry No.168 under Notification issued under Section 41 of the said Act. By Notification dated 22.9.1995 issued under exercise of power under Section 41 of the said Act, sale of country liquor was exigible to tax at the reduced rate of four percent under Group A entry No.15. The Petitioners for the period in question i.e. from 01.10.1995 to 14.11.1996 have paid sales tax at the rate of four percent on the sale of country liquor on the basic price which is charged in the sale bills issued by the Petitioners. 3 WP NO.1832 of 1997 3 In so far as Excise Duty is concerned, the Commissioner of State Excise Maharashtra, by circular No.CLR 1293/53060/V-B dated 25.10.1993 regulated the payment of Excise Duty by ordering that the excise duty on country liquor may be paid by persons holding CL-II licenses at the rates in force at the time of sale of country liquor subject to certain conditions. As indicated above, the Petitioners are the manufacturers of country liquor and selling country liquor to CL-II licence holders. The said excise duty is paid directly by CL-II licence holders in terms of the said circular dated 25.10.1993. It is the case of the Petitioners that the said excise duty does not find reflection in the Petitioners invoices or in their books of account. The Petitioners, therefore, pay sales tax under the said Act on the sale of country liquor on the basic price. The component of State Excise Duty is not reflected in the invoice in view of the fact that the same is paid directly by CL-II licence holder. It appears that the concerned Sales Tax Officer visited the premises of the Petitioners on 15.10.1996 and made inquiries regarding sales tax payable on the sale price inclusive of State Excise Duty on sale of country liquor. The upshot of the said visit was that the Sales Tax Officer within whose jurisdiction the Petitioners factory falls by his letter dated 12.12.1996 called upon the Petitioners to pay the sales tax on State Excise Duty. After the receipt of the said letter, the Petitioners paid under protest a sum of Rs.10 lakhs on 20.12.1996 and a further sum of Rs.5 lakhs on 30.12.1996 being sales tax on the State Excise Duty Component for the period from 1.10.1995 to 14.11.1996. The Sales Tax Officer thereafter vide his letter dated 17.01.1997 again called upon the Petitioners to pay the balance of sales tax on the State Excise Duty. The Petitioners again under protest have paid sales tax on the State Excise Duty in the sum of Rs.4,01,875/- for the period from 15.11.1996 to 14.01.1997. As mentioned herein above, thereafter by Notification dated 04.01.1997 issued in exercise of 4 WP NO.1832 of 1997 powers conferred by sub-section (1) of Section 41 of the said Act the whole of tax on the sale of country liquor with effect from 15.01.1997 has been waived. It appears that the Petitioners have been issued a certificate by the Deputy Superintendent of State Excise on 11.02.1997 stating therein that the Excise Duty on country liquor is paid by the wholesale licensees of country liquor (CL-II licence holders) on the supply made to them by the Petitioners and that same has been done in view of the circular dated 25.10.1993 issued by the Commissioner of the State Excise Duty, Maharashtra. The Petitioners have, by their above Petition, challenged communications Exhibits E G and H whereby they have been called upon to pay sales tax on the Excise Duty. Since the Respondents have relied upon Explanation-I to clause (29) of Section 2 of the said Act, to base their claim for payment of sales tax on State Excise Duty, the Petitioners have challenged the constitutional validity of the said Explanation-I to Clause (29) of Section 2 of the said Act, in so far as it treats as part of the sale price the State Excise Duty paid directly by CL-II licence holders on purchases of country liquor from the Petitioners. The Petitioners have also alternatively prayed that in the event this Court upholds the constitutional validity of Explanation-I to Clause (29) of section 2 of the said Act, then the said provision be read down so as to mean that the sale price does not include State Excise Duty and, therefore, no sales tax is payable on the State Excise Duty paid directly by the CL-II licence holders on sale of country liquor by the Petitioners. 4 On behalf of the Respondents, an affidavit in reply has been filed dealing with the claim and contentions in the Petition. In the said affidavit it is contended that the State Excise Duty payable is deemed to be a part of the sale price in terms of Explanation-I to Clause (29) of Section 2 of the said Act. The said affidavit further goes on to state that since the returns were filed by the Petitioners, the factory of the 5 WP NO.1832 of 1997 Petitioners was visited by the Sales Tax Officers in order to ascertain the correctness of the said returns filed by the Petitioner and more especially to ascertain whether the Petitioners who are the dealers under the said Act have paid sales tax on the amount of Excise Duty payable on the sale of country liquor. In the said affidavit it is further averred that the circular dated 25.10.1993 can only be said to be a sort of administrative concession and mutual arrangement extended by the Excise Department to facilitate payment of State Excise Duty, however, the liability to pay State Excise duty is principally that of the Petitioners. 5 We have heard Shri Jetly, the learned counsel appearing for the Petitioners and Shri Sonpal, the learned counsel appearing for the Respondents. 6 On behalf of the Petitioners, the thrust of the submissions was on the basis of circular dated 25.10.1993. It was sought to be contended by the learned counsel for the Petitioners that in terms of the said circular dated 25.10.1993, the CL-II licence holder was obliged to pay Excise Duty on the quantity of liquor purchased from the Petitioner, and hence the said amount could not be included in the sale price of the Petitioners. The learned counsel for the Petitioners, for the said purpose, relied upon the contents of the said circular dated 25.10.1993 to buttress the said submission. The learned counsel further submitted that since the component of the State Excise Duty is not reflected in the invoices of the Petitioners or in their books of accounts, the same cannot be included in the sale price as the State Excise Duty is paid directly by the CL-II licence holder to the Department. The learned counsel would contend that in so far as Explanation -I to Clause 29 of Section 2 of the said Act seeks to increase the sale price by adding the component of State Excise Duty, the same is ultravires the Constitution of 6 WP NO.1832 of 1997 India and beyond the legislative competence of the Respondent No.1. The learned counsel for the Petitioners relied upon the Judgment of the Apex Court in the matter of McDowell & Company Ltd. and others v/s. Commercial Tax Officer, VII Circle, Hyderabad and others reported in (1977) 39 STC (SC) 151 (herein after referred to as “the 1st McDowell case”), as also the Judgment of the Apex Court in the matter of Food Corporation of India v/s. State of Kerala reported in (1988) 68 STC (SC), 1 and also the judgment of the Division Bench of this Court in the matter of Gujarat Export Corporation Limited v/s. State of Maharashtra reported in (1990) 77 STC (Bom) 110, in support of his submission that component of State Excise Duty could not be included in the sale price. 7 Per contra, it was submitted by the learned counsel for the Respondents that in terms of Section 2(29) of the said Act, the State Excise Duty paid by the Petitioners is liable to be included in the sale price and the Petitioners are, therefore, obliged to pay sales tax on the State Excise Duty. The learned counsel for the Respondents submitted that the reliance placed by the Petitioners on the said circular dated 25.10.1993 in support of their submission that since the liability of payment of State Excise Duty is that of the CL-II licence holder, the same could not be included in the sale price is misconceived. The learned counsel for the Respondents submitted that the principal liability to pay the State Excise Duty is that of the manufacturer i.e. the Petitioners. According to him, the circular dated 25.10.1993 merely makes out a sort of administrative arrangement to facilitate the payment of Excise Duty and does not have the effect of altering the responsibility of payment of Excise Duty. The learned counsel for the Respondents relied upon the contents of the said circular dated 25.10.1993 to contend that the said circular postulates that the Excise Duty may be paid by the CL-II 7 WP NO.1832 of 1997 licence holders. The learned counsel for the Respondents submitted that since consideration for the sale of liquor includes State Excise Duty, the sale price would therefore have to include the total amount and not what was reflected in the bill and merely because the Petitioners have not included the State Excise Duty in the bill would not absolve them of the liability of paying sales take on the State Excise Duty. The learned counsel for the Respondent further submitted that the issue in question whether the Excise Duty could be included in the sale price can be said to have been covered by the decision of the Apex Court in the matter of Mohan Breweries & Distilleries Ltd. v/s. Commercial Tax Officer, Madra and others reported in (1977) 107 STC (SC ) 212. In so far as Judgment in McDowell case (Supra) (1st McDowell case), on which the reliance is placed by the Petitioners, is concerned, the learned counsel for the Respondents submitted that as a consequence of the judgment in McDowell’s case (supra), Rules 76 and 79 of the Andhra Pradesh Distillery Rules were amended and after the amendment the liability for the payment of Excise Duty was that of the manufacturer. The McDowell Co Ltd challenged the said amendment on the ground that the Excise Duty did not constitute part of the turn over. The Writ Petition filed by the McDowell Co.Ltd. was decided against it by the Division Bench of the High Court of Andhra Pradesh by holding that the Excise Duty being payable by the manufacturer but by an amicable agreement being paid by the buyer was actually a part of the turn over of the Respondent and was therefore liable to be so included for determining its liability for sales tax under Andhra Pradesh General Sales Tax Act, 1957. The matter was carried to the Apex Court and, the Apex Court in judgment reported in (1985) 59 STC (SC) 277 (herein after referred to as “the 2nd McDowell case”) upholding the view of the High Court of Andhra Pradesh. Therefore, according to the learned counsel for the Respondents, the reliance placed by the Petitioners on the said judgment in 1st McDowell case is of no avail. 8 WP NO.1832 of 1997 The learned counsel for the Respondents submitted that in so far as the judgment of the Division Bench of this Court is concerned, the facts in the said case were relating to the payment of customs duty and, therefore, the Division Bench of this Court relying upon the 1st McDowell Case reported in (1977) 39 STC 151 (SC) had answered the reference in favour of the assessee by holding that the customs duty could not be included in the turn over. However the learned counsel for the Respondents submitted that in so far as the present case is concerned, the facts in the 2nd McDowell case reported in (1985) 59 STC 277 (SC) are closer to the facts of the instant case and can therefore be said to be covered by the said Judgment also. In any event, according to the learned counsel for the Respondents, the issue in question is covered by the judgment of the Apex Court in the case of Mohan Breweries & Distilleries Ltd (supra) and therefore there is no merit in the challenge of the Petitioners to Section 2(29) of the said Act. 8 We have heard the learned counsel for the parties. 9 Considering the challenge raised by the Petitioners, the crux of the issue that arised for consideration is, as to whether the State Excise Duty paid by CL-II licence holders who have been supplied liquor by the Petitioners can be included in the sale price of the Petitioners. Considering the said challenge the definition of sale price as posited in Section 2(29) can be gainfully reproduced :- “Section 2(29) “sale price means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the dealer in respect of goods at the time of or before delivery thereof, other than (the post of insurance for transit or for installation), when such cost is separately charged: 9 WP NO.1832 of 1997 Explanation (I)- For the purposes of this clause, the amount of duties levied or leviable on goods under the Central Excise and Salt Act, 1944 or the Customs Act, 1962 or the Bombay Prohibition Act, 1949 shall be deemed to be part of the sale price of such goods, whether such duties are paid or payable by or on behalf of the seller or the purchaser or any other person. Explanation (II)- Sale price shall not include sales tax (turnover tax, surcharge and resale tax) paid or payable to a dealer in respect of such sale ) Explanation (III)- For the purpose of this clause, sale price shall include the amount received by the seller by way of deposit (whether refundable or not) , which has been received whether by way of a separate agreement or not, in connection with or incidental or ancillary to, the said sale or the distribution of the said goods.)” 10 The said definition therefore postulates by virtue of Explanation-I that sale price would include the customs or State Excise Duty paid on the liquor. Hence there can be no dispute, considering the said definition that the State Excise Duty is to be the part of the sale price. Now coming to the challenge of the Petitioners to the inclusion of the State Excise Duty in the sale price. As mentioned herein above, the thrust of the arguments of the learned counsel for the Petitioners was based on the circular dated 25.10.1993 issued by the Commissioner of State Excise, Maharashtra. It would, therefore, be apposite to reproduce the contents of the said circular, which are as under :- “In partial modification of this office Circular No.BIC.1081/IT- B(TRY) dated the 4th December, 1984, it is hereby ordered that the excise duty on country liquor may be paid by the persons holding C.L. II licences at the rates in force at the time of release of Country Liquor subject to condition that :- (a) The payment should be made in the treasury or sub-Treasury in which the C.L.I licence at present credits the excise duty, and b) The manufactory who wants to avail of this facility should give an undertaking in writing that in case the chalan produced by C. L. II license is found to be forged, bogus or defective in any case, the C.L. I licensee binds himself to pay the excise duty.” 10 WP NO.1832 of 1997 11 A reading of the said circular therefore indicates that the said circular can only be said to be a modality to facilitate the payment of Excise Duty. It cannot have the effect of shifting the responsibility of payment of Excise Duty which is primarily that of the Petitioners to the CL-II licence holders who are supplied country liquor by the Petitioners. As can be seen from the said circular, a phraseology used is that “the excise duty on country liquor may be paid by the persons holding C.L.II licences at the rates in force at the time of release of Country Liquor. That modality to facilitate the payment of Excise Duty can be seen in clause (a) which stipulates that the payment has to be made in the treasury or sub-treasury in which CL-I licence at present credits the excise duty. However, clause II ex-facie is a pointer to the fact that it is a facility provided by the Commissioner of State Excise for payment of State Excise Duty as is in terms of clause (b) the manufactory like Petitioners are obliged to give undertaking in writing that in case there is an problem as regards payment of Excise Duty, the CL-I licensee binds himself to pay the excise duty. Hence in our view, the said circular does not in any manner shift the obligation of payment of Excise Duty from the manufacturer to the C.L. II licence holders and that CL-II licence holders whilst paying the Excise Duty are merely fulfilling the obligation of the manufacturers like the Petitioners. Hence in our view, the circular dated 25.10.2010 does not in any manner further the case of the Petitioners in so far as their contention that the State Excise Duty having been paid by the CL-II licence holders cannot be included in the sale price. 12 In the context of the circular dated 25.10.1993, an issue also arises as to whether the circular issued by the Commissioner of State Excise, assuming to be issued under the statute under which he exercised his powers, can bind the authority exercising the power under the said Act viz. The Bombay Sales Tax Act. The learned counsel for the 11 WP NO.1832 of 1997 Petitioners fairly conceded that the efficacy of the said circular qua the authority exercising the powers under the said Act is questionable. Apart from the fact that the said circular does not in any manner shift the responsibility of payment of State Excise Duty on the CL-II licence holders, in our view, the said circular cannot bind the authority under the said Act whilst determining the sale prices as postulated in clause 29 Section 2 of the said Act. 13 In so far as judgment relied upon by the learned counsel for the Petitioners are concerned, in our view, in the light of authoritative pronouncement of the Apex Court in the case of Mohan Breweries (supra), the reliance placed by the learned counsel for the Petitioners on the judgment in the 1st McDowell case (supra) and in the case of Food Corporation of India (supra) and on the judgment of the Division Bench of this Court in the case of Gujarat Export Corporation Ltd. (supra), is misplaced. Now coming to the judgments on which reliance is placed by the learned counsel for the Petitioners. In the 1st McDowell case, the issue was as to whether the Excise Duty or Countervailing Duty paid directly to treasury by purchasers before removing liquor from Distillery or bonded warehouse and not included in sale bill by dealer would form part of turnover of dealer and liable to pay sales tax. The Apex Court, in the context of clause (1)(s)of Section 2 of the Andhra Pradesh General Sales Tax Ac t, 1957 which postulates inclusion of “any sums charges by the dealer”, held that the excise duty or the countervailing duty would not come within the sweep of the said provision and cannot be included in the sales tax. 12 WP NO.1832 of 1997 It is required to be noted that after the said judgment in the 1st McDowell case, Rules 76 and 79 of the Andhra Pradesh General Sales Tax Act, 1957 were amended and after the amendment the liability for payment of excise duty was specifically made that of the manufacturer. The challenge of the McDowell Co. Ltd to the said Rules on the ground that the excise duty paid directly by buyers could not be included in the sale price was turned down by the High Court of Andhra Pradesh and the said view of the High Court of Andhra Pradesh was upheld by the Apex Court in the 2nd McDowell case reported in (1985) 59 STC 277. The facts in the 2nd McDowell case therefore were closer to the facts of the present case, as in the instant case also Section 2(29) of the said Act includes the State Excise Duty in the sale price. In so far as the judgment in the case of Food Corporation of India (supra) is concerned, the facts in the said case are clearly distinguishable from the facts in the instant case inasmuch as the question in the said case was as regards the administrative surcharge and price equalisation charge which was collected by Food Corporation of India in accordance with rates fixed by the Government merely as an agent on behalf of the Government which was not the part of price nor the