IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.S.R.BANNURMATH & THE HONOURABLE MR. JUSTICE THOTTATHIL B.RADHAKRISHNAN FRIDAY, THE 22ND JANUARY 2010 / 2ND MAGHA 1931 WA.No. 1225 of 2007() --------------------- AGAINST THE JUDGEMENT IN WPC.21230/2005 Dated 14/11/2006 .................... APPELLANT(S): PETITIONER ------------------------ M/S.UNITED SPIRITS LIMITED,(FORMERLY, KERALA DISTILLERIES, A UNIT OF SHAW WALLACE DISTILLERIES LIMITED), KANJIKODE, PALAKKAD, REPRESENTED BY ITS AUTHORISED SIGNATORY MR.A.RAJENDRAN. (NAME AND ADDRESS OF THE APPELLANT IS AMENDED AS PER ORDER DTD.5.8.09 IN I.A.1010/07) BY ADV. SRI.RAJU K.MATHEWS RESPONDENT(S): RESPONDENTS -------------------------- 1. STATE OF KERALA REPRESENTED BY THE SECRETARY TO GOVERNMENT , TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM. 2. THE ASST. COMMISSIONER (ASSMT.), COMMERCIAL TAXES, SPECIAL CIRCLE, PALAKKAD. 3. KERALA STATE BEVERAGES (MANUFACTURING AND MARKETING) CORPORATION LIMITED, SASTHA GROUP OFFICE COMPLEX, SASTHAMANGALAM, THIRUVANANTHAPURAM REPRESENTED BY ITS SECRETARY. R1, R2 BY SPL. GOVT. PLEDER SRI.VINOD CHANDRAN R3 BY SRI.ELVIN PETER.P.J, S.C. THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 22/01/2010, ALONG WITH W.A.NO.1368/07 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: S.R.BANNURMATH, C.J. & THOTTATHIL B.RADHAKRISHNAN, J. ------------------------------------------- W.A.Nos.1225, 1234, 1236, 1368, 1499, 1890, 2679, 2682, 2765, 2777, 2851, 2962 & 3016 OF 2007 AND W.A.Nos.330 & 347 OF 2008 ------------------------------------------- Dated this the 22nd day of January, 2010 JUDGMENT Thottathil B.Radhakrishnan,J. 1.These appeals are by the writ petitioners as also the State of Kerala against the common judgment issued in a bunch of writ petitions. The writ petitioners are manufacturers of Indian Made Foreign Liquor, hereinafter, 'IMFL', for short, holding due licences in terms of Sections 12 and 14 of the Abkari Act 1 of 1077 which extends to the whole of the State of Kerala. 2.The facts leading to these writ appeals could be noted with brevity with reference to the statements contained in the judgment of the Apex Court in State of Kerala v. WA.1225/07 & con. cases 2 Maharashtra Distilleries Ltd. [(2005) 11 SCC 1] and the sequence of events thereafter. 3.The manufacturers are engaged in the manufacture and sale of IMFL. They are registered as dealers under the Kerala General Sales Tax Act, 1963, hereinafter, the 'KGST Act', for short and the Central Sales Tax Act, 1956. Pursuant to the policy of the Government creating the monopoly in favour of the Kerala State Beverages (Manufacturing and Marketing) Corporation Ltd, hereinafter, for short, 'KSBC', the manufacturers were submitting tenders as required for sale and supply of IMFL. The prices quoted for various branches of IMFL do not include the sales tax or the excise duties since it was the KSBC which was liable to pay the tax. The excise duty was not paid by the manufacturers since the IMFL was required to be delivered to the KSBC and no excise duty was payable by the manufacturers. The offer made as per the requirement of the tender document clearly stipulated that the price quoted did not include excise duty. Accordingly, WA.1225/07 & con. cases 3 assessments were made from time to time on the basis that liability to pay sales tax and excise duty was on the KSBC. The manufacturers paid turnover tax on the basis of prices paid to them by KSBC. Therefore, they did not include the excise duty element while computing their total turnover, having regard to the entry at Sl.No.53 of the First Schedule of the KGST Act. It appears that some time in 1998, the sales tax authorities took the stand that the manufacturers have to submit revised returns by including the element of excise duty paid by the KSBC. This led to notices by the department, objections by the manufacturers, assessment orders, penalty orders, follow up notices to produce books of accounts for re-opening assessments on ground of escape turnover etc. This led to two bunches of writ appeals decided on 27.11.1999 and 9.8.2002 respectively. 4. The State of Kerala had contended that the excise duty paid by the KSBC formed part of the sale turnover of the manufacturer since it is the obligation of the manufacturer to WA.1225/07 & con. cases 4 pay excise duty, though it may be discharged by others. It was contended relying on Mohan Breweries and Distilleries Ltd. v. CTO [(1977) 7 SCC 542] that the excise duty element formed part of the total turnover which was chargeable to turnover tax under Section 5(2-C) of the KGST Act. In Maharashtra Distilleries (supra), the Apex Court noticed that the KSBC, which is a party to those writ petitions, accepted the fact that the excise duty on IMFL purchased by it from the manufacturer was paid by it and the same is included in its price which it realised as a wholesale dealer from its purchasers and the turnover of the KSBC is computed on that basis and the turnover tax paid accordingly. 5.After the judgments of this Court dated 27.11.1999 and 9.8.2002, the subject matter thereof gained the attention of the Apex Court leading to the judgment dated 6.5.2005 in Maharashtra Distilleries (supra). WA.1225/07 & con. cases 5 6.Sections 17 and 18 of the Abkari Act, as they stood at the relevant time, and the provisions of the Foreign Liquor Rules and the Distillery and Warehouses Rules as also the amendments made to Section 17 were noticed when the matter came up for hearing before the Apex Court. It was held that the rules leave no manner of doubt that they create a complete monopoly in favour of KSBC in so far as wholesale trade in IMFL is concerned. The Apex Court arrived at the conclusions enumerated in paragraph 84 of the decision in Maharashtra Distilleries (supra), which are quoted hereunder: “(a) Section 17 of the Kerala Abkari Act deals with imposition of duty not necessarily connected with manufacture of liquor and, therefore, the duty levied must in each case be examined before coming to a conclusion as to whether it is in reality a duty of excise. (b) The use of the words “duty of excise” in Section 17 of the Act is not conclusive and it is for the courts WA.1225/07 & con. cases 6 to examine in each case as to whether it is in fact a “duty of excise”. (c) In order that a duty may be characterised as “duty of excise” it must be shown that it is a duty on manufacture of goods. If it is unrelated to the manufacture of goods, it may be any other impost permitted by law, but would not qualify as a duty of excise. (d) Section 18-A of the Act permits the State of Kerala to grant exclusive or other privilege of manufacture, etc. on payment of rentals which includes the privilege of supplying liquor by wholesale or by retail. The annual rental payable under Section 18-A may be collected to the exclusion of or in addition to duty or tax leviable under Sections 17 and 18 of the Act. (e) That the State of Kerala by amendment of the Act and the relevant Rules created a monopoly in favour of the Kerala State Beverages Corporation. Licences in Form FL9 and BW1 have been given exclusively to the aforesaid Corporation which has also executed an agreement in Form A undertaking to pay the duty. A WA.1225/07 & con. cases 7 monopoly has been created in favour of the aforesaid Corporation in the wholesale trade of ILMFL. In view of Rule 11 of the (Storage in Bond) Rules, duty is payable on the movement of IMFL from the bonded warehouse of the Beverages Corporation to the FL9 licensed premises. It is payable when IMFL is issued from the bonded warehouse of the Corporation. (f) The levy of duty on IMFL issued from a bonded warehouse licensed or established under Section 12 of Section 14 of the Act is referable to the duty levied under Section 17(f) of the Kerala Abkari Act. (g) The notifications issued by the Government relate both to goods manufactured in the area or imported into the area. (h) The duty levied is on goods and not on manufacture”. 7.It was further held as follows: WA.1225/07 & con. cases 8 “Taking all these factors into account and having regard to the scheme of monopoly introduced by the State of Kerala in the year 1984 we must hold that the levy of duty is not a levy in the nature of “duty of excise” but is the privilege price payable by KSBC in consideration of the State parting with its exclusive privilege of wholesale trade in IMFL in favour of the aforesaid Corporation”. 8.The Apex Court further noted that with effect from 5.1.1999, in view of the amendment to the Foreign Liquor Rules, KSBC could not purchase IMFL from the manufactures/distillers without payment of duty and in view of such amendment, KSBC had to pay duty before it could lift the stock of IMFL from the manufacturers' warehouses to its own licensed premises. As stated by the Apex Court, this was a radical change in the position with effect from 5.1.1999 and as a consequence, the KSBC had to pay to the manufactures/ distillers, the duty payable in respect of IMFL. It was specifically held that consequently, the amount of duty paid with effect from 5.1.1999 by the KSBC into the hands of the WA.1225/07 & con. cases 9 manufactures/distillers formed part of the consideration for which the property in goods passed to KSBC. Accordingly, interpreting the amendment to the Foreign Liquor Rules with effect from 5.1.1999, the Constitution Bench of the Apex Court categorically laid down that the said amended provision leaves no room for doubt that with effect from 5.1.1999, the manufactures/distillers were bound to include in their turnover, the amount paid to them by KSBC by way of duty levied under the Abkari Act together with the price of the liquor purchased from them. 9.Ultimately, in paragraph 96 of the judgment, the Apex Court declared that the manufacturers are liable to include in their turnover, the amount of duty paid to them by KSBC and included in the consideration for sale of IMFL to KSBC, with effect from 5.1.1999 and pay the turnover tax accordingly. 10.After the judgment in Maharashtra Distilleries (supra), the writ petitions from which these writ appeals arise were filed by WA.1225/07 & con. cases 10 the different manufactures/distillers challenging the amendment to the Foreign Liquor Rules with effect from 5.1.1999 and also the amendment made to Section 5(2-C) of the KGST Act as also Section 18 of the Abkari Act. The primary legislations were amended as per the Finance Acts of 2003 and 2004. 11.Learned single Judge, after making elaborate reference to the aforesaid decision of the Apex Court in Maharashtra Distilleries, held that the amendments impugned by the manufactures/distillers would not enable the Government to treat the duty paid by the KSBC before 5.1.1999 as the turnover of the manufactures/ distillers. It was accordingly held in paragraph 7 of the impugned judgment that the retrospective amendment would not stand in view of the authoritative declaration in Maharashtra Distilleries (supra) regarding the nature of the transaction between the KSBC and the manufactures/distillers before 5.1.1999. It was held that if such a result is to be achieved, there may have to be further WA.1225/07 & con. cases 11 amendments to the statute and there has to be validation of actions taken under the Abkari Act. Accordingly, learned single Judge declared that the State and its officers cannot take any action against the manufactures/distillers to re-open the assessment of turnover tax made for the period prior to 5.1.1999 on the strength of the amendment made to the Abkari Act and the KGST Act as per the Finance Acts of 2003 and 2004. The learned single Judge, however, repelled the challenge to the amendment made to the Foreign Liquor Rules with effect from 5.1.1999 and held that having regard to the binding nature of the pronouncement of the Apex Court in Maharashtra Distilleries (supra), there is no alternative interpretation to the rules that could be accepted and that all questions in that regard, including on facts, stood concluded by the aforesaid judgment of the Constitution Bench. 12.In support of the writ appeals by the manufacturers/ assessees, we have heard senior advocates C.S.Vaidyanathan and L.Ganesh and Adv.M.P.Vinod. On behalf of the State, we WA.1225/07 & con. cases 12 have heard Adv.K.Vinod Chandran, Special Government Pleader (Taxes). 13.In so far as the appeals by the assessees are concerned, Sri.Vaidyanathan argued that the amendment of 5.1.1999 to the Foreign Liquor Rules was one issued at the request of KSBC for its administrative convenience alone, to avoid duplication of work of that establishment in maintaining a bonded warehouse as well as duty paid wholesale warehouse. Referring to the explanatory notes footed to that amendment, it was pointed out that the intention was only to dispense with bonded warehouses and it has nothing to do with the liability of the manufactures and the challenge to that amendment is made only when the same were sought to be interpreted as having the effect of changing the nature and character of the levy. It was argued that no amendment to a subordinate legislation can bring about a change in the nature and character of the substantive levy and that such amendment cannot have the effect of enhancing the levy under the KGST WA.1225/07 & con. cases 13 Act which is a different statute altogether. Referring to the situation that was available prior to 5.1.1999 and thereafter, it is pointed out that the nature of the transaction before and after that date is nothing but the same and there is no change in the nature of levy. It was further argued that the amendment to the Foreign Liquor Rules is not intended to pass on to the manufacturer, the liability to pay the privilege price and having regard to the findings of the Constitution Bench in Maharashtra Distilleries (supra), the question of the quality of the levy would not change. Having regard to the stand taken by the State regarding the effect of the order dated 28.4.2006 issued by the Hon'ble Supreme Court in SLP (C). Nos.1670-71/06, it is pointed out that the liberty given by the Apex Court as per that order, to challenge the amendment dated 5.1.1999 to the Foreign Liquor Rules, is not a limited one. In answer to the appeal by the State in so far as it is against the findings in paragraph 7 of the impugned judgment, it was argued that there is no validation provision enacted after the judgment of the Constitution Bench in 2005 and the WA.1225/07 & con. cases 14 so called validation by the Finance Act of 2004 would never cure or take away the effect of the findings of the Constitution Bench in Maharashtra Distilleries (supra). It is specifically pointed out that though the Apex Court had affirmed the judgment of this Court, such affirmation was based on a totally different reason than that adopted by this Court and that therefore, the finding of the learned single Judge is right to that extent. 14.Sri.Ganesh, however, pointed out that the Constitution Bench judgment conclusively and finally determines the true nature and character of the so called excise duty and such nature and character of the said component as laid down by the Apex Court would not change unless there is a change in the nature of the transaction. He further argued that the clear answer as to who is liable to pay the so called excise duty after 5.1.1999 is to be understood with reference to the amendments made to the Foreign Liquor Rules on 5.1.1999 and on the basis of a clear understanding of that, the only answer could be that it is WA.1225/07 & con. cases 15 the KSBC that is made liable to make the payment because there is no amendment making the manufacturer liable to pay the excise duty. It was also pointed out that if excise duty paid by the KSBC to the State Government is included in the manufacturers' turnover, notification No.330/96 itself would be rendered unworkable. It was further argued that different amendments, including the validation provisions brought in by the State, would apply only if the excise duty in the present case is really a tax on the manufacturer of liquor and only if the manufacturer was legally liable to pay the same. Opposing the appeal of the State, it was argued that having regard to the exclusiveness of the privilege that has been granted to KSBC, the so called excise duty is not one that could be passed on to the manufacturer and the State Government, and the findings of the learned single Judge in paragraph 7 of the impugned judgment warrant no interference. 15.Attacking the findings in paragraph 7 of the impugned judgment against the retro-activity given to the amendments to WA.1225/07 & con. cases 16 the Act and otherwise supporting the judgment of the learned single Judge, Sri.Vinod Chandran argued on behalf of the State that the amendments made by the Finance Acts of 2003 and 2004 retrospectively are permissible under the Constitution and that in so far as those fiscal legislations are concerned, there could be no challenge warranting interference on judicial review of such legislative action. It was further argued that the validation provision in the KGST Act alone is sufficient and no validation after the decision of the Apex Court in Maharashtra Distilleries (supra) is required as argued on behalf of the assessees. He pointed out that the amendment made with effect from 5.1.1999 to the Foreign Liquor Rules was well within the power of the delegate and even if there is any mistake of fact in the judgment of the Apex Court in Maharashtra Distilleries (supra), the same cannot be capitalised upon. It is also pointed that the legislature can source its power from different entries in the same list for one legislation. WA.1225/07 & con. cases 17 16.In considering the rival contentions, we may first notice that in Maharashtra Distilleries (supra), it was categorically held that from 5.1.1999, the amount of duty formed part of the consideration paid by the KSBC to the manufacturers and consequently it formed part of the turn over of the manufacturers. Therefore, in any event, the manufacturers/ assessees are bound to include in their turnover, the amount of duty since that formed part of the consideration of the sale of IMFL to KSBC with effect from 5.1.1999, going by the law laid down by the Apex Court in Maharashtra Distilleries (supra), which was rendered directly considering the impact of the 5.1.1999 amendment to the Foreign Liquor Rules and also rendered inter partis. The learned single Judge was therefore justified in holding that the said judgment binds the parties and binds this Court also in so far as the findings rendered therein are concerned. WA.1225/07 & con. cases 18 17.In the light of the aforesaid, the only remaining plea that needs to be considered was whether the Foreign Liquor Rules could have been amended. In fact, there could be no challenge to the competence of the delegate to amend, having regard to the provisions in the primary legislation. Learned Judge was justified in following the ratio of the decision in Pankajaksy v. George Mathew [1987(2) KLT 723] to lay down that no ground is made out in the writ petitions to hold that the amendment to the Foreign Liquor Rules with effect from 5.1.1999 is ultra vires the powers of the State under the Abkari Act. References have been made by the learned single Judge to the grounds raised in the writ petitions and they have been answered. We do not find any legal infirmity in the findings of the learned single Judge in that regard. Having regard to the law laid by the Constitution Bench in Maharashtra Distilleries (supra) and its binding nature on the parties to this lis and on this Court and the effect that it has on the right of parties, the learned Judge was justified in WA.1225/07 & con. cases 19 taking the view that the standing and effect of the 5.1.1999 amendment to the Foreign Liquor Rules are beyond challenge. 18.In so far as the appeal of the State is concerned, the nature of the transaction, including its change from 5.1.1999 having been laid down by the Apex Court in a particular manner in Maharashtra Distilleries (supra), it is beyond the power of the State to visit the situations and assessments governed and covered by that judgment by apparently attempting to take off the effect of that judgment without appropriate retrospective amendments in the Abkari Laws with proper validation of whatever that had been done under that piece of law. It was therefore that the learned Judge took the view that the nature of the transaction between KSBC, the Government and the manufacturers/distillers, having been deliberated upon and laid down by the Apex Court, it is not be open to the State Government to sustain the retro-activity of the amendments. Under such circumstances, the learned Judge, in our view, WA.1225/07 & con. cases 20 was justified in taking the view that the retro-activity given to the amendment does not stand. For the aforesaid reasons, these writ appeals fail. They are accordingly dismissed. Sd/- S.R.BANNURMATH, Chief Justice Sd/- THOTTATHIL B.RADHAKRISHNAN, Judge kkb.22/01.