Case: Commissioner Of Central Excise, Lucknow Vs. M/S. Chhata Sugar Co. Ltd

the sake of argument that administrative charges form part of the assessable value, even then such charges are in the nature of tax and, therefore, excludible in terms of S.4(4)(d)(ii) of the Act for reasons mentioned hereinafter. 13. Before dealing with the foregoing issue, it may be noted that in this case we are concerned with identification of the nature of levy of administrative charges under S.8(4) and S.8(5) of the U.P. Act. As stated above, the U.P. Act has been enacted with the object of regulating supply and equal distribution of molasses to distilleries and other industrial establishments. Under S.8(4) of the U.P. Act, every sugar factory is made liable to pay to the Government administrative charges at the specified rate on sale or supply of molasses to the distillery. Under S.8(5), every sugar factory is entitled to recover from the buyer administrative charges in addition to the prices of molasses. Under S.10(1) of the U.P. Act, the sugar factory has to sell molasses at a price not exceeding that prescribed in the Schedule. Therefore, the levy of administrative charges is on production for sale of molasses. In the case of Chotabhai Jethabhai Patel & Co. etc. v. Union of India and Anr. etc. reported in [AIR 1962 SC 1006 ], the question before this Court was the nature and character of the duty of excise. It was held that the duty of excise was a tax or duty not intended by the taxing authority to be borne by the person on whom it is imposed and from whom it is collected but it is intended to be passed on to those who purchased the goods on which the duty was collected. That excise duty is a tax as it is imposed in respect of some dealing with the commodities, such as their import or sale, or production for sale. It has been further held that going by the general tendency of a tax, it is capable of being passed on to the consumer or the buyer. In our view, the above test is important because a tax is capable of being passed on to the consumer or tie buyer whereas a fee is a counter payment by the buyer who receives the benefit of the services for which he is charged and such fees are not capable of being passed on as fees to the consumer or the buyer. The above point of distinction is applicable to the facts of this case. In the present matter, as stated above, levy of administrative charges under S.8(4) of the U.P. Act is on the producer of molasses; it is imposed on production of molasses for sale and under S.8(5) the same is passed on to the buyer - distillery. In the circumstances, levy of administrative charges under the U.P. Act is a tax. There is one more circumstances which indicates that the levy of administrative charges under the U.P. Act is a tax. In the case of Matthews v. The Chicory Marketing Board (Victoria) reported in [(1938) 60 Commonwealth Law Reports 263], it has been held that customs and excise duties are indirect taxes as they are additions of definite amounts to the prices at which the goods upon which they are imposed are, in the ordinary course of business, sold by persons who have paid the duties. This test is also applicable to the present case. Under S.8(5) of the U.P. Act, administrative charges is in addition to the prices at which goods are sold in the ordinary course of business by the sugar factory (producer of molasses). Moreover, the predominant object of the U.P. Act is to maximize the revenue by way of tax while regulating storage and supply of molasses. The beneficiary under the said Act is the distillery. It is the distillery which provides important source of revenue to the State. In our view, the said levy of administrative charges is in nature of tax. 14. We can look at the problem from another viewpoint. One of the test to decide whether a levy is a tax or fee is that while tax is a compulsory exaction, fee relates to the principle of quid pro quo. This test can usefully be applied to the facts of the present case. As stated above, the beneficiary of the U.P. Act is the distillery (buyer). All regulatory measures are for the benefit of the said buyer. The sugar factory is merely a collecting agent of administrative charges for the State Government. The administrative charge is not a component of the consideration received by the sugar factory. This is clear from the provisions of S.8(5) which state that the administrative charges shall be collected in addition to the price of the molasses from the buyer - distillery. The said administrative charges do not form part of the revenue of the sugar factory. The said administrative charges cannot be appropriated to the revenue account of the sugar factory. Therefore, there is no element of quid pro quo as far as the administrative charges in the hands of the sugar factory are concerned. On the other hand, under S.8(4) of the U.P. Act read with R.23 of the said U.P. Rules, every sugar factory is required to deposit administrative charges on the molasses sold/supplied before actual delivery to the distillery (buyer), which brings in the principle of compulsory exaction. Hence, administrative charge under the U.P. Act is a tax and not a fee.15. We have decided this case in the light of the scheme of the U.P. Act and the Rules framed thereunder a and, therefore, it is not necessary to examine numerous judgments cited at the bar on the question of difference between the tax and fee. Ultimately, each matter will have to be decided in the light of the provisions of the statute in question. We are, therefore, in agreement with the view expressed in the case of Commissioner of Central Excise, Meerut v. Kisan Sahkari Chinni Mills Ltd. (supra).

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]8. A bare reading of S.8 inter alia indicates that the Controller may by order require a sugar factory to sell or supply such quantity of molasses to such person(s) as may be specified in his order and the sugar factory shall comply with the order notwithstanding any contract to the contrary. However, S.8(2) makes it clear that such supply of molasses shall be made only to a person who requires it for Ms distillery or for industrialS.8(4) of the U.P. Act, every sugar factory is made liable to pay to the Government administrative charges at the specified rate on sale or supply of molasses to the distillery. Under S.8(5), every sugar factory is entitled to recover from the buyer administrative charges in addition to the prices of molasses. Under S.10(1) of the U.P. Act, the sugar factory has to sell molasses at a price not exceeding that prescribed in the Schedule. Therefore, the levy of administrative charges is on production for sale of molasses. In the case of Chotabhai Jethabhai Patel & Co. etc. v. Union of India and Anr. etc. reported in [AIR 1962 SC 1006 ], the question before this Court was the nature and character of the duty of excise. It was held that the duty of excise was a tax or duty not intended by the taxing authority to be borne by the person on whom it is imposed and from whom it is collected but it is intended to be passed on to those who purchased the goods on which the duty was collected. That excise duty is a tax as it is imposed in respect of some dealing with the commodities, such as their import or sale, or production for sale. It has been further held that going by the general tendency of a tax, it is capable of being passed on to the consumer or the buyer. In our view, the above test is important because a tax is capable of being passed on to the consumer or tie buyer whereas a fee is a counter payment by the buyer who receives the benefit of the services for which he is charged and such fees are not capable of being passed on as fees to the consumer or the buyer. The above point of distinction is applicable to the facts of this case. In the present matter, as stated above, levy of administrative charges under S.8(4) of the U.P. Act is on the producer of molasses; it is imposed on production of molasses for sale and under S.8(5) the same is passed on to the buyerdistillery. In the circumstances, levy of administrative charges under the U.P. Act is a tax. There is one more circumstances which indicates that the levy of administrative charges under the U.P. Act is atest is also applicable to the present case. Under S.8(5) of the U.P. Act, administrative charges is in addition to the prices at which goods are sold in the ordinary course of business by the sugar factory (producer of molasses). Moreover, the predominant object of the U.P. Act is to maximize the revenue by way of tax while regulating storage and supply of molasses. The beneficiary under the said Act is the distillery. It is the distillery which provides important source of revenue to the State. In our view, the said levy of administrative charges is in nature oftest can usefully be applied to the facts of the present case. As stated above, the beneficiary of the U.P. Act is the distillery (buyer). All regulatory measures are for the benefit of the said buyer. The sugar factory is merely a collecting agent of administrative charges for the State Government. The administrative charge is not a component of the consideration received by the sugar factory. This is clear from the provisions of S.8(5) which state that the administrative charges shall be collected in addition to the price of the molasses from the buyerdistillery. The said administrative charges do not form part of the revenue of the sugar factory. The said administrative charges cannot be appropriated to the revenue account of the sugar factory. Therefore, there is no element of quid pro quo as far as the administrative charges in the hands of the sugar factory are concerned. On the other hand, under S.8(4) of the U.P. Act read with R.23 of the said U.P. Rules, every sugar factory is required to deposit administrative charges on the molasses sold/supplied before actual delivery to the distillery (buyer), which brings in the principle of compulsory exaction. Hence, administrative charge under the U.P. Act is a tax and not a fee.15. We have decided this case in the light of the scheme of the U.P. Act and the Rules framed thereunder a and, therefore, it is not necessary to examine numerous judgments cited at the bar on the question of difference between the tax and fee. Ultimately, each matter will have to be decided in the light of the provisions of the statute in question. We are, therefore, in agreement with the view expressed in the case of Commissioner of Central Excise, Meerut v. Kisan Sahkari Chinni Mills Ltd. (supra).