Case: State of Kerala Vs. Messrs Madras Rubber Factory Limited &amp; Others

M/s M.R.F. Ltd., Ceat Tyers of India Ltd., Bata India Ltd., Goods Year India Ltd. etc., hereinafter referred to as the dealers, are the respondents in these cases. They purchased rubber in Kerala. This rubber was purchased either from the producer or from the dealers. The rubber so purchased was either used in the manufacture within the State of Kerala or was sent out or the State f or use elsewhere.Under the provisions of Section 5 of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as `the Sales Tax Act) the tax on rubber is a single point tax. According to the said section read with the schedule thereto t he tax is leviable on the last producer of rubber within the State. The liability to pay tax on the purchases so made under the Sales Tax Act is not in dispute but what has been contended by the dealers is that in computing the turnover on which the t ax is to be paid, the quantum of cess payable under the provisions of the Rubber Act, 1947 (hereinafter referred to as the "Rubber Act") could not be included in the purchase turnover. The contention of the dealers before the Sales Tax Authority, was t hat the said cess was not a part of the purchase price and therefore, not includible in their turnover. The assessing authority did not agree and following the decision of the Kerala High Court in the case of Deputy Commissioner of S ales Tax (Law) Board of Revenue (Taxes) Vs. Bata India Ltd. and Ors., it Included the cess in the purchase turnover of the dealers. This order was confirmed in appeal by the Deputy Commissioner and thereafter by the appellate Tribunal.The revision petition filed by the dealers came up for hearing before the Kerala High Court. A Division Bench of that Court was of the opinion that there was conflict between two decisions of that High Court and, therefore, th e case was referred to a Full Bench.By judgment dated 29th march, 1989 the Full Bench, by majority, allowed by revision petition holding that the earlier decision In Batas case (supra) was wrongly decided and the cess payable and paid under the rubber Act and the Rules could not form part of the dealers purchase. In view of the importance of the point in issue the High Court granted certificate for leave to appeal this Court. Hence these appeals.

Reasoning:
In our opinion the aforesaid decision is clearly applicable to the present case. Like the Mohan Brewerles case the excise duty under Section 12 (1) is levied on the production or manufacture of r ubber at the rate specified thereunder. it is only by Rule 33 (1) similar to Rule 22 of TNIMFL that the cess had to be paid at a stage subsequent to the production. Merely because for the sake of convenience the excise duty, which would essentially b e payable at the time of production of rubber is realised at a latter point of time it cannot mean that the excise duty, in the form of cess, was not part of the sales turnover of the producer and correspondingly, be the purchase turnover of the purch aser of rubber.In our opinion, therefore, the incidence of duty is directly relatable to the production of rubber. The character of levy is not altered merely because the payment of duty is deferred till the purchase of the rubber by the manufacturer, The character of levy is on the production of the rubber and the duty paid should, therefore, be deemed to be part of the price that the producer had paid for the goods purchased. Neither a provision for deferred payment nor the liability case on the manufacturer of rubber goods for payment of the duty to facilitate easy collection, can alter the duty as being one on the production of rubber as provided by Section 12 (1) of the Rubber Act and such duty even though paid lat er, will be a part of the price of goods purchased and would, therefore, form part of the producersaforesaid analysis is also supported by a recent decision of this Court in the case of Mohan Breweries a Distilleries Ltd. Vs. Com missioner Tax Officer, Madras and Ors. In that case liquor was manufactured by the appellant. According of Section 18 B of the Tamil Nadu prohibition Act, 1937 excise duty at a specified rate was leviable on all excisable items manufactured under any licence granted under the Act. Section 18 C provided that the excise duty under Section 18B could be paid in one or more of the ways provided under Section 18C. Rule 22 of the TNIMFL Rules, 1981 provided that the excise duty shall be paid by the person who removes the goods from a manufactory.(2) of Rule 22 further provided that a vend fee of rupees two per bulk litre shall be paid by the licensee on all stocks ofForeign Spirit issued from the manufacturer. Rule 15 (1) of the Tamil NaduForeign Spirits (supply by wholesale) Rules, 1981 required the licensee, namely, the wholesaler to pay the excise duty on removal of the stock by him. The contention which was raised by the manufacturer was that in view of the provisions of the Act and the said Rules, the liability to pay the excise duty lay not upon the manufacturer but upon the wholesaler, who was the licensee who was required to pay under the aforesaid Rule 15 (1) of the Tamil Nadu Indianmade Foreign Spirits (supply by wholesale) Rules, 1981. In this connection it was submitted that the manufacturer neither collected the excise duty from the wholesaler nor had they statutory or contractual authority to realise the same from it and, therefore, the manufacturers were not liable to pay sales tax on the excise duty which was neither part of the sale price nor a consideration for the sale Repelling this contention it was held that excise duty was levied upon the goods manufactured, though its collection may be deferred to such latter stage as was administratively or otherwise most convenient. After referring to as case in Union of India Vs. Bombay Tyre International Ltd. and Ors., it was observed that the method of collection did not affect the essence of duty but only related to the machinery of collection for administrative convenience. Dealing with Rule 22 and its effect, it was observed tha t "as we look at it, the primary obligations to pay excise duty on the IMFL is of the manufacturer thereof. Rule 22 only provides for a convenient method for its collection. When the excise duty is collected from a party removing the IMFL from the factory its producer, other than the manufacturer, the payment of excise duty is in discharge of the obligation of the manufacturer. That party does not, as it would ordinarily do, pay the excise duty component along with the sale price of the IM FL it purchases from the manufacturer; it pays the sale price to the manufacturer and it pays the excise duty into the Treasury for and on behalf of the manufacturer. In effect, therefore, the element of excise duty does enter into the turnover of the manufacturer just as much as it would ordinarily do. The definition of "turnover" in Section 2 (r) of the Sales Tax Act, referring as it does to "the aggregate amount for which goods ar bought of sold" and "whether for case or ...other valuable consideration", is wide enough to cover such excise duty. That the excise duty does not physically enter the manufacturers till is, as held in the second Mc Dowell case, not the decisive test for determining whether or not it would be a part of the manufacturers turnover."