Case: Mohan Breweries and Distilleries Limited Etc Vs. Commercial Tax Officer, Madras and Others

These are appeals against the judgments and orders of Division Benches of the High Court at Madras in tax revision cases that involve the same issue, name, whether the excise duty on potable liquor manufactured by the appellants, paid by the purchasers thereof, is includible in the taxable turnover of the appellants for the purpose of levy of tax under the Tamil Nadu General Sales Taxappellants manufacture Indian Made Foreign Liquor (IMFL) on the strength of licences issued to them under the provisions of the Tamil Nadu Indian Made Foreign spirits (Manufacture ) Rules, 1981. manufacture, supply and sale of the IMFL is governed the Tamil Nadu prohibition Act, 1937 (now referred to as the Act) , the Tamil NaduForeign spirits Indian Made Foreign Spirit (Manufacture) Rules, 1981 (now referred to as the wholesale Rules and the Manufacture Rulesreason of Sectionof the Act, (introduced by an amendment in 1983), the Tamil Nadu state Marketing Corporation Limited, a corporation wholly owned and controlled by the Government of State of Tamil Nadu, had at the relevant time the exclusive privilege of supplying by wholesale IMFL for the whole of that State. Sectionprovides for excise duty on liquor.91) therefor reads) An excise duty or countervailing duty of such amount as the State Government may, by notification in the Fort St George Gazette specify from time to time shall, if they so direct, be levied on all liquors and intoxicating drugs permitted to be imported, exported, transported, manufactured, issued from any manufactory or institution or sold, under the provisions of this Act or any rule, notification, licence or permit issued thereunder."

Court's reasoning:
As we look at it, the primary obligation 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 from the factory of its production, other than the manufacturer, the payment of excise duty that party makes 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 IMFL it purchases to 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 are bought or sold" and "whether for cash 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 manufacturesargument based on Explanationof Section 2(r) of the Sales Tax Act cannot be entertained because the amount of excise duty was not charged by the appellants by way of tax separately without including the same in the price of the IMFLas the argument of equatable estoppel is concerned, the short answer, in our view, is that, admittedly, no representation had been made by any sales Tax authority, and, given the construction that we have placed upon it, Rule 22 itself cannot be said to be a representation that could have misled the appellants.8. We cannot agree with learned counsel for the appellants that the second Mc Dowell case was based only upon the provisions of the Andra Pradesh rules that were under consideration. It is amply clear from the citation of the authorities of this court in that judgment that it elaborated upon the concepts of excise duty and concluded that "the incidence of excise duty is directly relatable to manufacture but its collection can be deferred to a later stage as a measure of convenience of expediency". The Andra Pradesh rules, it was held "did not detract from the position that payment of excise duty is the primary and exclusive obligation of the manufacturer and if payment be made under a contract or arrangement by any other person it would amount to meeting of the obligation of the manufacturer and nothing more". Note was taken of the argument that excise duty had never come into the hands of the appellant and that the appellant and that the appellant had no opportunity to turn it over his hands and, therefore, the same could not be considered to be a part of its turnover.