MOHAN BREWERIES AND DISTILLERIES'LTD. ETC. ETC.

COMMERCIAL TAX OFFICER, MADRAS AND ORS.

SEPTEMBER 9, 1997

[S.P. BHARUCHA, K.T. THOMAS AND V.N. KHARE, JJ.] B

• Safes Tax

Tamil Nadu General Sales Tax Act 1959ffami/ Nadu Indian Made Foreign Spir-its (Mamlfacture) Rules, 1981 : Section 2(r)/Rule 22.

Manufacturer-Indian Made Foreign liquor-Liability to pay excise duty-Held, -primary obligation to pay excise duty on the manufacturer- Rule 22 only provides for convenient method of collection-Excise duty not physically entering manufacturer's till is not the decisilte test for determining D

whether it would constitute manufacture's turnover.

Tbe appellants manufacture Indian Made Foreign Liquor (lMFL) on the strength of licenses issued to them under the provisions of the Tamil Nadu

Indian Made Foreign Spirits (Manufacture) Rules 1981. The Tamil Nadu State Muketing Corporation Ltd. (TASMAC) had the exclusive privilege of E supplying by wholesale IMFL for the whole of the State. The Corporation paid the excise duty dredly. The element of the excise duty did not enter into the turnover of the appellant.

In the writ , petitions filed in the High Court the.contention f the appellant was that the liability to pay excise duty lay not upon them but upon F the Tamil Nadu St3te Marketin~ Corporation. The said petition was dismissed.

Hence the present appeals.

In appeal before this Court the contention of the appellant was that under Rule ll of the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules, 1981, tbe. manufacturer of the IMFL was not liable for payment of G excise duty but it was upon the party who removed the 1MFL from f!te factory.

It was further submitted that Rule 22 itself was a represenbtionto tbe manufacturer and that an equitable estoppel arose against the respondent State preventing it from receiving sales tax from the manufacturer.

Dismissing the appeal, this Court' H 7

SUPREME COURT REPORTS (1997] SUPP. 4 S.C.R.

HELD : 1.1. The liability to pay excise duty on the IMFL Is that of the manufacturer thereof. Excise duty is levied upon goods manufactured or produced. Its incidence falls, therefore, on the manufacturer or producer of the goods. The collection of excise duty may be deferred to such later stage as is administratively or otherwise, most convenient (14-B; 13-E]

Union of India and Ors .• v. Bombay Tyre International Ltd. and Ors., 119841 J sec 467, relied on.

1.2. Rule 22 of the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules 1981 only provides a mode for collecting the excise duty, C a mode which is obviously convenient for it requires the party removing the IMFL from the factory of its production to pay in advance the excise duty thereon. That party might be the manufacturer. That IMFL should be supplied in the State by wholesale only through T ASMAC cannot be a reason for holding that the primary obligation to pay excise duty is that ofT ASMAC or that the manufacturer is absolved of the obligation to pay excise duty. I 1 4-B-D] D

2. When the excise duty is collected from a party removing the IMFL 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 cmnponent along with the sale price of the IMFL It purchases from the E manufacturer; it pays the sale; price to the manufacture 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 the turnover of the manufacturer just as much as it would ordinarily do. (14-H; lS~A-BJ

3. The definition of "turnover" in section 2(r) of the Tamll Nadu General F Sales Tax Act, 1959 referring as it does to the aggregate amount for which

goods are sold whether for cash or other valuable consideration is wide

en ou~:h to cover such excise duty. That the excise duty does not physically enter the manufacturer's till is not the decisive test for determining whether or not it would be a part oftbe manufacturer's turnover. [15-B-C) G Me Dowell and Co. Ltd. v. The Commercial Tax~Officer, [1985) 3 SCR 791, relied on.

4. The argument based on Explanation (1-A) of section 2(r) of the Tamil Nadu sales Tax Act cannot be entertained because the amount of excise duty H was not charged by the appellants by way of tax separately without including

M.S. AND DISTILLERIES LTD. v. COMMERCiAL TAX OFFICER (S.P. BHA~UCHA, J.] 9

the same on the price Of the IMFL sold. f15-DJ

S. Since no .representati!ln had been made by sales tax authority, Rule 22 itself cannot be said to be a representaton that could have misled the appellants that an equitable estoppel has arisen preventi!'g the State from recovering Sales Tax from the manufacturer. 115-D-El

The Central Provinces and Befar Sales of Motor Spirit and Lubricants Taxation Act, 1938 (1939) FeR 18: AIR (1939) FCI and Province of Madras

v. Boddu Paidanna and Sons, (1942) FCR 90 :AIR (1942) FC 33, referred . . . . to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5105 of 1997. C

From the Judgment and Order dated 25.4.89 of the Madras High Court in W.P. No. 4975 of 1987.

WITH

C.A..No. 106197? 5122/97, 5123/97; 5124/97, 5125/97, 5126/9?, 5127-28/ D 97,5129/97,5130/97,5131-5133/97.

. .

G.L. S(lnghi and A.T.M. Sampath for the Appellants.

V .R. Reddy; V. Krishnamurthy and T. Harish Kumar fo~ the Respondents.

The Judgment of the Court was delivered by . ·, .

S.P. BHARUCHA, J. These are appeals against the judgments and orders of Division Benches or" the High Court at Madras in ta~ re~ ision cases that involve the same issue namely, whether the excise duty on potable liquqr manufactured by the appellants, paid by the purchasers thereof, is includible

in the taxable turnover of the appellants for the p\lrpose of levy of tax under F the Tamil Nadu General Sales Tax Act.

The appellants manufacture Indian Made .Foreign Liquor (IMFL) on the strength of licences issued to them under the provisions of the Tamil Nadu lnqian Made Foreign Spirits (Manufacture) Rules, 1.981. The manufacture, supply.and sale of the JMFL is governed by the Tamil Nadu Prohibition Ac.t, 0

1937 (now referred to as 'the Act'), the Tamil Nadu indian-made Foreign Spirits (supply by wholesale) Rules, 1981, and the Tamil Nadu Indian Made Foreign Spirit (Manufacture) Rules, 198 I (now referred to as the Wholesale Rules' and the ·anufacture Rules' respectively).

By reason ofSe.ctionI7-C of the Act, (itroduced by an amendment in H

SUPREME COURT REPORTS [1997) SUPP. 4 S.C.R.

A 1983), the Tamil Nadu State Marketing Corporation Limited, a corporation wholly owned and controlled by the Government of State ofTamil Nadu, had at the relevant time the exclusive privilege of supplying by wholesale IMFL for the whole of that State. Setion 18-A provides for excise duty on liquor.

Sub-section {I) thereof reads thus :

"(l) 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 pennitted 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 penn it issued thereunder."

Section 18-B provides for excise duty on excisable articles. It reads, so far as is relevant, thus :

" 18-B. Excise duty or countervailing duty on excisable articles- Notwithstanding anything contained in section 18-A, with effect on and from the date of the commencement of the Tamil Nadu Prohibi!ion (Amendment) Act, 1981, an excise duty or countervailing duty at such rate not exceeding rupees thirty per proof litre as the state Government may, from time to time by notification specify, shall be levied [only under this Section] on all excisable articles-

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(d) manufactured under any licence granted under this Act;

(e) manufactured at any distillery, blending unit or brewery licensed or established under this Act;

(f) issued from a distillery, blending unit, brewery or warehouse

licensed or established under this Act."

Section 18-C, so far as is relevant, reads thus :

"18-C. How duty may be imposed.-The excise duty or the countervailing duty under section 18-B may be levied in one or more of the following ways :

(a) by duty of excise to be charged in the case of spirits or beer either H on the quantity produced in, or passed out of a distillery, blending

\ .. _,

M.B. AND DISTILLERIES LTD. v. COMMERCIAL TAX OFFICER [S.P. BHARUCHA, J.}}}

unit, brewery or warehouse licensed or established under this Act, or A in accorda.nce with such scale of equivalents, calculated on the quantity of materials used or by the degree of attenuation of the wash or wort, as the case may be, as may be prescribed.''

Rule .22 of the Manufac!ure Rules, a~ amended on 4th October, 1982 reads

ili~ : B

"22. Payment of excise duty and v.end fee.-

(1) an excise duty, at such rate as the State Government may prescribe from time to time, shall b7 paid by the perso~ who rem'Oves the goods froin a manufactory, on the stock of Indian-made foreign Spirits so C removed from the manufactory.

(2) A vend fee of rupees two per bulk litre shall be paid by the licensee on all stocks of Indian-made Foreign Spirits issued from the manufactory''

Ru1e \5 (1) of the wholesale Rules, amended at the same time, reads thus:

"15. Payment of excise duty and vend fee.-(1) The licensee shall

pay the excise duty on the stock of lndin-made Foreign Spirits removed by him from a mariufactory in the State required under sub-rule (1) of rule 22 of the Tamil Nadu Indian-made Foreign Spirits E (Manufacture) Rules, •1981 or the countervailing duty on the stock of

Indian-made Foreign Spiris imp.orted.from a manufactory outside the State or the excise duty or countervailing duty as the case may be, on the stock of Indian-made Foreign spirits rem<?ved by him from a bonded warehouse licensed under the Tamil Nadu ndian -made Foreign F Spirits (Storage-in-Bon 'd) Rules, 1981."

These amendments were given retrospective .effect form 23rd May, 1981.

It was contended on behalf of the appellants in ilieir writ petitions before the High Court that the liability to pay excise dut}t upon the basis of G the aforesaid provisions lay not upon them but .upon the TamiiNadu State Marketing corporation-(TASMAC). TASMAC had to submit an application for its requirement of IMFL and thereupon the excise duty thereon was assessed. T ASMAC pajd the amount the; eof directly. The appellantS neither collected the excise dty from the wholesaler nor had they the stat!Jtory or - contractual authority to realise the same from it. The appellants were not, H

SUPREME COURT REPORTS [1997} SUPP. 4 S.C.R.

A therefore, liable to pay sales tax on excise duty which was neither part of the

sale price nor consideration for the sale. In. te principal judgment, followed in the other cases, the High court , primarily basing itself upon the decision of this court in Me Dowells & Company Limited v. The Commercial Tax Officer, [1985] 3 SCR 791, rejected the contentions on behalf of the appellan~ B and dismissed the writ petitions. Hence these appeals.

It is convenient at this stage to set out certain provisions of the Tamil Nadu General Sales Tax Act, 1959 (now referred to as "the Sales Tax Act") Section 2(r) , and Explanation (I-A) thereto, read thus:

C "Section 2(r) "turnover" means the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of in any of the ways referred to in clause (n) , by a dealer either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of sale by a person of D agricultural or horticultural produce, other than tea, and rubber (naral rubber latex and all varieties and graes of raw rubber), grown within the State by himself or on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall. be excluded from his turnover; E

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Explanation (1.-A) : Any amount charged by a dealer by way of tax separately without including the same in the price of the goods bought or sold shall not be included in the turnover.

F Section 2 (n) defi.nes "sale" to mean "every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration ....... " Section 3 provides for the levy of tax on sales or purchase of goods.

G Learned counsel for the appellants submitted that, by virtue of the provisions of the Act and the Rules aforementioned, particularly Rule 22 of the Manufacture Rules, the manufacturer of the IMFCwas not liable for the payment of the excise duty thereon. The imposition of the excise duty by reason of Rule 22 was squarely on the party who removed the IMFL from its H manufacturory, namely, TASMAC. The manufacturer could not, by reason of

M 8 AND DISTILLERIES LTD. v. COMMERCIAL TAX OFFICER (S.P BHARUCHA, J.Jl3

. . Rule 22, seek to recover the excise duty from the party so remving the lMFL. A The element of the excise duty did not enter into the turnover of the manufacturer and, ccordingly, no sales tax was payable on the element of excise duty. Learned counsel cited the judgment of this Court in Union of India and others v. Bombay Tyre International Ltd. and others, Rules, [ 1984] . .

I sec 467' and emphasised te reference to the judgments of the Federal B Court in The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act_ and Province of Madras v. IJoddu Paidanna and Sons. In learned counsef's submission, the observations therein supported the argument that the imposition of excise d!Jty was upon the party who removed the JMFL from .th.e factory. Learned counsel submitted that the ratio of the judgment in Me Dowell and Company Limited v. The Commercial T~ C Officer, [198Sj 3 SCR 791, (the second Me Dowell case), upon which the High Court had relied, was restricted to the Andhra Pradesh rules therein mentioned and was inapposite to the provisions which are before us. Learned counsel sought to draw assistance. from Explanation (I A) to Section 2(r) of the Ses

T~ Act, Learned counsel submitted that Rule 22 itself was a representation to the manufacturer and even the Sales Tax authorities had been misled by D it; in their submission, an equitable estoppel arose against the respondent State which prevented it from recovering sales ta:< from the mnufacturer on the element of excise duty . .

Excise duty is levied upon goods _manufactured or produced (Entry 84 E - of List I and Entry 51 of List If of the Seventh Schedule to the Constitution).

Its incidence falls, therefore, on the manufacturer or producer of the goods.

The collection of excise duty may be deferred to such late.r stage as is, administratively or otheise, most conveniert.

In the case of Central Provinces and Berar Sales of Motor Spirit and F Lubricants Taxation Act, it was noted that excise duty was a duty ordinarily levied on the manufacturer or producer in respect of the manufacture r production of the commodity taxed. A distinction was made between the nature of the tax and the point at which it was collected. It was subject to the legislative competence of the taxjng authority to impose the duty at the G stage which was most convenient and the most lucrative, wherever it might be, but "that is a matter of the machinery of cOllection, ad does not affect the essential nature of the tax". This was reiterated by the Federal Court in Boddu Paidann 's case. In the Bombay Tyre's case, this Court referred to the aforementioned two authorities of the Federal Court and several authorities

' of this Court to hold lha.t excise duty was levied on manufacture but it could H

SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R. .....,.

A be levied at any convenient stage so long as the character of the impost, that

is, that it was a duty on the manufacture or production was not lost. The method of collection did not affect the essence of the duty but only related to the machinery of collection for administrative convenience. This Coun sajd, "While the levy in our country has the status of a constitutional B concept, the point of collection is located where the statute declares it to be''.

The liability to pay excise duty on the IMFL is, therefore, that of the

j manufacturer thereof. Rule 22 only provides a mode for collecting the excise . duty, a mode which is obviously convenient for it requires the party removing the IMFL from the factory of its production to pay in advance the excise duty c thereon. That party might be the manufacturer. That the Act provides in another section that all IMFL should be supplied in the State of Tamil Nadu by wholesale only through TASMAC dose not, in our view, make any difference to this position. It cannot be a reason for holding that the primary obligation to pay excise duty is that ofT AS MAC or that the manufacturer is absolved '. of the obligation to pay excise duty.

D We cannot agree with learned counsel for the appellants that the second Me Dowell cac; e was based only upon the provisions of the Andhra 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 concept

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 or expediency''. The Andhra Pradesh rules, it was held, "did not detract from the position that payment of excise duty is the primary and exclusin obligation of the manufacturer and if payment be made under a contract or arrangement by any other person it would amount to F 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 had no opportunity to tum it over his hands and, therefore, the same could not be considered to be a pan of its tumover.

It was held that the argument that "when the excise duty does not go into

~ the common till of the assessee and it dose not become a pan of the circulating G capital, it does not constitute turnover, is not the decisive test for detennining whether such duty wouJd constitute turnover" . ";

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 H IMFL from the factory of its production, other than the manufacturer, the

M.S. AND DISl'ILLERIES L TO. '' COMMERCIAL TAX OFFICER (S P. OHARUCHA, J.) 15

payment of excise duty that party makes is in dicharge of the obligation of A the manufacrurer. 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 behalfofthe manufacturer. In effect, therefore, the elemen~ of excise duty docs enter into the turnover of the. manufacturer just as much as it would ordinarily do. The definition of B "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 manufacturer's till is, as held in the second Me Dowell case, not the decisive test for determining C whether or not it would be a part of the manufacturer's turnover.

The argument based on Explanation (I -A) of 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 IMFL sold.

Insofar as the argument of equitable estoppel is concerned, the short answer, in our view, is that, admittedly, no representation had been made by any Sales Tax authorities, and, given the construction. that we have placed upon it, Rule 22 itself cannot be said to be a representation that could have E misled the appellants.

In the premesis, the appeals are dismissed, with costs.

S.V.K.t.

Appeals dismissed. F