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CASE NO.: Appeal (civil) 6323  of  1999 Appeal (civil)  6329     of  1999

PETITIONER: T.J.BABY & OHERS

       Vs.

RESPONDENT: SAE OD KERALA & OTHERS

DATE OF JUDGMENT:       10/08/2000

BENCH: B.N.Kirpal, S.N.Phukan, Ruma Pal

JUDGMENT:

Judgment

Kiral J.

     The  only  question which arises for consideration  in these  appeals is whether the appellants who are F.L.  1 and F.L.   3 licence-holders under the Abkari Act of Kerala  can be  made liable to pay any difference in excise duty due  to subsequent  increase  on  the unsold stock of  liquor  which remained with them at the close of the financial year having purchased  the  same  from   the  state-owned  kerala  State Beverages (Manufacturing and

     Marketing)  Corporation  Limited  on  which  duty  has already  been  paid  by the State Corporation  when  it  was issued out of the bonded warehouse.

     Under the provisions of the Abkari Act different types of  licences  are’  issued.  As far as  the  appellants  are concerned  F.L.   1  licence  is  issued  to  stoekists  and retailers  and  F.L.   3  licences are issued  to  bars  and restaurants.   The holders of F.L.  1 licences can  purchase liquor  for sale from the aforesaid Beverage Corporation  to whom  F.L.   9  licence  is  issued.   These  stockists  and retailers  then sell liquor to other dealers or to consumers while  the  holders of F.L.  3 licences sell liquor  in  the bars and restaurants run by them.

     It  appears that prior to 1st April, 1996 the duty  of excise  on  Indian-  made foreign liquor was Rs.   20/-  per proof litre.  With effect from 1^ April, 1996, Section 18 of the  said Act was amended and now the maximum rate of excise duty could be Rs.  200/- per proof litre.

     The  respondents herein while invoking the  provisions of  proviso  to  Section  18(3)   sought  to  realise   the difference  in  the  excise  from the F.L.  1  and  F.L.   3 licensees  in respect of the stocks which were held by  them

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as  on  1.4.1996.  It is not in dispute that the  appellants herein are licence-

     hoiders  whose  licences  have been extended  for  the period  from  1.4.1996 to 31.3.1997 and they  were  existing Sicence-hoiders in the previous year as well.

     The  appellants  chaiienged this imposition by  filing writ  petitions  in the Kerala High Court.  Single Judge  of the  said  Court came to the conclusion, while allowing  the writ petitions, that such a demand could not be raised under proviso  to  Section  18(3)  from the F.L.  1  and  F.L.   3 licensees.   The  State  of Kerala went up in  appeal.   The Division  Bench  while reversing the decision of the  Single Judge,  and  thereby dismissing the writ petitions, came  to the  conclusion  that  the  said proviso  to  Section  18(3) enabled  the State Government to realize from the  licensees who  ho!d  stocks the additional excise duty which had  come into effect from 1^ April, 1996.

     Seeking  to  challenge the aforesaid decision, it  has been  contended  by  the  learned  senior  counsel  for  the appellants  that  Section 18(3) can have no  application  to F.L.   1  and  F.L.  3 licensees who are not liable  to  pay excise  duty under Section 17 of the Act.  Mr.  Bhat, on the other  hand,  submits  that the plain reading  of  the  said proviso  clearly indicates that all licensees including F.L. 1 and F.L.  3 licence-holders would be liable to pay

     the  difference-in  the  excise duty in the  event  of there being an increase of ’the same.

     In  order to examine the proviso it is appropriate  to refer  to  the relevant provisions of the Act.  Section 1  / provides  for levy of duty on liquor or intoxicating  drugs. The said Section reads as follows:

     Duty  on  liquor  or mtoxicatmg drugs:-  ^[A  duty  of excise  or  luxury tax or both shall, if the  Government  so direct, be levied on all liquor and intoxicating drugs}

     (a) permitted to be imported under ^[ x xx] Section 6; or (b) permitted to be exported under [ x xx] Section 7;  or (c)  permitted under Section 11 to be transported ;  or  (d) manufactured under any licence granted under Section 12;  or

     (c) manufactured at any ’’[distillery, brewery, winery or other manufactory] estabisihed under Section 14;  or

     (f)  issued  from a ^[distillery, brewery,  winery  or other  manufactory  or  warehouse] licensed  or  established under Section 12 or Section 14;  or

     (g) sold in any part of the "[ x xx] State:]

     ’  Substituted  for the opening paragraph "A  duty  of such  amount  as  the  Diwan may prescribe shall  if  he  so direct,  be levied on all liquor and intoxicating drugs"  by Section 5(1) of President’s Act I of 1964,

     "  The words "the proviso to" omitted by Section 18(a) ofAct  10 of 1967.  ^ Substituted for the word  "distillery" by  Section  18(b) ofAct 10 of 1967.  " Substituted for  the words  "Distiller or warehouse" by Section 18© ibid.  ’         The word "Cochin omitted by Section 18(d) ibid.

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     ^Provided that no duty or gallonsgs fee or vend lee or other  taxes  shall  be levied under this Act  on  rectified spuit  inchlding absolute aichohol which is not intended  to be  used  for  the manufacture of potable liquor  meant  for human consuniption.]

     ^[Expianation:-  For  the purpose of;this section  and Section  18, the expression "duty of excise", with reference to liquor or intoxicating drugs, include countervailing duty on  such  goods manufactured or produced elsewhere in  India and brought into the State.]

     Section  18 provides for the manner in which the  duty may  be imposed and reads as follows:  ’ .  How duty may  be imposed:- 8(1) 9Such duty of excise may be levied:) .

     (a)  ^  xxx] in the case of spirits or been cither  on the  quanta  produced  in or passed  out  of^[a  distillery, brewery  or warehouse licensed or established under  Section 12  or Section 143 as th^ case may be or in accordance  with such  scale  of equivalents, calculated on the  quantity  of materials  used or by the degree of attenuation of the  wash ^[or wort or on the value of the liquor] as the case may be, as the Government may prescribe;

     (b)  in the case of intoxicating drugs ^ x x x] on  t^ quantity  produced  or  manufactured   ^[or  issued  from  a warehouse licensed or established under Section 14;]

     ^c).xxx (d) xxx]

     ^Substituted  by  Section  7  of Act  4  of  1990.   ^ inserted  by  Section 5(ii) of President’s Act I ofl^64.   * Renumerated by Section 6 ofPresidenVs Act I of 19t>4

     "  Substituted for ths words "such duly may 1>e levied in  one  oi more of the following ways" by  Section  6(l)(l) ibid.  ^ The ;words "by duty of excise to he chased" omitted by        Section          6(i)(ii)          ibid.         " Siibstttiitedfoithewords"thadistilieryoTbrew«a-y"by  Section 10(l)ofActV of 1091.  ^ Substituted by Section 8 of Act 4 of 1996.

     " The words "by a duty to be rateably chaiged" omitted by   Section  6(l)(m)  of  President’s   Act  I   of   1964. ^AddedbySection  10(ii)ofActVofl091.   ^  Clauses  Â©  &         (d) omitted by Section 6(l)(iv) ofPi^sidenVs Act I of 1964.

     (e) in the case of toddy, or spirits manufactured from toddy,  ^[in the form of a tax on each tree from which toddy is  drawn),  to  be paid in such instalments  and  for  such period as the Government may direct;  or

     ({)  by ^import, export orj transport duties  assessed in such manner as the Government may direct;

     - ^xxxJ ’

     ^[(2)  The luxuly’ tax on hquor or intoxicating  drugs shall be fevied:-

     f(i)  in  the case of any liquor in the form of a  fee for licence for the sale of the liquor and in tlie form of a gallonage  tee or vending fee, or in any one of such  forms;

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and;j

     (ii)  in  .the case of an intoxicating drug.   in  the form a fee for

     licence for the sale ofthe intoxicating drug.} ’

     f^f .  ’ ^ ’ _

       ’ [(3) The duty of excise under sub-section (1) and the luxury tax

     under sub-section (2) shall be levied at such rates as may  be  fixed  by  the Government, from time  to  time,  by notification  in  the  Gazette,   not  exceeding  the  rates specified below:-

     .’ .^ (1) Duty’ of Maximum rates

     Excise

     (i) Duly of excise on liquors (Indian made)

     (ii) Duty of

     ^[Rs.200 per proof litre or an amount equal to 200 per cent ofthe value of the hquor.  Rs.  I per gram or

     ’*  Substituted  for the words "by a tax on each  tree fi-om   which   toddy  is  drawn"   by  Section   6(1)   (v) offtesjdenf’s Act ;  of 1964.

     " Inserted by Section i 0(ni) of Act V of 1091.

     "   The   proviso   omitted    by   Section   6(l)(vi) ofPrasideiit’s Act 3 of 1964.  ’ Inserted by Section 6(2) of President’s Act of 1964.  Substituted by Act 16 of 1969 with affect  from  26.1.1’.950.  Inserted by Section  6(2)  ibid. Substituted by Section 8(2/0) of Act 4 of 1996.  .

     excise on mtoxicating drugs.

     (iii)  Duty  of  excise in the form of  tax  on  trees tapped for toddy

     (2) Luxury tax:

     (a)  when levied in the form of a fee for licence  for sale of foreign liquor- .

     (i)  for  licence  for  sale   of  foreign  liquor  in wholesale

     (ii)  for licence for sale of foreign liquor in hotels or restaurants (iii) for licence for sale of medicated wines (iv)  for  licence  for  sale  of  foreign  liquor  in  non- proprietory  clubs to members ^ (v) xxx] (b) when levied  in the form of gallonage fee ^(c) xxxj

     Rs.933.10 per seer.

     Rs.  ^50J per tree per half-year or part thereof

     Rs.  [15000] for a year or part thereof.

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     Rs.  [12000] for a year or part thereof.

     Rs.   1.000  for a year or part thereof.  Rs.   [1500] for a year or part thereof.  Rs.  10 per bulk litre or

     Rs-45.46 per bulk gallon.

     " Substituted by Act 16 of 1969.

     ^  Item  "(v) for special licence for sals of  foreien liquor  RJS.   500  for a year or part thereof’  omitted  by Section 8(b)(l) of.\ct 4 of 1996.

     ^ Subclause "© when lsvied iii the form of vending fee on  denatured spirit including methylated spirit Rs.  I  per bulk  litre or Rs.  4.54 per bulk gallon" omitted by Section 8(3)(ii) of Act 4 of 1996.

     Provided  that where there is a difference of duty  of excise  or  luxury tax as between two licence periods,  such difference  may  be  collected in respect of all  stocks  of ^Indian  made foreign liquor] or intoxicating drugs held  by licensees at the close of the former period.j

     ^[Explanation:’  Where  any liquor is chargeable  with duty  at  a rate depending on the value of the liquor,  such value shall be the value at which the Kerala State Beverages (Manutacturing  and Marketing) Corporation Limited purchases such  liquor from the supplies and incase any such liquor is not  purchased by Kerala State Beverages (Manufacturing  and Marketing) Corporation Limited such value shall be the value fixed by the Commissioner.}

     Reading  of  Section  17 shows that the  said  Section deals  with two types of imposts - one is the duty of excise and  tlie other is the luxury tax.  Both the duty of  excise and the luxury’ tax can be levied on liquor and intoxicating drugs.   As  we read the said Section it  clearly  indicates that Section 17 spells out the taxable events.  Under Clause (a)  the taxable event is the import under Section 6, export is  the  taxable event under Clause (b)  and  transportation permitted under Section 11 is

     another  taxable  event.   Manufacture  under  licence granted under Section 12 or by ^

     an  entitv mentioned therein established under Section 14  are the other taxable events.  Clause (f) postulates the taxable event when there is an issuance from the distillery, brewery,  winery or other manufactory or warehouse  licenced are  established under Section 12 or Section 14, while under Clause (g) liquor or

     ^  Substituted  for  the  words  "comtiy  iiquol-"  by Section 8© of Act 4 of 1996.  ^ Explanation added by Section 8(d) ofAct4 of i 990.

     Provided  that where there is a difference of duty  of excise  or  luxury tax as between two licence periods,  such difference  may  be  collected inrespect of  all  stocks  of ^[Indian  made foreign liquor] or intoxicating drugs held by licensees at the close of the former period.]

     "  [Explanation:- Where any liquor is chargeable  with duty  at  a rate depending on the value of the liquor,  such

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value shall be the value at which the Kerala Stole Beverages (Manufacturing  and Marketing) Corporation Limited purchases such  liquor from the supplies and incase any such liquor is not  purchased by Kerala State Beverages (Manufacturing  and Marketing) Corporation Limited such value shall be the value fixed by the Commissioner.]

     Reading ofSeetion 17 shows that the said Section deals with  two  types ot imposts - one is the duty of excise  and the  other  is the luxury tax.  Both the duty of excise  and the  luxury  tax  can be levied on liquor  and  intoxicating drugs.   As  we read the said Section it  clearly  indicates that Section 17 spells out the taxable events.  Under Clause (a)  the taxable event is the import under Section 6, export is  the  taxable event under Clause (b)  and  transportation permitted  under  Section  11  is  another  taxable   event. Manufacture  under licence granted under Section 12 or by an entity  mentioned  therein established under Section 14  are the other taxable events.  Clause (f) postulates the taxable event  when  there  is  an  issuance  from  the  distillery, brewery,  winery or other manufactory or warehouse  licenced are  established under Section 12 or Section 14, while under Clause (g) liquor or

     ^ Substituted for the words "comtiy liquor" by Section $©  of Act 4 of 1996.  ’" Explanation added by Section »(d) ofAct 4 of 1996.

     -intoxicating  -drug-sold in-any part ofthe State is a taxable event.  It will be seen that the Section does not by itseif  indicate  as with regard to which clause there is  a reference  to the levy of excise duty and with reference  to which  other Clauses there is reference to the luxury  tax.. The  contention of Sliri Bhat is that duty of excise and the luxury tax can be levied in cases ofChuscs (a) to (g).

     Section 18, however, gives an answer to the problem in hand.  Sub-section (1^ of Section 18 provides as to bow duty of  excise  can be imposed.  The said sub- section does  not deal  with  the  levy  of  luxury tax.   As  made  clear  by sub-section  (3) of Section 18, luxury fax is dealt with  in sub-section  (2)  of  Section   18.   The  said  sub-section provides that luxury tax on liquor or intoxicating drug will be  in the form of a fee for licences for the sale of liquor or  intoxicating  drug.  When we read Section 17 along  with Section IS and keep in mind that duty of excise is levied on the  manutacture, though its collection may be postponed, it is clear that when Section 17 talks of levy of luxury tax it cannot  be  in relation to clauses (a) to (f) to  the  "said Section.   No luxury tax is contemplated by Section 18(2) to be  imposed on manufacture or issuance of liquor referred to in  Clauses  (d),  (e) and (f) of Section  17..   Similarly, Section  18(2) does not contemplate levy of luxury tax  with reference  to clauses (a), (b) and (c) of Section 17.   What is  relevant  with  regard to these clauses is the  levy  of excise  duty.  The method in which excise duty is levied  is provided under Section 18(1).  This leaves out clause (g) of Section 17.  Luxury

     tax  -Feferred.to-in.Section  17 is with reference  to the  sale of intoxicating drugs or liquor in any part of the State.  Clause (g) of Section 17 is relatable to the levy of luxury tax.

     The  proviso  to  Section 18(3) obliges  the  existing

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stock-holders  who  are licensees to pay the  difference  of duty  of excise or luxury’ tax in case there is an  increase in respect thereof.  The importers, exporters, manufacturers and  warehouse  owners would be concerned with the  levy  of excise  duty  whereas  luxury tax would be  payable  by  the licensees  relatable  to Section 17(g) whicli would be  like the  appellants in the present case.  What the proviso means is  that  those licensees who are liable to pay excise  duty can  be called upon to pay the increase thereof while  those licensees  who are liable to pay luxury tax can likewise  be required  to pay tlie increase in tlie luxury tax.   Section 17 (a) to (f) which deals with the imposition of excise duty refers  to licensees under Section 6, Section 7, Section II. Section  12  and Section 14.  The appellants  are  licensees under  Section  15  of the Act.  It is not in  dispute  that excise  ^uty is not levied or realised in the first instance from  the  F.L.   I or F.L.  3 licensees.   Excise  duty  of liquor which is manufactured within the State or is imported from  outside the State, is paid either by the  manufacturer or   by  tlie  F.L.   9  licensee,  namely,  the   aforesaid Corporation.  The proviso to Section 1.8(3) would not enable the  respondents to realise the increase in excise duty from the licensee who was not under an obligation to pay

     the-original  excise  duty-which lias increased.   The luxiry tax on the sale of intoxicating liquor can be imposed only on the persons holding licence for sale simplicitor but not excise duty.

     The  undisputed  tact  being, as noticed both  by  the Single  Judge and the Division Bench, that the Govsmmcnt has chosen  to levy the excise duty in the manner, prescribed by Section .17 (f) read with Section 18(1), namely, excise duty on  liquor is levied only at the time when It is issued from an  establishment  licensee under Section 12 or Section  34. the  licensees under F.LJ and F.L 3 were under no obligation to  pay the excise duty.  No excise duty could be levied  on the  F.L.   I and F.L.  3 licensees.  If this be so.   then. under  proviso  to Section 18(3) the increase in the  excise duty  can only be levied in terms of Section 17(f) read with Section  18(1)  which  means if  the  distillery.,  brewery, winery  or other manufactory or warehouse which is  licenced or  established  under Section 12 or Section 14 had with  it duty  paid stock and there was an increase in the duty  from Rs.20A  to  Rs.200/- per proof litre, then it is  only  from those  licensees referred to in Section 17 (f) from whom the increase could be realised.  The Act does not contemplate or permit imposition of excise dutv on the stockists, retailers or F.L.3 licensees.

     In  our opinion, the learned Singlo Judge was;   right In  corning to the conclusion that proviso to Section  18(3) di.d  not eiiabl.e me Goveninjeat to realise the increase in excise  duty from the appellants who are F.L.  I and F.L.  3 Sicencees.

     For  the  aforesaid reasons;  we allow these  appeals, set  aside  the decision of the Division Bench, and  restore lhejudgment  of  the Single Judge who had allowed  the  writ petitions.  In the circumstances of the case parties to bear their own costs.