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PETITIONER: MOHAN BREWERIES & DISTILLERIES LTD. ETC. ETC.

       Vs.

RESPONDENT: COMMERCIAL TAX OFFICER, MADRAS & ORS.

DATE OF JUDGMENT:       09/09/1997

BENCH: S.P. BHARUCHA, K.T. THOMAS, V.N. KHARE

ACT:

HEADNOTE:

JUDGMENT:                THE 9TH DAY OF SEPTEMBER, 1997 Present:                Hon’ble Mr. Justice S.P Bharucha                Hon’ble Mr. Justice K.T. Thomas                Hon’ble Mr. Justice V.N. Khare G.L. Sanghi,  Sr.Adv., A.T.M. Sampath, Adv. with him for the appellants. V.R. Reddy,  Sr. Adv.,  V.Krishnamurthi and T. Harish Kumar, Advs. with him for the Respondents.                       J U D G M E N T      The following Judgment of the Court was delivered:                             WITH (C.A. No.  5106/97,   5122/97,  5123/97,  5124/97,  5125/97, 5126/97, 5127-28/97, 5129/97, 5130/97, 5131-5133/97)                       J U D G M E N T S.P. BHARUCHA, J.      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 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 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 Nadu Indian-Made Foreign spirits  Indian Made  Foreign  Spirit  (Manufacture) Rules, 1981  (now referred  to as  the ’wholesale Rules’ and the ’Manufacture Rules’ respectively).      By reason of Section 17-C of 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.  Section 18-A provides for excise duty on liquor. Sub-Section 91) therefor reads thus:

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    "   (1)    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."      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  an from  the date of the      commencement  of   the  Tamil  Nadu      Prohibition (Amendment)  Act, 1981,      an excise  duty  or  countervailing      duty at  such  rate  not  exceeding      rupees thirty  per proof  liter  as      the State Government may, from time      to time,  by notification  specify,      shall be  levied  only  under  this      Sectional]   on    all    excisable      articles-      xxx     xxx          xxx      (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 on the quantity produced in,      or  passed  out  of  a  distillery,      blending       unit,   brewery   or      warehouse licensed  or  established      under this  Act, 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, as      the  case   may  be,   as  may   be      prescribed.      Rule 22  of the  manufacture Rules,  as amended  on 4th October, 1982, reads thus :      "22. payment  of  excise  duty  and      vend fee -      (1) An excise duty, at such rate as

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    the state  Government may prescribe      from time to time, shall be paid by      the person  who removes  the  goods      from a manufactory, on the stock of      Indian-made  Foreign   Spirits   so      removed from the manufactory.      (2)   A vend  fee of rupees two per      bulk liter  shall be  paid  by  the      licensee on  all stocks  of Indian-      made Foreign  Spirits  issued  from      the manufactory."      Rule 15 (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      Indian-made Foreign Spirits removed      by him  from a  manufactory in  the      State as  required  under  sub-rule      (1) of  rule 22  of the  Tamil nadu      Indian-made     Foreign     Spirits      (manufacture) Rules,  1981 or   the      countervailing duty on the stock of      countervailing duty on the stock of      Indian-made     Foreign     Spirits      imported 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 removed by him from      a bonded  warehouse licensed  under      the Tamil  Nadu Indian-made Foreign      Spires   (Storage-in-Bond)   Rules,      1981."      These amendments  were given  retrospective effect from 23rd May, 1981.      It was  contended on  behalf of the appellants in their writ petitions  before the  High Court that the liability to pay excise  duty upon  the basis of the aforesaid provisions lay not  upon them  but upon  the Tamil Nadu State Marketing Corporation (TASMAC).  TASMAC had  submit an application for its requirement  of  IMFL  and  thereupon  the  excise  duty thereon  was   assessed.  TASMAC  paid  the  amount  thereof directly. The  appellants neither  collected the excise duty from  the   wholesaler  nor   had  they   the  statutory  or contractual authority  to realise  the  same  from  it.  The appellants were  not, therefore,  liable to pay sales tax on excise duty  which was  neither part  of the  sale price nor consideration for  the  Sale.  In  the  principal  judgment, followed in  the other  cases,  the  High  Court,  primarily basing itself upon the decision of this Court in Mc Dowell & Company Limited  vs. The  Commercial Tax  Officer, 1985  (3) S.C.R.   791, rejected  the contentions  on  behalf  of  the appellants 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 (1-A) thereto, read thus :      " 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

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    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 the sale by a person of      agricultural    or    horticultural      produce, other than tea, and rubber      natural  rubber   latex   and   all      varieties and  grades 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;      xxx       xxxx           xxxx      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.      Section 2(n)  defines "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.      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 IMFL was not liable for the payment of  the excise  duty  thereon. The imposition 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   manufacturory,   namely,   TASMAC.   The manufacturer could  not, by  reason  of  Rule  22,  seek  to recover the excise duty from the party so removing the IMFL. The element  of the  excise duty  did  not  enter  into  the turnover of  the manufacturer and, accordingly, 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 vs.  Bombay Tyre  International Ltd. and others, 1984 (1) S.C.C.  467,  and  emphasised  the  reference  to  their judgments of  the Federal Court in The Central Provinces and Berar Sales  of Motor Spirit and Lubricants Taxation Act and Province of  Madras vs.  Boddu Paidanna and sons. In learned counsel’s submission, the observations therein supported the argument that  the imposition  of excise  duty was  upon the party who removed the IMFL from the factory. Learned counsel submitted that  the ratio  of the  judgment in  Mc Dowell  & Company Limited  vs. The  Commercial Tax  officer, 1985  (3) S.C.R. 791, (the second Mc 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  (1A) to Section 2(r) of the sales Tax Act. Learned  counsel   submitted  that  Rule  22  itself  was  a representation to  the manufacturer  and even  the Sales Tax authorities had  been misled  by it; in their submission, an equitable estoppel  arose against the respondent State which prevented it from recovering sales tax from the manufacturer on the element of excise duty.

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    Excise  duty  is  levied  upon  goods  manufactured  or produced Entry  84 of  List I and Entry 51 of List II 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  later stage as is, administratively or otherwise, most convenient.      In the  case of  Central Provinces  and Berar  Sales of Motor Spirit  an Lubricants  Taxation Act, it was noted that excise duty was a duty ordinarily levied on the manufacturer or producer  in respect  of the  manufacture or  producer in respect of  the manufacture  or production  of the Commodity tax. 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 taxing authority to impose the duty at the stage which was most convenient and the most lucrative, wherever  it might  be, but  "that is a matter of the  machinery  of  collection,  and  does  not  affect  the essential nature  of the  tax". This  was reiterated  by the Federal Court  in  Boddu  Paidanna’s  case.  In  the  Bombay Tyre’s case,  this Court  referred to  the aformentioned two authorities of  the Federal Court and several authorities of this  Court   to  hold   that  excise  duty  was  levied  on manufacture but  it could  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  of administrative convenience. This Court said, "while the levy in our  country has  the status of a constitutional concept, the point of collection is located where the statute declare it to be."      The liability  to pay  excise  duty  on  the  IMFL  is, therefore, that  of the  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  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  does not,  in out view, make any difference  to this position.  It cannot be a reason for holding that  the primary  obligation to  pay excise duty is that of  TASMAC or  that the manufacturer is absolved of the obligation to pay excise duty.      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  judgement  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.   It was  held that  the argument  that "when  the excise duty does not go into the common till of the assesses

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and it does not become a part of the circulation capital, it does not  constitute turnover,  is not the decisive test for determining whether such duty would 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 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 manufacturer’s 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 manufacture’s turnover.      The argument based on Explanation (1-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  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.      In the premises, the appeals are dismissed, with costs.