Madras High Court
Mohan Breweries And Distilleries Ltd. vs Commercial Tax Officer, Porur ... on 25 April, 1989
Author: S. Mohan
Bench: S. Mohan
JUDGMENT Venkataswami, J.
1. In all these cases, as a common question of law arises, the learned counsel on both sides have addressed common arguments and consequently we are disposing of the cases by this common order :
2. The controversy that we are to resolve in this batch of cases is, whether, in the facts and circumstances of the cases, the excise duty admittedly paid by the purchasers is includible in the taxable turnover of the petitioners for the purpose of levy of tax under the Tamil Nadu General Sales Tax Act, 1959. Mr. C. Natarajan, learned counsel appearing for the petitioners in all these cases, contended for a negative answer. On the other hand, the learned Advocate-General appearing for the Revenue invited us to render an affirmative answer.
3. The facts are not in dispute. The narration of the facts are with reference to all the petitioners except the petitioners in W.P. No. 15850 of 1988. All the petitioners are manufacturers of Indian-made foreign liquor (for short "IMFL") on the basis of licences issued to them under the Tamil Nadu Indian-made Foreign Spirits (Manufacture) Rules, 1981. The petitioners are required to effect sales of their IMFL products only to Government-appointed wholesalers. The manufacture, supply and sale of the IMFL products are governed by the Tamil Nadu Prohibition Act, 1937 (for short "the Act"), the Tamil Nadu Indian-made Foreign Spirits (Supply by Wholesale) Rules, 1981 (for short "the Wholesale Rules") and the Tamil Nadu Indian-made Foreign Spirit (Manufacture) Rules, 1981 (for short "the Manufacture Rules"). Section 17-C was introduced to the Act by the Tamil Nadu Amendment Act (33 of 1983) by which Tamil Nadu State Marketing Corporation (hereinafter referred to as "TASMAC") was appointed as the exclusive wholesale purchaser of the product for the entire State of Tamil Nadu. In other words, the entire sales of the petitioners are only to TASMAC. Section 18-B of the Act provides for levy of excise duty on excisable articles. Section 18-C talks of how duty may be imposed. Before proceeding further, it will be advantageous to set out the relevant provisions themselves for proper appreciation of the submissions made at the bar. Sections 17-C, 18-B and 18-C of the Act read as follows :
"17-C. (1) It shall be lawful for the State Government to grant to any person or persons on such conditions and for such period as they may deem fit the exclusive or other privilege -
(a) of manufacturing Indian-made foreign spirits, or
(b) of selling by retail Indian-made foreign spirits, within any local area.
(1-A)(a) Notwithstanding anything contained in this Act, the Tamil Nadu State Marketing Corporation Limited, which is a Corporation wholly owned and controlled by the State Government, shall have the exclusive privilege of supplying, by wholesale, Indian-made foreign spirits, for the whole of the State of Tamil Nadu and no other person shall be entitled to any privilege of supplying, by wholesale, Indian-made foreign spirits for the whole or any part of the State.
(b) Notwithstanding anything contained in this Act, the Tamil Nadu State Marketing Corporation Limited shall be granted the licence by the Commissioner for the exercise of the exclusive privilege referred to in clause (a) and such licence shall be subject to the Rules made by the State Government in this behalf and to such conditions and restrictions as the Commissioner may, from time to time, specify.
(c) The Tamil Nadu State Marketing Corporation Limited shall, as soon as may be, after the grant of the licence under clause (b) for the exercise of the exclusive privilege referred to in clause (a) open its branches in the State in such places and subject to such conditions as the Commissioner may specify :
Provided that the said Corporation shall open not less than one branch in each district.
(2) No grantee of any privilege under this section shall exercise the same until he has received a licence in that behalf from the prescribed authority.
18-B. (1) Notwithstanding anything contained in section 18-A, with effect on and 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 litre as the State Government may, from time to time, by notification specify, shall be levied only under this section on all excisable articles -
(a) permitted to be imported under this Act;
(b) permitted to be exported under this Act;
(c) permitted to be transported under this Act;
(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; or
(g) sold in any part of this State.
(2) Nothing in this section shall authorise the levy of any duty which as between excisable articles manufactured or produced in the State and similar excisable articles not so manufactured or produced, discriminates in favour of the former or which in the case of excisable articles manufactured or produced outside the State discriminates between excisable articles manufactured or produced in one locality and similar excisable articles, manufactured or produced in another locality.
(3) Section 18-A shall, in so far as it relates to matters specified in this section, cease to be in force with effect on and from 1st May, 1981.
18-C. 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;
(e) by import, export or transport duties assessed in such manner as the State Government may direct;
Provided that where there is a difference of duty as between two licence periods such difference may be collected in respect of all stocks of liquor other than foreign liquor held by licensees at the close of the former period."
4. Rule 22 of the Manufacture Rules as amended by G.O.Ms. No. 711 (P&E), dated 4th October 1982, reads as follows :
"22. Payment of excise duty and vend fee. - (1) An excise duty, at such rate as 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 litre shall be paid by the licensee on all stocks of Indian-made foreign spirits issued from the manufactory."
Similarly, rule 15(1) of the Wholesale Rules as amended by the very same G.O. reads as follows :
"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 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 Spirits (Storage-in-Bond) Rules, 1981."
[Sub-rule (2) deals with vend fee with which we are not concerned].
It may also be mentioned that both the amendments were given retrospective effect from May 23, 1981. On the basis of the above-said provisions, the contentions advanced on behalf of the petitioners may now be noted. The excise duty imposed under the Prohibition Act is squarely laid on the wholesaler, namely, TASMAC. It is the wholesaler who submits an application for its requirement of the product and thereupon the element of excise duty is assessed and duty is recovered from the said wholesaler and on such assessment, the wholesaler remits the same into the treasury. On the production of the duty-paid challan, the petitioners effect delivery of the product. It is, therefore, clear the petitioners neither collect the excise duty from the wholesaler nor have any statutory or contractual authority to realise the same from the wholesaler. If that be the position, according to the learned counsel, the petitioners could not be required to pay sales tax on excise duty which is neither part of the sale price nor consideration for the sale of the IMFL products. Therefore, the attempt on the part of the Revenue to include excise duty in the turnover of the petitioners and consequently to recover sales tax on excise duty is without jurisdiction. The amendment introduced to rule 22 of the Manufacture Rules and rule 15 of the Wholesale Rules by G.O.Ms. 711 (P&E), dated 4th October, 1982, according to the petitioners, is deliberate to avoid sales tax on excise duty. The Revenue misunderstood the ratio of the judgment of the Supreme Court in McDowell & Company Limited v. Commercial Tax Officer reported in [1985] 59 STC 277, popularly known as "the Second McDowell's case". According to Mr. C. Natarajan, the Supreme Court was concerned with a case arising out of the Rules framed by the Andhra Pradesh Government which are not similar to the Rules with which we are concerned. According to the amended Andhra Pradesh Rules, the responsibility of collecting the excise duty is on the manufacturer and, therefore, the Supreme Court held that the arrangement between the manufacturer and the purchaser for payment of excise duty will not absolve the manufacturer from the liability to pay the excise duty. Therefore, that judgment cannot be pressed into service to the facts of the present cases. Mr. Natarajan also contended that the demand for sales tax on excise duty portion of the turnover is barred by the principles of equitable estoppel since the petitioners have acted to their detriment by the terms and representations made by the Revenue and, therefore, have not collected sales tax from the wholesalers. At this juncture, the petitioners cannot alter their position not secure reimbursement from the wholesalers. It was further contended that a careful reading of rule 22 of the Manufacture Rules along with rule 15 of the Wholesale Rules will show that it is the wholesaler alone who is made responsible for payment of excise duty and such statutory liability of the wholesaler cannot be fastened on the petitioners to include the excise duty in the turnover of the petitioners. Even assuming, according to Mr. C. Natarajan, without admitting that excise duty is an incidence on manufacture and, therefore, the petitioners are primarily liable to discharge the same, the excise duty cannot be treated as sale price in view of the fact that the same has to be paid as per statutory requirement by the wholesaler and the petitioners have nothing to do with that except to release the goods on production of duty-paid challan. In support of his contention, Mr. C. Natarajan relied on numerous judgments of this Court, other High Courts and of the Supreme Court.
5. Mr. Alagiriswami, learned Advocate-General, submitted that in view of the clear and unequivocal pronouncement of the Supreme Court in the Second McDowell's case [1985] 59 STC 277, none of the arguments advanced by the learned counsel for the petitioners can be sustained. The learned Advocate-General took us through the judgment of the Supreme Court in the Second McDowell's case [1985] 59 STC 277 and submitted that it provides a full and complete answer to the arguments advanced by the learned counsel for the petitioners.
6. We have carefully gone through the judgment of the Supreme Court in the Second McDowell's case [1985] 59 STC 277. We feel that it will be useful to extract liberally from the judgment of the Supreme Court in the Second McDowell's case [1985] 59 STC 277 as we find therein that the Supreme Court has given a clear picture about the character and incidence of excise duty. Once this is clear, most of the arguments advanced by the learned counsel for the petitioners will not survive. Regarding the character and incidence of the excise duty, the Supreme Court in the Second McDowell's case [1985] 59 STC 277, has held as follows :
"The Federal Court in Province of Madras v. Boddu Paidanna & Sons [1942] 1 STC 104 (FC); [1942] FCR 90 held :
'There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of most of the Indian Excise Acts) when the commodity leaves the factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even though it may be collected later : .......' This view has been followed by this Court and the position has been put beyond doubt by a series of decisions. In R. C. Jall v. Union of India [1962] Supp 3 SCR 436, it has been observed :
'The excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. Subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience.' In re Sea Customs Act , this Court said :
'With great respect, we accept the principles laid down by the said three decisions ([1938] 1 STC 1 (FC); [1939] FCR 18, [1942] 1 STC 104 (FC); [1942] FCR 90 and [1945] 1 STC 135 (PC); [1945] FCR 179 (PC)) in the matter of levy of an excise duty and the machinery for collection thereof.' In [Obviously the case relates to Shinde Brothers v. Deputy Commissioner, Raichur Guruswamy & Co. v. State of Mysore , Sikri, J. (as he then was), spoke for the majority and stated the ratio thus :
'These cases establish that in order to be an excise duty (a) the levy must be upon "goods", and (b) the taxable event must be the manufacture or production of goods. Further the levy need not be imposed at the stage of production or manufacture but may be imposed later.' In Jullundur Rubber Goods Manufacturers' Association v. Union of India , Grover, J., after extracting a part of the judgment in Jall's case [1962] Supp 3 SCR 436, spoke for the Court thus :
'The above statement of law in no way supports the argument that the excise duty cannot be collected from the persons who are neither producers nor manufacturers. Its incidence certainly falls directly on the production or manufacture of goods but the method of collection will not affect the essence of the duty.' In A. B. Abdul Kadir v. State of Kerala , this Court restated the position thus :
'Excise duty, it is now well-settled, is a tax on articles produced or manufactured in the taxing country. Generally speaking, the tax is on the manufacturer or the producer, yet laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production.' Thus, 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.
On an examination of the provisions of the Excise Act, the Rules framed thereunder and the pronouncements referred to above, we are of the view that the conclusion of this Court at page 921 of the Reports [at page 158 of that intending purchasers of the Indian liquors who seek to obtain distillery passes are also legally responsible for payment of excise duty, is too broadly stated. The 'duty' was primarily a burden which the manufacturer had to bear and even if the purchasers paid the same under the Distillery Rules, the provisions were merely enabling and did not give rise to any legal responsibility or obligation for meeting the burden. We do not propose, however, to examine this aspect any further for the change in rule 76 of the Distillery Rules has clearly affirmed the position that liability for payment of excise duty is of the manufacturer. Provisions of rules 80, 81, 82, 83 and 84 do not militate against the conclusion that the payment of excise duty is a liability exclusively of the manufacturer. In these rules detailed provisions have been made regarding obtaining of distillery pass, correct calculation and full payment of the excise duty, the manner of depositing such duty and ultimately issue of the spirit under the pass from the distillery. These rules, therefore, do 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.
It was the stand of the appellant before the High Court that it makes a condition precedent for the buyer of its finished goods that he (the buyer) pays the excise duty to the excise authorities directly and only on production of the receipted challan, liquor is issued from the distillery by way of sale under the supervision of the excise authorities. In view of such an arrangement, the excise duty paid by the buyer does not become a part of the turnover of the appellant.
'Turnover' is defined in section 2(s) of the Sales Tax Act to mean 'the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charged) as the consideration for sale or purchase of goods (whether such consideration be cash, deferred payment or any other thing of value) including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name or object thereof'.
The definition clearly indicates that the total amount charged as the consideration for the sale is to be taken into account for determining the turnover. Where a bill of sale is issued (and obviously the bill has to state the total amount charged as consideration), the total amount set out therein is to be taken into account. In every transaction of sale, there is bound to be a seller at one end and a buyer at the other and transfer of title in the goods takes place for a consideration.
In Hindustan Sugar Mills v. State of Rajasthan , this Court observed :
'The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale ........' The Court proceeded to say :
'Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily it is not shown as a separate item in the bill, but it is included in the price charged by him. The sale price in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. True, the excise duty component of the price would not be an addition to the coffers of the dealer, as it would go to reimburse him in respect of the excise duty already paid by him on the manufacture of the goods. But, even so, it would be part of the sale price because it forms a component of the consideration payable by the purchaser to the dealer. It is only as part of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser. There is no other manner of liability, statutory or otherwise, under which the purchaser would be liable to pay the amount of excise duty to the dealer. And on this reasoning, it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bill.' We would like to add, that the position is not different when under a prior agreement, the legal liability of the manufacturer-dealer for payment of excise duty is satisfied by the purchaser by direct payment to the excise authorities or to the State exchequer.
In Paprika Ltd. v. Board of Trade [1944] 1 All ER 372, Lawrence, J., stated :
'Whenever a sale attracts purchase tax, that tax presumably affects the price which the seller who is liable to pay the tax demands but it does not cease to be the price which the buyer has to pay even if the price is expressed as "X" plus purchase tax.' This Court in George Oakes (Private) Ltd. v. State of Madras , quoted this extract with approval and also referred to the following passage in the judgment of Godard, L.J., in Love v. Norman Wright (Builders) Ltd. [1944] 1 All ER 618 :
'Where an article is taxed, whether by purchase tax, customs duty, or excise duty, the tax becomes part of the price which ordinarily the buyer will have to pay. The price of an ounce of tobacco is what it is because of the rate of tax, but on a sale there is only one consideration though made up of cost plus profit plus tax. So, if a seller offers goods for sale, it is for him to quote a price which includes the tax if he desires to pass it on to the buyer. If the buyer agrees to the price, it is not for him to consider how it is made up or whether that seller has included tax or not ....... So far as the purchaser is concerned, he pays for the goods what the seller demands, namely, the price even though it may include tax. That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turnover.' Admittedly, the bills issued by the appellant did not include the excise duty. As already found, payment of excise duty is a legal liability of the manufacturer; its payment is a condition precedent to the removal of the liquor from the distillery and payment by the purchaser is on account of the manufacturer. According to normal commercial practice, excise duty should have been reflected in the bill either as merged in price or being shown separately. As a fact, in the hands of the buyer the cost of liquor is what is charged by the appellant under its bill together with excise duty which the buyer has directly paid on seller's account. The consideration for the sale is thus the total amount and not what is reflected in the bill. We are, therefore, clearly of the opinion that excise duty though paid by the purchaser to meet the liability of the appellant, is a part of the consideration for the sale and is includible in the turnover of the appellant. The purchaser has paid the tax because the law asks him to pay it on behalf of the manufacturer."
7. From the above extracts from the judgment of the Supreme Court, in Second McDowell's case [1985] 59 STC 277, it is crystal clear that the incidence of excise duty falls directly on the production or manufacture of goods, but the method of collection will not affect the essence of the duty. No doubt, we have permitted the learned counsel for the petitioners to cite various authorities, but we do not think it is necessary to go into those citations in view of the clear pronouncement of the Supreme Court referred to above. The attempt of Mr. C. Natarajan to distinguish the judgment of the Supreme Court by contending that the Supreme Court concerned with the Rules framed by the Andhra Pradesh Government, cannot be accepted in view of the following passage of the Supreme Court which is general in nature.
"....... The 'duty' was primarily a burden which the manufacturer had to bear and even if the purchasers paid the same under the Distillery Rules, the provisions were merely enabling and did not give rise to any legal responsibility or obligation for meeting the burden."
There cannot be any straight answer to get over the above passage. It is then contended that the Supreme Court itself while admitting another case from Andhra Pradesh, has observed to post the case before a Constitutional Bench for considering to post the case before a larger Bench so that the correctness of the decision in the Second McDowell's case , can be gone into. On date, the Second McDowell's case , is holding the field and we are bound by it. Therefore, applying the principles laid down in the Second McDowell's case , we find no difficulty in holding that though the excise duty was paid by the wholesaler (purchasers from manufactory). So far as the purchaser is concerned, he pays for the goods not only the price quoted by the manufacturer, but also the excise duty but for which the goods cannot be removed from the manufactory. Therefore, at the hands of the wholesaler, the price is including the excise duty. The contention that the excise duty having been paid by the wholesaler and consequently did not go into the common till of the petitioners and, therefore, cannot form part of the turnover of the petitioners, has to be rejected in view of the following view expressed by the Supreme Court :
"...... We are of the view that the conclusion reached in the appellant's case in [McDowell & Co. Ltd. v. Commercial Tax Officer on the second aspect of the matter, namely, when the excise duty does not go into the common till of the assessee and it does not become a part of the circulating capital, it does not constitute turnover, is not the decisive test for determining whether such duty would constitute turnover."
8. The only other contention remains to be considered is, whether the demand of sales tax on excise duty turnover is barred by the principles of equitable estoppel. While considering this contention, it is necessary to remind ourselves that there is no equity about a tax, there is no presumption as to tax and there is nothing to be read in, and nothing is to be implied. There is no estoppel against a statute.
9. In support of the submission that the demand is barred by the principles of equitable estoppel, learned counsel for the petitioners placed reliance on two letters written by the Prohibition and Excise Department of the Government of Tamil Nadu, dated 28th August, 1982 and 23rd August, 1983 and one letter written by the Chairman and Managing Director, TASMAC, dated 14th May, 1986. Based on these letters, the submissions were that the petitioners did not collect sales tax on excise duty because the said duty was levied on the wholesaler directly and it did not form part of the price paid to the petitioners by the wholesalers. The Government, by their conduct, persuaded the petitioners not to realise sales tax and made the petitioners as well as the Commissioner of Sales Tax believe that such tax was not leviable. Specific instructions were issued by the Government to the Commissioner of Commercial Taxes to refrain from collecting sales tax and to issue instructions to assessing authorities. Therefore, the Government are bound by the principles of promissory estoppel and the levy and collection of sales tax on excise duty turnover cannot be permitted. In this connection, learned counsel for the petitioners placed reliance on a decision of the Supreme Court in Union of India v. Godfrey Philips India Ltd. . We have carefully considered the above submission and we are of the view that this submission is misconceived. Once we come to the conclusion that excise duty is an incidence on the manufacture notwithstanding the point at which it is to be collected, then, there is no question of escaping from the position that it is the responsibility of the manufacturer for payment of the excise duty and it forms part of the price whether it is shown in the bill or not. In fact, in the bill/invoice produced by the petitioners, excise duty paid by the wholesaler is factually shown but not included in the price. That does not make any difference. The letters referred to above and relied on by the learned counsel for the petitioners do not help the petitioners to invoke the principles of equitable or promissory estoppel, for, the Prohibition and Excise Department is not the proper authority to deal with sales tax. Further, there is nothing in the letters to show that the Government have decided to exclude the excise duty turnover from the taxable turnover of the assessee. Though there is a statement in the letter dated 14th May, 1986, written by the Chairman and Managing Director, TASMAC, to the effect that no sales tax can be levied on the excise duty turnover, he is not the authority to give such a statement and it is not binding on the Government. Therefore, we have no hesitation to hold that the petitioners cannot invoke the principle of equitable or promissory estoppel to the facts of these cases. The Supreme Court decision cited by the learned counsel for the petitioners will have no application to the facts of these cases.
10. So far as the Writ Petition No. 15850 of 1988 is concerned, no separate arguments were addressed. The principles laid down above will equally apply to the facts in Writ Petition No. 15850 of 1988. The only difference is, the sales tax was levied at the purchase point and, therefore, the tax was levied under section 7A of the Tamil Nadu General Sales Tax Act.
11. For the foregoing reasons, we hold that the petitioners are liable to pay sales tax on the excise duty turnover though factually the excise duty was paid by the purchasers at the time of purchase from the petitioners.
12. In the result, the writ petitions as well as the tax case are dismissed. However, there will be no order as to costs.
Immediately after the pronouncement of the judgment today, the learned counsel for the petitioners sought oral leave of this Court to prefer an appeal before the Supreme Court. Inasmuch as we have only followed the judgment of the Supreme Court in McDowell & Co. Ltd. v. Commercial Tax Officer [1985] 59 STC 277, we do not think that any question of law of general importance which, in our opinion, needs to be considered by the Supreme Court. The leave sought for is refused.
13. Petitions dismissed.