Kerala High Court
Kerala Distilleries And Allied ... vs Assistant Commissioner (Assessment) ... on 27 November, 1999
Author: Ar. Lakshmanan
Bench: Ar. Lakshmanan
JUDGMENT AR. Lakshmanan, J.
1. Heard Mr. C. Natarajan, Senior Advocate for petitioner in O.P. No. 23008 of 1998, Mr, V. Giri for petitioners in O.P. Nos. 23903 of 1998, 818, 2255, 2264, 3283 and 7437 of 1999, Mr. George Poonthottam for petitioners in O.P. Nos. 12893 and 19686 of 1999, Mr. V.V. Asokan, Special Government Pleader for Taxes and Mr. C.J. Balakrishnan, for the Kerala State Beverages Corporation.
2. An order of reference was made by P. Shanmugham, J., in O.P. No. 23008 of 1998. The order of reference reads thus :
"Petitioner is a manufacturer of I.M.F.L. at their distillery unit. They have prayed for issuing a writ of certiorari to quash exhibits P3, P4, P6, P7, P8 and P9 notices/orders passed by the sales tax authorities. Petitioner has also sought for a declaration that they are not liable to pay the turnover tax, since the demand made is ultra vires, beyond the legislative competence and unconstitutional. They have also sought for a declaration that Section 2(xxvii) of the Kerala General Sales Tax Act, 1963 is unconstitutional and void.
2. The point raised by the sales tax department is that the petitioner is liable to include excise duty element in the turnover, The department has found that the excise duty is the obligation of the manufacturer and the matter is concluded against the assessee in Mohan Breweries & Distilleries Ltd, v. Commercial Tax Officer [1997] 107 STC 212 (SC), and has raised the following important questions among others :
(i) Whether the sales tax authorities have no jurisdiction to reopen the earlier assessment proceedings ?
(ii) Whether the State can include items of expenditure incurred by the purchaser after the sale as money consideration?
(iii) Whether the turnover tax now demanded on the element of excise duty incurred by the Corporation is violative of Chapter XIII of the Constitution of India ?
These and other questions raised by the petitioner are of substantial in nature that they be decided by the division Bench for an authoritative pronouncements. Papers may be placed before the honourable the Chief Justice for referring the matter to a division Bench."
3. Mr. C. Natarajan, Senior Counsel appearing for the petitioner in O.P. No. 23008 of 1998, in support of his contention, has placed before us seven propositions. It read thus :
"1. The excise duty under the Kerala Abkari Act, 1077 is not like excise duty levied by the Union. The mode and point of levy and the appropriate prescription are left to the Government. The duty imposed by the State unlike the Union, is on import or export or transport or issue from warehouse. The State is imposing import duty also. Sections 17 and 18 of the Abkari Act speak of levy and imposition even at the stage of issue from licensed warehouse. Such a duty paid by the fourth respondent at its warehouse cannot be price received by the petitioners. This is not a case of mere collection of duty from the fourth respondent.
2. It is the fourth respondent which executes the bond for the receipt, storage and proper payment of duty levied, imposed under Sections 17 and 18 of the Act. Once the point of levy and imposition is at the stage of issue from warehouse and election made by the Government by the prescription, it cannot be said that it is also a levy under the same section at the stage of manufacture. In fact it is the fourth respondent which is held liable to be assessed including to be liable for increased rate of duty after receipt into the warehouse.
3. State is competent to aggregate only price for turnover. Price is the product of bargain. Sales tax or excise duty or any statutory levy on the seller may be recoverable from the purchaser as a matter of bargain whereupon it is consideration or price. But if the sales tax or excise duty on the transaction is kept out of the bargain, because of the scheme, requiring the burden to be laid on the purchaser, the seller is no more than a conduit to recover as the agent of the State. In remitting the duty or sales tax, neither the buyer is paying it as price, nor the seller recovering it as price. The element of duty or tax in the circumstance will operate outside the statute.
4. The turnover tax under Section 5(2A)(i) is not recoverable under Sub-Clause (iii). The duty incurred by the fourth respondent is 200 per cent of the price at which goods have been contracted and sold to fourth respondent excluding sales tax and excise duty which the law laid at the fourth respondent. The direct effect of the provision is to operate towards non-recoverable turnover tax. This contrasted with the price of comparable goods sold in the course of inter-State trade to fourth respondent on which also there is a 200 per cent countervailing duty under SI. No. 51 of List II incurred by the fourth respondent. The discriminatory operation of turnover tax at the point of sale by local manufacturer supplying to the fourth respondent is writ large. The levy is ultra vires Article 401 and Article 404 of the Constitution of India.
5. The order of the second respondent, Deputy Commissioner, dated October 23, 1998 under Section 35 set aside the completed original assessments under Section 17. Even for original assessments, the limitation under Section 17(6) is four years from the expiry of the year to which assessment relates. Section 19 is for assessment of escaped turnover. Here again, the limitation up to Finance Act, 1998, i.e., before July 29, 1998 was four years from the expiry of the year to which the tax relates. Now it is five years. For the period relating to 1990-91 to 1993-94, the four-year period to assess escaped turnover expired long prior to exhibit P8 dated October 23, 1998.
6. The power under Section 35 is subject to two limitations :
(i) It is not available for matters de hors the record of original assessment-- escaped turnover, jurisdiction specifically assigned to the assessing authority under Section 17(6) ; and
(ii) Section 35 is 'subject to the other provisions of the Act* and that implies it is subject to jurisdiction assigned to a different authority as well as the limitation for taking escaped turnover contained in the provisions of the Act. The second respondent usurped jurisdiction in passing the impugned order.
7. The penalty imposed/proposed under Section 45A of the Kerala General Sales Tax Act on the element of excise duty incurred by the fourth respondent-Corporation on the ground that the petitioners either did not file revised returns or did not include the excise duty in their sales turnover is illegal. The provision occurs under chapter VIII 'offences and penalties' and conditional on submission of untrue or incorrect return and condition on the 'sales tax or other amount evaded or sought to be evaded'. The use of the expression 'evaded' along with the failure to prescribe the minimum quantum of penalty and the need on the part of the authority to give opportunity of being heard under Section 45A(2) and the power vested in the Deputy Commissioner to reduce or waive the penalty, indicates that the proceedings for the imposition and penalty are not automatic and quasi-criminal in nature."
4. Petitioners in the other writ petitions have also raised the following contentions. They are :
(A) Whether excise duty paid by the Beverages Corporation and included in its turnover should be again included in the turnover of the manufacturer ?
(B) Whether payment of turnover tax by the Beverages Corporation on the aggregate amount including the excise duty could only be treated as one on behalf of the manufacturer ?
(C) Whether payment of turnover tax by the Beverages Corporation on the excise duty remitted by it can be construed as a discharge on behalf of the manufacturer ?
(D) Whether the contention that petitioners/manufacturers of Indian-made foreign liquor are not liable for turnover tax under Section 5(2A) renumbered as 5(2C) of the Kerala General Sales Tax Act has any merit and is acceptable ?
(E) Whether the department can impose a penalty for non-payment of turnover tax on the excise duty actually paid by the Beverages Corporation or the non-inclusion of excise duty in the returns filed arises for consideration ?
(F) Whether the contention of the petitioners that the Deputy Commissioner acted without jurisdiction under Section 35 of the Kerala General Sales Tax Act in revising the order of assessment, which had become final, is correct ?
5. Mr. George Poonthottam also raised similar contentions but in different form. Before considering the rival submissions, we shall now briefly state the facts of each case.
O.P. No. 23008 of 1999 :
Petitioner is a distillery engaged in the manufacture and sale of Indian-made foreign liquor at its distillery at Kanjikode. The petitioner is duly registered as a dealer under the Kerala General Sales Tax Act, 1963 and the Central Sales Tax Act, 1956. The Government of Kerala introduced a drastic change by creating a State monopoly in wholesale purchase and sale of Indian-made foreign liquor in the State of Kerala in the year 1984 and a Government company was incorporated by the name "Kerala State Beverages (Manufacturing and Marketing) Corporation Limited". The petitioner has been submitting tenders to the Corporation for sale and supply of Indian-made foreign liquor in terms of entry No. 53 of the First Schedule to the Kerala General Sales Tax Act, 1963. The Indian-made foreign liquor attracts tax at the rate of 75 per cent at the point of sale by the Corporation and at the point of first sale in the State by a dealer who is liable to tax under Section 5, except where sale is to the Beverages Corporation. In other words, the liability to tax in respect of sale of Indian-made foreign liquor does not fall under the First Schedule nor the charge under Section 5 of the KGST Act, and thus is outside the scheme of the Act. Under Rule 12 of the Bond Rules, the Corporation as FL9 and BW1 licensee has to maintain day to day account in form BW1 and Rule 13 is accountable for the storage and the consequential duty thereon. The Corporation executed a bond in form A obliging themselves to observe the provisions of the Kerala Abkari Act and not to remove the goods before the proper duty is paid. Licence in BW1 contains conditions to state that removal will be on payment of duty by the warehouse keeper and that the entire scheme to pass on the incidents of duty to the Corporation was pursuant to Abkari policy.
6. According to the petitioner, they used to participate in the annual tender of the Corporation and quote the prices for the various brands of Indian-made foreign liquor. These prices did not include and could not have included the sales tax or excise duty. There was no levy of sales tax under entry 53 of the First Schedule to the KGST Act. It is only the Corporation who is liable to pay tax. It did not include excise duty since the petitioner could not market the Indian-made foreign liquor and had to deliver the same against the orders of the Corporation for moving into their bonded warehouse holding BW1 and FL9 licensees under the Bond Rules. The Corporation is maintaining a personal ledger account with the Government of Kerala and periodically made remittances towards duty to its credit. The scheme of the Act and the Rules as framed under the Abkari Act had selected the point of removal from the bonded warehouse as the stage of levy and recovery of duty.
7. In the instant case the assessments of the petitioner were completed from time to time and the petitioner had secured firm orders from the Corporation for sale of Indian-made foreign liquor at prices which excluded the liability for sales tax and excise duty which was laid only on the Corporation. The petitioner submitted returns and in doing so did not pay sales tax under serial No. 53 of the First Schedule and paid only the turnover tax under Section 5(2A)(i)(b) of the Act. This turnover tax was only on the price as received by the petitioner from the Corporation and did not include either sales tax payable by the Corporation or excise duty levied on the Corporation. These returns were also accepted and assessments were also concluded accordingly up to the financial year 1995-96. While so the petitioner was served with notice dated July 29, 1998 calling upon the petitioner to submit revised returns to include element of excise duty paid by the Corporation. A notice proposing to impose penalty was also issued on the alleged ground that the element of excise duty paid by the Corporation was not included and the petitioner has not paid turnover tax. The petitioner filed its objections by letter dated September 15, 1998. The first respondent, without adverting to the objections and grounds raised by the petitioner and without giving any opportunity to substantiate the grounds of objection, issued an order of assessment for the months of April to July, 1998 under exhibit P6 and also issued an order of penalty under exhibit P7. Meanwhile, respondent No. 2 issued notice on September 28, 1998 for the years 1990-91 to 1995-96 relying upon Section 35 of the KGST Act. According to the second respondent, the assessment orders were prejudicial to the interest of the Revenue inasmuch as the assessing authority did not take into account the element of excise duty paid by the fourth respondent and did not levy turnover tax on the petitioner. The petitioner's request for filing detailed objection was also not conceded and the second respondent issued an order under Section 35 directing the first respondent to revise the assessments for the years 1990-91 to 1995-96 under exhibit P8. A follow up notice under exhibit P9 was also issued under which the petitioner was called upon to produce books of accounts relating to the years in question and to indicate the details of excise duty incurred by the Corporation. The petitioner submitted that the details of duty payments is within the peculiar knowledge of the Corporation. In these circumstances the petitioner has filed the above writ petition to quash the proceedings relating to exhibits P3, P4, P6, P7, P8 and P9 and to declare that the petitioner is not liable to pay the turnover tax on the amount of excise duty paid by the Kerala State Beverages Corporation Limited on the Indian-made foreign liquor sold by the petitioner and that levy of turnover tax on such amounts of excise duty is ultra vires beyond the legislative competence and unconstitutional and for other reliefs.
O.P. No. 23903 of 1998 :
8. The petitioner-company has established a unit for blending and bottling liquor of different brands classified as Indian-made foreign liquor under the Abkari Act and holds licence for the same. It is a case of the petitioner that the licence to operate a bonded warehouse is given only to the Kerala State Beverages Corporation and the sale of Indian-made foreign liquor in favour of the said Corporation will also under the Abkari policy of the Government and that the sale has to be effected only in favour of the said Corporation and the duty of excise cannot be paid or levied on such goods, except in accordance with Rule 11 of the Rules and as such duty of excise will necessarily have to be paid only by the Kerala State Beverages Corporation at the time of removal of the same from the bonded warehouse. According to the petitioner the sale of Indian-made foreign liquor by the petitioner is exclusively in favour of the Corporation and such sale is not exigible to sales tax under entry 53 of the First Schedule of the Kerala General Sales Tax Act. The petitioner, therefore, does not collect any sales tax from the Corporation in relation to the sale of Indian-made foreign liquor effected to it and that the sale has been made as per the policy of the Government. It is also submitted that the petitioner is a dealer within the State but the entire sale of Indian-made foreign liquor effected by the petitioner is exclusively in favour of the Corporation and consequently the petitioner is not a dealer liable to tax under Section 5(2C)(b) of the Act. In this case also the assessing authority issued notices stating the petitioner did not include the amount of excise duty in the monthly returns filed by it nor did the petitioner pay the turnover tax due on the excise duty, and therefore, the petitioner is liable to pay interest on the balance amount of turnover tax. The assessing authority has also issued further notice under Section 17(3) of the KGST Act for the subsequent year 1994-95 onwards proposing inclusion of excise duty which was actually paid by the Corporation on the liquor that was sold by the petitioner to the Corporation as part of the turnover of the petitioner. In these circumstances the petitioner has filed the above writ petition to declare that respondents 1 and 2 are not entitled to levy any turnover tax on the petitioner on the turnover actually returned by the petitioner for the concerned assessment year based on the sale price collected by the petitioner for the sale of Indian-made foreign liquor in favour of respondent No, 3 Corporation. A prayer by way of declaration that respondents are not entitled to levy any turnover tax on the petitioner in terms of Sub-Clause (b) of Sub-section (2A) of Section 5 of the Act now renumbered as Sub-Clause (b) of Sub-section (2C) of Section 5 including any excise duty payable on the liquor manufactured by the petitioner in favour of the Corporation under the provisions of the Abkari Act or under the Storage in Bond Rules. Another prayer in the nature of certiorari to quash exhibits P3 to P9 and to declare Section 2(xxvii) of the KGST Act providing for or authorising levy of turnover tax on amounts of excise duty paid by the said Corporation as unconstitutional and void.
O.P. Nos. 818, 2255, 2264, 3283 and 7437 of 1999 :
9. These writ petitions were filed by different petitioners seeking identical reliefs as in O.P. No. 23903 of 1998. The facts in all these cases are almost identical. In O.P. No. 818 of 1999, the petitioner apart from praying for the declaratory reliefs have also prayed for quashing exhibits P3, P6, P8, P9 and P10 and for a mandamus commanding the second respondent to dispose of the appeals filed by the petitioner in relation to the assessment years 1987-88 to 1991-92 pending before it in consequence of the other reliefs prayed for in the writ petition. Another relief by way of mandamus commanding the respondent No. 3 to dispose of the appeals in relation to assessment years 1992-93 and 1993-94 pending before it.
O.P. No. 2255 of 1999 :
10. The prayer is to quash exhibits P3 to P7 and P8 to P9 and other declaratory reliefs as in the earlier writ petitions.
O.P. No. 2264 of 1999:
11. The prayers relate to declaration that respondents 1, 2, 4 and 5 are not entitled to levy or collect any amount by way of turnover tax on the turnover actually returned by the petitioner and to quash exhibits P19 and P23. The other prayer relates to the disposal of the appeals filed by the petitioner in relation to the assessment years 1993-94 to 1996-97 and also to dispose of the revision filed by the petitioner in relation to the orders of penalty pending before it.
O.P. No. 3283 of 1999:
12. The prayer is to quash exhibits P3 to P10 and also the declaratory reliefs as in the other writ petitions. A relief in the nature of mandamus commanding the assessing authority to complete the assessment of the respondents 1 and 2 to refund the amounts which is found due to the petitioner in consequence of the reliefs prayed for.
O.P. No. 7437 of 1999 :
13. The prayer is to quash exhibits P7, P8 to P10 in so far as it included turnover tax on the turnover of the petitioner including excise duty paid by the Corporation on the Indian-made foreign liquor sold by the petitioner.
O.P. No. 12893 of 1999 :
14. This case was placed before us by K.S. Radhakrishnan, J. by order dated August 30, 1999 to be heard along with other petitions. The petitioner is a partnership firm engaged in the manufacture of Indian-made foreign liquor and registered under the KGST Act on the file of the Sales Tax Officer, Kozhikode. The petitioner has filed the above original petition (amended) to quash exhibits P3, P3(a), P5 and P5(a) and to declare that the petitioner is not liable to pay turnover tax on the amount of excise duty paid by the Kerala State Beverages Corporation on the Indian-made foreign liquor sold by the petitioner and that levy of turnover tax on such amounts of excise duty is ultra vires beyond legislative competence and unconstitutional. Two additional reliefs have also been prayed for as follows :
"v. issue a writ declaring that the excise duty collected by the Kerala State Beverages (Manufacturing and Marketing) Corporation on the Indian-made foreign liquor is not excise duty and it only forms part of privilege price for parting with the right of the State in manufacturing and selling liquor.
vi. issue a writ declaring that no turnover tax is payable by the petitioner for the privilege price in parting the privilege by the State and the demand for the turnover tax on the excise duty component is opposed to law and contrary to law."
15. Apart from raising other grounds as in the other writ petitions two additional grounds have been raised. They are R and S :
"R. The licence for the manufacture of Indian-made foreign liquor is granted by the State by virtue of legislative sanction under Section 18A of the Abkari Act. The manufacture and sale of liquor are matters coming within the exclusive privilege of the State. This privilege is parted by the process of licensing under the regulatory system. Therefore the manufacture of liquor by the petitioner who is only a licensee of the State and the sale of liquor through the retail outlets and by the Beverages Corporation are all parting the privilege of the State by the issuance of licence. Therefore the price paid to the petitioners by the Beverages Corporation and the price collected by the Beverages Corporation towards cost of the product, collection of tax and excise duty are all the price of the privilege which has been parted by the State and the said price though arrived at by taking into account several factors cannot be treated as excise duty component or tax component separately. Everything that is charged by the Beverages Corporation while selling it to the retail licensee is only the part of the privilege price collected by the State from the licensees through the Corporation and what is paid to the petitioner is only the cost of the product for the manufacture of liquor on behalf of the State while parting the privilege. It is therefore submitted that it is not correct in law to say that what is collected is excise duty. The consideration collected by the Corporation is indivisible and an integrated one for the grant of the privilege. The levy of excise duty is collected for the purpose of convenience in accordance with the direction given by the Government. The amount collected though included under the head excise duty is in reality part of the consideration for transfer of the privilege by the State. It is not excise duty as such but only a measure of the collecting the consideration by the State for the grant of the privilege. This has been held so by a Full Bench of this honourable Court following the judgment of the Supreme Court in State of Haryana v. Jage Ram AIR 1980 SC 2018 as well as the State of Andhra Pradesh v. Y. Prabhakara Reddy AIR 1987 SC 933.
S. It is submitted that the concept of the excise duty on production and manufacture as understood in the Central Excise Act cannot be equated in the case of excise duty under the Abkari Act since the manufacture and the sale of liquor are the exclusive privilege of the State and the State by the process of licensing is parting with the said privilege and what is charged by the State is only the privilege price through the process of licensing the privilege price and it is not excise duty as it is understood in cases where the right of manufacture and production are fundamental rights. It is therefore submitted that no turnover tax can be collected for the excise duty component from the petitioner that which is not paid, levied or charged by the petitioner since what is charged by the Corporation under the head excise duty is only the privilege price for parting the right by the State on behalf of the State. Therefore, there is no excise duty component paid, levied or charged from the petitioner for inclusion of the same in the sales turnover of the petitioner."
O.P. No. 19686 of 1999:
16. The petitioner is a partnership firm registered under the provisions of the Partnership Act and engaged in the manufacture of Indian-made foreign liquor and is also a dealer under the KGST Act. Here again the petitioner prayed to quash exhibits P2, P2(a), P3, P3(a) to P3(e) and to declare that the excise duty collected by the Corporation on the Indian-made foreign liquor is not excise duty and it only forms part of the privilege price for parting with the right of the Government in selling liquor in retail by the contractors and consideration payable by the contractors for grant of the privileges. According to the petitioner no turnover tax is payable by the petitioner for the privilege price. In this case the second respondent issued a notice for assessing the petitioner and collecting from the petitioner for the turnover tax on the excise duty component levied or collected by the Corporation for the years 1995-96 and 1996-97 by reopening the assessment. According to the petitioner, the assessments in respect of the said years were completed based on the notice issued without regard to the contentions raised by the petitioner.The petitioner preferred appeals against the assessment orders and those appeals are pending. Challenging the legality and correctness of the notice and assessment the petitioner filed O.P. No. 12893 of 1999, which had been referred to this Bench. While admitting the same the Bench recorded the undertaking of the Government Pleader that there is no immediate threat of recovery of money pursuant to the demand notice issued. In this case the petitioner has sought for a declaration that Section 2(xxvii) of the KGST Act as unconstitutional. While so the petitioner was served with notice under Section 45A(2) of the KGST Act alleging submission of untrue and incorrect return for the financial years 1997-98 and 1998-99 proposing to impose maximum penalty of 200 per cent for the alleged evasion of tax. The notices were issued under exhibits P2 and P2(a) respectively. The petitioner was also served with a notice under Rule 21(9) of the Kerala General Sales Tax Rules, 1963 for submission of untrue and incorrect return in form No. 9 for the months of April, May and June. Another notice was also served on the petitioner under Section 45A(2) of the Act proposing to impose penalty for the submission of incorrect return. The petitioner submitted a reply in response to the said notice under exhibit P4.
17. Counter-affidavits were filed by the respondents in O.P. No. 23008 of 1998 and O.P. No. 23903 of 1998. According to the respondents :
(a) the original petition is not maintainable. Against the provisional assessment the petitioner has got a right of appeal and against the penalty proceedings the petitioner has got an alternative remedy to challenge the same before the Deputy Commissioner in revision under Section 45A(3).
(b) excise duty forms part of the sales turnover of the manufacturer and it is the obligation of the manufacturer to pay excise duty, though it may be discharged by others. It is only for and on behalf of the manufacturer.
18. The decision reported in [1997] 107 STC 212 (SC) (Mohan Breweries & Distilleries Ltd. v. Commercial Tax Officer) was relied on. It has been settled that excise duty element will form part of the total turnover and consequently that part of the turnover is exigible to turnover tax in view of the clear phraseology contained in Section 5(2A) of the Act.
19. The liability to pay excise duty on Indian-made foreign liquor is undisputedly that of the manufacturer and that the arrangement between the manufacturer and the Corporation is obviously for convenience and the same will not in any way alter the position nor the manufacturer in any way be absolved from the obligation to pay the excise duty.
20. The Company Secretary of the Kerala State Beverages (Manufacturing and Marketing) Corporation Ltd., has filed a separate counter-affidavit in respect of the facts as far as they relate to the Corporation in O.P. No. 23903 of 1998 and O.P. Nos. 818 of 1999, 2255 of 1999 and 2264 of 1999, since these original petitions deal with identical subject. The following are the admitted factual statements :
(a) The Corporation is a State-owned public sector company set up by the Government of Kerala for monopoly procurement and distribution of IMFL and beer inside the State of Kerala and as part of the activity, purchase of liquor has been done from local suppliers also.
(b) That all the distilleries, both situated within the State of Kerala and outside the State of Kerala, for trading their products inside Kerala have to make their supplies to Kerala State Beverages Corporation only.
(c) That the petitioner/suppliers (manufacturers) have billed their value of IMFL without charging excise duty to the Corporation while the supplies were effected. As per the provisions of the Abkari Act, Rule 11 of the Foreign Liquor (Storage in Bond) Rules, 1961, goods purchased by the Corporation during the relevant period were without payment of excise duty and the excise duty thereon is/was payable at the time of removal of the goods from the bonded warehouse to FL-9 premises. Accordingly, on those stocks of IMFL purchased from the petitioner/suppliers the excise duty payable was paid by the Corporation whenever the goods were transferred from the bonded warehouse to FL-9 godown.
21. In paragraph 6 of the counter-affidavit, the details in regard to the turnover tax payable by the Corporation (in lakhs) during the period from 1992 to 1998 as per the provisions of Sub-section (2A) of Section 5 of the KGST Act has been furnished. The details are as under :
Rate of turnover tax amount paid (in lakhs)
(i) 1991-92 2 per cent 147.51
(ii) 1992-93 3 per cent 374.00
(iii) 1993-94 3 per cent 504.15
(iv) 1994-95 3 per cent 1061.74
(v) 1995-96 5 per cent 2368.06
(vi) 1996-97 5 per cent 3814.63
(vii) 1997-98 5 per cent 5004.14 The details of the turnover tax paid by the Corporation is also filed along with this counter and marked as exhibit R4(b).
22. It is further stated in paragraphs 6 and 7 as follows :
"Accordingly the Corporation has remitted turnover tax on the total value of turnover in respect of the total turnover of the Corporation for each year at the rate of turnover tax prevalent during the relevant year. In all these cases the turnover of the Corporation means and includes the value of the goods at which supplies were received by the Corporation, excise duty paid by the Corporation, profit margin of the Corporation and sales tax paid by the Corporation.
7. That the turnover tax payment made by the Corporation mentioned in earlier paragraph includes the turnover sales in respect of the 4 petitioner-companies, other suppliers from Kerala and suppliers from outside Kerala."
23. The petitioner in O.P. No. 23903 of 1998 filed a reply affidavit.
24. Mr. V.V. Asokan, learned Government Pleader, submitted, after referring to entry 53 of the First Schedule of the KGST Act and other provisions under Sections 5(2A), 5(2C), 2(xvii), 2(xxvi) and 2(xxv), that the contention of the petitioners that the excise duty payable under the Kerala Abkari Act is at the point of import or export or transport from warehouse is not correct and that those are only the points of collection deferred under the scheme of the Act as prescribed in Section 17 of the Kerala Abkari Act and that the excise duty under the State Act is a levy of excise duty as contemplated under entry 51 of List II of the Seventh Schedule to the Constitution, i.e., duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India.
(a) alcoholic liquors for human consumption ;
(b) opium, Indian hemp and other narcotic drugs and narcotics ;
but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.
His submission is that the incidence of excise duty is an incidence on manufacture.
25. On the question whether the excise duty component will form part of the turnover for exigibility to turnover tax under Section 5(2A) of the KGST Act and whether turnover tax is an exclusive liability of the dealer liable to pay tax under entry 53 or 54 of the First Schedule to the Act, Mr. Asokan argued that the liability to turnover tax as the charging section contemplates is a multi-point levy. Our attention was drawn to both the Sections 5(2A), which is recently amended as Section 5(2C), of the Act. The relevant provisions (both the original and the amended) are extracted hereinbelow for ready reference :
"5(2A)(i) Notwithstanding anything contained in this Act or the rules made thereunder every dealer other than an oil company defined in the Explanation under serial number 140 of the First Schedule to this Act, whose total turnover in a year exceeds rupees twenty-five lakhs shall pay turnover tax at the rate of half percentum on the turnover of goods coming under the First or Fifth Schedule to this Act and in the case of an oil company whose total turnover in a year is rupees fifty lakhs and above shall pay turnover tax at the rate of (one and a half percentum) on the turnover.
...................
(b) by any dealer in foreign liquor and liquor as defined in Explanations I and II to serial number 76A of the First Schedule to this Act other than arrack and toddy at the rate of two per cent on the turnover at the points, and ;"
"5(2C)(i) Notwithstanding anything contained in this Act or the rules made thereunder every dealer shall pay turnover tax on the turnover of goods as specified hereunder, namely :--
(a) by an oil company defined in the Explanation under serial number 97 of the First Schedule to this Act whose total turnover in a year exceeds rupees fifty lakhs at the rate of three per cent on the turnover from the 1st day of April, 1991 till 31st day of July, 1991 and thereafter at the rate of four per cent on the turnover ;
(b) by any dealer in foreign liquor (Indian-made) or foreign liquor (foreign made) as specified in entries against serial numbers 53 and 54 of the First Schedule at the rate of (five per cent) on the turnover at all points."
In this context, he also drew our attention to a few definition clauses contained in the Act, such as "turnover", "total turnover" and "taxable turnover" for the better appreciation of the contention of the parties, which runs thus :
"Section 2(xxvii) : 'turnover' means the aggregate amount for which goods are either bought or sold, supplied or distributed 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 the sale by a person of agricultural or horticultural produce, grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover."
"Section 2(xxvi) : 'total turnover' means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India :
Explanation.--Notwithstanding anything contained in any other provisions of this Act, but subject to the provisions of Section 8 in the case of goods which are taxable at the point of last purchase in the State by a dealer liable to tax under Section 5 and which are held as closing stock on the last day of any financial year, the amount for which such goods were purchased by the dealer shall be deemed also to be a part of his total turnover for the subsequent year or each of the subsequent years until such goods are either sold by him in the State or such purchase acquires the character of last purchase in the State in the hands of such dealer and in case such purchase acquires the character of last purchase in the State in the hands of such dealer, the turnover in respect of such purchase shall be liable to tax in the year in which the purchase acquires the character of last purchase."
"Section 2(xxv) : 'taxable turnover' means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed, but shall not include the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India."
According to the learned Government Pleader, the petitioners are undisputedly suffering turnover tax in respect of the sales turnover of IMFL in their hands barring the excise duty component. According to the Government counsel, the contention of the petitioners is that they are not liable to pay turnover tax with reference to the excise duty element and that they are not at all liable to pay turnover tax in respect of their turnover placing an interpretation of Section 5(2A) of the Act. The turnover tax is payable by every dealer on the turnover of goods, as specified thereunder, that in respect of liquor is to be paid by any dealer in foreign liquor (Indian-made) or foreign liquor (foreign made) as specified in entries against SI. Nos. 53 and 54 of the First Schedule to the KGST Act at the rate of 5 per cent on the turnover at all points. According to Mr. Asokan, such an interpretation of the provision is totally baseless and untenable. According to him, the First Schedule to the Act mentions goods in respect of which single point tax is leviable under Sub-section (1) or Sub-section (2) of Section 5. Section 5(1) mentions the points at which tax under that sub-section is to be levied. Clause (i) to the sub-section specifies the points of levy as--
"in the case of goods specified in the First or Second Schedule, at the rates and only at the points specified against such goods in the said Schedules."
So when a reference is made to any entry in the Schedule it can be taken to refer only to "goods" or the "points of levy" and not to "dealers". The learned Government Pleader said that if the contention of the petitioners is accepted, the words "in foreign liquor (Indian-made) or foreign liquor (foreign made) and "at all points" will have to be regarded as "inapposite surplusage". The meaning as interpreted by the petitioners is to be attributed to Clause (b) of Section 5(2C) [formerly 5(2A)], the wordings should have been "by any dealer as specified in entries against serial numbers 53 and 54 of the First Schedule at the rate of five per cent on the turnover" instead of "by any dealer in foreign liquor (Indian-made) or foreign liquor (foreign made) as specified in entries against serial numbers 53 and 54 of the First Schedule at the rate of five per cent on the turnover at all points."
26. Arguing further, the learned Government Pleader said that when the entries are mentioned, further reference to "in foreign liquor (Indian-made) and foreign liquor (foreign made)" will be unnecessary and since dealers covered by the provisions, as interpreted by the petitioner, would include only those effecting first sales within the State, the words "at all points" will also be unnecessary. Such an interpretation goes against the principles of interpretation of statutes, as laid down by the Supreme Court in the decision reported as Aswini Kumar Ghose v. Arabinda Bose AIR 1952 SG 369. The judgments of the Supreme Court reported in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. State of U.P. AIR 1961 SC 1170 and Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax [1963] 14 STC 976 ; AIR 1964 SC 766, were also relied on by the counsel for the State. The Supreme Court in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. State of U. P. AIR 1961 SC 1170 held :
"In the interpretation of statutes the courts always presume that the Legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect."
In Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax [1963] 14 STC 976 (SC) ; AIR 1964 SC 766, it was held :
"The Legislature is deemed not to waste its words or to say anything in vain and a construction which attributes redundancy to the legislation will not be accepted except for compelling reasons."
It is further argued that since the interpretation given by the petitioners limits the operation of Section 5(2A) of the Act to dealers dealing in liquor only at the point at which tax is to be levied under Section 5(1) of the Act and prohibits levy of turnover tax at all points, which is actually contemplated by Section 5(2A) or 5(2C) as the case may be. Such an interpretation would go against the principles of interpretation and also against the intention of Legislature, such an interpretation cannot be accepted. According to the Government Pleader, the position is well-settled and that excise duty element will form part of the purchase turnover irrespective of the fact that excise duty had been paid by the Beverages Corporation at the time of lifting the liquor from the bonded warehouse. For this proposition, the learned counsel for the State cited the following decisions, where, according to him, identical situation had been dealt with by the courts and held that excise duty component will form part of the turnover.: (1) McDowell & Company Limited v. Commercial Tax Officer [1985] 59 STC 277 (SC) ; AIR 1986 SC 649, (2) Hindustan Petroleum Corporation Ltd. v. State of Kerala [1993] 89 STC. 106 (Ker) [FB] ; 1993 KLJ (TC) 211 (FB); (3) Mohan Breweries & Distilleries Ltd. v. Commercial Tax Officer, Madras [1997] 107 STC 212 (SC), (4) State of Kerala v. Madras Rubber Factory Ltd. [1998] 108 STC 583 (SC) and (5) Black Diamond Beverages v. Commercial Tax Officer [1997] 107 STC 219 (SC). On the question whether the liability of turnover tax from the distilleries is violative of Part XIII of the Constitution of India, Mr. Asokan submitted that this contention is untenable and that they are not correct in contending that their free trade is in any way affected by the levy of turnover tax. He would further submit that this Court has already upheld the validity of Section 5(2A) of the Act in the decision reported in Das Agencies v. State of Kerala [1988] 69 STC 44 ; (1987) 2 KLT 989, and the said decision had been rendered by this Court following an earlier Supreme Court decision reported in S. Kodar v. State of Kerala [1974] 34 STC 73 (SC) ; AIR 1974 SC 2272. According to him, in order to say a provision is hit by the mandate contained in Part XIII of the Constitution of India, only if there is a direct impact or impediment on the dealers for their free trade. He relied on the decisions in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and AIR 1962 SC 1406 [Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan].
27. We shall advert to the arguments advanced by the learned Government Pleader as to whether exhibit P8 order passed by the Deputy Commissioner under Section 35 of the Act is hit by Section 19 of the Act and the imposition of penalty or the proposal for imposition of penalty under Section 45A is tenable against the distilleries for non-payment of the turnover tax with reference to the excise duty component in time in the latter part of this judgment.
28. The learned Government Pleader contends that the excise duty levied on the Indian-made foreign liquor manufactured within the State should also go into the reckoning of the turnover of the petitioners and should therefore be subjected to levy of turnover tax in terms of Section 5(2A) of the Act. This argument can be summarised as follows :
"(a) Excise duty is levied on consumable alcohol under provisions which are traceable to entry 51 in List II of the Seventh Schedule to Constitution of India.
(b) The very nature of excise duty contemplates that it is a levy on the manufacture of goods.
(c) The incidence of excise duty is the manufacture of goods.
(d) The liability to pay excise duty is, therefore, on the manufacturer.
(e) The provisions in the rules framed under the Abkari Act providing for the different stage of collection of excise duty will not detract from fundamental nature and character of the levy.
(f) The Beverages Corporation has paid the excise duty on the Indian-made foreign liquor purchased by it from each one of the petitioner's distilleries in terms of Rule 11 of the Storage in Bond Rules. Such payment of excise duty fay the Beverages Corporation could only be treated as one on behalf of the petitioner-manufacturer.
(g) Primary obligation for payment of excise duty lies with the manufacturer of goods."
29. Per contra it is argued by the learned counsel for the petitioners that accepting these propositions as correct, there are still vital distinctions in the scheme of the Act and the Rules which provides for levy of excise duty on Indian-made foreign liquor manufactured within the State thereby precluding the inclusion of the excise duty levied on the Indian-made foreign liquor manufactured in the turnover of the petitioners/manufacturers for the purpose of the levy under Section 5(2A) of the Act.
30. It is argued by the Government Pleader that excise duty is an incidence on the manufacture of goods. In our view this will have to be recognised by reference to the particular wording contained in entry 51 of List II of the Seventh Schedule to the Constitution, which is only but source of power for the Legislature concerned. Entry 51 of List II of the Seventh Schedule only empowers the State Legislature to enact a law to provide for the levy of excise duty on consumable alcohol manufactured within the State. The said list only declares the existence of power on the State Government to provide for the levy of excise duty on consumable alcohol. We have already referred to the propositions of the Government that excise duty is an incidence of the manufacture of goods, but it is not axiomatic that the manufacture of goods could immediately result in a liability of excise duty merely on the wording of entry 51 of List II of the Seventh Schedule to the Constitution. The liability to excise duty still depends on the charging provision in the statute providing for such levy. Section 17 is the relevant section which confers power on the respondents to make a levy of excise duty on all liquor and intoxicating drugs in the manner provided for in Sub-Clauses (a) to (g) of the said section. It is to be noticed that any levy traceable to the said section will necessarily have to be preceded by the manufacture of goods in question. Section 14(b) states to establish public warehouses or authorise the establishment of private warehouses wherein liquor may be deposited and kept without payment of duty under a licence granted under this Act. Section 14(d) prescribes the mode of supervision that may be necessary in a distillery, brewery, winery, etc., or in any other manufactory where preparations containing liquor or intoxicating drugs are manufactured, to ensure the proper collection of duties, taxes and other dues payable under this Act or the proper utilization of liquor or intoxicating drugs. Section 29 of the Act provides for the rule-making power of the Government. The Government in exercise of that power passed the Foreign Liquor (Storage in Bond) Rules, 1961 which are intended to provide for establishment of bonded warehouses for the storage in bond of goods. It is not in dispute that the bonded warehouse licence has been issued in the State only to the Beverages Corporation which is a Government of Kerala undertaking constituted as a sole marketing agency for the purchase and distribution of Indian-made foreign liquor within the State. The licence for the bonded warehouse is to be taken in form FL 9. As already noticed the Beverages Corporation is the only FL 9 licensee in the State of Kerala. Rule 11 of the Storage in Bond Rules provides that the foreign liquor stored in the bonded warehouse shall be removed only to the premises licensed under FL 9 licence referred to in sub-Rule (2) and Rule 3 held by the bonded warehouse licensee and such removal shall be under cover of a pass issued in that behalf and on payment of the excise duty due. The levy of excise duty in terms of Rule 11 of the Storage in Bond Rules will necessarily have to be traced to Sub-Clause (f) of Section 17 of the Act because it is a levy of duty of excise as directed by the Government in relation to liquor issued from a warehouse licensed under Section 14 of the Act. Therefore, Section 17(f) which authorises levy of excise duty and Rule 11 of the Storage in Bond Rules have to be read together. The justification for a levy of excise duty is the manufacture of goods. The power of the Government to levy duty of excise is traceable to Article 51 of the Constitution the charging provision relating to the liability to excise duty will have to be under the relevant provisions of the Act and the Rules.
31. We have already extracted the counter-affidavit filed by the Beverages Corporation. It is admitted case that the Beverages Corporation had executed the bond in terms of Rule 3(b) of the Storage in Bond Rules for the purpose of storing Indian-made foreign liquor in the bonded warehouse. Under the bond it has bound itself to pay the excise duty leviable on the Indian-made foreign liquor stored in its bonded warehouse. A close scrutiny of the statutory provision does not contemplate payment of excise duty on Indian-made foreign liquor manufactured within the State by the petitioners at any stage prior to the stage of removal from the warehouses to the licensed premises held by FL9 licensee as per Rule 11 of the Storage in Bond Rules. Under such circumstances it would be impossible for the petitioners, manufacturers to pay excise duty at any stage after the manufacture of goods and before its removal from the distillery to the bonded warehouse in the course of the sale effected in favour of the Beverages Corporation. It is very clear from Section 17(f) of the Act read with Rule 11 of the Storage in Bond Rules that levy of such excise duty can be only at the stage of removal from the bonded warehouse and once the goods are removed from the premises of the distillery and any sale is to be effected to the Beverages Corporation, the manufacturer loses control over the goods in question and the property passes on from the distillery to the Corporation once the sale is effected. Thus, in our view the levy of excise duty in terms of Section 17(f) of the Act read with Rule 11 of the Storage in Bond Rules constituting the charging provision for the excise duty under the Abkari Act comes into operation at a stage after the property in the goods over the Indian-made foreign liquor manufactured by the petitioners have been transferred in favour of the Beverages Corporation. In other words, the charging provision under the Act comes into operation at a point of time subsequent to the removal of the goods from the manufacturer and subsequent to the acquisition over the property in the goods by the Beverages Corporation. Under such circumstances it is not possible for us to accept the argument of the learned Government Pleader that the payment of excise duty will necessarily become part of the turnover of the petitioners/ manufacturers.
32. We shall now consider few case laws on the point. McDowell & Co, Ltd. v. Commercial Tax Officer [1985] 59 STC 277 (SC) and Mohan Breweries & Distilleries Ltd. v. Commercial Tax Officer [1997] 107 STC 212 (SC) and few other cases. In the McDowell case [1985] 59 STC 277 (SC), the sale was effected by the McDowell Company, the manufacturer. Excise duty was paid by the purchaser. Since excise duty forms part of the McDowell's turnover, payment of excise duty by the purchaser was treated on behalf of the seller/manufacturer/ McDowell. The Supreme Court also referred to (Obviously the case relates to Shinde Brothers v. Deputy Commissioner, Raichur [1967] 1 SCR 548)Guruswamy & Co. v. State of Mysore [1967] 1 SCR 548. The ratio stated in that case is as follows :
"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."
Another judgment reported in A.B. Abdul Khadir v. State of Kerala [1976] 2 SCR 690 was also referred. The Supreme 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."
In the McDowell case [1985] 59 STC 277, the Supreme Court was of the view that 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. The Supreme Court, however, did not examine this aspect any further for the change in Rule 76 of the Distillery Rules which has clearly affirmed the position that liability for payment of excise duty is of the manufacturer and that the 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. The Supreme Court held that these Rules 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.
33. Thus the submission of Mr. C. Natarajan, learned Senior Advocate, Mr. V. Giri and Mr. George Poonthottam that the judgment in McDowell case [1985] 59 STC 277 (SC), was a case of a levy as well as collection being laid on the manufacturer, but an arrangement being adopted by the manufacturer as advised to avoid sales tax on excise duty is well-founded and merit acceptance.
34. Mohan Breweries & Distilleries Ltd. v. Commercial Tax Officer [1997] 107 STC 212 (SC), was relied on by the Revenue also. A reading of the relative provisions indicates that the levy of duty remained on the manufacturer, but only the collection was postponed to the State owned marketing Corporation (TASMAC). In this case Rule 22 of the Manufacture Rules framed under the Tamil Nadu Prohibition Act was considered. The said rule specifically provides that excise duty is to be paid by the person who removes the goods from the manufactory. That is to say, the charging provision came into operation and there was an exaction of duty at a point of time when the property in the goods will remain with the manufacturer. The honourable S.P. Bharucha, J., after referring to the relevant provisions of the Tamil Nadu Prohibition Act and the relevant Rules and in particular Rule 22 of the Manufacture Rules and Rule 15(1) of the Wholesale Rules, has observed thus :
"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 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 of TASMAC or that the manufacturer is absolved of the obligation to pay excise duty."
35. The discussion regarding Rule 22 is available at paragraph 11 at page 218 of the judgment, which reads as follows :
"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 of its production, other than the manufacturer, the payment of excise duty that 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 sate 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 McDowell case [1985] 59 STC 277 (SC), not the decisive test for determining whether or not it would be a part of the manufacturer's turnover."
36. In the instant case the levy of excise duty under the Abkari Act takes place at a point of time when the property in the goods have already been subjected to a transfer from the hands of the petitioners to the Beverages Corporation. There is a transfer of title in the case from the petitioners to the Beverages Corporation and acquisition of title in the goods by the Corporation takes place subsequent to such transfer and thereafter only the charging provision comes into operation. Under such circumstances, it is not known by which process such excise duty can again be included in the turnover of the manufacturers. There is no satisfactory answer from the Revenue for this question. Therefore, the turnover of the petitioner as a dealer under the Sales Tax Act cannot take in the excise duty leviable on the goods manufactured.
37. For proposition Nos. 1 and 2 Mr. C. Natarajan has relied on State of Kerala v. Madras Rubber Factory Ltd. [1998] 108 STC 583 (SC). This judgment dealt with Section 12 of the Rubber Act, 1947 as amended by Act 21 of 1960 and Rule 33-D of the Rubber Rules, 1955. B.N. Kirpal, J., speaking for the Bench, found that the duty incurred by the buyers who were producers of rubber goods were not affected by virtue of any levy on them, but only that the collection under Rule 33-D was effected from the manufacturers. It was a case where the incidence remained on the producers/sellers of rubber but only the collection was shifted to the buyers like the assessee. Section 12(2) of the Rubber Act, after its amendment, provides that the duty of excise levied under Sub-section (1) shall be collected by the Board in accordance with rules made in this behalf either from the owner of the estate on which the rubber is produced or from the manufacturer by whom such rubber is used. This aspect is considered at page 591 of the judgment. In para 9 it is held thus :
"9. That the cess which is collected is a duty of excise on all the rubber produced in India is evident from the provisions of Section 12(1) of the Rubber Act. The rate of cess is prescribed in Section 12(1) itself. The excise duty referred to in Section 12(1) is not determined with reference to any price but the duty is determined by applying a fixed rate to the weight of the rubber produced. This sub-section was not amended in 1960. The main change brought about relates only to the manner of collection of duty. After the amendment of Sub-section (2) of Section 12 the duty is to be collected by the Board in accordance with the rules made in this behalf either from the owner of the estate on which the rubber is produced or from the manufacturer by whom such rubber is used. What is important to note, however, is that the opening words of this Sub-section (2) refers to 'the duty of excise levied under Sub-section (1)' (emphasis* added). These words clearly provide that the levy of excise duty is not Under Sub-section (2) but is Under Sub-section (1) of Section 12. It is the duty which is statutorily levied Under Sub-section (1) on the rubber produced which is to be collected, Under Sub-section (2), in the manner provided by the rules."
In para 10 it is further observed as follows :
"10................The duty of excise is one which is directly relatable to the production or manufacture of goods but can be collected at a latter stage is now no longer open to doubt in view of several decisions of this Court some of which are R.C. Jall Parsi v. Union of India AIR 1962 SC 1281, Guruswamy and Co. v. State of Mysore [1967] 1 SCR 548, Jullunder Rubber Goods Manufacturers' Association v. Union of India AIR 1970 SC 1589, A.B. Abdul Kadir v. State of Kerala [1976] 2 SCR 690 and McDowell & Company Limited v. Commercial Tax Officer [1985] 59 STC 277 (SC)."
38. However, as per the submission of the learned counsel for the petitioners, this judgment may not be an authority in a situation where the levy of imposition of duty is postponed to the wholesale buyer, if permissible under Section 17(1)(f) of the Abkari Act.
39. Learned counsel for the petitioner next cited Hindustan Petroleum Corporation Ltd. v. State of Kerala [1993] 89 STC 106 (Ker) [FB], In this case the Full Bench was considering a case of purchase effected by transfer from bonded warehouse to bonded warehouse. Central excise duty was paid directly to Government by the purchaser. The court held that the payment was in discharge of liability of manufacturer and that the same is includable in purchase turnover of the purchaser. Hindustan Petroleum Corporation Ltd, v. State of Kerala [1993] 89 STC 106 (Ker) [FB] is in line with the earlier case. Section 3(1) provided for the levy and collection of duty. It reads :
"There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India......"
Rule 9(1) occurring in Chapter III of the Rules reads : "Time and manner of payment of duty."
Rule 47 occurring in Chapter V of the Rules reads : "Goods may be stored without payment of duty."
The above was a case where, for the removal of the goods to the non-duty paid warehouse a bond was executed for payment of excise duty. In para 9 the Bench has observed that the impact of Rule 9 and the rest of the rules was to show that the primary obligation for duty remained with the producer. It is seen from the concluding part of the judgment at page 119 that the assessee discharged the contractual liability with Cochin Refineries Limited.
40. A close scrutiny of the above referred cases would show that McDowell's case [1985] 59 STC 277 (SC), deal with only levy at the stage of manufacture as well as the collection of duty at the time of removal from the manufactory under Rule 22 of the Manufacture Rules and Rule 15 of the Wholesale Rules. McDowell's case [1985] 59 STC 277 (SC) deal with a case of the payment being required to be made by the wholesaler (TASMAC) at the stage of removal at the time of manufacture. The case at hand and the present scheme under the Abkari Act is distinguishable from the Madras Rubber Factory case [1998] 108 STC 583 (SC), where the Rubber Act, 1947, after amendment, provided for levy under Section 12(1) at the stage of production but informed the collection be postponed in accordance with the Rules under Section 12(2) of the Act. For the same reason the judgment in Hindustan Petroleum Corporation's case [1993] 89 STC 106 (Ker) [FB], is distinguishable where the case dealt with a levy on the manufacture under Section 3. This is again a case of payment being postponed and secured by a bond executed.
41. We have already referred to the Storage in Bond Rules and Compounding/Blending Rules. The petitioners are governed by these Rules. They held form 1, form 2 and form 4. The entire scheme to pass on the incidence of duty to the Corporation was pursuant to the Abkari Policy in G.O. (Ms) No. 47/88 dated March 30, 1988 which was issued with an amendment to the Bond Rules. The explanatory note 2 states that as per the Abkari Policy the FL9 licensee will have to procure their Indian-made foreign liquor requirements under Bond from the distilleries and other foreign liquor (compounding, blending and bottling) units operating in the State of Kerala. The summary of the above would indicate the following :
"(i) That a duty of excise is leviable under Section 17 either at the point of manufacture or at the point of issue from a manufacturer or warehouse. The choice is that of the Government.
(ii) That the duty may be imposed either on the quantity produced or passed out from a distillery, brewery or warehouse.
(iii) For ad valorem the value is such at which the fourth respondent purchases from the suppliers.
(iv) The petitioner does not have any licence except for compounding, blending and bottling in form No. 1, in form No. 2 and form No. 4.
(v) The fourth respondent is the exclusive marketing organisation in the State of Kerala and all sales have to take place to the said organisation.
(vi) The fourth respondent alone holds licence in FL9 and alone competent to have a bonded warehouse granted under BWI. They have executed requisite Bond in form A and entered into an agreement with the Government for payment of duty of excise.
(vii) Duty is imposed and collected when the fourth respondent removes goods from its bonded warehouse under Rule 11(1) of the Bond Rules. At that point duty is paid by the fourth respondent in discharge of its statutory liability to pay the duty.
(viii) Under the provisions of Section 5 read with serial No. 53 of the First Schedule of the KGST Act, the sale by the fourth respondent is the first sale attracting tax. In other words the sale by the petitioner to the fourth respondent is not treated as a sale liable to tax.
(ix) That there is no necessity to submit monthly/quarterly/half yearly or annual returns to the excise authorities on the part of the petitioner. In other words the petitioner is not subjected to any assessment made under the provisions of the Kerala Abkari Act or Rules made thereunder."
A reading of these Rules does not indicate that the petitioners/manufacturers are being levied with duty at the stage of manufacture under Section 17(d) of the Act or the manufacturers/petitioners are liable for duty in the event of any default of the Beverages Corporation. It is seen from paragraph 10 of the original petition that the Corporation held FL9 licence and maintained Personal Ledger Account with the Government of Kerala, making periodical remittances towards duty to the credit of the ledger account and for removal of IMFL the Corporation remits duty and clears the IMFL from the warehouse. As already held the deliveries effected by the petitioners/manufacturers to the Corporation had nothing to do with the goods subsequently cleared by the Corporation from the warehouses since at the stage of removal from the warehouse the Corporation calculates its duty and it is assessed on the IMFL, which removal may also include the goods of several other manufacturers apart from the petitioners, whether within the State or from outside the State of Kerala. Thus the distinction between the levy and charge on the one hand and the collection on the other hand are very clear. The Supreme Court considered the distinction between collection and levy in AIR 1972 SC 2563 (Assistant Collector of Central Excise, Calcutta v. National Tobacco Co. of India Ltd.).
42. We are of the opinion that there is no process of assessment of duty at the hands of the petitioners and under the Scheme of the Abkari Act. The levy and imposition is only on the fourth respondent and not mere postponement of collection.
43. We hold that the excise duty paid by the Beverages Corporation and included in its turnover cannot again be included in the turnover of the petitioners/ manufacturers. We answer this issue in favour of the petitioners and against the revenue.
44. Proposition No. 3 in O.P. No. 23008 of 1998 and additional grounds "R" and "S" raised in O.P. No. 12893 of 1999 can be clubbed together and considered. According to the learned counsel appearing for the petitioners, excise duty laid on the Beverages Corporation is not price and outside bargain and hence not "turnover". According to the petitioners, the licence for the manufacture of IMFL is granted by the State by virtue of legislative sanction under Section 18A of the Abkari Act. The manufacture of liquor by the petitioners, who are only licensees of the State and the sale of liquor through the retail outlets and by the Beverages Corporation are all parting the privilege of the State by the issuance of licence. Therefore the price paid to the petitioners by the Beverages Corporation and the price collected by the Beverages Corporation towards cost of product, collection of tax and excise duty are all the price of the privilege that which has been parted by the State and the said price though arrived at by taking into account several factors cannot be treated as excise duty component or tax component separately. It is further submitted that everything that is charged by the Beverages Corporation by selling it to the retail licensee is only the part of the privilege price collected by the State from the licensees through the Corporation and what is paid to the petitioners/manufacturers is only the cost of the product for the manufacture of liquor on behalf of the State while parting the privilege. It is, therefore, submitted that it is not correct in law to say that what is collected is excise duty. We have already noticed that the concept of excise duty on production and manufacture as understood in the Central Excise Act cannot be equated in the case of excise duty under the Abkari Act since the manufacture and the sale of liquor are the exclusive privilege of the State and the State, by the process of licensing, is parting with the said privilege and what is charged by the State is only the privilege price through the process of licensing the price and it is not excise duty.
45. This submission was made by Mr. Natarajan without prejudice to the other submission that the duty of excise is an imposition on the Corporation under Section 17(f) of the Abkari Act and not received or receivable by the petitioners-distilleries and hence not turnover. We have already referred to the definition of "turnover" under Section 2(xxvii). Coming to the expression "price", it is defined in the Sale of Goods Act as "money consideration". Cash or deferred payment in Clause (ff) of Section 2 of the Act satisfies the said definition. In support of this contention, the judgments reported in George Oakes (Private) Ltd. v. State of Madras [1961] 12 STC 476 (SC), Joint Commercial Tax Officer v. Spencer & Co. [1975] 36 STC 188 (SC), E.I.D. Parry (India) Ltd. v. State of Tamil Nadu [1979] 44 STC 352 (Mad.) and Food Corporation of India v. State of Kerala [1988] 68 STC I (SC), were relied on by the petitioners. In this context, we have also referred to the argument advanced by the Revenue. [1961] 12 STC 476 (SC) [George Oakes (Private) Ltd. v. State of Madras] was a case where sales tax was collected by the registered dealer. The High Court decided that taxation of such collections is illegal. Subsequent Act validated certain assessments up to certain period. The validity of the Act was questioned. The nature of such collection was also discussed in the judgment. The Supreme Court in pages 485 and 486 of the above judgment has observed as follows :
"These observations show that when the seller passes on the tax and the buyer agrees to pay sales tax in addition to the price, the tax is really part of the entire consideration and the distinction between the two amounts--tax and price--loses all significance from the point of view of legislative competence. The matter is not in any way different under the Turnover and Assessment Rules. It is true that in column II of form A the amount collected by way of tax under Section 8-B has to be shown ; that does not, however, mean that an immutable distinction such as will go to the root of legislative competence has been drawn and must be always maintained. It appears to us that the true effect of Section 8-B and the Turnover and Assessment Rules is that (a) a registered dealer is enabled to pass on the tax, (b) an unregistered dealer cannot do so, and (c) the amount collected by way of tax is to be shown separately, for it has to be paid over to Government. This does not mean that it is incompetent to the Legislature enacting legislation pursuant to entry 54 in List II by suitable provision to make the tax paid by the purchaser to the dealer together with the sale price in consideration of the goods sold, a part of the turnover of the dealer ; nor does it mean what in law the tax as imposed by Government is a tax on the buyer making the dealer a mere collecting agency so that the tax must always remain outside the sale price."
The submission of the learned counsel for the petitioner is that when tax or duty is required to be borne by the purchaser, it remains beyond bargain, beyond concept of price and outside "turnover" because price or consideration is product of bargain. In [1975] 36 STC 188 (SC) (Joint Commercial Tax Officer v. Spencer & Co.), the respondent-Spencer & Co. is the assessee/seller. The Supreme Court was considering Section 2(r) of the Madras General Sales Tax Act, 1959 which is in pan materia to Section 2(xxvii) of the KGST Act. The question was whether the 50 per cent sales tax imposed under Section 21-A of the Madras Prohibition Act, 1937 collected by the seller from the purchaser was "turnover" taxable under the Madras General Sales Tax Act. The department relied on [1961] 12 STC 476 (SC) (George Oakes case) to state that any collection of tax or duty by the seller for the sale would remain consideration and turnover. But, Section 21-A was worded as under :
"Every person or institution which sells foreign liquor---
(a)............
(b)............
shall collect from the purchaser and pay over to the Government at such intervals and in such manner as may be prescribed, a sales tax calculated at the rate of eight annas in the rupee, or at such other rate as may be notified by the Government from time to time, on the price of the liquor so sold."
The Supreme Court considering the submission, held :
"It is clear from Section 21-A of the Madras Prohibition Act, 1937, that the sales tax which the section requires the seller of foreign liquor to collect from the purchaser is a tax on the purchaser and not on the seller. This is what makes the authorities on which counsel for the appellants relied inapplicable to the cases before us. Under Section 21-A the tax payable is on the price of the liquor and that tax is to be paid by the purchaser ; the seller is required to collect the tax from the purchaser which he has to pay over to the Government. Section 21-A makes the seller a collector of tax for the Government, and the amount collected by him as tax under this section cannot therefore be a part of his turnover. Under the Madras General Sales Tax Act, 1959, the dealer has no statutory duty to collect the sales tax payable by him from his customer, and when the dealer passes on to the customer the amount of tax which the former is liable to pay, the said amount does not cease to be the price for the goods although 'the price is expressed as X plus purchase tax' (Paprika Ltd. v. Board of Trade [1944] 1 All ER 372). But the amounts collected by the assessees concerned in these appeals under a statutory obligation cannot be a part of their taxable turnover under the Madras General Sales Tax Act, 1959."
In [1979] 44 STC 352 (Mad.) [E.I.D. Parry (India) Ltd. v. State of Tamil Nadu], the question was whether the gallonage fee collected by the distillery at the occasion of sale from licensee to wholesalers, in addition to the price of spirit and separately charged in the sale invoices, would constitute the sale price and turnover under the TNGST Act, 1959. The Madras High Court, while considering the question, held :
"The Tamil Nadu General Sales Tax Act, 1959 defines 'turnover' in simple language. According to Section 2(r), 'turnover' means the aggregate amount for which goods are bought or sold by a dealer. This, broadly, is also the line of definition of the expression in other local sales tax enactments in force in several other States in this country. It is now a common place of this branch of the law that fiscal measures brought by the State Legislatures for taxing sales or sales turnover are to be understood and applied in terms of the time-honoured juristic conception of sale. The Supreme Court held in the Gannon Dunkerley's case [1958] 9 STC 353, that 'sale' as a taxable event under the charging provisions of the Sales Tax Acts passed by the State Legislatures in India cannot be in derogation of the concept of sale under the Sale of Goods Act. One of the essential attributes of a sale under the general law is that it should be the product of an agreement between the seller and the purchaser. This idea is brought out in the familiar expression 'bargain', which denotes that it is essentially a mutual deal between the contracting parties. It follows that the consideration for the sale, which we call price, must also be part of the bargain or agreement between the seller and the buyer. Thus, a dealer's turnover must include all sums of money, which he receives from his purchasers during a given period, usually a year, as a matter of bargain."
Again, at page 360, the court held :
"Shortcomings of legal draftsmanship apart, however, two things stand out boldly and clearly on our collation and study of the relevant Rules. One is that the gallonage fee, as an exaction by the exchequer, is squarely laid by the Rules on the purchaser of spirits. The purchaser is the one who is under a liability to pay the amount. There is no shirking this liability, unless it be under some express exemption. The other position which emerges is that the Rules appoint the distilleries as the accredited instrumentalities for recovery of these amounts. The distiller is the one who is under an obligation to collect the appropriate sum of money from the purchaser and remit it to the treasury. This obligation also is inescapable. Under no circumstances, can the distiller excuse himself from discharging it."
In view of the above, the court held that the gallonage fee realised was not price nor turnover. In [1988] 68 STC 1 (SC) (Food Corporation of India v. State of Kerala), the only question posed for consideration was whether the administrative surcharge and the price equalisation charge could be legitimately included in the turnover of the appellant assessable to tax under the KGST Act. In that case, the appellant-Food Corporation of India entered into an agreement with the Government of Kerala for the distribution of certain articles and commodities covered by the Kerala Rationing Order and under the agreement, the Food Corporation of India was required to collect the administrative surcharge and the price equalisation charge from the retailers due by them to the Government in accordance with the rates fixed by the Government from time to time. For the assessment years in question, the appellant was assessed to sales tax under the KGST Act on turnover which included the amount of the administrative surcharge and price equalisation charge collected by the appellant from the retailers. The Food Corporation of India contended before the Appellate Tribunal that the amounts recovered by way of administrative surcharge and price equalisation charge could not be included in the taxable turnover because that was not part of the price of the goods supplied by it. The Appellate Tribunal rejected the said contention. The revision filed by the appellant thereafter was also dismissed by this Court. The Supreme Court held :
"It is plain from the provisions of the agreement between the appellant and the Government of Kerala that the administrative surcharge and price equalisation charge were the liabilities of the retailers to the Government and that when the agreement provided for their collection by the appellant from the retailers, the appellant functioned merely as a collecting agent on behalf of the Government. In other words, the appellant functioned as a conduit pipe through which collections of administrative surcharge and price equalisation charge passed from the retailers to the Government. The two items were never part of the price. The price in fact was specifically determined under a separate provision of the agreement. Accordingly we hold that the assessing authority, the Appellate Tribunal and the High Court erred in including that turnover in the assessment of the appellant. It may be mentioned that subsequently the State Government itself issued a notification dated May 2, 1978, exempting from sales tax the turnover relating to the administrative surcharge and price equalisation charge in the assessment proceedings of the appellant."
If the scheme is analysed with reference to the provisions of the Abkari Act and of the judgments referred to above, the element may not have the character of consideration to constitute turnover under Section 2(xxvii) of the KGST Act. The duty incidence is under the Scheme of the Act and the Rules and the Corporation has to necessarily incur the duty. The element of duty is not within the process of bargain and necessarily stands apart from price. As rightly pointed out fay the counsel for the petitioners, it is an incidence required by law to be borne by the Beverages Corporation.
46. Mr. George Poonthottam has also made his submissions on this point. According to him, what is charged by the State under the heading "excise duty" is not excise duty in reality. It is only the "privilege price", which the Government are collecting from the licensees under the Abkari Act on their purchase of the exclusive privilege of the State for manufacture or sale. The State is fanning out the privilege for the manufacture and sale of liquor. Therefore, the concept of duty attached to production and manufacture is not available when it comes to liquor since the manufacture and sale are the exclusive privilege of the State. The State authorises another to do the exercise by charging a price for parting with its privilege. It is submitted that it is not the excise duty as such, but only a measure of the consideration payable by the contractors for the grant of the privilege. This levy is styled as excise duty. It is only for the purpose of convenience and facility of collection it is described as excise duty and, therefore, even when it is called and collected as "excise duty", it is only the privilege price and not excise duty in reality. Therefore, it is submitted that the liability to pay excise duty on production or manufacture by the distillery does not arise when it conies to liquor as the amount collected or charged is not excise duty. It is only the privilege price collected by the State for parting the exclusive privilege and as such the manufacturer is not called upon to include the privilege price charged under Sections 17 and 18 in their turnover and to pay turnover tax thereon. Mr. George Poonthottam cited decisions in support of the said proposition, including that reported in State of A.P. v. Y. Prabhakara Reddy AIR 1987 SC 933. In the said decision, the Supreme Court held as follows :
"Even prior to the 1984 amendment, the amount which each of the contractors was required to pay or have adjusted was not excise duty on undrawn liquor, but was part of the price which he had agreed to pay for the grant of the privilege to sell liquor, and hence, the excise contractor could not claim to deduct from the issue price payable by him in respect of short drawn arrack, the amount said to be attributable to excise duty.
It is well-settled that all rights in regard to manufacture and sale of intoxicants vest in the State. It is open to the State to part with those rights for a consideration. The consideration for parting with the privilege of the State is neither excise duty nor licence fee but it is the price of the privilege. Reading Sections 17 and 23 of the Act together with the Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969 and Andhra Pradesh (Retail Vend Special Conditions of Licences) Rules, the picture which emerges is that the privilege of selling liquor which includes the lease of the shop for an area and the licence to sell liquor therein may be granted by the State by public auction subject to (1) payment of rental being the highest bid at the auction ; (it is to be noted here that rental is the rent payable in consideration of grant of lease for the sale of liquor but it is not the sole or exclusive consideration for the lease) ; (2) the requirement that the licensee shall purchase arrack at the issue price, and (3) the further requirement that the licensee shall purchase a minimum guaranteed quantity of arrack, which he has to make good in ease of shortfall. The consideration for the grant of the privilege to sell liquor is not merely the rental to be paid by the lessee but also the issue price of the arrack supplied or treated as supplied in case of shortfall, which is also to be paid by the lessee-licensee. There is no-question of the lessee-licensee having to pay the excise duty though it may be that the issue price is arrived at after taking into account the excise duty payable."
47. The next proposition argued by the counsel is that the levy is ultra vires Articles 301 and 304 of the Constitution of India. Section 17 of the Abkari Act provides for a levy of duty on liquor manufactured or issued from warehouse. Serial No. 51 of the State List indicates that the Constitution seeks to maintain parity in the matter of levy even in respect of alcoholic liquor, whether manufactured within the State or imported from other States. This entry reads thus :
"Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India--
(a) alcoholic liquors for human consumption ;
(b) opium, Indian hemp and other narcotic drugs and narcotics ;
but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry."
It is argued that the turnover tax as imposed on the petitioners on the element of excise duty incurred by the Corporation and laid on it with a bar of collection by the petitioner under Section 5(2A)(iii) is ex facie violative of Chapter XIII of the Constitution of India. The levy is particularly harsh, unreasonable and discriminatory considering the fact that on the purchases made by the Corporation at about same price the Corporation incurs a duty by way of countervailing levy and that element does not get attached to the turnover of the suppliers not suffers imposition of turnover tax. Even in this view, Section 5(2A)(iii) in so far as an imposition on a resident manufacturer operating in Kerala as against the out of State supplier to the Corporation operating outside Kerala is clearly violative of the freedom of the inter-State trade and commerce and liable to be declared inoperative and unconstitutional and ultra vires Article 401, which protects trade and commerce within the State as well as inter-State. Countervailing duties are meant to equalise the burden on alcoholic liquors imported from outside the State and the burden placed by excise duties on alcoholic liquors manufactured or produced in the State. In Shroff & Co. v. Municipal Corporation of Greater Bombay [1989] 72 STC 150 (SC) the Supreme Court at page 159 held that countervailing duty on the other hand is imposed for the purpose of setting-off or compensating some other duty so as to place the home producer on an equal footing with the importer of foreign goods. The countervailing duty is meant to protect the indigenous production.
48. The turnover tax in question which is disputed before this Court is in respect of the excise duty imposed under Section 17 of the Abkari Act. The excise duty is 200 per cent ad valorem, which operates in between the manufacturer and the Beverages Corporation. In the same situation, there is a countervailing duty at 200 per cent imposed on the Corporation under serial No. 51 of the State List. This operates on the importer Corporation and an outgoing from the Beverages Corporation as much as the 200 per cent excise duty in respect of locally manufactured liquor. On the element of countervailing duty incurred by the Beverages Corporation, there is no turnover tax since the transaction itself is outside the purview of Section 5(2A) of the KGST Act being a transaction taking place inter-State. It is, thus, seen that under serial No. 51 of the State List read with serial Nos. 17 and 18 of the Abkari Act, State of Kerala imposes 200 per cent excise duty as well as 200 per cent countervailing duty. The excise duty is on goods manufactured inside Kerala while being incurred by the Beverages Corporation on receipt and later paid. The countervailing duty is to counter balance the price structure and imposed on the import by the Beverages Corporation. The turnover tax impinges on the liquor manufactured in Kerala and not on the corresponding countervailing duty. Chapter XIII protects intra-State as well as inter-State trade. Article 401 applies not only to inter-State trade, commerce and intercourse but also intra-State trade, commerce and intercourse. The words "throughout the territory of India" clearly indicate that trade and commerce, whose freedom is guaranteed has to move freely also from one place to another in the same State. The Supreme Court in the decision reported in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232, has elaborately dealt with the scope of the above Article 401 in paragraphs 42, 48 and 51. In the conclusion, in para 18 at page 242, the court held that the trade, commerce and intercourse throughout the territory of India are not absolutely free, but are subject to certain powers of legislation by Parliament or the Legislature of a State and that the freedom declared by Article 401 does not mean freedom from taxation simpliciter, but does mean freedom from taxation which has the effect of directly impeding the free flow of trade, commerce and intercourse. It is also held that the freedom envisaged in Article 401 is subject to non-discriminatory restrictions imposed by Parliament in public interest and even discriminatory or preferential legislation may be made by Parliament for the purpose of dealing with an emergency like a scarcity of goods in any part of India, that reasonable restrictions may be imposed by the Legislature of a State in public interest and that non-discriminatory taxes may be imposed by the Legislature of a State on goods imported from another State or other States, if similar taxes are imposed on goods produced or manufactured in that State. Lastly it is stated that the restrictions imposed by existing laws have been continued, except in so far as the President may by order otherwise direct (Article 405). It is thus seen that Articles 301 and 304 frown on discriminatory taxes.
49. S.K. Das, J,, in Automobile Transports (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406, has approved the summary of Sinha, C.J., at page 1414, regarding "non-discriminatory restrictions/non-discriminatory taxes". S.K. Das, J., at page 1418 has made a reference to the decision in State of Bombay v. United Motors (India) Ltd. [1953] 4 STC 133 (SC) ; AIR 1953 SC 252, regarding imposition of non-discriminatory tax on goods imported from sister States and at page 1420, it is held that as long as tax remains compensatory or regulatory, it cannot operate as a hindrance and for the tax to become a prohibited tax, it has put a direct effect which is to hinder the movement part of the trade. Relying on the passages from the above decision, it is submitted by the counsel that the turnover tax under Section 5(2A) is not a compensatory or regulatory tax and it is a fiscal levy and it attracts Article 401 as a restriction if it operates as an impediment or restriction or having discrimination. If it is an unreasonable restriction, being discriminatory, it is liable to be struck down.
50. In regard to discrimination found by applying effect test, certain judgments were cited. They are reported in H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 (SC), Firm A.T.B. Mehtab Majid & Co. 's case [1963] 14 STC 355 (SC), Indian Cement Ltd. v. State of Andhra Pradesh [1988] 69 STC 305 (SC), Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 (SC), State of Uttar Pradesh v. Laxmi Paper Mart [1997] 105 STC 1 (SC) and Shri Digvijay Cement Co. v, State of Rajasthan [1997] 106 STC 11 (SC). [1986] 61 STC 165 (SC) (H. Anraj v. Government of Tamil Nadu) is a Bench decision of two learned Judges. In that case, the Government of Tamil Nadu exempted tax on the lottery tickets issued by it totally, while levying tax on the lottery tickets issued by other States and sold in Tamil Nadu. The court held that laws imposing taxes can amount to restriction on trade, commerce and intercourse if they hampered the free-flow of trade unless they are compensatory in nature and that the sales tax which had the effect of discriminating between goods of one State and another may affect free-flow of trade and would be offensive to Article 401 unless saved by Article 404(a). It was held that the direct and immediate result of the notification was to impose an unfavourable and discriminatory tax. At pages 159 and 162 of the decision in [1997] 104 STC 148 (SC) (Shree Mahavir Oil Mills v. State of Jammu and Kashmir), the Bench has considered the ratio of the decision of the Supreme Court in so far as Clause (a) of that article. In [1997] 106 STC 11 (SC) (Shri Digvijay Cement Co. v. State of Rajasthan), the Supreme Court was considering a complaint made by the manufacturers in the State of Gujarat that State by issuing notification under Section 8(5) enabled Rajasthan factories to sell cement in the State of Gujarat to consumers at the most advantageous tax structure and the Gujarat manufacturers were disabled from marketing their own goods within the State of Gujarat. The complaint is dealt with at page 16 of the judgment. The Supreme Court referred to the decision in State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 (SC) and quoted a passage from the said judgment, wherein the court held that difference in rates would result in showing preference to some States and making discrimination against others and hence the difference in trade is a prima facie proof of the preference or discrimination complained of and it is for the State to justify those differences. The court concluded that the justification advanced by the State of Rajasthan that as a result of the impugned notifications the State revenue had increased and thus they were beneficial to the State revenue is not valid as the said notifications had the effect of creating a preference to cement manufactured and sold in Rajasthan and disadvantage for the sale of cement manufactured and sold in Gujarat and thus had the direct and immediate adverse effect on the free-flow of trade.
51. A careful consideration of the above submissions and the authorities cited would only compel us to hold that if the turnover tax under Section 5(2A)(i)(b) is held excluded on the sales by distilleries within, the State to the Beverages Corporation alone and to operate on all subsequent points of sales, as now prevailing, resulting/discrimination in the impact of taxation attracting Articles 301 and 304 can be avoided, since this discrimination obtains only at the stage of purchase by the Beverages Corporation on excise duty and the exclusion of turnover tax at the point of sale by the manufacturers to the Corporation while declaring it operative at subsequent stages accords with the general scheme under Section 5(1) and serial No. 53 of the First Schedule, since the Schedule itself excludes from sales tax the sale by the petitioners-manufacturers to the Corporation under the Act. It has been held that the protection of Chapter XIII is available in so far as fiscal levies are concerned, which operate as a tariff wall/barrier or operate as a discrimination, as could be seen from [1986] 61 STC 165 (SC) (H. Anraj v. Government of Tamil Nadu and AIR 1966 SC 1686 (Kalyani Stores v. State of Orissa).
52. The next question relates to the jurisdiction of the Deputy Commissioner under Section 35 of the KGST Act. The Deputy Commissioner by order dated October 23, 1998 set aside the original assessments passed under Section 17 of the Act. According to the petitioner in O.P. No. 23008 of 1998, the assessments were completed from time to time and that the petitioner had secured firm orders from the Corporation for sale of IMFL at prices which excluded the liability for sales tax and excise duty which was laid only on the Corporation, They submitted returns and did not pay sales tax under serial No. 53 of the First Schedule. They paid only the turnover tax under Section 5(2A)(i)(b) of the Act. This turnover tax was only on the price as received by the petitioner from the Corporation and did not include either sales tax payable by the Corporation or excise duty levied on the Corporation. These returns were accepted and assessments were also concluded accordingly up to the financial year 1995-96. While so, a notice was sent calling upon the petitioner to submit revised returns to include element of excise duty paid by the Corporation and under exhibit P4, notice proposing to impose penalty was issued by the first respondent. Exhibit P4 has been issued on the alleged ground that the element of excise duty paid by the Corporation was not included and the petitioner had not paid turnover tax. The petitioner filed his objections by letter dated September 15, 1998 under exhibit P5. Without adverting to the objections and grounds raised by the petitioner and without giving any opportunity to the petitioner to substantiate the grounds of objection, the Assistant Commissioner (Assessment-I), Commercial Tax, Special Circle, Palakkad, arbitrarily and in violation of the principles of natural justice issued an order of assessment for the months of April, 1998 to July, 1998 under exhibit P6 and an order of penalty also was issued under exhibit P7. Meanwhile, Deputy Commissioner of Commercial Taxes (2nd respondent) issued notices dated September 28, 1998 for the years 1990-91 to 1995-96 relying upon Section 35 of the KGST Act. The Deputy Commissioner felt that the assessment orders were prejudicial to the interest of the revenue inasmuch as the assessing authority did not take into account the element of excise duty paid by the Corporation and did not levy turnover tax on the petitioner. The Deputy Commissioner without offering a reasonable opportunity of hearing to the petitioner as provided under Section 35(3) and without even waiting for detailed objections, issued orders under Section 35 dated October 23, 1998 directing the first respondent to revise the assessments for the years 1990-91 to 1995-96 under exhibit P8. As a follow up, the first respondent has issued notice dated October 24, 1998 under exhibit P9 and called upon the petitioner to produce books of accounts relating to the years 1990-91 to 1995-96 and to indicate the details of the excise duty incurred by the Beverages Corporation. The petitioner submitted that the details of the duty payment is within the peculiar knowledge of the Corporation.
53. This contention is also raised in O.P. No. 7437 of 1999 by Messrs. Polsons Distillery. In this case, for the assessment years 1991-92, 1992-93 and 1993-94 orders were passed by the third respondent, assessing the petitioner to tax in relation to sale of IMFL effected by it in favour of the Beverages Corporation. The petitioner was also assessed to turnover tax on such turnover which included sale of the IMFL sold by it to the Corporation. The relevant assessment orders are produced as exhibits P4 to P6. While so, the second respondent-Deputy Commissioner of Commercial Taxes, Thrissur, purportedly exercising the powers of suo motu revision under Section 35 of the Act issued a notice to the petitioner on January 5, 1999 proposing to revise the orders of assessment passed under exhibits P4 to P6 on the ground that the assessing authority has not included in the turnover of the petitioner the excise duty paid by the Corporation for and on behalf of the petitioner. The Deputy Commissioner thereupon proceeded to pass an order under Section 35 of the Act setting aside the orders of assessment passed under exhibits P4 to P6 and directing fresh orders of assessment be passed by the assessing authority by including the excise duty paid by the Corporation for and on behalf of the petitioner also as part of the turnover of the petitioner. This order was passed by the Deputy Commissioner on February 18, 1999 and served on the petitioner on February 25, 1999 under exhibit P7. Thereafter the assessing authority has issued a notice proposing to pass assessment orders for the years 1994-95, 1996-97 and 1997-98 on February 18, 1999 including the turnover of the petitioner the excise duty which is actually paid by the Corporation as part of the turnover of the petitioner. The assessing authority has purported to do so on the basis of the decision of the Supreme Court in Mohan Breweries case [1997] 107 STC 212. The copies of the assessment orders passed for the years 1994-95, 1996-97 and 1997-98 are produced as exhibits P8 to PIO.
54. This point is also urged in O.P. No. 19686 of 1999 filed by one United Distilleries. In this case, the Sales Tax Officer, Fourth Circle, Kozhikode, issued a notice for assessing the petitioner and collecting from them the turnover tax on the excise duty component levied or collected by the Corporation for the years 1995-96 and 1996-97 by reopening the assessment. According to the petitioner, the assessment in respect of these years were completed based on the notice issued without regard to the contentions of the petitioner. The petitioner preferred appeals against the said assessment orders and those appeals are pending. Challenging the legality or correctness of the notice and assessment, the petitioner filed O.P. No. 12893 of 1999, which has been referred to this Bench. This Bench admitted the same and recorded the undertaking of the Government Pleader, who took notice on behalf of the State, that there is no immediate threat of recovery of money pursuant to the demand notice issued. While so, the petitioner was served with a notice under Section 45 A(2) of the Act alleging submission of untrue and incorrect return for the financial years 1997-98 and 1998-99 proposing to impose maximum penalty of 200 per cent for the alleged evasion of tax. The notices issued have been marked as exhibits P2 and P2(a). The petitioner was also served with a notice under Section 45A(2) of the Act proposing to impose penalty for the submission of incorrect return for the months of April, May and June, 1999 along with notices under Rule 21(9) of the KGST Rules for submission of untrue and incorrect return in form No. 9 for the respective months. The said notices are produced as exhibits P3, P3(a) to P3(e). The petitioner in response to the said notices, submitted a reply under exhibit P4. It is submitted by Mr. George Poonthottam that the action initiated by the Revenue is improper, illegal, arbitrary and without the authority of law.
55. It is seen from the records in O.P. No. 23008 of 1998 that the assessments were completed for the years 1990-91 on August 2, 1996, 1991-92 on August 5, 1996, 1992-93 on March 23, 1996, 1993-94 on March 27, 1996, 1994-95 on June 11, 1996 and 1995-96 on May 31, 1997 by the assessing officer.
56. It is argued by the learned counsel appearing for the respective petitioners that under Section 19(1), a special power is given to the assessing officer to make an assessment of the turnover which has escaped for any reason. The escapement may be the whole or any part of the turnover of business of a dealer. Section 19(1) deals with two categories of escapement--
(i) where the whole or any part of the turnover of business has escaped assessment to tax in any year ; and
(ii) where the whole or any part of the turnover has been under-assessed or has been assessed at a rate lower than the rate at which assessable, or any deduction has been wrongly made therefrom.
Either way the authority is empowered to proceed to determine to the best of judgment turnover which was escaped assessment or has been under-assessed. But, this power under Section 19A(i) is circumscribed by a limitation for the exercise of power which is "four years from the expiry of the year to which the tax relates". The limitation of four years runs from the related year so that the limitation for the year 1990-91 expires on March 31, 1995, for the year 1991-92 on March 31, 1996, for the year 1992-93 on March 31, 1997, for the year 1993-94 on March 31, 1998, for the year 1994-95 on March 31, 1999 and for the year 1995-96 on March 31, 2000. According to Mr. Natarajan, Section 19(1) comprehends two powers--
(i) Original power to make a fresh assessment of escaped turnover ; and
(ii) A power to review a decision already made where the earlier decision under Section 17 is erroneous suffers from error of law or fact.
57. Referring to Section 35 of the Act, which occurs in Chapter VII, it is argued that the said section empowers the Deputy Commissioner to exercise power of revision. This power involves (i) calling for and examining any order passed or proceeding recorded under this Act, (ii) of any authority or officer subordinate to the Deputy Commissioner, (iii) the order or proceeding in the opinion of the Deputy Commissioner prejudicial to revenue, (iv) the Deputy Commissioner passes an order "subject to the provisions of this Act may pass such order thereon" as he thinks fit, (v) the power of the Deputy Commissioner under Section 35(2) is available within "four years after the passing of the order referred to therein", i.e., that of the subordinate authority. The submission of the learned counsel for the petitioners is that the power of the Deputy Commissioner is a revisional power and inherently a power to examine the record or order or proceeding of a subordinate authority and to correct the errors after making proper enquiry. It is basically a supervisory power of revision and Mr. Natarajan placed reliance on the decisions reported in State of Kerala v. KM. Cheria Abdulla and Company [1965] 16 STC 875 (SC), Deputy Commissioner of Agricultural Income-tax and Sates Tax v. Dhanalakshmi Vilas Cashew Co. [1969] 24 STC 491 (SC), State of Kerala v. K.E. Nainan [1970] 26 STC 251 (SC), Reliance Motor Company Private Ltd. v. State of Tamil Nadu [1992] 84 STC 201 (Mad.), Joint Commercial Tax Officer II, Tuticorin v. Ekambareeswarar Coffee and Tea Works [1991] 83 STC 457 (Mad.) and Madras Rubber Factory Ltd. v. State of Kerala [1979] 44 STC 208 (Ker) [FB].
58. Arguing the case with reference to exhibit P8 dated October 23, 1998 in O.P. No. 23008 of 1998, the learned Senior Counsel submitted that assessments already passed under Section 17 of the Act by the assessing authority do not suffer from any error and relate to the assessment on the consideration of sale and if the assessing authority did not assess excise duty as part of turnover, it was a case of escaped turnover independently to be assessed and such an independent order shall also stand separately as held in Joint Commercial Tax Officer-II, Tuticorin v. Ekambareeswarar Coffee and Tea Works [1991] 83 STC 457 (Mad.), which was referred to and approved in Commissioner of Income-tax v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC); AIR 1993 SC 43. It is further submitted that the Deputy Commissioner has set aside a valid original assessment under Section 17 to restore the matter only for the reason that the assessing authority could not have made an independent order under Section 19 because of the four-year limitation. On the other hand, if the original assessment was restored back to the authority, it could make a fresh assessment without being encumbered by the limitation available in Section 19 of the Act. The remand after setting aside a proper order of assessment under Section 17 is only a device and for the collateral purpose of circumventing limitation of period of time for assessing escaped turnover and to get over self disability of reaching escaped turnover under Section 25. Therefore, it is submitted that the Deputy Commissioner cannot do indirectly what he cannot do directly. He also cited the decisions reported in Auto Pins (India) (Regd.) v. Sales Tax Officer [1986] 61 STC 287 (MP), Jaipur Udyog Ltd. v, Commercial Taxes Officer [1979] 44 STC 456 (Raj) and Bidar Sahakar Sakkare Karkhane Ltd. v. State of Karnataka [1985] 58 STC 65 (Kar), wherein it has been held that neither the appellate authority nor the revisional authority cannot set aside and remand to the assessing authority for the purpose of reopening or assessing escaped turnover beyond the period of limitation.
59. Mr. Giri, counsel for O.P. No. 7437 of 1999, has also, after adopting the argument of Mr, Natarajan, counsel for O.P. No. 23008 of 1998, submitted that the contentions as against the orders passed by the Deputy Commissioner and argued by Mr. Natarajan is equally applicable as regards the order of the Deputy Commissioner in the instant case in O.P. No. 7437 of 1999, viz., exhibit P7, which is an order passed by the Deputy Commissioner revising the assessment for the years 1991-92, 1992-93 and 1993-94 under exhibits P4 to P6. This order was passed four years after the expiry of the assessment years. He also submitted that the power under Section 35 of the Act is subject to the provision in Section 19 of the Act and in that view of the matter, the impugned order in O.P. No. 7437 of 1999 is illegal.
60. The learned Government Pleader in reply to the arguments advanced by the petitioners submitted that the petitioners are not right in contending that the revisional power exercised by the Deputy Commissioner under Section 35 of the KGST Act is hit by Section 19 of the Act. According to him, the powers under Section 19 and Section 35 are conferred on two distinct authorities and that being the position, the exercise of the power by one cannot be termed as trenching of jurisdiction of the other. As far as the power under Section 19 is concerned, the same could be exercised by the assessing authority within four years from the end of the assessment year concerned and the power under Section 35 could be exercised within four years from the date of the order sought to be revised. He also submitted that the Deputy Commissioner has exercised his powers in the interest of the Revenue and that the notice under Section 35 had been issued by the Deputy Commissioner and revisional order has been passed by him. In support of his contention that the power conferred on two different authorities, viz., the assessing authority and the revisional authority, are distinct and mutually exclusive, he relied on the decisions reported in [1979] 44 STC 208 (Ker) [FB] (Madras Rubber Factory Ltd. v. State of Kerala), 1976 KLT 382 (SC) (Commissioner of Agricultural Income-tax, Trivandrum v. Lucy Kochuvareed), (1998) 6 KTR 318 (Devidas Keshava Menon v. State of Kerala), (1998) 6 KTR 415 (K.A. Ammarkunhi Amme v. Commissioner of Agricultural Income-tax) and [1977] 40 STC 444 (Ker) (C.C. Transport Company v. State of Kerala).
61. Though this point was argued elaborately by both sides by inviting our attention to the minutest details and also with reference to Sections 7, 19 and 35 of the Act and by citing various authorities, we feel that this point need not be considered in this case in. view of our decision on proposition Nos. 1 and 2 put forward by Mr. C. Natarajan in O.P. No. 23008 of 1998 and adopted by the other counsel for the petitioners in their writ petitions. On an elaborate consideration of both facts and law, this Court has expressed its opinion that the duty paid by the Corporation at its warehouse cannot be the price received by the petitioners and that the Beverages Corporation which executes the bond for the receipt, storage and proper payment of duty levied, imposed under Sections 17 and 18 of the Act and that once the point of levy and imposition is at the stage of issue from warehouse and election made by the Government by the prescription it cannot be said that it is also a levy under the same section at the stage of manufacture. We have held that the Beverages Corporation is liable to be assessed and the excise duty paid by the Beverages Corporation and included in its turnover cannot be again included in the turnover, of the manufacturer. In view of the above categorical view of ours, there is no need to consider the scope and ambit of Sections 17, 18, 19 and 35 of the Act. Therefore, the said point is not decided and we leave it open to be decided at an appropriate stage in an appropriate case.
62. The last question is with regard to the validity of the orders of penalty. The question in this case is as to whether the department can impose a penalty for non-payment of turnover tax on the excise duty actually paid by the Beverages Corporation or the non-inclusion of excise duty in the returns filed. This question arises for consideration in O.P. Nos. 2255 of 1999 and 2264 of 1999. Exhibit P8 is the order passed by the assessing authority imposing penalty on the petitioner in O.P. No. 2255 of 1999 and exhibits P15 to P17 on the petitioner in O.P. No. 2264 of 1999.
63. A perusal of the orders impugned, in so far as the imposition of penalty is concerned, would show that the authority has imposed penalty on the ground that the assessee had not included excise duty in their return. At the same time, it is conceded that the assessee had disclosed the turnover actually reflected in their bills. It is also not the contention of the Revenue that there was any sale by the assessee to any person other than the Beverages Corporation. It is also not their case that the entire sale effected by them in favour of the Beverages Corporation is not reflected in the return. The penalty is imposed under Section 45A of the Act. It is argued that the jurisdictional factors constituting imposition of penalty under Section 45A of the Act is the definite intention on the part of the assessee to evade tax. Courts have held that the proceedings for imposition of penalty are declared to be quasi-criminal in character. When the conduct of the assessee in filing a return disclosing the turnover constituting the sale price of the commodity sold by it and it was accepted by the department at all relevant times in all these cases and similarly situated assessees, it is incomprehensible as to how the assessee can be blamed for not including the excise duty which was actually paid by the Beverages Corporation and factually included in the return of the Beverages Corporation. We have already referred to the counter-affidavit filed by the Beverages Corporation wherein the details with reference to the payment of excise duty, etc., have been fully furnished. The Corporation itself has clearly stated that they have paid the excise duty to the Government. It is, therefore, submitted that the proceedings for imposition of penalty under Section 45 A is clearly misconceived. Since the proceedings for imposition of penalty would come about in other cases also, the counsel for the petitioners requested this Court that appropriate declaration may be passed holding that the imposition of penalty under Section 45A of the Act is clearly misconceived. This Court in Sujir Ganesh v. Board of Revenue [1994] 95 STC 368 (DB) found penalty justified in a case of assessees claiming an exemption falsely and systematically when it did not have the records to establish the claim under Section 5(3) of the Central Sales Tax Act. The judgment of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211, indicates that penalty proceedings which are quasi-criminal in character and Section 45-A is along the lines dealt with by the apex Court. In the present case, the Revenue itself has been completing the original assessments from time to time up to the year 1995-96. Respondents assert that they have taken up the assessment on excise duty element in the light of Mohan Breweries case [1997] 107 STC 212 (SC), a case decided on September 9, 1997 and reported later, whereas in O.P. No. 23008 of 1998, the Revenue itself has been completing the original assessments from time to time up to the year 1995-96, which was on May 31, 1997. The Deputy Commissioner himself issued a notice for revision on September 28, 1998 informing the petitioners about the liability of excise duty to turnover tax. The Assistant Commissioner has issued a notice on July 29, 1998 under exhibit P7 calling upon the petitioners to file revised returns from 1996-97 to 1998-99 including the excise duty imposed on the Beverages Corporation. It is submitted that the levy of penalty under Section 45 A by exhibit P7 is without consideration of the ingredients of Section 45 A. It is seen from exhibit P7 that the officer has rendered a finding as follows :
"I must say, the assessee-company has legal advisors and to whom the matter was referred to by the assessee since one month time was requested to file objections only after getting legal advice from their legal advisors. Naturally the legal advisors being specialists in tax matters cannot plead ignorance of the existence of the verdict of the highest court of land on the element of excise duty."
The officer has proposed to impose penalty under Section 45A at twice the tax for the period in question. Here again, the officer refers a Supreme Court decision and states :
"Though this position is known to you earlier, you have not revised the returns and paid the turnover tax."
A reading of the above exhibit would clearly reveal that the Revenue itself was not sure of the legal position and has taken to Mohan Breweries case [1997] 107 STC 212 (SC), decided on September 9, 1997, to issue notices only by July, 1998. This fact itself would clearly indicate that the petitioners cannot be held-guilty of deliberate or dishonest conduct or metis rea. The penalty proceedings in all these cases, in our opinion, are, therefore, vitiated by non-application of mind and the same is liable to be set aside as arbitrary and unreasonable.
64. This apart, the entire penalty proceedings are liable to be quashed for the simple reason that this Court on other issues held that the Beverages Corporation alone is liable to pay excise duty and that the excise duty paid by the Beverages Corporation cannot be included in the turnover of the petitioners and that the petitioners-manufacturers of IMFL are not liable for turnover tax under Section 5(2A), re-numbered as Section 5(2C) of the KGST Act. In view of the above finding, the petitioners cannot be held liable for non-disclosure or non-submission of correct returns to the authorities. As a matter of fact, the petitioners have submitted correct returns and accepting the same, the authorities have passed assessment orders. On the basis of this finding, we have already held that the completed assessments cannot be re-opened and that the payment of penalty for non-disclosure of the correct returns does not arise at all. This issue is answered accordingly.
65. An argument was advanced by the learned Government Pleader that the writ petitions are not maintainable. We have no hesitation in rejecting the said argument. The detailed facts disclosed above would clearly indicate that the petitioners do not have any effective alternate remedy. Though there is an appeal provided under Section 34 of the Act, that will be an exercise in futility considering that the respondents 1 and 2 have chosen, in accordance with the policy decision in the State, to raise demands for turnover tax under Section 5(2A)(iii) on the footing of the judgment of the Supreme Court in the ease of Mohan Breweries & Distilleries Ltd. [1997] 107 STC 212. Besides, the petitioners are challenging the jurisdiction of respondents 1 and 2 to proceed to construe as consideration what is beyond the area of sale and bargain having regard to the provisions of the Kerala Abkari Act and the Rules made thereunder. Besides, the levy and imposition of tax on the petitioners is clearly ultra vires the Legislature as expressed under the KGST Act and the Abkari Act to realise the sales tax and excise duty only from the Beverages Corporation. The petitioners have raised substantial questions of constitutional importance as to whether the element of turnover has to be a product of bargain on price. Further, the definition of "turnover", as construed by the Revenue, is ultra vires of entry 54 of the State Legislature. We have also accepted the arguments of the counsel for the petitioners in regard to the jurisdiction of the officers including the excise duty component paid by the Beverages Corporation to the turnover of the petitioners and rejected the contention of the Revenue. The notices issued for re-opening the assessment and the orders passed without giving adequate and reasonable opportunity to the petitioners and the further issuance of notices by the assessing officer to proceed further in accordance with the directions of the Deputy Commissioner and the notices issued for imposition of penalty and the orders passed thereon are totally without jurisdiction and arbitrary exercise of powers. The counter-affidavit filed by the Beverages Corporation would clearly go to show that the distilleries have to make their supplies only to the Beverages Corporation and accordingly on the stocks of IMFL purchased from the distilleries/manufacturers/petitioners/suppliers, the excise duty payable was paid by the Beverages Corporation whenever the goods were transferred from the bonded warehouse to FL-9 godown and as per the provisions of Sub-section (2A) of Section 5 of the KGST Act, turnover tax is payable by the Corporation during the relevant period. It is also stated in paragraph 6 of the counter that the Corporation has remitted turnover tax on the total value of turnover in respect of the total turnover of the Corporation for each year at the rate of turnover tax prevalent during the relevant years.
66. In the result, the arguments advanced by the learned Government Pleader has no merit and it cannot at all be countenanced and is liable to be rejected, The authorities have no jurisdiction whatsoever to include the excise duty component paid by the Beverages Corporation to be included in the turnover of the assessees/manufacturers/petitioners. The arguments advanced by the counsel for the petitioners merit acceptance on facts and on law.
67. It is also significant to refer in this context to the amendment brought about by the State to the Foreign Liquor Rules recently as per S.R.O. No. 23 of 1999. A true copy of the said notification dated January 5, 1999 has been filed and marked as exhibit P8 in the reply affidavit filed by the petitioner in O.P. No. 23903 of 1998. The Foreign Liquor Rules were amended by the Amendment Rules of 1999 and under Rule 13 of the said Rules, the words "by the Bonded Warehouse, licensee" were omitted. Thus, with effect from January 5, 1999, Beverages Corporation has been purchasing IMFL from the manufacturers after payment of excise duty. Duty-paid permits are, therefore, issued by the concerned authority and forwarded by the Beverages Corporation to the manufacturer concerned. All sale of liquor by the manufacturer to the Corporation takes place after the excise duty has already been remitted by the Beverages Corporation. This changed situation has been brought about by the amendment to the Foreign Liquor Rules as per the notification dated January 5, 1999. It is thus seen that by the amendment several changes have been brought about :
(a) the system of bonded warehouse in so far as IMFL is concerned has been done away with ;
(b) excise duty on IMFL is paid by the Beverages Corporation before it purchases IMFL from the concerned manufacturer ;
(c) the levy of excise duty is complete and the amount paid as excise duty becomes complete before the corporation purchases IMFL from the manufacturer and lifting the same from the distillery ; and
(d) the amount of excise duty paid forms part of the consideration for which the goods in the property, viz., IMFL, is purchased by the Corporation from the manufacturers concerned.
Prior to the amendment of the Foreign Liquor Rules, the levy of excise duty under the statute is at a point of time when the property in goods have already been transferred by the manufacturer in favour of the Corporation. Therefore, the property becomes the property of the transferee and vested in them. It is submitted that according to the Corporation there is duplication of work and they have requested the Government to do away with the system of keeping liquor in bonded warehouses and they are proposed to stock duty-paid liquor for supply to other licensees. It is also claimed that if the proposal is accepted, they will be in a better position to render their service more efficiently. The Government have accepted the proposal of the Beverages Corporation and decided to amend the Foreign Liquor Rules, 1953 accordingly. It is stated that the notification is intended to achieve the above object. Therefore, at present, permits are issued as duty-paid permits and the duty for a specified quantity of Indian-made foreign liquor is being paid by the Beverages Corporation before it issues permits. It is, therefore, that the goods are consigned to the concerned FL-9 shops in various destinations owned and controlled by the Beverages Corporation. The permit so issued by the Beverages Corporation is also produced and marked as exhibit P9.
68. In the result, the writ petitions are disposed of accordingly :
1. O.P. No. 23008 of 1998 : Proceedings relating to exhibits P3, P4, P6, P7, P8 and P9 are quashed. It is declared that the petitioner is not liable to pay turnover tax on the amount of excise duty paid by the Kerala State Beverages (Manufacturing and Marketing) Corporation Limited on the IMFL sold by the petitioner and that the levy of turnover tax on such amounts of excise duty is ultra vires beyond legislative competence and unconstitutional. It is also declared that Section 2(xxvii) of the KGST Act providing for or authorising levy of turnover tax on amounts of excise duty paid by the Kerala State Beverages Corporation is unconstitutional and void.
2. O.P. No. 23903 of 1998 : It is declared that respondents 1 and 2 are not entitled to levy any turnover tax on the petitioner on the turnover actually returned by the petitioner for the concerned assessment year based on the sale price collected by the petitioner for the sale of Indian-made foreign liquor in favour of the Kerala State Beverages Corporation. It is declared that respondents 1 and 2 are not entitled to levy any turnover tax on the petitioner in terms of Sub-Clause (b) of Sub-section (2A) of Section 5 of the Act, now re-numbered a Sub-Clause (b) of Sub-section (2C) of Section 5, including any excise duty payable on the liquor manufactured and sold by the petitioner in favour of the third respondent under the provisions of the Abkari Act or under the Storage in Bond Rules. Proceedings under exhibits P3 to P9 are quashed, It is declared that Section 2(xxvii) of the KGST Act providing for or authorising levy of turnover tax on amounts of excise duty paid by the Beverages Corporation as unconstitutional and void.
3. O.P. No. 818 of 1999 : It is declared that respondents 1 and 4 are not entitled to levy any turnover tax on the petitioner on the turnover actually returned by the petitioner for the concerned assessment year based on the sale price collected by the petitioner for the sale of Indian-made foreign liquor in favour of the Beverages Corporation. It is further declared that respondents 1 and 4 are not entitled to levy any turnover tax on the petitioner in terms of Sub-Clause (b) of Sub-section (2C) of Section 5 of the Act, now re-numbered as Sub-Clause (b) of Sub-section (2C) of Section 5, including any excise duty payable on the liquor manufactured and sold by the petitioner in favour of the State Beverages Corporation under the provisions of the Abkari Act or under the Storage in Bond Rules. Proceedings under exhibits P3, P6 and P10, in so far as it assess the petitioner to turnover tax on the sale of IMFL effected by it to the Beverages Corporation for the respective years, are quashed. So also exhibits P8 and P9 proceedings are quashed. It is also declared that Section 2(xxvii) of the KGST Act in so far as it contemplates levy of turnover tax on amounts of excise duty paid by the Beverages Corporation as part of the turnover of the petitioner is unconstitutional and void. A mandamus is issued directing the second respondent to dispose of the appeals filed by the petitioner in relation to the assessment years 1987-88 to 1991-92 pending before it in consequence of the reliefs granted supra. Mandamus is also issued to the third respondent directing him to dispose of the appeals filed by the petitioner in relation to assessment years 1992-93 and 1993-94 pending before it in consequence of the reliefs granted above.
4. O.P. No. 2255 of 1999 : It is declared that respondents 1 and 4 are not entitled to levy any turnover tax on the petitioner on the turnover actually returned by the petitioner for the concerned assessment year based on the sale price collected by the petitioner for the sale of IMFL in favour of the State Beverages Corporation. It is also declared that respondents 1 to 4 are not entitled to levy any turnover tax on the petitioner in terms of Sub-Clause (b) of Sub-section (2A) of Section 5 of the Act, now re-numbered as Sub-Clause (b) of Sub-section (2C) of Section 5, including any excise duty payable on the liquor manufactured and sold by the petitioner in favour of the State Beverages Corporation under the provisions of the Abkari Act or under Storage in Bond Rules. Proceedings under exhibits P3 to P7, in so far as it assesses the petitioner to turnover tax on the sale of IMFL effected by it to the Beverages Corporation for the respective years, are quashed. So also exhibits P8, P10 and P11 are quashed. It is further declared that Section 2(xxvii) of the KGST Act in so far as it contemplates levy of turnover tax on amounts of excise duty paid by the Beverages Corporation as part of the turnover of the petitioner is unconstitutional and void.
5. O.P. No, 2264 of 1999 : It is declared that respondents 1, 2, 4 and 5 are not entitled to levy any turnover tax on the petitioner on the turnover actually returned by the petitioner for the concerned assessment year based on the sale price collected by the petitioner for the sale of IMFL in favour of the. State Beverages Corporation. It is also declared that respondents 1, 2, 4 and 5 are not entitled to levy any turnover tax on the petitioner in terms of Sub-Clause (b) of Sub-section (2A) of Section 5 of the Act, now re-numbered as Sub-Clause (b) of Sub-section (2C) of Section 5,including any excise duty payable on the liquor manufactured and sold by the petitioner in favour of the Beverages Corporation under the provisions of the Abkari Act or under Storage in Bond Rules. It is further declared that respondents are not entitled to levy or collect any amount from the petitioner by way of penalty for non-payment of any turnover tax by the petitioner in terms of Section 5(2C)(b) of the KGST Act. Proceedings under exhibits P19 and P23 are quashed. It is also declared that Section 2(xxvii) of the KGST Act in so far as it contemplates levy of turnover tax on amounts of excise duty paid by the Beverages Corporation as part of the turnover of the petitioner is unconstitutional and void. A mandamus is issued commanding the 5th respondent to dispose of the appeals filed by the petitioner in relation to assessment years 1993-94 to 1996-97 and provisional order of assessment for the year 1998-99 pending before it in consequence of the relief granted above. Mandamus is also issued to the 4th respondent directing him to dispose of the revisions filed by the petitioner in relation to the orders of penalty pending before it in consequence of the reliefs granted supra.
6. O.P. No. 3283 of 1999 : It is declared that respondents 1 and 2 are not entitled to levy any turnover tax on the petitioner on the turnover actually returned by the petitioner for the concerned assessment year based on the sale price collected by the petitioner for the sale of IMFL in favour of the third respondent, viz., State Beverages Corporation. It is also declared that respondents 1 and 2 are not entitled to levy any turnover tax on the petitioner in terms of Sub-Clause (b) of Sub-section (2A) of Section 5 of the Act, now re-numbered as Sub-Clause (b) of Sub-section (2C) of Section 5, including any excise duty payable on the liquor manufactured and sold by the petitioner in favour of the Beverages Corporation under the provisions of the Abkari Act or under the Storage in Bond Rules. Proceedings under exhibits P3 to P10 are quashed. It is further declared that Section 2(xxvii) of the KGST Act in so far as it contemplates levy of turnover tax on amounts of excise duty paid by the Beverages Corporation from the petitioner as part of the turnover of the petitioner is unconstitutional and void. A mandamus is issued commanding the 2nd respondent to complete the assessment of the petitioner under the KGST Act in consequence of the relief granted supra. Mandamus is also issued commanding respondents 1 and 2 to refund the amounts which is found due to the petitioner in consequence of the reliefs granted above.
7. O.P. No. 7437 of 1999 : It is declared that respondents 1 to 3 are not entitled to levy any turnover tax on the petitioner on the turnover actually returned by the petitioner for the concerned assessment year based on the sale price collected by the petitioner for the sale of IMFL in favour of the State Beverages Corporation. It is also declared that respondents Nos. 1 to 3 are not entitled to levy any turnover tax on the petitioner in terms of Section 5(2A)(b) of the Act, now renumbered as Section 5(2C)(b), including any excise duty payable on the liquor manufactured and sold by the petitioner in favour of the Beverages Corporation under the provisions of the Abkari Act or under Storage in Bond Rules. Proceedings under exhibit P7 is quashed. Proceedings under exhibits P8 to P10, in so far as it has included turnover tax on the turnover of the petitioner including excise duty paid by the Beverages Corporation on the IMFL sold by it by the petitioner is also quashed. It is further declared that Section 2(xxvii) of the KGST Act in so far as it contemplates levy of turnover tax on amounts of excise duty paid by the Beverages Corporation as part of the turnover of the petitioner is unconstitutional and void.
8. O.P. No. 12893 of l999 : Proceedings relating to exhibits P3, P3(a), P5 and P5(a) are quashed. It is declared that the petitioner is not liable to pay turnover tax on the amount of excise duty paid by the State Beverages Corporation on the IMFL sold by the petitioner and that levy of turnover tax on such amounts of excise duty is ultra vires beyond legislative competence and unconstitutional. It is also declared that Section 2(xxvii) of the KGST Act providing for or authorising levy of turnover tax on the amounts of excise duty paid by the State Beverages Corporation is unconstitutional and void. It is declared that the excise duty collected by the State Beverages Corporation on the IMFL is not excise duty and it only forms part of privilege price for parting with the right of the State in manufacturing and selling liquor. It is further declared that no turnover tax is payable by the petitioner for the privilege price in parting the privilege by the State and the demand for the turnover tax on the excise duty component is opposed to law and contrary to law.
9. O.P, No. 19686 of l999 : Proceedings under exhibits P2, P2(a), P3, P3(a) to P3(e) are quashed. It is declared that the excise duty collected by the Beverages Corporation on the IMFL is not excise duty and it only forms part of privilege price for parting with the right of the Government in selling liquor in retail by the contractors and consideration payable by the contractors for the grant of the privileges. It is further declared that no turnover tax is payable by the petitioner for the privilege price for parting with the privilege by the State and the demand for the turnover tax on the excise duty component is opposed to law and contrary to law.
On the facts and circumstances of the case, we make no order as to costs.
Before concluding, we wish to point out that the above batch of cases was pending before us for nearly ten months. We are happy that we are able to pronounce the judgment today. We heard very learned arguments from the counsels. Even though the case was adjourned for a number of times because of the inconvenience of lawyers, we are thankful to them since ultimately they rendered all assistance to the court with their clear expositions of law.