Income Tax Appellate Tribunal - Madras
Tamil Nadu State Marketing Corpn. Ltd. vs Deputy Commissioner Of Income-Tax on 31 December, 1991
Equivalent citations: [1992]42ITD349(MAD)
ORDER
S. Kannan, Accountant Member
1. This appeal by the assessee is directed against the order of the C.I.T.(A)-IX, Madras in IT Appeal No. 14/DC. Sp. R. IV/90-91 dated 18-2-1991 relating to the assessment year 1987-88.
2. The assessee is a corporation wholly owned and controlled by the Government of Tamil Nadu. The previous year relevant to the assessment year 1987-88 ended on 31-3-1987. For the said assessment year it filed a return of income disclosing an income of Rs. 18,71.360. In the course of the assessment proceedings relating to the said assessment year the Assessing Oificer found that the head 'Outstanding expenses' encompassed the following items :
(1) Addl. Vend Fee on IMFS : Rs. 4,57,64,951 (2) Addl. Vend Fee on Beer : Rs. 67,08,125 (3) Addl. Vend Fee on Arrack : Rs. 33,44,168 (4) Addl. Vend Fee on IMFS & Wine : Rs. 3,20,50,668 (5) Addl. Vend Fee on Beer : Rs. 1,04,62.820
---------------
Total Rs. 9,83,30,732 The Assessing Officer was of the opinion that the provisions made in respect of the aforesaid items were hit by the provisions of Section 43B of the Income-tax Act, 1961. He, therefore, invited the response of the assessee on this issue.
3. The assessee responded by making the following points :
(1) Vend Fee on Arrack and Addl. Vend Fee on IMFL and beer are levied under the Tamil Nadu Prohibition Act, 1937, the basis of charge being the turnover. They are not in the nature of tax or duty. As the very names suggest, they are fee simpliciter levied in consideration of the licence exclusively granted to the assessee by the Government.
(2) As it stood at the relevant point of time, Section 43B did not take within its pale any fee. It was only as a result of the 1988 amendment that cess and fee were brought within the pale of that section. What was more, the amendment itself came into effect from 1-4-1989; that is to say, the amended provisions were applicable in relation to the assessment year 1989-90 and onwards. There is nothing in the amended provision to suggest that the intention of the Legislature was to make the 1988 amendment retro-active.
(3) In any event, Addl. Vend Fee aggregating Rs. 5,24,73,076 was remitted by the assessee to the Government up to 31-7-1987 [being the due date for filing the return of income under Section 139(1)], and revenue deduction must be allowed in respect of the sum under the first proviso to Section 43B.
4. None of the aforesaid arguments found favour with the Assessing Officer. According to him, the fees in question clearly partook the characteristics of tax properly so called. In this regard, the following considerations weighed with him:
(1) Vend Fee and Addl. Vend Fee were levied by the Governor of the State of Tamil Nadu - see G.O. MS No. 170 Prohibition and Excise (III) Department dated 8-2-1984. Therefore, they are very much a statutory levy.
(2) To be regarded as a tax proper, it is not necessary that it should be levied by a Sovereign State. A levy which is based on Art. 110 of the Constitution of India is also a tax. In this regard, he referred to and relied to and relied upon the Supreme Court case of Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt AIR 1954 SC 282 and Sudhindra Thirtha Swamiar v. Commissioner for Hindu Religious and Charitable Endowments AIR 1963 SC 966.
(3) The fact that both Vend Fee and Addl. Vend Fee are levied on the basis of turnover is not conclusive of the matter. Properly viewed, the fees in question are "a quantitative turnover tax or levy".
(4) Similarly, the fact that the said fees were payable by the assessee because of the exclusive right granted to the assessee for the sale of arrack etc. on wholesale basis is not conclusive of the matter.
(5) They cannot also be regarded as Licence Fee.
(6) Just as in the case of a tax simpliciter, so in the case of Vend Fee and Addl. Vend Fee there is an element of compulsion. The assessee had no option but to pay them because they were levied by the State.
(7) The Fees in question could not be regarded as fee simpliciter, because there is no quid pro quo involved in the levy. It is well settled that the basic distinguishing feature of a fee is the presence of quid pro quo. An element of quid pro quo is present in the licence fee levied by the State, because it is levied in consideration for permitting the assessee to deal in arrack etc. The levy of Vend Fee and Addl. Vend Fee has nothing to do with the grant of such licence. In this regard the Assessing Officer sought support from the Supreme Court case of Municipal Corporation of Delhi v. Mohd. Yasin [1983] 142 ITR 737.
Yet another consideration weighed with the Assessing Officer in this regard and that was that, according to him, the 1988 amendment to Section 43B was merely clarificatory in nature.
5. In view of the foregoing, the Assessing Officer, invoking the provisions of Section 43B of the Act, disallowed the assessee's claim for revenue deduction in respect of the provisions made in an aggregate sum of Rs. 9,83,30,732.
6. The said disallowance was naturally one of the points which the assessee-corporation agitated before the C.I.T.(A). All the arguments, which had earlier been advanced unsuccessfully before the Assessing Officer, were reiterated before the CIT(A). On his part the Assessing Officer also made various submissions in support of the impugned assessment order. On hearing the rival submissions the C.I.T.(A) held:
(1) The 1988 amendment to Section 43B is not clarificatory in nature and hence it cannot have retrospective operation.
(2) The first proviso to Section 43B, which was inserted into the Act with effect from 1-4-1988, is also not retro-active in operation.
(3) Properly viewed, Vend Fee and Addl. Vend Fee are nothing but tax or duty properly so called. As pointed out by the Supreme Court in the case of Sri Krishnados 187 ITR 41 (sic), an element of quid pro quo is an essential ingredient of a fee properly so called. Such an element is absent in the Vend Fee and the Addl. Vend Fee levied by the Government of Tamil Nadu.
7. In view of the foregoing, therefore, the CIT(A) declined to interfere in the matter.
8. It is in these circumstances that the assessee is now before us.
9. Shri K.R. Ramamani, the learned counsel for the assessee, drew our attention to the fact that where as Section 18A of the Tamil Nadu Prohibition Act, 1937 (Tamil Nadu Act X of 1937) (hereinafter referred to as the "Prohibition Act"), authorises levy of excise duty or countervailing duty on liquors and intoxicating drugs, Section 17D of the Act authorises the State Government to levy, by rules, a sum or fee or both in consideration of the grant of any exclusive or other privilege (of manufacturing/selling by retail, IMFL etc.) under Section 17C, and also a fee on licences granted under the said section. The very fact that the Prohibition Act contains two different sections, one dealing with levy of excise or countervailing duty and the other with the levy of fees in consideration of the grant of exclusive or other privileges under the Act, would itself show that Vend Fee and Addl. Vend Fee levied under Section 17D of the Act cannot be regarded as a tax or duty.
10. Section 17C(1A) of the Act clearly stipulates that the assessee before us shall have the exclusive privilege of supplying, by wholesale, IMFL for the whole State of Tamil Nadu and that no other person shall be entitled to any such privilege. The said provision read in conjunction with the provisions of Section 17D of the Act makes it clear that Vend Fee and Addl. Vend Fee are consideration paid by the assessee-corporation to the State Government for the exclusive privilege conferred on it by the latter. It should, therefore, follow that Vend Fee and Addl. Vend Fee are not tax in any sense of the term.
11. In support of the aforesaid proposition Shri Ramamani particularly referred to and relied upon the observations contained in paras 56 and 59 of the judgment of the Supreme Court in Har Shankar v. Deputy Excise and Taxation Commissioner AIR 1975 SC 1121. He drew our attention in this regard to the fact that similar views have been expressed in Panna Lal v. State of Rajasthan AIR 1975 SC 2008 and State of Mysore v. D. Cawasji & Co. AIR 1971 SC 152.
12. Shri Ramamani's second thesis was that, as it stood at the relevant point of time, Section 43B did not take within its fold any cess or fee. It should, therefore, follow that the said section is not applicable to Vend Fee and Addl. Vend Fee levied under the Prohibition Act.
13. Shri Ramamani's third thesis was that the words "cess or fee, by whatever name called" were inserted into Section 43B(a) of the Act by the Finance Act, 1988 with effect from 1-4-1989. In other words, the amended provisions would be applicable to the assessment years 1989-90 and onwards. There is nothing in the said Finance Act to indicate that the said amendment was to have retrospective force. It should, therefore, follow that, even if the Vend Fee and Addl. Vend Fee in question are somehow regarded as "fee" within the meaning of the amended provisions, yet the amended provisions, being only prospective and not retrospective, cannot avail the Department.
14. In any event - this was Shri Ramamani's final thesis - the assessee is entitled to the benefit of the first proviso to Section 43B, and that consequently, Addl. Vend Fee remitted by the assessee to the credit of the State Government on or before 31-7-1987 would be revenue deductible.
15. In view of the foregoing, contended Shri Ramamani, the assessee is entitled to succeed.
16. On his part, Shri A. Banerjee, the learned Departmental Representative, while strongly supporting the impugned orders of the lower authorities, vehemently contended that if regard be had to the totality of the circumstances of the case, it would be seen that the imposts in question, namely Vend Fee and Addl. Vend Fee, are nothing but tax. He supplemented his arguments with a note containing written submissions. The points made by Shri A. Banerjee may be summarised as follows :
(1)(a) The Prohibition Act and the Tamil Nadu Indian-Made Foreign Spirits (Supply by Wholesale) Rules, 1983 authorise the levy of both excise duty or countervailing duty on the one hand and Vend Fee and Addl. Vend Fee on the other. In other words, the statutory source of the power to levy the said imposts is one and the same. It should, therefore, follow that Vend Fee and Addl. Vend Fee levied under the Act are no different from the excise duty or countervailing duty also levied under the Act.
(b) Read as a whole, the Prohibition Act and the Rules made thereunder make it clear that whatever is levied under the Act is nothing but tax. In this regard, he drew our particular attention to the provisions of Section 18A of the Prohibition Act, (which stipulates that excise duty or countervailing duty may be levied in any one or more of the ways prescribed in the Rules made under the Act) and to Rule 15 of the Rules (which deals with the payment of both excise duty and Vend Fee) and urged that the Act and the Rules made thereunder themselves do not make any distinction whatsoever between excise duty or countervailing duty on the one hand and Vend Fee including Addl. Vend Fee on the other.
(c) That this is so will be clear from the format of Inspection Books which are to be maintained in Form GIB as required by and under Rule 29 of the Rules. Drawing our attention to the format Shri Banerjee vehemently contended that the Rules themselves do not make any distinction between licence fees. Vend Fee, sales-tax, customs duty etc. This would also go to show that the Vend Fee and Addl. Vend Fee are nothing but tax.
(d) Section 56B of the Act (analogous to Section 293 of the Income-tax Act, 1961) provides for the bar, usually contained in taxing statutes, of the jurisdiction of Civil Courts in respect of any action taken by any authority in pursuance of any power conferred by or under the Act. This is yet another pointer to the fact that neither the Act nor the Rules framed thereunder make any distinction whatsoever amongst the various imposts levied by them.
(2)(a) The assessee-Corporation, being a creature of the State Government, is not in a position to object to the levies in question. Thus we have a case of compulsory extortion which renders the levies indistinguishable from tax properly so called.
(b) Being a Corporation wholly owned and controlled by the State Government, the assessee is nothing but an arm of the Government-an arm used by the State Government for purposes of collecting, under the guise of increased price, what is in effect tax, and remitting the tax so collected to the coffers of the Government.
(3) The nomenclature given to a particular impost is not conclusive of the true nature of the impost. Vend Fee and Addl. Vend Fee cannot be regarded as a fee merely because they are called by that name. The various provisions of the Act and the Rules made thereunder make it clear that they are in effect tax.
17. In view of the foregoing, therefore, contended Shri Banerjee, the impugned orders of the lower authorities do not invite any interference.
18. We have looked into the facts of the case. We have considered the rival submissions.
19. The question before us is whether the Vend Fee and the Addl. Vend Fee collected under the Prohibition Act is tax properly so called, or whether it is fee simpliciter. If the fees in question are tax properly so called, then the question whether the assessee is entitled to revenue deduction in respect of the provision in an aggregate sum of Rs. 9,83,30,732 made towards Addl. Vend Fee will have to be answered with reference to the provisions of Section 43B of the Act. If, on the contrary, the fees in question are fees strictu sensu, it will have to be ascertained whether the provisions of Section 43B as amended by the Finance Act, 1988 are applicable to assessment year 1987-88 now before us. Again, if, in essence, the fees in question are neither tax nor cess, nor fees, but are something that is qualitatively different from these, then it must be held that Section 43B would not apply to them at all. In that event, it will obviously be unnecessary to consider the question whether the 1988 amendment to Section 43B is to be given retrospective effect or not.
20. The issue before us is one that is marked by inter-play of three streams of law, namely the Constitution of India, the Prohibition Act and the Rules made thereunder, and the Income-tax Act, 1961.
21. The Indian Constitution, basically federal in form, is marked by the existence, side by side, of a central polity (the Union at the Centre) and subsidiary polities (the States at the periphery), and by the division or distribution of legislative and executive powers between the Centre and the States. Art. 246, which deals with the subject-matter with respect to which Parliament, or, as the case may be, the legislature of any State has exclusive powers to make laws, effects distribution of legislative powers between the Centre and the States through the mechanism of three Lists - the Union List, the State List and the Concurrent List included in the Seventh Schedule to the Constitution. of relevance to the purpose on hand are the Union List and the State List.
A couple of points may be made about the nature of the said two Lists in general, and of their contents in particular. While the Union List demarcates the area of legislative competence of Parliament, the State List defines the area of legislative competence of the Legislature of any State. As has been pointed out by the Supreme Court in the case of State of Bihar v. Sir Kameshwar Singh AIR 1952 SC 252 the Entries in the Lists are mere legislative heads and are of an enabling character. They are designed to define and delimit the respective areas of legislative competence of the Union and the State legislatures. They neither impose any implied restrictions on the legislative power conferred by the Article, nor prescribe any duty to exercise that legislative power in any particular manner.
Secondly, it is well settled that the language of the Entries should be given the widest scope of which their meaning is fairly capable, because they set up a machinery of Government. Each general word should, accordingly, be held, to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it.
Thirdly, the Entries in the said two Lists are divided into two groups -one relating to the power of general legislation relating to specified subjects, and the other relating to the power to tax. In other words, taxation is considered a distinct matter for purposes of legislative competence. Hence the power to tax cannot be deduced from a general legislative Entry on the footing that such power is ancillary power. This legal position has been emphasised in more than one reported case. It would suffice to notice what the Supreme Court had to say in the leading case of M.P.V. Sundararamier & Co. v. State of A.P. AIR 1958 SC 468.
That case was concerned with the troublesome question of levying tax on inter-State sales by one of the States. One of the arguments advanced in that case was that, under Entry 42 List-I of the Seventh Schedule, "Inter-State Trade and Commerce", Parliament had exclusive power to enact laws in respect of inter-State trade and commerce; that the said power included a power to impose a tax on inter-State sales; and that consequently the legislature of any State was not competent to impose tax on inter-State sales. While considering the said argument, Venkatarama Aiyar, J., who wrote the opinion of the majority, examined the nature of the Entries in List-I and List II, and observed at pages 493 and 494 of the report as under :
In List I, Entries 1 to 81 mentioned the several matters over which Parliament has authority to legislate. Entries 82 to 92 enumerate the taxes which could be imposed by a law of Parliament. An examination of these two groups of Entries shows that while the main subject of legislation figures in the first group, a tax in relation thereto is separately mentioned in the second. Thus, Entry 22 in List I is 'Railways', and Entry 89 is Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights. If Entry 22 is to be construed as involving taxes to be imposed, then Entry 89 would be superfluous. Entry 41 mentions Trade and commerce with foreign countries; import and export across customs frontiers.' If these expressions are to be interpreted as including duties to be levied in respect of that trade and commerce, then Entry 83 which is 'Duties of customs including export duties' would be wholly redundant. Entries 43 and 44 relate to incorporation, regulation and winding up of corporations. Entry 85 provides separately for Corporation tax. Turning to List II, Entries 1 to 44 from one group mentioning the subjects on which the States could legislate. Entries 45 to 63 in that List form another group, and they deal with taxes. Entry 18, for example, is 'Land' and Entry 45 is 'Land revenue'. Entry 23 is 'Regulation of mines' and Entry 50 is Taxes on mineral rights'. The above analysis - and it is not exhaustive of the Entries in the Lists - leads to the inference that taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of Art. 248, Clauses (1) and (2) and of Entry 97 in List I of the Constitution. Construing Entry 42 in the light of the above scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter-State trade and commerce under Entry 42 does not include a power to impose a tax on sales in the course of such trade and commerce.
22. It is against the aforesaid legal background that the Entries relating to intoxicating liquors and levy of Fees occurring in the State List need to be examined.
Entry 8 of the State List relates to "Intoxicating liquors that is to say, production, manufacture, possession, transport, purchase and sale of intoxicating liquors. "This Entry falls in that group (Entries 1 to 44), which mentions the subjects on which the State could legislate. Thus, it is from Entry 8 that the legislature of a State derives its competence to legislate on matters relating to the subject in question. It may here be highlighted that even under the Government of India Act, 1935, prohibition was a subject which fell within the area of Legislative Competence of the Provincial Legislatures. It was thus that the Madras Prohibition Act, 1937 came to be enacted. [The name of the Act was changed into 'the Tamil Nadu Prohibition Act, 1937' by the Tamil Nadu Adaptation of Laws Order, 1969 as amended by the Tamil Nadu Adaptation of Laws (Second Amendment) Order, 1969].
It may here be mentioned parenthetically that the power to legislate on matters relating to Prohibition or Temperance is also comprised in the police powers of the State. Thus, in the case of State of Bombay v. F.N. Balsam AIR 1951 SC 318 in which the constitutional validity of the Bombay Prohibition Act, 1949 was challenged, the validity of the Act was sought to be supported even with reference to Entry 1 of the State List relating to 'Public Order'. Though this line of inquiry was not pursued further, Fazl Ali J., speaking for a Constitutional Bench, took judicial notice of the fact that there was a tendency in Europe and America to regard alcoholism as a menace to public order, and to hold that the laws relating to Prohibition and Temperance as laws relating to "peace, order, and good government."
We then have Entry 51, which occurs in the group (Entries 45 to 63) dealing with taxes which could be imposed by the legislature of a State. This Entry specifically authorises the legislature of a State to levy excise and countervailing duties on alcoholic liquors for human consumption. It is pursuant to the said Entry that Section 18A of the Prohibition Act enables the State Government to levy excise duty and/or countervailing duty.
Entry 66 occurring at the end of the State List gives the legislature of a State the power to levy fees in respect of any of the matters in the State List but not including fees taken in any court.
23. It is convenient at this stage to notice not only what exactly is meant by the term "fees" occurring in Entry 66 of the State List (as also in Entry 96 of the Union List and Entry 47 of the Concurrent List), but also the features that distinguish a fee from tax.
Broadly stated, a tax is an imposition made for public purposes without reference to any service rendered by the State or any specific benefit to be conferred upon the taxpayers. The object of the Revenue is to raise "general revenue".
A fee, on the contrary, is a payment levied by the State in respect of services performed by it for the benefit of the payers of the fee. Conceptually speaking, a fee is levied on a principle opposed to that of a tax. While a tax is levied for the common benefits conferred by the Government on the public, a fee is a payment made for some special benefit enjoyed by the payer, the payment being usually commensurate with the benefit enjoyed. Paraphrased differently, while there is no element of quid pro quo (between the taxpayer and the State) in the case of a tax, there is a necessary correlation between fee collected by the State and the services to be rendered by it. Again, when one talks of quid pro quo, one does not envisage an absolute, arithmetical relationship. What one has in mind is a broad relationship between the fees charged and the cost of service rendered by the State to the payers of the fees taken as a class. Therefore, where it is shown that a sum levied as and by way of a fee is considerably higher than the expenses incurred by the State for rendering the service in question, it will have to be held that the levy is not a fee but tax. The said view was taken in the cases of Sri. LakshmindraThirtha Swamiar of Sri Shirur Mutt (supra) and Sudhindra Thirtha Swamiar (supra) - cases referred to and relied upon by the Assessing Officer. The levy was held ultravires in the former case because the levy was made to depend upon the capacity of the payer and not the quantum of the benefit received by the payer. Further, there was a total absence of any co-ordination between the amount levied and the expenses incurred by the Government. In the second case the levy was declared ultra vires, because it was levied solely for the purpose of creating a surplus in the funds in question.
24. The above analysis will indicate that for the purpose of Entries 96, 66 and 47 respectively of the Union List, the State List and the Concurrent List, the term "fee" has a special signification and that is that it connotes a levy which is the price or consideration for the services rendered by the State to the payers of the fees taken as a class, the sum levied being commensurate with the nature and extent of services rendered.
25. One other Article requires to be noticed and that is Art. 298 dealing with power to carry on trade etc. The said Article as it stands today was substituted by the Constitution (Seventh Amendment) Act, 1956 for the original Article. The amendment was made with a view to making it clear that the Union Government as well as the State Governments are competent to carry on any commercial or industrial undertaking, whether or not it is related to the matter within the legislative competence of the Union, or, as the case may be, of the State. This Article expressly declares that the power to carry on trade etc. is included in the executive power of Union, or, as the case may be the State, with the result that no legislative sanction is necessary for the exercise of this function.
26. Entry 8 of the State List empowers the Legislature of a State to make laws on the subject of "Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors." The power to make laws on the said subject is not only Unfettered but also a fundamental imperative, particularly in the context of Art. 47, which incorporates one of the most important directive principles of State policy namely that the "State shall endeavour to bring about prohibition of the consumption, except for medicinal purposes, of intoxicating drinks and of drugs which are injurious to health." These wide legislative powers taken in conjunction with equally wide executive powers conferred by Article 298 lead to the following significant conclusions which are relevant for the purpose on hand:
(1) State has the plenary powers to regulate matters connected with intoxicating liquors and drinks. It has also exclusive right and privilege of making and marketing intoxicating liquors.
(2) Therefore, acting under Entry 8 of the State List, or under Article 298, or both, the State is fully competent to part with its rights and privileges in matters relating to intoxicating drinks and liquors for a price or a consideration.
(3) When the State does so, we have in essence a contract and, consequently, the price at which a particular right or privilege is offered by the State and accepted by the other party to the contract, is a matter of contract.
(4) It should, therefore, follow that the mere magnitude of the price charged cannot convert it into a tax, which has a totally different connotation.
27. We may now notice Sections 17B, 17C and 17D of the Prohibition Act. Section 17B authorises the State Government, or subject to their control, the Collector, to issue, subject to conditions as may be prescribed, licence to any person or any institution, whether under the management of Government or not, for manufacture of liquor for human consumption, or for the import, export or transport of liquor for human consumption. Section 17C authorises the State Government to grant to any person or persons on such conditions and for such period as they may deem fit, the exclusive or other privilege of manufacturing, or selling by retail, country liquor or Indian-made Foreign Spirits.
Sub-section (1A) of the section stipulates that notwithstanding anything contained in the Prohibition Act, the Tamil Nadu State Marketing Corporation Limited, which is a corporation wholly owned and controlled by the State Government, and which is the assessee before us, shall have the exclusive privilege of supplying, by wholesale, country liquor or Indian-made Foreign Spirits for the whole of the State of Tamil Nadu and no other person shall be entitled to the said privilege. Sub-clause (b) of Sub-section (1A) of Section 17C stipulates that notwithstanding anything contained in the Prohibition Act, the said Corporation shall be granted the licence, for the exercise of the said exclusive privilege, the licence of course being subject to the rules made by the State Government and to the conditions and restrictions that might be imposed by the Commissioner appointed under Section 25(a) of the Act. Section 17D authorises the State Government to levy, by rules, a sum or fee or both in consideration of the grant of any exclusive or other privilege under Section 17C and also a fee on licences granted under Section 17C.
A plain reading of Section 17D makes it clear that it contemplates the levy of a sum or fee or both on two counts, namely, as price or consideration for the grant of any exclusive or other privilege under Section 17C and for the grant of licence under the said section.
The matters relating to both the aforesaid levies are governed by the Rules issued by the State Government from time to time, such as the Tamil Nadu Arrack (Supply by Wholesale), Rules, 1983, the Tamil Nadu Indian-made Foreign Spirits (Supply by Wholesale) Rules, 1983 and the like.
28. We are here concerned with Vend Fee and Addl. Vend Fee collected by the State Government from the assessee-corporation under Rule 15 of the Tamil Nadu Indian-made Foreign Spirits (Supply by Wholesale) Rules, 1983 read with Section 17C(1A) of the Prohibition Act, and the issue is whether the said Vend Fee and Addl. Vend Fee are fees within the meaning of Entry 66 of the State List, or a tax simplicities, or the price or consideration charged by the State Government for parting with, in favour of the assessee-corporation, its exclusive rights and privilege of supply by wholesale Indian-made Foreign Spirits for the whole of the State of Tamil Nadu.
29. As we see it, the said Vend Fee and Addl. Vend Fee are nothing but the price or consideration charged by the State Government, in its capacity as a trader, for parting with one of its valuable rights and privileges, namely the right and privilege of supplying, by whole sale, Indian-made Foreign Liquor throughout the State of Tamil Nadu. Such fees are directly relatable to the executive power of the State to carry on any trade (Art. 298) a power which the State Government had exercised in the process of making laws under Entry 8 of the State List. This being the essence of the matter, irrespective of the mode and mechanics of collection of the fees, irrespective of the quantum of the fees levied, and irrespective also of the fact that the provisions relating to the levy are contained in the Prohibition Act and the Rules made thereunder, the fees in question cannot be regard either as fees, within the meaning of Entry 66 of the State List, or as a duty within the meaning of Entry 51A of the State List, or as a tax proper.
30. Such then is the conclusion on first principles. We may now see whether the conclusion is supported by authority. There is along line of cases in which not only the status of the State Government as the sole and exclusive holder of rights and privileges in matters, connected with intoxicating drinks and liquors, but also its status as a "seller" of such rights have been recognised. In the case of State of Orissa v. Harinarayan Jaiswal AIR 1972 SC 1816, the highest bid in an auction held for granting the exclusive privilege of selling country liquor was not accepted by the State of Orissa; and the highest bidder challenged the said rejection, through a writ petition contending, inter alia, that the said rejection violated (sic)tides 14 and 19(1)(g) of the Constitution. Dismissing the petition, the Supreme Court observed that the Government had the power to sell excusive privileges and that secondly, it could not be contended that the owner of the privileges could not decline to accept the highest bid if it thought that the price offered was inadequate. In that regard, Hegde J. speaking for the Division Bench, observed:
The fact that the Government was the seller does not change the legal position once its exclusive right to deal with those privileges is conceded. If the Government is the exclusive owner of those privileges, reliance on Article 19(1)(g) or Article 14 becomes irrelevant. Citizens cannot have any fundamental right to trade or carry on business in the properties or rights belonging to the Government nor can there be any infringement of Article 14, if the Government tries to get the best available price for its valuable rights.
In the case of Nashirwar v. State of Madhua Pradesh AIR 1975 SC 360 it was held that the State had the exclusive right or privilege of manufacturing and selling liquor; that it had the power to hold a public auction for granting the right or privilege to sell liquor; that traditionally introxicating liquors were the subject-matter of State monopoly; and that there was no fundamental right in a citizen to carry on trade or business in liquor. A.N.Ray, the learned Chief Justice, speaking on behalf of the 3-Judge Bench observed:
There are three principal reasons to hold that there is no fundamental right of citizens to carry on trade or to do business in liquor. First, there is the police power of the State to enforce public morality to prohibit trades in noxious or dangerous goods. Second, there is power of the State to enforce an absolute prohibition of manufacture or sale of intoxicating liquor. Article 47 states that the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health. Third the history of excise law shows that the State has the exclusive right or privilege of manufacture or sale of liquor.
In the case of Har Shankar (supra) the legal position was stated thus:
There is no fundamental right to do trade or business in intoxicants. The State, under its regulatory powers, has the right to prohibit absolutely every form of activity in relation to intoxicants - its manufacture, storage, export, import, sale and possession. In all their manifestations, these rights are vested in the State and indeed without such vesting there can be no effective regulation of various forms of activities in relation to intoxicants. . .
** ** ** Since rights in regard to intoxicants belong to the State, it is open to the Government to part with those rights for a consideration. By Article 298 of the Constitution, the executive power of the State extends to the carrying on of any trade or business and to the making of contracts for any purpose.
** ** ** The power of the Government to charge a price for parting with its rights and not the mode of fixing that price is what constitutes the essence of the matter. Nor indeed does the label affixed to the price determine either the true nature of the charge levied by the Government or its right to levy the same.
Dealing with the "licence fee" or "fixed fee" charged by the State Government, the Supreme Court observed:
The word 'fee' is not used in the Act or the Rules in the technical sense of the expression. By 'licence fee' or 'fixed fee' is meant the price or consideration which the Government charges to the licensees for parting with its privileges and granting them to the licensees. As the State can carry on a trade or business, such a charge is the normal incident of a trading or business transaction.
It may thus be seen that the highest Court of the land has consistently taken the view that the sums charged by the State for parting with its rights and privileges relating to intoxicating drinks and liquors are not a fee proper but a price charged for parting with the rights and privileges; nor are they duty or tax in the accepted sense of the term.
31. If, as demonstrated above, the Vend Fee and the Addl. Vend Fee in question are the price paid by the assessee-Corporation to the State Government for acquiring from the State Government the exclusive right and privilege in question, then the fact that these were levied and collected under the Prohibition Act along with excise duty, or the fact that the magnitude of the levy is disproportionate to the services rendered, or the compulsory nature of the levy, or even the fact that the incidence of the levy was on the ultimate consumers as in the case of excise duty on liquor - considerations which weighed with the lower authorities-do not alter the nature of the levy. The levy remains what it essentially is, namely, the price paid in a purely commercial transaction to the State Government for parting with its valuable rights and privilege relating to intoxicating liquors.
32. The question then arises for consideration is whether the provisions of Section 43B of the Income-tax Act, 1961, with or without the 1988 amendment, would be applicable to this case. In our considered opinion, the provisions of the said sections are not at all applicable to the case before us. It is self-evident that, as it stood prior to the 1988 amendment, the section governed taxes and duties properly so-called. The case before us is not one of tax or duties. The said section is, therefore, not applicable.
33. Even if we were to go on the basis that, the 1988 amendment is declaratory in nature and retroactive in operation, the case of the Department will not improve, because the case before us, as we have seen earlier, is not one of fee strictu sensu, nor is it one of cess. We, therefore, hold that there is no question of invoking the provisions of Section 43B of the Act.
34. In view of the foregoing, therefore, we hold that the lower authorities were not justified in coming to the conclusion that the levy in question partook the characteristics of a tax, and in applying the provisions of Section 43B of the Act. We, therefore, set aside the decisions of the lower authorities on this issue and direct the Assessing Officer to allow the assessee the benefit of revenue deduction in respect of the entirety of the sum of Rs. 9,83,30,732.
35. In the result, the assessee's appeal is allowed.