Punjab-Haryana High Court
Satya Pal Amrik Singh And Co. And Ors. vs Union Of India (Uoi) And Ors. on 14 March, 1997
Equivalent citations: [1997]228ITR653(P&H)
Author: K.S. Kumaran
Bench: K.S. Kumaran
JUDGMENT G.S. Singhvi, J.
1. Whether the Chandigarh Industrial and Tourism Development Corporation Ltd. can deduct income-tax at source under Section 206C of the Income-tax Act, 1961 (for short, "the Act"), from the petitioners is the main issue which arises for adjudication in these petitions.
2. For the purposes of this order, it will be appropriate to set out some facts from each of the twelve petitions.
Civil Writ Petition No. 11706 of 1994 :
3. The petitioner was given L-14 licence for the year 1994-95 by the Excise and Taxation Department, Chandigarh. It has been purchasing liquor from L-13 licensee, i.e., Chandigarh Industrial and Tourism Development Corporation Ltd. (hereinafter referred to as "CITCO"), which is a public sector undertaking. In terms of the licence granted to it under the Punjab Liquor Licences Rules, 1956, as they are applicable to the Union Territory, Chandigarh, CITCO purchases liquor from the distilleries/bottling plants and sells it to L-14 licensees. The petitioner is under an obligation to purchase liquor from CITCO in terms of clause 25 of the auction conditions notified by the Chandigarh Administration for grant of licence during the year 1994-95. The price of the liquor purchased by CITCO is fixed by the State Government and the price of the liquor sold by CITCO is fixed by the Excise Department of the Chandigarh Administration. In the year 1994, CITCO started deducting tax at source from the petitioner on the basis of the instructions issued by the Income-tax Department. The petitioner has moved this court by contending that no tax is payable by it under Section 206C of the Act read with clarification given by the Central Board of Direct Taxes, vide Circular No. 660 (see [1993] 204 ITR (St.) 19), dated September 15, 1993.
4. In the reply filed by it, respondent No. 1 has admitted the facts narrated in the writ petition. However, it has justified the deduction of tax at source on the strength of Section 206C of the Act by contending that CITCO falls within the ambit of the term "seller" under Section 206C. Respondent No. 1 has also pleaded that CITCO cannot be treated as buyer for the purposes of Section 206C and, therefore, the petitioner who holds L-14 licence becomes the first buyer in terms of Section 206C when it purchases liquor from CITCO. Respondent No. 1 has contested the petitioner's plea regarding the applicability of Circular No. 660, dated September 15, 1993 (see [1993] 204 ITR (St.) 19), by contending that the sale of liquor by CITCO to the petitioner does not fall within the scope of the expression "subsequent sale". It has pleaded that collection of tax at source by CITCO by the petitioner does not contravene Section 206C or Circular No. 660 (see [1993] 204 ITR (St.) 19), dated September 15, 1993.
Civil Writ Petition No. 11919 of 1994 :
5. The facts of this case are almost identical to the facts of Civil Writ Petition No. 11706 of 1994. It is, therefore, not necessary to detail out those facts. Suffice it to say that the petitioner was granted L-14 licence for the year 1994-95 by the Excise Department of Chandigarh Administration. It used to purchase liquor from CITCO which holds L-13 licence issued to it on payment of fixed price of Rs. 15,000. The petitioner has challenged the collection of tax at source by CITCO on the ground that CITCO has no authority to do so under Section 206C of the Act read with Circular No. 660 (see [1993] 204 ITR (St.) 19), dated September 15, 1993, issued by the Central Board of Direct Taxes.
Civil Writ Petition No. 8415 of 1995 :
6. The petitioner was granted L-14 licence for the year 1995-96 by the Excise and Taxation Department, Chandigarh. It used to purchase liquor from CITCO which holds L-13 licence. Other facts incorporated in the writ petition and the grounds raised therein are identical to the facts and grounds incorporated in Civil Writ Petition No. 11706 of 1994. The grievance of the petitioner is against the collection of tax at source by CITCO at the instance of the Income-tax Department.
7. Separate replies to this petition have been filed on behalf of respondents Nos. 1, 2 and 3. The reply filed by respondent No. 1 is identical to the reply filed by it to Civil Writ Petition No. 11706 of 1994. It is, therefore, not necessary to set out detailed facts incorporated in that reply. It is sufficient to mention that respondent No. 1 has justified the collection of tax at source from the petitioner by contending that the sale of liquor to the petitioner by CITCO is not covered by the expression "subsequent sale" and that CITCO falls within the ambit of the term "seller" used in Section 206C of the Act.
8. In its reply, respondent No. 2 has pleaded that an L-13 licence has been given to CITCO on a fixed licence fee of Rs. 15,000.
9. In its reply, respondent No. 3 (CITCO) has pleaded that as an L-13 licensee, it is the first purchaser of country liquor from the distilleries and as per the provisions of the Act it is exempted from payment of income-tax at source. It has also been pleaded by respondent No. 3 that it cannot deduct income-tax at source upon the second sale made to L-14 licensees but it is compelled to do so due to coercive methods adopted by the Income-tax Department. Thus, respondent No. 3 has supported the case set up by the petitioner.
Civil Writ Petitions Nos. 9280, 9281, 9282, 9283, 9284 and 9285 of 1996 :
10. The petitioners in the above-noted six petitions hold L-14 and L-2 licences valid for the period from June 1, 1996, to March 31, 1997. They have been purchasing liquor from CITCO which holds an L-13 licence. In its turn, CITCO has been purchasing liquor from the distilleries/bottling plants/manufacturers. The case set up by the petitioners is that CITCO purchases country liquor at fixed price and the same is sold by CITCO at the price fixed by the Excise Department in terms of Clause 25 of the auction conditions and the Punjab Liquor Licences Rules, 1956. The grievance of the petitioners is against the deduction of tax at source by CITCO on the basis of the directive given by the Income-tax Department. The grounds raised and the prayers made in these petitions are similar to those contained in Civil Writ Petition No. 11706 of 1994 and, therefore, there is no need to repeat the same.
11. The replies filed by respondents Nos. 1 and 2 are identical to the replies filed in the other writ petitions. It is, therefore, not necessary to give the details of the stand taken by respondent No. 1. Suffice it to say that respondent No. 1 has justified the collection of the tax at source on the ground that the sale of liquor by CITCO does not fall within the ambit of the expression "subsequent sale".
Civil Writ Petitions Nos, 10118, 10119 and 11779 of 1996 :
12. The petitioners in these writ petitions are L-14 licensees for the year 1996-97. They have also challenged the collection of tax at source by CITCO on the liquor sold to them. The facts incorporated in these petitions and the grounds of challenge as well as the replies filed by respondent No. 1 are identical to those of Civil Writ Petition No. 11706 of 1994. We, therefore, do not consider it necessary to make a detailed reference to the same.
Some other facts :
13. In the year 1988, the distilleries of Punjab, Haryana and Chandigarh started collecting tax at source from the liquor licensees. This led to the filing of a number of writ petitions in which the collection of tax at source was challenged on the ground that under Sections 44AC and 206C of the Act such collection was impermissible. In K.K. Mittal and Co. v. Union of India [1991] 187 ITR 208 (P & H), a Division Bench of this court held (headnote) :
"... an examination of the fundamental provisions governing the grant of L-13 licences clearly showed that the provisions of Sections 44AC and 206C of the Income-tax Act, 1961, were unduly harsh and arbitrary in their application to cases where the transaction was strictly to be carried on in accordance with specific provisions. It was this mischief which was intended to be eliminated by the new amendment which added the proviso to Section 44AC(1)(a). Otherwise, they were to pay tax much more than the expected returns which could not be considered to be the object of legislation as it originally stood. L-13 licensees appeared to be a class which, in view of the existing system of the transaction of sale of country liquor, could not be considered to be a class evading payment of tax and thus falling under the category of others for whom Sections 44AC and 206C were brought into the statute book. Hence, persons holding L-13 licences were not liable to pay tax at the stage of purchase of the country liquor, in view of the proviso to Clause (a) of Sub-section (1) of Section 44AC."
14. The Division Bench further held (headnote) :
"... since the Government of India had taken a decision exempting the Uttar Pradesh contractors from payment of tax on the excise duty, discrimination in the matter could not be made in the case of petitioners holding L-14 licences. In a democratic set-up, the rule of law prevails and the Constitution of India provides equal rights to all the citizens of the country. Once the Government have extended a positive relief in a particular State, the same cannot be denied in other States similarly situated. The Government of India should have taken a uniform decision and the petitioners should not have been discriminated against in the matter.
Hence, the petitioners holding L-14 licences were also entitled to the same relief, which was being given to their counterparts in Uttar Pradesh on the basis of the Government circular, dated June 26, 1989. The respondents were not to deduct income-tax on excise duty payable by petitioners holding L-14 liquor licences."
15. By the Finance Act, 1992, Section 44AC was deleted from the Act. However, deduction of income-tax at source was again resorted to under Section 206C of the Act. This was sought to be justified on the basis of the amendment made in Section 206C by the Finance Act, 1992. The deduction of income-tax at source was again challenged in K. K. Mittal and Co. v. Union of India [1993] 203 ITR 201 (P & H). A Division Bench analysed the amended Section 206C and held (page 206) :
"A perusal of the aforesaid amendment of Section 206C shows that there was no significant change from the provision as it existed in Sections 44AC and 206C before its amendment. Section 44AC stands repealed but its substantive portion has been included in Section 206C. That being the position, the ratio of the decision in K. K. Mittal's case [1991] 187 ITR 208, decided by this court, would apply to the present case. The collection of income-tax from L-13 licence holders would be arbitrary if 16.8 per cent, is collected from the petitioners at the time of making purchase of the liquor, otherwise income-tax is payable on the income and, in the case of L-13 licensees, this income would be marginally nominal profit, i.e., difference between the purchase price and the selling price, as stated above."
16. Against the decision of this court dated September 8, 1992, K.K. Mittal and Co. v. Union of India [1993] 203 ITR 201, the Union of India filed petitions for special leave to appeal before the apex court. At one stage, the apex court issued interim directions but after hearing the parties, the apex court dismissed the petition for special leave to Appeal No. 2325 of 1993 by an order dated July 25, 1994. Other petitions for special leave to appeal were also dismissed by the Supreme Court.
17. In view of the dismissal of the petitions for special leave to appeal filed against the judgment of this court, it must be held that the law laid down by the two Division Benches in K.K. Mittal's case [1991] 187 ITR 208 and [1993] 203 ITR 201 has acquired finality.
18. In order to determine whether Section 206C is available to the respondents for deducting tax at source from the petitioners, it will be useful to take notice of the relevant statutory provisions. Section 206C(1) as amended by the Finance Act, 1992 reads as under :
" 206C. (1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax :
TABLE Sl. No. Nature of goods percentage (1) (2) (3)
(i) Alcoholic liquor for human consumption (other than Indian made foreign liquor) Fifteen percent.
(ii) Timber obtained under a forest lease Fifteen percent.
(iii) Timber obtained by any mode other than under a forest lease Five percent.
(iv) Any other forest produce not being timber Fifteen per cent.
Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force . . .
Explanation. -- For the purposes of this section,--
(a) 'buyer' means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in Sub-section (1) or the right to receive any such goods but does not include,--
(i) a public sector company,
(ii) a buyer in the further sale of such goods obtained in pursuance of such sale, or
(iii) a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act ;
(b) 'seller' means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society."
19. Rule 38(15)(e) and (g) of the Punjab Liquor Licences Rules, 1956, is also reproduced below for ready reference :
38. (15)--A licence in Form L-13 for the wholesale vend of country spirit : . . . .
(e) The licensee shall sell country liquor of the kinds authorised by the Excise Commissioner only to a person holding a licence in Forms Nos. L-13, L-14 or L-14A or L-14B in the district of Punjab . . .
(g) The licensee shall sell country spirit at such rates as may from time to time be fixed by the Excise Commissioner, Punjab and endorsed on the licence . . ."
20. Clause 25 of the auction conditions and the relevant extract of Circular No. 660 (see [1993) 204 ITR (St.) 19), dated September 15, 1993, issued by the Central Board of Direct Taxes are also quoted below for reference purposes :--
"25. Retail vendors in Union Territory, Chandigarh, will obtain their requirement of country liquor 50 degree and rum, gin and whisky of 60 degree from wholesale vend of CITCO only. The L-13 licensee shall be granted permit by the Assistant Excise and Taxation Commissioner holding charge of the District to transport country liquor of 50 degree/ rum, gin and whisky of 60 degree. CITCO will function as stockist for retail vendors, who will charge from the latter, fixed price of country liquor/rum, gin and whisky of 60 degree as given above plus still-head duty paid by him and 0.50 paise per proof litre as handling charges. The L-13 licensee will be allowed breakage allowance up to 1/2 per cent, of the quota lifted from the distilleries/bottling plants.
(ii) The stock of country liquor left unsold at the end of the financial year 1994-95 shall be surrendered to the Assistant Excise and Taxation Commissioner of the District and shall be disposed of according to the provisions of the Punjab Liquor Licences Rules, 1956.
(iii) Retail vendors will obtain their supplies from wholesale vend of CITCO only and not from any other source."
"Circular No. 660, dated 16th September, 1993.
Subject: Collection of income-tax at source under Section 206C of the Income-tax Act, 1961, in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc.,--Financial year 1993-94--Instructions regarding.
Attention is invited to the Board's Circular No. 634 (F. No. 275A/ l/92-IT(B)), dated 20th August, 1992 (see [1992] 197 ITR (St.) 170), regarding collection of income-tax at source under Section 206C of the Income-tax Act, 1961, in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc., during the financial year 1992-93.
It may be noted that the provisions of Sub-section (1) of Section 206C in relation to a buyer will not apply to a public sector company and to any other buyer who obtains the said goods at a second or subsequent sale of such goods. Thus, these provisions will apply only at the point of the first sale of such goods. . . . ." (see [1993] 204 ITR (St.) 19).
21. In the first decision of K. K. Mittal's case, [1991] 187 ITR 208 (P & H), the Division Bench held that an L-13 licensee was not liable to pay tax at the time of purchase of liquor in view of the proviso to Clause (a) of Section 44AC(1) of the Act. It also held that the benefit of exemption granted to the liquor contractors of Uttar Pradesh from payment of tax on the excise duty should have been extended to similarly situated contractors elsewhere in the country and the petitioners who hold L-14 licences were entitled to similar relief. The Division Bench held that the respondents were not entitled to deduct income-tax at source on the excise duty payable by L-14 licensees. In the second decision rendered in K. K. Mittal's case [1993] 203 ITR 201 (P & H), another Division Bench reiterated the view taken in the previous decision and held that the amendment made in Section 206C of the Act did not empower the deduction of tax at source qua L-14 licensees. These decisions have been upheld by the Supreme Court.
22. While deciding the writ petitions this court had taken cognizance of the specific assertion made by L-13 licensees that they were purchasing liquor from distilleries and manufacturers at the price fixed by the State Government and were selling the same to L-14 licensees at the price fixed by the Administration. We, therefore, do not find any ground to accept the plea raised by respondent No. 1 that the L-13 licensee does not purchase liquor.
23. Rule 38(15)(g) of the Rules of 1956 imposes a restriction on the sale of country spirit by L-13 licensees at rates other than those fixed by the Excise Commissioner. In terms of the conditions of auction, L-14 licensees are bound to purchase liquor from L-13 licensees. In these cases, the petitioners do not have freedom to obtain their supply from any other source other than the wholesale vend of CITCO. Thus, the sale of liquor by CITCO to L-14 licensees like the petitioners has to be treated as a subsequent sale. Vide circular dated September 15, 1993, the Central Board of Direct Taxes has clarified that Section 206C(1) of the Act in relation to the buyer will not apply to public sector undertakings/companies and to any other buyer who obtains goods at a subsequent sale of such goods and the provisions of Section 206C will apply only at the time of first sale. Admittedly, CITCO is a public sector undertaking and, therefore, the provisions of Section 206C are not attracted in its case. If this position of CITCO is taken into consideration in the light of our finding that the sale of liquor by CITCO to L-14 licensees falls within the expression "subsequent sale" as used in paragraph 5 of the circular issued by the Central Board of Direct Taxes, there can be no escape from the conclusion that the deduction of tax at source from the petitioners is illegal and without jurisdiction. As a logical corollary, it has to be held that the provisions of Section 206C as amended by the Finance Act, 1992, are not available to the Income-tax Department to compel CITCO to deduct income-tax at source from the petitioners.
24. Consequently, the writ petitions are allowed. The impugned deductions are declared illegal and are quashed. If respondent No. 1 or CITCO have already deducted income-tax at source from the petitioners by resorting to the provisions of Section 206C of the Act, then the said amount shall be refunded to them within a period of two months from today. In case the amount is not refunded to the petitioners within this period, then they shall become entitled to interest at the rate of 15 per cent, per annum from the date of this order.