State Taxation Tribunal - Tamil Nadu
Dhanalakshmi Chemical Industries Ltd. vs Secretary To Government, Prohibition ... on 27 February, 2001
Equivalent citations: [2006]143STC589(TRIBUNAL)
JUDGMENT
L. Palamalai, Administrative Member
1. After allowing the Original Miscellaneous Petitions Nos. 215 of 2001 in O.P. Nos. 1355 of 2000 and 216 of 2001 in O.P. Nos. 1356 of 2000 and 217 of 2001 in O.P. No. 1010 of 2000 so as to amend the prayer in the original petitions, the original petitions have been taken up for final disposal after hearing the learned Senior Standing Counsel.
2. In O.P. Nos. 1010 of 2000, 1356 of 2000 and 1355 of 2000 after amendment of the prayer as indicated, the prayer reads as follows:
(a) To declare that the levy of sales tax by the State of Tamil Nadu on ethyl alcohol known as rectified spirit/industrial alcohol is illegal and unconstitutional.
(b) The levy of sales tax on the administrative fee which does not form part of the industrial alcohol is illegal and unconstitutional.
3. However, in O.P. Nos. 1044 of 2000, 1353 of 2000, 1354 of 2000 and 1357 of 2000, the prayer is to declare that the levy of sales tax on rectified spirit/industrial alcohol is illegal and unconstitutional.
4. As the issues involved are common and arguments have been advanced in common on both sides, all these petitions are disposed of by this common order.
5. Mr. N. Muralikumaran, the learned Counsel for the petitioner, argued the common points involved with reference to facts in O.P. No. 1010 of 2000, wherein, it was stated that the petitioners are running chemical industries and as raw materials, they have purchased ethyl alcohol/rectified spirit/industrial alcohol by paying single point tax at the point of sale vide entry 23 of Part B of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959. For the purchases effected from various persons from the assessment year 1993-94 onwards payments have been effected to the State Government under the following heads :
(a) Administrative fee.
(b) Sales tax.
(c) Surcharge.
For example, during the assessment year 1993-94 in O.P. No. 1010 of 2000, the following amounts have been paid.
(i) Administrative fee Rs. 2,81,250 (ii) Sales tax Rs. 3,47,508 (iii) Surcharge Rs. 52,126
The State has no authority to levy tax on sale of rectified spirit and it is violative of article 265 of the Constitution. The Constitutional Bench of the Supreme Court of India in in the case of Synthetics & Chemicals Ltd. v. State of U.P. has held that the States do not possess any power to levy any kind of tax or fee on industrial alcohol as they fall under the total and exclusive control of the Union. This issue was also considered again by the Supreme Court in the case of "Bihar Distillery v. Union of India , wherein it was held that the States do not possess any power to levy any kind of tax or fee on industrial alcohol. In the above circumstances, it should be declared that it is illegal to levy sales tax on rectified spirit/industrial alcohol by the State of Tamil Nadu. As regards administrative fee collected on supply of industrial alcohol to defray expenses of the excise authority which have to be borne by the manufacturers, it cannot be passed on to the buyers. Though this was agitated separately before the High Court of Madras by "Distilleries Association" still the levy of sales tax on administrative fee which does not form part of the industrial alcohol has to be declared as illegal and unconstitutional. The petitioner should not be driven to seek alternative remedy in terms of the ratio of the decisions (Dr. Smt. Kuntesh Gupta v. Management of Hindu Kanya Mahavidyalaya), {Whirlpool Corporation v. Registrar of Trade Marks, Mumbai) and 2001 CTC 1.
6. Mr. M. Venkateswaran, the learned Senior Standing Counsel, who filed a common counter-affidavit in all these cases contended that ethyl alcohol, absolute alcohol, methyl alcohol, industrial alcohol, rectified spirit, neutral spirit and denatured spirit are taxable at 11 per cent under entry 23 of Part-D of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959. Though the Supreme Court in the case of Synthetics & Chemicals Ltd. v. State of U.P. held that vend fee, transfer fee, etc., levied by Uttar Pradesh, Maharashtra, Tamil Nadu States, etc., by recourse to entry 8 or entry 51 of List II were null and void in so far as such impost came into direct conflict with exercise of powers by the Centre for the control, supply, distribution, price, etc., of industrial alcohol. Under Section 18(g) of the Industries (Development and Regulation) Act, 1951 and the Rules and orders made thereunder, that case was not concerned with the exercise of the legislative powers with reference to entry 54 of List II of the Seventh Schedule to the Constitution which related to the levy of taxes on the sale or purchases of goods (other than newspapers) subject to the provisions of entry 92A of List I. It is true that the concluding portion of the judgment in Synthetic and Chemicals Limited case , states as follows :
(c) the State may charge excise duty on potable alcohol and sales tax under entry 52 of List II. However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the State on industrial alcohol.
Based on this observation, the Allahabad High Court in an another judgment held that the levy of purchase tax on industrial alcohol was not in order. This case came up before a division Bench of the Supreme Court in the case of "State of Uttar Pradesh v. Synthetics and Chemicals Limited" and in the decision rendered by the Supreme Court in , it has been held that the levy of sales tax on industrial alcohol was in order. In rendering this judgment, the Supreme Court also held that the conclusion drawn earlier by the Supreme Court in (Synthetics & Chemicals Ltd. v. State of U.P.) did not have the binding authority in as much as the conclusion was found to fall under the exceptions rule of sub silentio and also being in per incuriam. In fact this view of the Supreme Court was further approved by the Supreme Court in the decision (Bihar Distillery v. Union of India). In the said judgment on page 1213, the Supreme Court categorically stated that para 85 of the judgment in "Synthetics & Chemicals Ltd." was some accidental or typographical error. Though the petitioners relied on the judgment, the statement that the judgment (Bihar Distillery v. Union of India) supported the view that no sales tax could be levied on industrial alcohol is totally incorrect. There is absolutely no case to declare that collection of administrative fee from the petitioners is unconstitutional.
7. We have considered the contentions carefully and perused the records. In Synthetics & Chemicals Ltd. v. State of U.P. , the Supreme Court considered the provisions of Sections 24A and 24B of the U.P. Excise Act, 1910, as amended in 1972 and 1976, the amended provisions of Section 49 of the Bombay Prohibition Act, 1949, the provisions of the Bombay Rectified (Transport-in-Bond) Rules, 1951, the Andhra Pradesh Excise Act, 1968, the Andhra Pradesh Distillery Rules, 1970, the Andhra Pradesh Rectified Spirit Rules, 1971 and the Tamil Nadu Prohibition Act, 1937, by which certain fees were levied by the State Governments in question, in relation to possession, transport, sale and use of industrial alcohol, which were challenged before the Supreme Court. It is also true that the Supreme Court has also stated that the State is left with only the following powers to legislate in respect of alcohol.
(a) it may pass any legislation in the nature of prohibition of potable liquor referable to entry 6 of List II and regulating powers.
(b) it may lay down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol.
(c) the State may charge excise duty on potable alcohol under entry 51 and sales tax under entry 54 of List II. However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the State on industrial alcohol.
(d) However, in case the State is rendering any service, as distinct from its claim of so-called grant of privilege, it may charge fees based on quid pro quo. See in this connection, the observations in Indian Mica's case [1971] Supp SCR 319.
However, as rightly pointed out by the learned Senior Standing Counsel for Revenue, the impugned question that was for consideration in "Synthetics & Chemicals Ltd." case reported in [1991] 80 STC 270 (SC) was whether the vend fee collected on industrial alcohol under different legislations and rules in different States is valid. However, in the course of judgment, the Supreme Court also stated that sales tax cannot be collected on industrial alcohol because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the State on industrial alcohol. Referring to this observations, the Supreme Court in in the case of "State of U.P. v. Synthetics and Chemicals Limited" stated that in the decision reported in [1991] 80 STC 270 (SC) (Synthetics & Chemicals Ltd. v. State of U.P.) the power of the State to levy taxes on the sale or purchase of goods under entry 54 of List II was not the subject-matter of discussion. In this connection, the following observations of the Supreme Court in State of Uttar Pradesh v. Synthetics and Chemicals Limited [1992] 87 STC 289 at page 298 are relevant :
We have extensively quoted from the judgment of the Constitution Bench in Synthetics & Chemicals Ltd. v. State of U.P. , with a view to showing that the court was concerned with only one question, and that was whether the States could levy excise duty or vend fee or transport fee and the like by recourse to entry 51 or 8 in List II in respect of industrial alcohol. This Court held, as seen above, that the States had no such power under either entry in respect of non-potable or industrial alcohol. This Court did not deal with the taxing power of the State under entry 54 of List II which deals with 'taxes on the sale or purchase of goods other than newspaper, subject to the provisions of entry 92-A of List I'. The power of the State to levy taxes on sale or purchase of goods under that entry was not the subject-matter of discussion by this Court, although in paragraph 86 (at page 315 of STC) of the leading judgment of Sabyasachi Mukharji, J., as he then was, there is a reference to sales tax. He says 'The State may charge excise duty on potable alcohol and sales tax under entry 52 of List IF. Entry 52 of List II is mentioned in connection with excise duty and sales tax, but neither of them falls under entry 52. Reference to entry 51 of List II ought to have been made if it was excise duty that the court had in mind. Entry 54 of List II would have been referred to, and not entry 52, if the court had in mind sales tax. On the other hand, entry 52 refers to 'taxes on the entry of goods into a local area for consumption, use or sale therein'. None had a case that this entry had any application to the fees or charges in question. The court further says :
However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the State on industrial alcohol.
That was an abrupt observation without a preceding discussion, and inconsistent with the reasoning adopted by this Court in earlier decisions from which no dissent was expressed on the point. Coming, as it does, immediately after a reference to entry 52 of List II in connection with excise duty and sales tax when neither falls under that entry, the submission of the Advocate-General that the observation regarding sales tax in para 86 (at page 315 of STC) of the judgment was per incuriam assumes great significance.
The Supreme Court in the above decision at page 300, further observed as follows :
...It is significant that the taxing power of the State on a matter falling within its competence under this entry, namely, sale or purchase of goods (other than newspapers) is, subject to the taxing power of Parliament under entry 92-A of List I, and other provisions of the Constitution, plenary and unlimited, and untrammelled by the supervisory or regulatory power of Parliament under entry 52 of List I read with its concurrent power under entry 33 of List III. This is the crucial distinction between the wide taxing power of the State under entry 54 of List II and its conditional or restricted taxing power,....
Referring to following observations in the Constitution Bench case in the case of "Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh" the Supreme Court observed that the question decided in this case was not considered in Synthetics case reported in [1991] 80 STC 270 (SC) :
Is the legislation ultra vires because the State enters the forbidden ground by enacting on controlled industry ? It is undisputed that sugar industry is a controlled industry, within the meaning of entry 52, List I of the Seventh Schedule and, therefore, the legislative power of Parliament covers enactments with respect to industries having regard to article 246(1) of the Constitution. If the impugned legislation invades entry 52 it must be repulsed by this Court. But entry 54 in List II of the Seventh Schedule empowers the State to legislate for taxes on purchase of goods and so if the Act under consideration is attracted, in pith and substance, by this entry legislative incompetence cannot void the Act....
Again, following observations in Hoechst Pharmaceuticals Ltd. v. State of Bihar by following the observations of the Constitution Bench in M.P.V. Sundararamier's case were also reproduced to bring out the distinction between the general subjects of legislation and taxes in List I and List II and the absence of any entry in List III relating to taxes (apart from levy of fees) as indicated below :
...Thus, in our Constitution, a conflict of the taxing power of the Union and of the States cannot arise. That being so, it is difficult to comprehend the submission that there can be intrusion by a law made by Parliament under entry 33 of List III into a forbidden field, viz., the State's exclusive power to make a law with respect to the levy and imposition of a tax on sale or purchase of goods relatable to entry 54 of List II of the Seventh Schedule. It follows that the two laws, viz., Sub-section (3) of Section 5 (of the Bihar Finance Act, 1981) and paragraph 21 of the Control Order issued by the Central Government under Sub-section (1) of Section 3 of the Essential Commodities Act, operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between the two laws and the question of repugnancy does not come into play.
Ultimately, the Supreme Court observed as follows :
We are firmly of the view that the decision of this Court in Synthetics case is not an authority for the proposition canvassed by the assessee in challenging the provision. This Court has not, and could not have, intended to say that the Price Control Orders made by the Central Government under the IDR Act imposed a fetter on the legislative power of the State under entry 54 of List II to levy taxes on the sale or purchase of goods. The reference to sales tax in paragraph 86 of that judgment (at page 315 of STC) was merely accidental or per incuriam and has, therefore no effect on the impugned levy.
In the above judgment, honourable Justice R.M. Sahai, J., who has delivered a separate judgment has observed that the conclusion in Synthetic & Chemicals Ltd. v. State of U.P. [1991] 80 STC 270 (SC) that sales tax cannot be charged on industrial alcohol because under the Ethyl Alcohol (Price Control) Orders sales tax cannot be charged by the State on industrial alcohol was not preceded by any discussion and that no reason or rationale could be found in the order. It was further observed that any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be declaration of law or authority of general nature binding as a precedent. Therefore, he finally concluded as follows :
Sales tax or purchase tax under entry 54 is levied on sale or purchase of goods. It does not contemplate any distinction between luxury and necessity. Luxuries are separately taxable under entry 62. But that has nothing to do with entry 54. What prompted this submission is not clear. Neither there was any occasion nor there is any constitutional inhibition or statutory restriction under the legislative entry nor does the taxing statute make any distinction between luxuries and necessities for levying tax. In any case the Bench did not examine it nor did it base its conclusions on it. In the absence of any discussion or any argument the order was founded on a mistake of fact and, therefore, it could not be held to be law declared. The Bench further was not apprised of earlier Constitution Bench decisions in Hoechst Pharmaceuticals Ltd. v. State of Bihar and Ganga Sugar Corporation Ltd. v. State of U.P. which specifically dealt with the legislative competence of levying sales tax in respect of any industry which had been declared to be of public importance. Therefore, the conclusion of law by the Constitution Bench that no sales or purchase tax could be levied on industrial alcohol with utmost respect fell in both the exceptions, namely, rule of sub silentio and being in per incuriam, to the binding authority of the precedents.
This decision of the Supreme Court wherein levy of sales tax on industrial alcohol which was upheld has been confirmed in the subsequent decision of the Supreme Court in Bihar Distillery v. Union of India . The following observations are relevant in this regard.
...We may pause at this stage and append a clarification which has become necessary in the light of certain words occurring in para 85 (of SCO, (para 84 of AIR) of the judgment of Sabyasachi Mukarji, J. in Synthetics . At the inception of (page 314 of 80 STC) (para 85 of SCC) ; (para 84 of AIR) of the said judgment, the following statement occurs :
After the 1956 amendment to the IDR Act bringing alcohol industries (under fermentation industries) as item 26 of the First Schedule to IDR Act the control of this industry has vested exclusively in the Union. Thereafter, licences to manufacture both potable and non-potable alcohol is vested in the Central Government. Distilleries are manufacturing alcohol under the Central licences under IDR Act. No privilege for manufacture even if one existed, has been transferred to distilleries by the State.
12. It is obvious that the words 'both potable and' occur here as a result of some accidental or typographical error. The entire preceding discussion in the judgment repeatedly affirms that so far as potable alcohols are concerned, they are governed by entry 8 and are within the exclusive domain of the States. The aforesaid words cannot fit in with the said repeatedly affirmed reasoning. We are, therefore, of the opinion that the said passage cannot be understood as holding that even in respect of the industries engaged in the manufacture or production of potable liquors, the control is vested in the Union by virtue of item 26 of the First Schedule to the IDR Act. In view of the express language of entry 8 as has been clearly explained in McDowell AIR 1996 SCW 1679--so far as potable liquors are concerned, their manufacture, production, possession, transport, purchase and sale is within the exclusive domain of the States and the Union of India has no say in the matter. For a similar clarification with respect to the power of the State to levy sales tax, on industrial alcohol, reference may be had to State of Uttar Pradesh v. Synthetics and Chemicals Limited .
8. For our purpose, it is enough to refer to the last sentence of the above passage wherein the clarification of the Supreme Court in State of Uttar Pradesh v. Synthetics and Chemicals Limited was approved. Therefore, the plea of the petitioners that in Bihar Distillery v. Union of India , the Supreme Court has held that no levy of sales tax could be imposed on industrial alcohol is totally a false claim. Thus, we find that levy of sales tax on industrial alcohol is within the legislative competence of the State Government under entry 54 in List II of the Seventh Schedule to the Constitution of India. Apparently in these cases, the petitioners who have effected purchases of industrial alcohol have chosen to attack the constitutional provisions so as to get locus standi to file writ petitions. As the levy of sales tax on industrial alcohol has been upheld by the Supreme Court as indicated above, there is absolutely no merit in the petitions to declare the levy of sales tax on industrial alcohol as illegal or unconstitutional.
9. Though in the original petitions filed before amendment, the common prayer related to levy of sales tax on industrial alcohol, by amending the prayer in three petitions, it was sought to declare the levy of sales tax on the administrative fee which does not form part of the industrial alcohol as illegal and unconstitutional. Apparently, the Schedules to the Tamil Nadu General Sales Tax Act, 1959 do not have a separate entry on tax on administrative fee. The administrative fee paid by the manufacturer on production of industrial alcohol on the basis of bulk litres might have been included in the cost of industrial alcohol when sale is made so as to levy sales tax. Therefore, for the computation of the sale value, administrative fee might have formed part of the sales tax. In fact, in the writ petitions, the petitioners have only given the payment of administrative fee, sales tax and surcharge during several years. No material has been placed on record to show that sales tax was collected on administrative fee as claimed by the petitioners. Thus, any disputed question of fact cannot be agitated in a writ petition. Further, the issue pertaining to collection of administrative fee or sales tax on administrative fee was purely an issue between the petitioners and the sellers. In such circumstances, the action brought in these writ petitions against the State of Tamil Nadu or the authorities functioning under the Government itself is not in order. In respect of dispute arising between the petitioners and the sellers, the proper course is to resort to any civil suit for remedy, if available, and not to file writ petitions against the State Government and their representatives, namely, Secretary to Government, Commissioner or assessing authority.
10. In this connection, it is also relevant to refer to the following observation of the Supreme Court in Hindustan Sugar Mills Limited v. State of Rajasthan reported in [1979] 43 STC 13 wherein a claim towards deduction in respect of freight and handling charges was made.
We may then take a case where a dealer transports goods from his factory to his place of business and sells them at a price which is arrived at after taking into account 'freight and handling charges' incurred by him in transporting the goods. The amount of 'freight and handling charges' included in the price would obviously be part of the 'sale price', because it would be payable by the purchaser to the dealer as part of the consideration for the sale of the goods. The same would be the legal position even if the 'freight and handling charges' are shown separately in the bill and added to the price of the goods, for the character of the payment would remain the same. Since, 'freight and handling charges' represent expenditure incurred by the dealer in making the goods available to the purchaser at the place of sale, they would constitute an addition to the cost of the goods to the dealer and would clearly be a component of the price charged to the purchaser. The amount of 'freight and handling charges' would be payable by the purchaser not under any statutory or other liability but as part of the consideration for the sale of the goods and it would, therefore, form part of 'sale price' within the meaning of the first part of the definition.
The ratio of the decision in the above case will apply to the present case also. The amount paid by the manufacturer of industrial alcohol in the form of administrative fee which is related to the alcohol produced in bulk litres would be payable by the purchaser to the dealer as part of the consideration for the sale of the goods. Thus, the administrative fee represents the expenditure incurred by the manufacturer in making the industrial alcohol available to the purchaser at the point of sale. Therefore, such fee would also constitute an addition to the cost of the industrial alcohol and as part of the consideration for the sale of the goods whether included in the cost of alcohol or shown separately in the bills. The Supreme Court in Mafatlal Industries Limited v. Union of India [1998] 111 STC 467 at page 594 has observed as follows :
Even if he quotes the price as X (costs) + Y (taxes) + Z (profit), what the buyer will pay is the price of the goods and nothing else.
Thus, the sale price includes cost + taxes + profit. In such circumstances, we find that there is absolutely no case to declare that levy of sales tax on administrative fee collected from the petitioner is illegal or unconstitutional. We want to make it clear that the power of the judicial review under article 226 of the Constitution is not directed against the decision but it is confined to the decision making process. The court sits in judgment only on the correctness of the decision making process and not on the correctness of the decision itself. The various decisions cited by the learned Counsel for the petitioners to support the view that writ petitions could be entertained even if alternative statutory remedy is available is not relevant in the present case where the levy of sales tax on industrial alcohol was found in order and that the petitioner has no case to agitate the issue pertaining to any sales tax collected on administrative fee for the various reasons indicated above. In fact we find that in the guise of filing writ petitions before this Special Tribunal as interested parties to declare the levy of sales tax on industrial alcohol as illegal, though the validity, was already upheld by the Supreme Court of which the petitioners were aware of but mis-quoted as narrated above, they have chosen to challenge the collection of administrative fee levied under the Excise Act from the petitioners by the sellers for which no writ petition could lie before this Special Tribunal. On merits also as indicated above, we find absolutely no case to consider the claims in all these frivolous petitions filed by the petitioners. In such circumstances, all the original petitions are dismissed.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 27th day of February, 2001.