High Court Of Allahabad
CIT, Muzaffarnagar vs. District Excise Officer
Assessment Years : 1989-90 To 1997-98
Section : 206C, 44B
Ferdino Inacio Rebello, CJ. And Prakash Krishna, J.
IT Appeal Nos. 67 & 69 Of 2002 And 25, 29, 31, 32 And 35 To 39 Of 2003
March 31, 2011
1. All these eleven appeals preferred under Section 260A of the Income Tax Act by the Commissioner of Income Tax arise out of a common order of the Tribunal dated 1st of April, 2002 passed by the income Tax Appellate Tribunal, Delhi Bench ‘F’, New Delhi in eleven appeals which were before it at the instance of the assessee. The Income Tax Appellate Tribunal has allowed all the appeals and held that no liability can be fastened on the assessees in question on the basic licence fee in view of the fact that they were not sellers to the retail contractors and the basic licence fee was not a part of the purchase price to be handed over to the distilleries in consideration of their sale. All the appeals have been admitted on the following common question of law:
“Whether on fact and circumstances of the case, the ITAT was legally justified by not treating the basic licence fee as purchase price for the purpose of section 206C of the I.T. Act, 1961 and by not treating the District Excise Officer in default in respect of tax collectable at source u/s 206C (1) as well as in respect of interest chargeable u/s 206C(7) as he was liable to collect tax as source.”
2. The background facts of the case may be noticed in brief.
3. The assessees namely District Excise Officer, Muzaffarnagar (in eight appeals) and District Excise Officer, Saharanpur (in three appeals) were subjected to the proceedings under Sections 206C (1) and 206 C(7) of the Income Tax Act (hereinafter referred to as the Act) for the assessment years 1989-90 to 1997-1998. The appeal no.39 of 2003 was left out by the office due to omission and was not shown in the cause list. But the record of the same was summoned from the office as everything including parties and counsel are the same.
4. On scrutiny of the returns filed by the assessee under the provisions of sub section (5A) of section 206C of the Act, it was noticed by the Income Tax Department that the assessee has collected tax at source only on cost price of country liquor under section 206C (1) of the Act. No tax was collected on the purchase price i.e. Nirgam Mulya/excise duty/basic licence fee/issue price or whatsoever name it is called, for being part of purchase price. Consequently, the assessee was treated as an assessee in default. According to the department the assessee has failed to collect the tax at source on the basic licence fee/Nirgam Mulya/excise duty/issue price etc. for the various financial years corresponding to the assessment years referred to above. The short collection under section 206C (1) was worked out for all these years and the interest was also charged under section 206C (7) thereon.
5. The Income Tax Officer (TDS), Muzaffarnagar, the Assessing Authority passed a composite order dated 20.2.1997 for the financial years 1991-1992 to 1995-1996 under section 206C (1)/206C (7) of the Act creating a demand of Rs. 1,84,19,216/-. The relevant portion of the order is reproduced below:
“Keeping in view of the above facts and circumstances of the case I hold that the District Excise Officer as an assessee in default to deduct tax collection at source on the purchase price on account of basic licence fee (called Nirgam Mulya/Excise duty/Issue price etc.) for the financial year 1991-91, 92-93, 94-95 and 95-96. The short collection of tax at source on account of basic licence fee/Nirgam Mulya/Excise duty/Issue price with interest u/s206C(7) accordingly is worked out at Rs.1,84,19,216/- as per annexure III as under:-
|1. Short collection of tax at source on the basic licence fee/nirgam Mulya/Excise duty/Issue price||Rs. 81,37,630/-|
|2. Interest u/s 206C(7)||Rs. 1,02,88,586/-|
I, therefore, direct to issue necessary notice of demand and challan of Rs. 1,84,19,216/- for payment within a week of receipt of this order, failing which, necessary action will be taken to recover the said demand. Penalty show cause notice for failure to furnish half yearly returns for the half year ending 30.9.91 to 30.9.92 under section 272A(2)(c) has been issued separately and also penalty show cause notice u/s271C for failure to deduct tax at source to the above extend has been issued seperately.”
6. The calculation of the liability on basic licence fee for failure to collect tax at the source for the financial year 1996-1997 assessment year 1997-1998 as has been worked out by the Income Tax Officer (TDS), Muzaffarnagar in appeal No.25 of 2003 is reproduced below:
|Basic Licence Fee||Liability of TCS|
|Short Collection u/s 206C(1)||47,75,000 @ Rs.1 per bulk litre||@10%||4,77,500|
|Interest u/s 206C(7)||@ 24% from 1.4.1997 to 31.3.1998||1,14,600|
|@ 12% from Sept.96 to March, 97.||25,873|
7. These orders were confirmed in appeals by the Commissioner of Income Tax (Appeals), Muzaffarnagar. On further appeals by the assessee, the Tribunal has allowed all the appeals on the finding that the assessee was not liable to be treated as an assessee in default under section 206C and hence could not be saddled with the liability of interest under section 206(7).
8. Heard Sri Shambhu Chopra, learned counsel for the department and Sri S.P. Kesarwani, learned counsel for the assessee respondent.
9. The basic argument of the learned counsel for the department is that on a true and correct interpretation of word “seller” as defined under section 206C read with the words “bid money”, “licence fee” and “basic licence fee” as defined under the U.P. Excise Licence (Tender-cum-Auction Rules), 1991, the assessee was under an obligation to collect the tax at source on the entire bid money/licence fee. The State Government grants licence to the distilleries only to manufacture country liquor and not for sale. It invited the tender for sale. After the government accepts the tender, the manufacturer/distiller has to supply the contracted quantity of liquor to the Bonded Ware House, which is owned by the State Government. According to excise rules, the distiller/manufacturer cannot remove even a single drop of liquor out of the distillery without the permission of government. Moreover, once the country liquor reaches to the Bonded Ware House, the manufacturer does not have any right or control over the said quantity of liquor. Thus it is the State Government which remains in full ownership and control of the liquor placed in the Bonded Ware House. As per section 24B of U.P. Excise Act the State Government has exclusive right and privilege to manufacture and sale of liquor. The right of manufacture is granted to the distillers by the state government for a consideration but at no point of time the right to sell the said liquor is granted to the distillers as the terms of license of manufacturer reveals. Subsequently the government grants rights for sale of liquor to the retailers (liquor contractors) for a consideration i.e. license fees. This shows that at no point of time the right to sale the liquor remains with the distiller and rather the State Government with itself always keeps this right of sale. Thus it is clear that the work of supplying whole sale liquor to the retailers is with the state government which performs this function through the District Excise Officer. Therefore, the state government/DED is ‘seller’ in the above case as defined in section 206C of the I.T. Act.
10. It was further submitted that the state excise authorities have collected tax at source u/s 206C on the amount of cost price of liquor at the time of purchase. Therefore, if the state excise authority can collect tax u/s 206C of the I.T. Act on certain amount (cost price) of liquor from liquor contractors during these years, then it cannot be claimed that liability to collect tax on the basic licence fees was not on its part, as it was clearly a ‘seller’ within the meaning of section 206C of the I.T. Act.
11. In reply, Sri S.P. Kesarwani, learned standing counsel for the assessee, submits that the controversy involved is covered by a decision of Apex Court in the case of Union of India v. Om Prakash SS & Co.  248 ITR 105 / 115 Taxman 325 (SC). Elaborating the argument it was submitted that under the U.P. Excise Act, the State Government grants permission to licensee to vend the intoxicating liquor subject to payment of price of intoxicating liquor in addition to payment of certain other amount called licence fee as a consideration for parting with its privilege by the State Government to such person.
12. Considered the respective submissions of the learned counsel for the parties and perused the record.
13. The U.P. Excise Act, 1910 is the Statute which governs the allotment/settlement/grant of licence to vend liquor country made and foreign made Indian liquor and Bhang by the State Government to the licensee. It is well settled that the State Government has exclusive privilege to carry on trade in the intoxicant liquor. It grants the licences to persons to carry on trade therein subject to certain terms and conditions including that of realisation of licence fee for such grant in lieu of parting of its privilege. The payment of money for parting the privilege or the licence fee for doing trade in liquor is neither a tax nor a fee. It is a simple levy for granting exclusive right of the State. Reference can be made to State of Punjab v. Devans Modern Breweries Ltd.  10 JT 485 (SC). To find out as to whether the assessee was “seller” of license fees, under the U.P. Excise Act, it is desirable to examine the said Act itself and the concept of “Bid Money” thereunder in particular.
14. Section 44B of U.P. Excise Act is titled as “Removal of Doubts”. It provides that the State has exclusive right or privilege to manufacture and sell liquor and licence fee mentioned in Section 41(c) of the Excise Act is in substance rental consideration for grant of such right or privilege.
15. Bid Money: This has been defined in Rule 3(f) of U.P. Excise License (Tender cum Auction rules, 1991) which means the consideration of the grant of license under sec. 24 and 24A of the Act for the exclusive privilege of selling by retail any country liquor or foreign liquor. This comprise of License fee and Basic License fee.
16. License fee: has been defined in rule 3(m) to mean that part of bid money which is payable on acceptance of the bid other that the part of bid money described as basic license fee.
17. Basic license fee is defined in rule 3(g) to mean that part of the bid money which is payable by the auction purchaser calculated on the entire minimum guaranteed quantity at the rate notified Excise Commissioner from time to time.
18. From the above definitions it would be seen that the License fee is the auction money which is offered by a buyer in an auction at the fall of hammer in an auction. It is a fee charged by the govt. for granting exclusive privilege of selling by retail any country liquor or foreign liquor in the shop or groups of shops for which the auction is made. Thus the license fee is in lieu of obtaining exclusive right for trading in liquor which is otherwise prohibited by law.
19. Basic license fee is the amount fixed by the Excise Commissioner in respect of a shop or group of shops calculated on the entire minimum guaranteed quantity (MGQ) at the notified rates. The govt. has fixed a minimum quantity for every shop or groups of shops of country liquor to be lifted by the retail vendor after the grant of license.
20. Section 206C was inserted in the Income Tax Act w.e.f. 1st of April, 1989 with a view to collect the tax at source on the heads such as from liquor contractors, scrap dealers, dealers in forest products etc. as defined therein. Aims and objects of the enactment of the said provision discloses that it was introduced with a view to collect the tax at source from such persons as the revenue was feeling considerable difficulty in the past in making assessment of income of these persons.
21. Sub section (6) of Section 206C states that any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of Section 206 shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government.
22. Its sub section (7) provides that without prejudice to the provisions of sub section (6), if a seller does not collect the tax or after collecting the tax fails to pay it, he shall be liable to pay simple interest at the rate of two per cent.
23. In the above back ground we may now consider the point in issue.
24. The submission of the Income Tax Department is that the basic licence fee is directly related to the amount payable by the auction purchaser calculated on the MGQ as notified by the Excise Commissioner and hence basic licence fee is related to the purchase price of the liquor and not the bid money.
25. The aforesaid argument proceeds on a wrong footing. It ignores the fact that under the state excise law the state government permits a person to vend liquor. It has exclusive privilege to deal in it. It can part with the privilege in favour of a person and for that it charges certain amount called as license fees. Holding of license is a condition precedent before a person can vend liquor. The aim and object of the enactment of section 206C would show that the aforesaid section was enacted to collect the tax at source on the heads such as liquor contractors, scrap dealers, deals in foreign products etc. as defined therein. The Apex Court in Union of India v. A. Sanyasi Rao  219 ITR 330 / 85 Taxman 321 (SC) while considering the constitutional validity of sections 44AC and 206C has ruled out that section 206C is a machinery provision and the regular assessment as provided in the case of other assessees under the various sections shall also be made. In other words, section 206C is not a charging section. In the case of Om Prakash SS & Co. (supra), a case under the State Excise Act, it has been held that “buyer” would mean whether a person by virtue of payment, gets a right to receive specified goods and not where he has merely allowed/permitted to carry on the business in that trade. The relevant extract is quoted below:
“Buyer would mean whether a person by virtue of payment, gets a right to receive specified goods and not where he has merely allowed/permitted to carry on the business in that trade.”
26. The aforesaid observation of the Apex Court clearly points out a distinction in between “a mere right to carry on a business in a particular trade” and “a right to receive specified goods”. As already delineated above the assessee herein has collected the tax at source on the sale/purchase price of the liquor. To this extent there is no dispute. The assessee has not collected the tax at source on the licence fee i.e. the amount paid by the assessee to the State Government for parting with the privilege which exclusively belongs to the State Government, to the assessee. The said privilege is a permission to carry on the liquor business. There is no sale or purchase of that right as it does not relate to a merchandise goods. It is merely a sort of leave and licence to carry on the business in liquor. Therefore, the assessee has done no wrong. The aims and objects of the enactment of section 206C also supports the above view. It has been enacted with a view to collect the tax at source on sale of alcoholic liquor for human consumption. This being so, the Tribunal has rightly held that no liability can be fastened on the assessees on the basic licence fee which was not part of purchase price in view of the fact that they were not sellers to retail contractors and basic licence fee was not part of the purchase price to be handed over to the distilleries. The distilleries after manufacture of liquor are required to supply the contracted quantity of liquor to the bonded warehouse which is owned by the State Government. The State Government remains in full control of the liquor placed in the bonded warehouse. The State Government sells the liquor by issuing the allotment to the licensees who pay the cost price of the liquor and the licence fee. Element of ‘sale’ as conceptually understood is not involved while charging licence fees.
27. In view of the above, we do not find any error in the order of the Tribunal. The Tribunal has rightly held that the basic licence fee is not purchase price for the purposes of section 206C of the Act.
28. Therefore, we dismiss all the appeals. But no order as to costs.
[Citataion : 353 ITR 48]