Allahabad H.C : Where a distillery had sold country liquor to various retail vendors at price fixed by Excise Commissioner and while raising invoices it had collected from retail vendors tax purporting to be under section 206C, in view of Explanation (a)(iii) of section 206C retail vendors could not be termed as ‘buyer’ and hence distillery was restrained from collecting tax under section 206C from retail vendors

High Court Of Allahabad

Sankatha Shukla Vs. Union Of India

Section : 206C

Rajiv Sharma And Arvind Kumar Tripathi (Ii), Jj.

W.P. Nos. 2822,2823 & 3417 (Mb) Of 2002

May  9, 2013

ORDER

1. Heard Sri Sudeep Kumar, learned counsel for the petitioners and Mr. Gaus Beg, learned Counsel for Daurala Sugar Works.

2. As all the petitioners are Retail Vendors in the districts Lucknow, Sitapur and Pratapgarh and were holding valid licenses at the relevant time granted by the Government of Uttar Pradesh under the provisions of U.P. Excise Act, 1910, all the writ petitions decided by a common judgment.

3. Grievance of all the petitioners is that the opposite parties are deducting Tax Collected at Source under Section 206-C of the Income Tax Act, 1961, therefore they preferred their respective writ petitions for a direction to the opposite parties to restrain them from collecting Tax at the time of purchase of country liquor by the petitioners.

4. The crux of the matter is that the opposite parties had obtained CL-2A licenses from the Government of Uttar Pradesh under U.P. Excise Act, 1910 and Rules made thereunder after payment of requisite license fee for the financial year 2002-03 to operate country liquor godowns in different districts in Uttar Pradesh. The liquor is sold by M/s Daurala Sugar Works from its godowns to various Retail Vendors (petitioners) in the respective districts who hold CL-5A Licences granted by the Government of Uttar Pradesh under the provisions of U.P. Excise Act, 1910 and Rules made thereunder. Though the Retail Vendors are bound to observe a number of restrictions as per terms and conditions of licences, yet the opposite party no.2 while raising the invoices had collected the tax @ 10% on the value of invoice purporting to be under Section 206-C of the Income Tax Act, 1961.

5. The contention of the learned Counsel for the petitioners is that the petitioners have obtained the licenses under the U.P. Excise Act, 1910 and the Maximum Retail Price has been fixed by the Excise Commissioner in exercise of powers conferred on him under Section 41 (e) (iii) of the U.P. Excise Act, 1910. Therefore, the provision of collecting tax shall not apply. Further, the Maximum Retail Price of the Country Liquor has been fixed by the Excise Commissioner under Section 41 (e) (iii) of the U.P. Excise Act, 1910. Thus, the petitioners are excluded from the provisions of Section 206-C in view of the Explanation (a) (iii) and the petitioners cannot be termed as ‘buyer’ in view of the definition of buyer given in Section 206-C itself.

6. Learned counsel for the petitioners further submitted that since the petitioners did not get a right to carry-on trade on the basis of auction and more particularly sale price has been fixed by the Excise Commissioner, no tax can be collected at source by the opposite parties, which is clearly in violation of Sub-Clause (iii) of Clause (a) of the Explanation to Section 206-C of the Income Tax Act, 1961.

7. Further, he submits that the Apex Court while dismissing the SLP against the order of the Punjab and Haryana High Court held that the licenses issued by the Government permitting the licensee to carry-on liquor trade is not attracted, as the licensee does not fall within the definition of ‘buyer’ as referred in Section 206-C of the Act.

8. Learned Additional Chief Standing Counsel does not dispute the aforesaid legal proposition.

9. While entertaining the writ petitions, a Coordinate Bench of this Court vide order dated 22.5.2002 provided that in view of the decisions in the cases of Saini & Co. v. Union of India [2000] 246 ITR 762/113 Taxman 55 (HP) (FB), K K Mittal & Co. v. Union of India [1991] 187 ITR 208/57 Taxman 73 (Punj. &Har.) and Union of India v. Om Prakash S.S. & Co. [2001] 248 ITR 105/115 Taxman 325 (SC), no tax would be deducted at source from the petitioners under Section 206 (C) of Income Tax Act till the next date of listing.

10. Before proceeding, we would like to mention that Union of India through Commissioner of Income Tax (II), Lucknow, has been arrayed as one of the opposite parties, but in spite of long lapse of time and opportunities, no counter-affidavit has been filed. Therefore, the assertion of the petitioners remained uncontrovered.

11. Since no counter affidavit has been filed, this Court is treating the averments made in the writ petition as uncontroverted in view of the decisions of Hon’ble the Supreme Court in Choksi Tube Co. Ltd. v. Union of India [1997] (11) SCC 179 and Naseem Bano v. State of U.P. AIR 1993 SC 2592, wherein the Apex Court has laid down the law that where a plea taken is not controverted in reply, it amounts to admission of the plea.

12. According to provisions of Section 41 of the U.P. Excise Act, the Excise Commissioner is empowered to make rules with the previous sanction of the State Government. Relevant portion of Clause 41 (e) (iii) is reproduced as under:-

“41 (e) Prescribing the restrictions under and the conditions on which any license, permit or pass may be granted, including provisions for the following matters:-

(iii) the fixing of the strength price or quantity in excess of or below which any (intoxicant) shall not be sold or supplied, and of the quantity in excess of which denatured spirit shall not be possessed, and the prescription of a standards of quantity for any (intoxicant).”

13. The Explanation to the provisions defines the word ‘buyer’ mentioned in Section 206-C of Income Tax Act reads as under:-

“(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.”

14. In the case of Chandigarh Distillers & Bottlers Ltd. v. Union of India [2000] 253 ITR 205/125 Taxman 202 (Punj. &Har.), it held as under:-

“For the foregoing reasons, the petition deserves to be allowed and is accordingly allowed. We reiterate the ratio laid down in Gian Chand Ashok Kumar’s case [1991] 187 188 (HP) and overrule the decision in Rudra and Co.’s case [1998] 233 ITR 66 (HP). We declare that the persons holding L-13, L-13A licenses cannot be said to be ‘buyers’ and the provisions relating to deduction (collection?) of tax at source do not apply to them. Consequently, the letter dated June 16, 1998 (annexure R3-1), must be held to be illegal and contrary to law and the respondents are permanently restrained from deducting any amount towards tax at source.

We respectfully agree with the reasoning of the Full Bench of the Himachal Pradesh High Court and do not find any reason to make a departure from the consistent view taken by this Court in K.K. Mittal and Co. v. Union of India [1993] 203 ITR 201; Satya Pal Amrik Singh and Co. v. Union of India [1997] 228 ITR 653 and Naresh Kumar & Co. v. Union of India (2000) 243 ITR 760. The propositions of the law laid down in the two cases of K. K. Mittal and Co. v. Union of India [1991] 187 ITR 208 and [1993] 203 ITR 201 (P&H), have acquired finality because the special leave petitions filed by the Union of India were dismissed by the Supreme Court after hearing counsel for both the parties. In Satya Pal-Amrik Singh and Co.’s case[1997] 228 ITR 653 (P&H) as well as Naresh Kumar and Co. [2000] 243 ITR 760 (P&H), the two Division Benches have held that persons holding L014 and L-14A licenses do not fall within the definition of ‘buyer’ and the holders of L-13 licenses cannot be treated as sellers qua those holding L-14 and L-14A licenses. Therefore, the demands created by respondent NO.3 against the petitioners by assuming that they had committed default in making deduction at source in terms of section 206-C can not be sustained.”

15. In the case of Sir Shadi Lal Enterprises Ltd. v. Union of India [2003] 130 Taxman 563 (All.), this Court held that the assessee-petitioner was a company having distilleries under the licenses granted by the U.P. Excise authorities for manufacturing of potable alcohol. As per the revised policy, the distilleries could sell the liquor after obtaining a wholesale licence to the retailers holding valid licences at a price fixed by the State, and the retailers, in turn, had to sell the liquor at a price fixed by the State Government. While fixing the maximum sale price for wholesale, the retailers had to pay to the wholesaler the cost price, tax, excise duty and cess. During the course of the assessment proceedings, the ITO held that the provisions of Section 206-C applied to the assessee and he was a defaulter for not collecting the tax under Section 206-C. Accordingly, the ITO directed the petitioner to pay certain amount as income-tax collectible and surcharge thereon. On revision, the Commissioner (Appeals) confirmed the order passed by the ITO. Against that order, the petitioner filed the instant writ petition on the ground that wholesale price fixed by the Government became minimum sale price of liquor for retailer licenses. Moreover, by the Circular of the CBDT dated 27.6.2002 maximum retail price fixed has been declared to be the sale price referable in the Explanation to Section 206-C and therefore, it was wholly misconceived on the part of the respondents to suggest that if the petitioner did not collect tax, the retailer licenses might evade payment of tax.

16. The Apex Court in the case of Om Prakash S.S. & Co. (supra) held as under:-

“The reliance placed on the explanation to Sub-Section (ii) of Section 206-C is misplaced as is evident from what is stated here-in-above. ‘Buyer’ would mean where a person by virtue of the payment gets a right to receive specific goods and not where he is merely allowed/permitted to carry on business in that trade. It is for this reason that we had earlier dismissed the Special Leave Petitions and any observations of the High Court not in consonance with this may be not strictly correct but the fact remains that on licences issued by the Government permitting the licensee to carry-on liquor trade the provisions of Section 206-C are not attracted as the licensee does not fall within the concept of ‘buyer’ referred to in that Section. Buyer has to be buyer of goods and not merely a person who acquires a licence to carry on the business.”

17. In the instant case, all the petitioners, who are Retail Vendors, were granted license under U.P. Excise Act, 1910 at the relevant time and since the Maximum Retail Price was fixed by the Excise Commissioner in exercise of powers conferred on him under Section 41 (e) (iii) of the U.P. Excise Act, 1910, petitioners are excluded from the provisions of Section 206-C in view of the Explanation (a) (iii) as petitioners cannot be termed as ‘buyer’. Therefore, the aforesaid case laws are squarely covered in the case of the petitioners.

18. For the reasons and legal position as stated here-in-above, the demands created by the Assessing Authority against the distillery by assuming that they had committed default in not making deduction at source in terms of Section 206-C from the petitioners cannot be sustained and further the distillery who has been arrayed as one of the opposite parties in all the three writ petitions are restrained from deducting any tax at source in view of the provisions of Income Tax Act.

19. With these observations, all the writ petitions are disposed of finally.

[Citation :362 ITR 444]