Patna H.C : Whether a sum equal to 15% of the excise duty payable by the petitioners on account of purchase of country spirit, can be collected as income-tax under the provisions of s. 206C

High Court Of Patna

Ramjee Prasad Sahu & Ors. vs. Union Of India & Ors., Etc.

Sections 44AC, 206C

S.B. Sinha & G.C. Bharuka, JJ.

CW Jurisdiction Case No. 7278 of 1992, & 15 other cases

9th September, 1992

Counsel Appeared

G.P. Bimal, Jitendra Singh, Kamal Kishore Singh Purshottam Jha, Krishna Moha, Ranjit Kr. Verma, Mrs. Nilima Singh & Arun Kr. Singh, for the Petitioner : Mrs. Renuka Sharma, for the Union of India : Mr. Rastogi, Standing Counsel, for the Department

G.C. BHARUKA, J.:

The only question which survives for our consideration in this set of writ applications is, as to whether a sum equal to 15% of the excise duty payable by the petitioners on account of purchase of country spirit, can be collected as income-tax under the provisions of s. 206C of the IT Act,1961 (hereinafter in short `the Act’ only).

1. The foundational facts as set out by the petitioners may briefly be stated as below. The petitioners are retail vendors in country spirit, which is an alcoholic liquor meant for human consumption. This privilege has been acquired by them by participating in auction-cum-tender system of settlement of shops envisaged under the provisions of the Bihar Excise Act, 1915 (hereinafter in short `the Excise Act’ only) and the rules framed thereunder. Consequent upon the settlements, they have been granted licences in Form No. 26 by the respective Collectors on different dates for the period ending 31st March, 1993. Copies of some of such licences have been annexed by some of the petitioners in the respective writ applications. The State Government as a condition for grant of the said privilege has made it mandatory for the petitioners to lift a prescribed minimum quantity of liquor from the specified warehouses in every month. Sale of the country spirit is effected in sechets (polythene packs) by the wholesale licencee acquiring such privilege for the area concerned from the specified warehouses. M/s S.K.G. Sugar Ltd., Patna, M/s Shri Shiv Shankar Chemical Industries (Bihar) Ltd., Bhagalpur, and M/s Kanpur Sugar Works Ltd., Saran, are all companies incorporated under the Companies Act, 1956. They have acquired the privilege of supply in wholesale of country spirit from the

respective warehouses to the petitioners. According to the statutory rules and directions, before taking the supply of the country spirit, the petitioners have to pay the cost price (i.e., purchase price) thereof by way of bank draft drawn in favour of the wholesaler and they have also to deposit the excise duty payable thereon in the Government treasury.

2. In the above factual background, it has been submitted by the learned counsel for the petitioners that in view of the newly inserted provisions contained in s. 206C of the Act, any amount as income-tax can be collected only in respect of the cost price paid by them to the respective wholesalers and not in respect of the excise duty paid to the Government. In support of their submissions, apart from relying on the plain language of the said section, our attention has been invited to the various provisions of the Excise Act, the rules, sale notification, terms and conditions of the licence relating to the retailers and wholesalers and the directions issued by the statutory authorities.

3. Sec. 206C of the Act as substituted by the Finance Act, 1992, w.e.f. 1st April, 1992, reads as below : “Sec. 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.

S. No. Nature of goods

Percentage

(1) (2) (3) Alcoh

olic

(i)

liquor for hmade foreign liquor)

uman

consumpt ion (other than

Indian Fifteen per cent

(ii) Timber obtained under a forest lease

Timber obtained by any mode other than

Fifteen per cent

(iii)

under a forest Five per cent lease

Any other forest

(iv)

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.”; (b) after sub-s. (8), the following Explanation shall be inserted, namely : `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-s. (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.’

1. From a plain reading of the aforesaid provisions, it is clear that seller of country spirit will be liable to collect 15% of the amount received or receivable by him from the buyer as income-tax. This provision is somewhat unconventional. It is not a provision for deduction of tax at source out of any amount of income. It is a provision by which a new concept of collecting the provisional income-tax has been envisaged by the legislature by making it incumbent upon the seller of certain goods to collect a specified amount as income-tax from the buyer. The terms

`buyer’ and `seller’ have been defined under cls. (a) and (b) of the Explanation to the above quoted section.

2. For proper appreciation of the question involved, it is necessary to first examine the relevant provisions of the Excise Act, and the rules, orders and directions issued thereunder. To start with, let me first set out the basic principles that govern the trade and business in intoxicants in our present constitutional set up. These are : (i) There is no fundamental right to do trade or business in intoxicants. (ii) This right or privilege exclusively belongs to the State and it can part with that right for a consideration, right from the point of its manufacture till its sale to the seller. (iii) The State legislature is authorised to make provisions for public auction of the said privilege and regulation thereof by reason of the powers contained in Entry 8 of List II (State List) to the

7th Schedule of the Constitution. (iv) Entry 51 of the said State List also empowers the State legislature to make laws in respect of duty of excise on alcoholic liquor for human consumption. These principles have been spelt out by the apex Court in catena of decisions. Reference may be made to some of those, namely, Nashirwar vs. State of M.P AIR 1975 SC 360, Harshankar vs. The Dy. Excise & Taxation Commissioner AIR 1975 SC 1121 and Synthetics & Chemicals Ltd. vs. State of U.P. (1990) 1 SCC 109.

1. Excise Act contains the provisions covering both the fields envisaged by the aforesaid two Entries in the State List. Sec. 22 of the Excise Act empowers the State Government to grant to any person on such conditions and for such period as it may think fit, the exclusive privilege, inter alia, of manufacturing, supplying, selling in wholesale or retail and the grantee of such a privilege has to obtain a licence in that behalf from the competent authority. Chapter V of the Excise Act deals with the levy of duty of excise. Sec. 29 provides that instead of or in addition to any duty leviable under this Act, the State Government may accept payment of a sum in consideration of a grant of exclusive privilege under s. 22.

2. The rules framed by the Board under s. 90 make specific provisions for licensing and regulation of distilleries as also for establishment and regulation of warehouse for wholesale supply to retail vendors. Rules 44 to 62 have more relevance for the present set of cases as they

provide for regulation of supplies by the wholesalers to the retailers. Licences for retail vending in country spirit is granted in Form No. 26 and for wholesale in Form No. 27.

3. From a reading of the provisions of the Excise Act and the rules, it transpires that the retail vendors like the petitioners have to purchase country spirit by taking supplies thereof from specified warehouses. The supplies in the warehouse are made by either the manufacturer or the wholesale dealer within whose area of supply such warehouse lies. The warehouse has to be in the charge of an Excise Officer. Rules 44 to 54A makes provisions casting certain obligations on the suppliers of the country spirit with regard to quality, storage, and reduction of strength. For the present purpose, it is not necessary to enter into the details thereof. But rr. 53 and 55 to 59 are material for the present purposes since these rules provide for the mode and manner of payment of duty by the retail vendor while taking supplies from the warehouse. Rule 55 provides that the retail vendors have to take their supplies of spirit from the warehouse, which is established in the area in which the retail shops are situated. Under r. 53 such supplies have to be made in order in which the retail vendors present their challan or money order receipts showing payment of duty and the cost price. Rule 56 provides that duty has to be paid into the treasury or sub-treasury of the place. In the other rules provisions have been made to meet the different situations pertaining to the payment of duty by the retail vendors. It is important to note here that though in the rules specific provisions have been made with regard to the mode and manner of payment of excise duty but no mode has been prescribed for payment of the cost price payable to the manufacturer or the wholesaler, whose goods are sold from the warehouse.

4. Before proceeding further, I may deal with two terms, which are typical in the trade of country spirit as used in this State. These are `contractors’ and `cost price’. Though these terms have not been defined anywhere in the Excise Act or the Rules but in various rules these terms have been used. In the Bihar Excise Manual, Vol. III, published by the State Government, in paragraph 217A, while dealing with contract supply system as referred to in r. 44, it has been said that : “By this method a monopoly of the supply of country spirit in any specified area or areas is granted under a contract, the contractor selling spirit subject to rate or rates of excise duty in force within such areas, to licensed vendors only at a fixed wholesale rate, which is known as the cost price.” Therefore, in the present context the words `contractor’ and `cost price’ should only mean `wholesaler’ and `the price of the country spirit’ respectively.

1. One of the conditions incorporated in the licence granted to the wholesalers is that they have to sell the country spirit to the licensed vendors at the warehouses specified in the licence at the fixed prices on production of passes in the prescribed form by them. The storage, reduction, etc., of the spirit have to be made under the immediate supervision of a Government Officer incharge of the warehouse. In view of condition No. 15 of the licence read with the directions issued by the State Government as contained in Memo No. 698, dt. 12th March, 1992, the wholesalers are to collect the cost price of the liquor from the licensed vendors in the form of bank draft directly.

2. The conditions incorporated in Form No. 26 meant for granting licence to the retail vendors, provide that they have to purchase the country spirit from the specified warehouses. Pursuant to conditions of the licence and the sale notification, the retail vendors have to deposit the cost price through a bank draft drawn in favour of the wholesaler.

3. From the discussions aforesaid, it is clear that a retail vendor can acquire country spirit meant for human consumption on fulfilment of two conditions, relevant for the purpose, namely, (1) they have to pay the price of the goods in the form of bank draft drawn in favour of the wholesaler and (2) have to deposit the requisite excise duty in the Government treasury payable by them either with reference to the actual delivery or minimum monthly quota, which they had undertaken to purchase at the time of acquiring the privilege.

1. From the scheme of the State Act, it is also clear that the wholesaler receives only the price of the liquor which is known as cost price in this State and the duty is paid by the retail vendors either as a consideration of the privilege acquired by them or as the excise duty payable under the provisions of the State Act by depositing the same in the Government treasury. Apparently, there is no privy of contract between the wholesalers and the retailers in the strict sense and the entire transaction by which the title in the country spirit passes from the wholesaler to the retailor is regulated by the statutory provisions and the volition on their parts is minimal. Nonetheless in view of the decision of the Supreme Court in the case of Vishnu Agencies (Pvt.) Ltd. vs. CTO AIR 1978 SC 449 the transaction still remains to be a sale and the wholesaler and the retail vendor will be the seller and the buyer, respectively.

2. Mr. Rastogi appearing for the IT Department has placed strong reliance on a decision of the Supreme Court in the case of Mc Dowell vs. CTO (1985) 47 CTR (SC) 126 : (1985) 59 STC

277 (SC) to substantiate that the actual cost and the excise duty both form part of the consideration for sale of country spirit and, therefore, income-tax is liable to be collected by the wholesaler with reference to both. In my opinion, the said decision rather dispels the argument advanced by Mr. Rastogi. It is so because in the first round of litigation by Mc Dowell reported in McDowell & Co. Ltd. vs. CTO 1977 CTR (SC) 79 : (1977) 39 STC 151 (SC), the Supreme Court after examining the provisions of the Excise Act has held that excise duty paid directly to the excise authority of the State or deposited directly in the State exchequer in respect of Indian liquor by the buyers thereof, before removing it from the distillery or the bonded warehouse and not included in the sale bills issued by the manufacturers or the owners of the bonded warehouse, cannot be said to be covered by the phrase “any sums charged by the dealer”in its ordinary popular sense. In this case the dispute had arisen in respect of leviability of sales-tax under the AP Gen. ST Act, 1957. Subsequent to the said decision of the Supreme Court, rr. 76 and 79 of the Andhra Pradesh Distilleries Rules were amended w.e.f. 4th Aug., 1981 and the manufacturers were made liable to pay the excise duty on removal of liquor. Pursuant to this amendment, the ST authorities levied tax by treating the excise duty as part of the sale consideration. The plea of the company was that notwithstanding the said amendment since the purchasers are directly depositing the excise duty with the Government, therefore, the same cannot be treated to be a part of the appellants turnover. It was in this context that in the subsequent case of Mc Dowell it was held by the Supreme Court that since in view of the amended rules the liability for payment of the excise duty was that of the manufacturer, therefore, though the excise duty was paid by the purchasers to meet the liability of the appellant, it was very much the part of the consideration for sale and is includible in the turnover of the company.

3. So far as the provisions of the Excise Act in this State is concerned, as noticed above, the obligation to pay the excise duty is still of the retail vendors and, therefore, the present case is

clearly covered by the decision of the Supreme Court in the first case of Mc Dowell (supra). This distinction has been duly noticed by the Supreme Court in its later decision, which has been relied upon by Mr. Rastogi.

4. Mr. Rastogi has further submitted that in view of the recent Bench decision of this Court in the case of The State of Bihar & Anr. vs. CIT [CWJ Case No. 2429 of 1992, dt. 15th May,

1992], it has to be held that in respect of the supplies of the country spirit made to the retail vendors from the warehouse, the State Government will be deemed to be the dealer and the collection at source in respect of the income-tax has to be made with reference to both the cost price as well as the excise duty paid in respect thereof. In my opinion, the submission is not tenable because in the above referred case (CWJC No. 2429 of 1992) the provisions contained in ss. 44AC and 206C of the Act were subject-matter of interpretation, which are no more on the statute book and the provisions of the substituted s. 206C of the Act which are being considered in the present case, are materially different in certain important aspects. The originally incorporated s. 206C of the Act has acquired the meaning of the word `seller’ from s. 44AC which statutorily included the persons selling as well as his agent within the ambit of expression

`seller’. But now s. 44AC stands repealed and s. 206C which is self contained does not include the agent of a person selling the goods within the definition of `seller’ for the purposes of the said section. Therefore, the State Government, which was held to be a seller being an agent of the wholesaler ceases to be a seller for the present purposes. Second important aspect is that by Finance Act, 1990, an Explanation was inserted in sub-s. 1(a) of s. 44AC of the Act whereby

`purchase price’ was defined to mean any amount (by whatever name called) paid or payable by the buyer to obtain goods referred to in that clause, except the amount paid or payable towards bid money in an auction or as the case may be the highest accepted offer in case of a tender or any other mode. As explained by the CBDT in Circular No. 585, dt. 27th Nov., 1990 [since published in (1990) 90 CTR (St) 26] the said definition was incorporated so as to make incumbent the collection of income-tax at source also by reference to the excise duty. The said concept of the `purchase price’ has not been retained by the legislature in the substituted provisions. Therefore, in my opinion, the Bench decision, referred to above, has no bearing on the question involved in the present cases.

5. In the above view of the matter, since the sellers are entitled to receive only the cost price from the retail vendors, therefore, neither it is incumbent nor permissible on their part to collect any amount by way of income-tax with reference to the excise duty payable by the buyers to the Government as a measure of tax or consideration for parting with the exclusive privilege. They will be statutorily liable to collect an amount as income- tax with reference to the cost price only.

6. It is also important to ascertain as to whether by employing any interpretational tool, the State Government can also be held to be a seller for the purposes of the provisions of the income- tax in question so as to make it incumbent upon the State Government also to collect 15% of the excise duty received or receivable by it as income-tax under the provisions in question. There cannot be any dispute that the amount which the retail vendor deposits in the Government treasury as excise duty either as a liability under the State Act or as a consideration of the privilege acquired by him is not deposited as a price of the country spirit. The State Government does not hold any title in the country spirit. In fact under the provisions of the Act no such authority to purchase and sell liquor has been conferred on the State Government. The State

Government can only regulate the transaction of the country spirit right from the point of its manufacture till the point of its sale. Therefore, the State Government cannot be deemed to be a seller of the country spirit to the retail vendors. As such, the question of collecting any amount by way of any tax by the State Government cannot arise.

7. For the reasons aforesaid, I am of the view that under the facts and circumstances of the present case and the attending legal provisions, no amount as income-tax can be collected from the petitioners with reference to the excise duty payable by them to the Government on account of purchase of country spirit.

21. The writ applications are, accordingly, allowed to the extent indicated above but without any cost.

S.B. SINHA, J.:

22. I agree with the operative portion of the orders passed by my learned brother, but, however, I would like to state separate reasons therefor.

23. The question as to whether s. 44AC and s. 206C of the IT Act, 1961 (hereinafter to be referred to as the said Act) is unconstitutional is pending consideration before the Supreme Court.

24. The Supreme Court, however, in Transfer Petition No. 42/89 (Bihar Excise and Vendors Association vs. Union of India & Ors.) directed that the High Court may dispose of the interim applications filed by the assessees. In view of the aforementioned observations made by the Supreme Court, a large number of writ applications have been filed before this Court, inter alia questioning the vires of the said provisions of ss. 44AC and 206C of the said Act.

25. Amongst others, the State of Bihar had filed a writ petition in this Court against the CIT and others being CWJC No. 2429 of 1992. In that case, the Division Bench of which I was a member held that the State of Bihar is a “seller”within the meaning of s. 44AC of the said Act. In that decision it was further held that in terms of the rules as also circular letters issued from time to time, an extended meaning of the definition of `seller’ has to be given.

26. From a perusal of the paragraph 28 of the said judgment it would be evident that it was not disputed therein that the retail dealers purchase country liquor by paying the cost price as well as excise duty by challan to the State Government. In that case, the learned Addl. Advocate-General No. 1 who appeared for the State of Bihar accepted the position that the cost price of country liquor was realised by the State along with the excise duty by way of challan which are kept in a separate account. The State, thereafter, debit the cost price in the account of the distiller.

27. In that situation it was observed that for the purpose of s. 206C of the said Act, tax has to be deducted not only on the basis of the cost price but for that purpose the amount of excise duty, has also to be taken into consideration.

28. In these cases, however, the petitioners have inter alia contended that they are liable to pay income-tax only on the cost price and not on the excise duty payable by them to the State of Bihar.

29. In that case, the question as to whether income-tax @15% was to be deducted only on that cost price of the country liquor or on the basis of the cost price plus the excise duty payable to the State of Bihar did not fall for consideration directly. Mr. Rastogi, learned Senior Standing Counsel, IT Department has also accepted this position.

30. In this view of the matter, in all these application the contention urged before us, i.e., whether income-tax in terms of the s. 206C of the said Act is to be deducted only on the basis of the cost price or not, has to be considered independently. We have taken up the hearing of these writ applications, although the question of the constitutionality of s. 44AC and s. 206C of the said Act is pending consideration before the Supreme Court of India as in the meanwhile, the Parliament by reason of the provision of Finance Act, 1992, deleted the provision of s. 44AC of the said Act and further substituted the provision of s. 206C with a new provision.

31. I, however, intend to make it clear that we have proceeded on the basis that the provision of s. 206C as it now stands is intra vires the Constitution of India, and, thus, it goes without saying that in the event it is held by the Supreme Court of India that s. 44AC and s. 206C of the said Act as they stood before the enactment of Finance Act, 1992 or s. 206C as it now stands are ultra vires; these cases would also be governed by the decision of the Supreme Court.

32. The relevant portion of s. 206C as then it stood reads as follows : “Sec. 206C : Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.. (i) Every person being a seller referred to in s. 44AC, shall at the time of debiting of amount payable by the buyer referred to in that section 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 on income comprised therein.

S Name of l. goods

No

.

Percentage . . (3)

(i Alcoholic liquor) for human consumption

(other thmade foreign liquor)

— – — –

an Indian 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 purpose of manufacture, processing or producing articles or things and not for trading purpose, the provisions of this sub-section shall not apply so long as the certificate is in force. (2) The power to recover tax by collection under sub-s. (1) shall be without prejudice to any other mode of recovery.”

(Underlining, italicised in print, supplied)

1. From perusal of the aforementioned provisions it would appear that by necessary implications the definition of seller which had been incorporated under s. 44AC of the said Act was adopted for the purpose thereof.

2. The relevant provisions of s. 44AC of the said Act as it then stood read thus :

“Sec. 44AC. Special provision for computing profits and gains from the business of the trading in certain goods.—(1) Notwithstanding anything to the contrary contained in ss. 28 to 43C, in the case of an assessee, being a person other than a public sector company (hereinafter in this section referred to as the buyer), obtaining in any sale by way of auction tender or any other mode conducted by any other person or his agent (hereinafter in this section referred to as the seller) : (a) any goods in the nature of alcoholic liquor for human consumption (other than Indian made foreign liquor), a sum equal to forty per cent of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head “profits and gains” of business or profession”. Provided that nothing contained in this clause shall apply to 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 : …………. (2) For the removal of doubts, it is hereby declared that the provisions of sub-s. (1) shall not apply to a buyer (other than a buyer who obtains any goods from any seller which is a public sector company) in the further sale of any goods obtained under or in pursuance of the sale under sub-s. (1). (3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the total turnover of the business carried on by the assessee. Explanation: For the purposes of this section “seller”means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or provisional Act, or any company, or firm, or co- operative society.”

35. Sec. 206C of the said Act as has been substituted by the Finance Act, 1992, reads thus : “Sec.

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 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………..

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.” (b) After sub-s. (8), the following Explanation shall be inserted, namely : “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-s. (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.”

36. Thus upon comparison of the aforementioned provisions, it is evident that now there is a qualitative change in the expression “seller”as contained in s. 206C of the IT Act in so far as this definition, of the word “seller”within the meaning of s. 44AC of the said Act is no longer available.

37. It is also clear that 15% of the amount debited has to be collected by way of income-tax. Sec.

206C provides for the machinery for recovery of the tax.

38. It appears that some changes have been made by the Excise Department in relation to collection of cost price of the liquor.

39. On or about 8th Feb., 1989, the State of Bihar issued a notification whereby changes were made in Form No. 27. In terms of cl. 15 of the conditions of licence it was provided that the District Magistrate should realise the price of the country liquor from the licence holders which would on expiry of every month would be paid to the `contractors’ from the District Treasuries. However, it was further provided therein that the contractor could realise the cost price of the country liquor from the licences in cash or by bank draft straightaway before taking delivery thereof. Receipts in relation to such prices were required to be given by the contractors to the retailed licences which were to be kept secured in the guard file of the warehouse.

40. However, by a circular letter bearing No. 698, dt. 12th March, 1992, the Dy. Commissioner of Excise informed all the Asstt. Commissioners of Excise and Superintendents of Excise of all the districts that it has now been decided that from the security point of view, the price of the licenced country liquor shall be paid to the contractors by way of bank draft by the licencee directly who would grant receipts therefrom and which shall be produced by the retail licencees before the authorities of the Ware House so that the country liquor may be released on the basis thereof. It has further been clarified that so far as the realisation of income-tax from the retail vendors is concerned, the same shall be deposited by them by way of bank draft and one photocopy thereof shall be retained by the Ware House Officers and another photocopy shall be retained by the Contractor.

41. Thus after 12th March, 1992 the contractors who are either the manufacturer or the wholesaler have been receiving the amount of cost price of the country liquor directly. Even the amount of income-tax has to be deposited by a separate bank draft. Thus, in terms of the present arrangement, the State does not realise the cost price from the retail vendors either alongwith the excise duty nor does it realise the said amount on behalf of the manufacturer/wholesaler.

42. In this view of the matter, in my opinion, if this arrangement continues, it is not necessary for us to consider as to whether the State is a “seller”within the meaning of s. 206C of the Act or not.

43. In my opinion, however, if the State realises any amount of cost price either on behalf of the wholesaler or on behalf of the manufacturer, it may come within the purview of definition of

`seller’ but as indicated hereinbefore for the purpose of disposal of this case, it is not necessary to decide the aforementioned question.

44. I may, however, add that in the facts and circumstances of the case also I am also not expressing any opinion, as it is not necessary to do, as to whether in view of the provisions of Bihar and Orissa Excise Act and the rules framed thereunder and conditions of the licencesgranted by the State of Bihar to the wholesaler/manufacturer vis-a-vis the retail vendors, a privity of contract comes into being by and between the wholesaler/manufacturer of country spirit on the one hand and retail vendors on the other. I am also expressing no opinion as to whether the decision of the Supreme Court in the case of M/s Vishnu Agencies (Pvt.) Ltd. vs. CTO AIR 1978 SC 449 has any application in the facts and circumstances of the case or not.

45. The question, however, which arises for consideration in this writ application as has rightly been formulated by my learned brother is as to whether the income-tax is payable at cost price of the country liquor or the entire price consisting of the cost price as also the excise duty. I have indicated hereinbefore that the decision of the Division Bench in CWJC No. 2429 of 1992 the State of Bihar & Anr. vs. CIT & Ors. is not an authority for that proposition.

46. In Mc Dowell’s case (supra), the Supreme Court was considering the concept of `turnover’ within the meaning of the provisions of A.P. Gen. ST Act, 1957. In that case after the decision of the Supreme Court in McDowell & Co. Ltd. vs. CTO 1977 CTR (SC) 79 : (1977) 39 STC 151 (SC), rr. 76 and 79 of the A.P. Distillery Rules were amended w.e.f. 4th Aug., 1981.

47. In view of the aforementioned amendments, the authorities of the Commercial-tax Department issued a notice as to why the Excise duty paid directly by the buyers shall not be concluded in the appellant’s turnover for a part of the year 1982-83.

48. A writ petition was filed before the High Court for quashing the notice issued by the authorities of the ST Department and the said writ petition was dismissed. On Special Leave having been granted by the Supreme Court against the aforementioned judgment of the High Court, the correctness of the decision in the earlier case of the said company was doubted.

49. Before the Supreme Court the vires of the amended rules was not questioned.

50. The Supreme Court, therefore, considered the definition of `turnover’ as contained in s. 2(s) of the ST Act, i.e., to mean “the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charged) as the consideration for sale or purchase of goods (whether such consideration be cash, deferred payment or any other thing of value) including any sums charged

by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name or object thereof”. The Supreme Court held :”The definition clearly indicates that the total amount charged as the consideration for the sale is to be taken into account for determining the turnover. Where a bill of sale is issued (and obviously the bill has to state the total amount charged as consideration), the total amount set out therein is to be taken into account. In every transaction of sale, there is bound to be a seller at one end and a buyer at the other and transfer of title in the goods takes place for a consideration.”

51. The Supreme Court upon consideration of its earlier decision in Hindusthan Sugar Mills vs. Rajasthan State (1979) 43 STC 13 (SC) and various other decisions and come to the conclusion that the consideration for sale is thus the total amount and not what is reflected in the bill. It was held : “We are, therefore, clearly of the opinion that excise duty though paid by the purchaser to meet the liability of the appellant, is a part of the consideration for the sale and is includible in the turnover of the appellant. The purchaser has paid the tax because the law asks him to pay it on behalf of the manufacturer.”

1. The situation obtaining in this case is absolutely different as by reason of the present arrangement, excise duty is to be paid separately to the State of Bihar whereas the cost price is to be paid directly by way of bank draft to the contractors, i.e., wholesaler and/or manufacturer of country spirit. Retail dealers, in this case are required to deposit the excise duty payable to the State of Bihar which is realisable from them. They do not pay any excise duty which is payable by the contractors.

2. As noticed hereinbefore, the cost price is now required to be paid directly to the contractor and, therefore, the same would be the amount to be debited by the `seller’ which would not include the amount of `excise duty’ as the same is required to be paid separately to the State.

3. As has rightly been noticed by my learned brother, “excise duty”is not leviable on goods but on the right to vend. The concept of `sales-tax’; thus, in my opinion cannot be brought into for the purpose of determining the amount of consideration for the goods in case of dealing in country spirit in terms of the provisions of Bihar & Orissa Excise Act and the rules framed thereunder.

4. For the reasons aforementioned, I am in full agreement with the view of my learned brother that income-tax is now payable on cost price of the country spirit.

[Citation : 202 ITR 800]

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