2002 (4) TMI 14 - HC - Income Tax

For the purpose of sale of country liquor, the petitioner has to transport his stock from the warehouses of Gairatganj and Abdullaganj. At the time of making payment towards licence fees, tax at source was deducted at the rate of 10 per cent. on the issue price which is inclusive of cost of liquor plus excise duty on it. The said deduction was done as per section 206C of the Income-tax Act, 1961 Held that when the liquor is purchased from a warehouse, payment of excise duty is to be made at the rate of duty in force on the date of issue of liquor from the warehouse

Summary

Issues Involved:
1. Whether tax at source should be deducted on the cost of liquor exclusive of excise duty.
2. Interpretation and applicability of Section 206C of the Income-tax Act, 1961.
3. Validity of previous judgments and circulars in determining the tax deduction at source.

Detailed Analysis:

Issue 1: Whether tax at source should be deducted on the cost of liquor exclusive of excise duty.

The petitioner, a partnership firm, argued that tax at source should be deducted only on the cost of liquor, excluding excise duty, as per the practice in other states. The Central Government had accepted this demand and issued a direction to that effect. However, the respondents continued to deduct tax at the rate of 10% on the issue price, including excise duty. Previous judgments by the Indore and Gwalior Benches supported the petitioner's view, leading to circulars from the Excise Commissioner to follow this practice. Despite these orders, the respondents insisted on deducting tax on the issue price, prompting the petitioner to seek a writ of mandamus to enforce the correct deduction method.

Issue 2: Interpretation and applicability of Section 206C of the Income-tax Act, 1961.

The respondents contended that the excise duty forms part of the purchase price under Section 206C(1) of the Act, and therefore, tax should be deducted on the issue price, which includes excise duty. They referenced Circular No. 585, dated November 27, 1990, which clarified that excise duty forms part of the purchase price. The petitioner's counsel argued that excise duty is not part of the sale price and should not be included for tax deduction purposes. The court examined Section 206C and related provisions, noting that the term "purchase price" includes any amount paid by the buyer, excluding the bid amount in an auction.

Issue 3: Validity of previous judgments and circulars in determining the tax deduction at source.

The court reviewed previous judgments, including Ashok Kumar v. Union of India and Vinod Kumar Rathore v. Union of India, which directed tax deduction only on the cost of liquor supplied by the government, excluding excise duty. The respondents argued that these judgments were not binding precedents as they were based on concessions and letters rather than statutory interpretation. The court also considered the Patna High Court's decisions in Ramjee Prasad Sahu v. Union of India and Bharat Prasad Chaudhary v. Union of India, which held that excise duty should not be included in the purchase price for tax deduction purposes.

Conclusion:

The court concluded that the excise duty paid by the retailer should not be included in the cost price for tax deduction purposes. It agreed with the Patna High Court's interpretation that excise duty is not part of the purchase price under Section 206C. The writ petition was allowed, directing the respondents to deduct tax at 10% on the cost price of liquor, excluding excise duty. Any excess amount already paid was to be adjusted against future sales. The court emphasized that this decision was based on statutory interpretation and relevant case law, not merely on previous judgments or circulars.