1989 (4) TMI 308 - HC - VAT and Sales Tax

Issues Involved:
1. Whether excise duty paid by purchasers is includible in the taxable turnover of the petitioners for the purpose of levy of tax under the Tamil Nadu General Sales Tax Act, 1959.
2. Whether the demand for sales tax on excise duty is barred by the principles of equitable estoppel.

Detailed Analysis:

Issue 1: Inclusion of Excise Duty in Taxable Turnover

The primary issue in this case is whether the excise duty paid by the purchasers (TASMAC) should be included in the taxable turnover of the petitioners (manufacturers of Indian-made foreign liquor) for the purpose of levying sales tax under the Tamil Nadu General Sales Tax Act, 1959. The petitioners argued for a negative answer, while the Revenue sought an affirmative answer.

The court examined the relevant statutory provisions, including Sections 17-C, 18-B, and 18-C of the Tamil Nadu Prohibition Act, 1937, and Rules 22 of the Tamil Nadu Indian-made Foreign Spirits (Manufacture) Rules, 1981, and Rule 15 of the Tamil Nadu Indian-made Foreign Spirits (Supply by Wholesale) Rules, 1981. The petitioners contended that excise duty is levied on the wholesaler (TASMAC) and not on them, and therefore, it should not form part of their taxable turnover.

However, the court referred to the Supreme Court's judgment in McDowell & Co. Ltd. v. Commercial Tax Officer [1985] 59 STC 277 (Second McDowell's case), which clarified that the incidence of excise duty falls on the production or manufacture of goods, and the method of collection does not affect its essence. The Supreme Court had held that even if the excise duty is paid by the purchaser, it is a part of the consideration for the sale and is includible in the turnover of the manufacturer.

The court concluded that the excise duty paid by the wholesaler is part of the price paid for the goods and, therefore, should be included in the taxable turnover of the petitioners. The petitioners' argument that the excise duty did not go into their common till and thus should not be included in their turnover was rejected based on the Supreme Court's view that the decisive test for determining turnover is not whether the duty goes into the common till but whether it is part of the consideration for the sale.

Issue 2: Equitable Estoppel

The petitioners also argued that the demand for sales tax on excise duty is barred by the principles of equitable estoppel. They relied on letters from the Prohibition and Excise Department and TASMAC, which indicated that sales tax should not be levied on excise duty. They contended that they did not collect sales tax from the wholesalers based on these representations and that the government is estopped from demanding sales tax now.

The court rejected this argument, stating that there is no equity about a tax, and there is no estoppel against a statute. The court emphasized that the Prohibition and Excise Department is not the proper authority to deal with sales tax matters, and the letters relied upon by the petitioners did not constitute a binding decision by the government to exclude excise duty from taxable turnover. Moreover, the court noted that the principle of promissory estoppel cannot be invoked in this case, as the primary responsibility for payment of excise duty lies with the manufacturer, and it forms part of the price of the goods.

Conclusion:

The court held that the petitioners are liable to pay sales tax on the excise duty turnover, even though the excise duty was paid by the purchasers. The writ petitions and the tax case were dismissed, with no order as to costs. The court also refused to grant leave to appeal to the Supreme Court, as the decision was based on the established judgment in the Second McDowell's case.

Separate Judgment:

No separate judgments were delivered by the judges; the judgment was delivered by VENKATASWAMI, J., with concurrence from MOHAN S. OFFG. C.J.

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