1976 (5) TMI 97 - SC - Central Excise

Whether the condition incorporated in the licences of the respondents that they would lift the fixed minimum quantity of liquor and sell the same at their allotted shops and in case of their default or failure to do so, they would be liable to pay compensation equal to the amount of excise duty leviable on the unlifted quantity is valid and enforceable? Validity of the appellants demand from the respondents in respect of sales tax at the rate of ten paise per rupee on the retail sales of country spirit made by the latter with effect from April 2, 1969 questioned Held that - The demand made by the appellants though disguised as compensation, is in reality a demand for excise duty on the unlifted quantity of liquor which is not authorised by the provisions of the Act. Appeal dismissed. The High Court was clearly in error in ignoring that the Government cannot divest itself of the right incidental to its office by conduct which, in the case or a private person, would amount to estoppel and in characterizing the demand for sales tax made by the appellants as illegal. Accordingly Appeals are partly allowed, and it is held that the demand made by the appellants from the respondents in these appeals in respect of sales tax on the turnover of sales of country spirit made by them between April B, 2, 1969 and March 31, 1970 was valid and could not be struck down. The parties in these six appeals shall pay and bear their own costs. P.H.P. Appeals partly allowed.

Issues Involved:
1. Validity and enforceability of the condition in the licenses requiring licensees to lift and sell a minimum quantity of liquor.
2. Validity of the demand for sales tax on the turnover of sales of country spirit.

Issue-wise Detailed Analysis:

1. Validity and enforceability of the condition in the licenses requiring licensees to lift and sell a minimum quantity of liquor:

The primary issue in these appeals is the enforceability of a condition in the licenses that mandated licensees to lift a minimum quantity of liquor and sell it at their allotted shops. If they failed to do so, they were liable to pay compensation equivalent to the excise duty on the unlifted quantity. This condition was contested as invalid, unconstitutional, and unenforceable.

The Supreme Court referred to the precedent set in Bimal Chandra Banerjee v. State of Madhya Pradesh ([1971] 1 S.C.R. 844), which held that "No tax can be imposed by any bye-law or rule or regulation unless the statute under which the subordinate legislation is made specially authorizes the imposition." The court noted that the legislature had levied excise duty or countervailing duty on excisable articles that were imported, exported, transported, manufactured, cultivated, or collected under any license granted under the relevant sections of the Act. However, the State Government was not empowered to levy any duty on liquor that the contractors failed to lift. Therefore, the rule imposing the condition in the licenses and the demand notices were deemed invalid.

The court emphasized that neither Section 28 nor Section 29 nor any other provision of the U.P. Excise Act, 1910 authorized the levy of the amounts sought to be recovered from the respondents. Consequently, the demand made by the appellants, though disguised as compensation, was in reality a demand for excise duty on the unlifted quantity of liquor, which was not authorized by the provisions of the Act. Thus, the appeals on this issue were dismissed with costs.

2. Validity of the demand for sales tax on the turnover of sales of country spirit:

Appeals Nos. 399 to 404 of 1975 raised an additional issue regarding the validity of the demand for sales tax at the rate of ten paise per rupee on the retail sales of country spirit made by the respondents with effect from April 2, 1969. The respondents contended that since the State Government did not announce at the time of the auction that the exemption from sales tax was likely to be withdrawn, the appellants were estopped from imposing and recovering the sales tax.

The court held that Sections 3-A and 4 of the U.P. Sales Tax Act, 1948 clearly authorized the State Government to impose sales tax. The fact that sales of country liquor had been exempted from sales tax vide Notification No. ST 1149/X-802(33)-51 dated April 6, 1959, could not operate as an estoppel against the State Government. The court cited several precedents, including M. Ramanathan Pillai v. State of Kerala ([1973] 2 S.C.C. 650) and Federal Crop Insurance Corporation v. Merrill, to assert that there can be no estoppel against the Government in the exercise of its legislative, sovereign, or executive powers.

The court concluded that the High Court erred in characterizing the demand for sales tax as illegal. Therefore, Appeals Nos. 399 to 404 of 1975 were partly allowed, upholding the validity of the sales tax demand. The parties in these six appeals were directed to bear their own costs.

Conclusion:

The appeals concerning the enforceability of the condition in the licenses requiring the lifting and selling of a minimum quantity of liquor were dismissed, as the demand for compensation was deemed an unauthorized excise duty. However, the appeals challenging the imposition of sales tax were partly allowed, affirming the State Government's authority to levy sales tax on the turnover of sales of country spirit.

← Previous Next →