1992 (12) TMI 9 - HC - Income Tax

Summary

Issues:
Whether sellers can collect tax at source on excise duty paid by buyers for alcoholic liquor purchases.

Analysis:
The petitioners hold L-14A licenses for retail vend of country spirit and trade in alcoholic liquor for human consumption. Sellers are required to collect tax at source under section 206C of the Income-tax Act, 1961, on goods like alcoholic liquor. The petitioners argue that sellers cannot collect tax on excise duty deposited before obtaining permits to purchase liquor. The Union of India contends that excise duty is the obligation of the manufacturer, and buyers are meeting the manufacturer's liability. The court examines section 206C and determines that tax is to be collected on the amount payable at the time of purchase, excluding excise duty already paid. The court distinguishes this case from McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), where excise duty was considered part of turnover for sales tax. The court concludes that sellers cannot collect tax on excise duty already paid by buyers, as it is not part of the amount payable at the time of sale.

In the judgment, the court clarifies that the sellers (distilleries) cannot collect tax at source on excise duty already paid by buyers, as it is not part of the amount payable at the time of purchase. The court emphasizes that tax is to be collected on the actual amount payable by the buyer to the seller at the time of sale. The court's interpretation of section 206C highlights that the tax is not to be collected on the excise duty component already paid by the buyers. The court distinguishes the present case from the McDowell judgment, emphasizing the specific provisions of section 206C regarding tax collection at source. The court's analysis focuses on the timing and nature of the amount payable, excluding excise duty from the taxable amount.

The court's decision in this case provides clarity on the issue of tax collection at source on excise duty for alcoholic liquor purchases. By interpreting the provisions of section 206C, the court establishes that sellers cannot collect tax on excise duty already paid by buyers. The judgment emphasizes the importance of the wording and timing specified in the tax collection provisions, ensuring that tax is levied only on the actual amount payable at the time of purchase. This ruling sets a precedent for similar cases involving tax collection on specific components of transaction amounts and upholds the distinction between excise duty and purchase price in tax calculations.