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TMI Blog1990 (2) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... aining delivery of arrack in bottles, is required to remit the price of the arrack and the excise duty to the Government; and at the time of obtaining delivery of arrack in bottles, pay the bottling charges to the bottler through whom bottled arrack is delivered to the petitioner. In respect of these transactions the petitioner is called upon to pay the sales tax not only on arrack, but also on the excise duty and bottling charges paid by the petitioner. Section 5(3-D) stipulates, inter alia, that where goods sold or purchased are contained in containers, the latter are liable to be taxed at the same rate of tax as is applicable to the contents, whether or not the containers have already been subject to tax under the Act. 3.. The first contention of Sri K. Srinivasan, learned counsel for the petitioner, is that the arrack which is the subject-matter of sale is itself manufactured by the Government; that, accordingly, there is no question of the Government as seller of the arrack being required to pay any excise duty on "arrack" manufactured by itself; and that the requirement of payment of "excise duty" by the petitioner as purchaser, which by reason of the fact that it is payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Government to the licensees (vide page 477 of the report). There are other grounds, which are not necessary to refer here. The relevant facts found at page 480 of the said decision, were that, there were three licensed manufacturers (distilleries) in the State and every distillery had a warehouse who was allowed to keep rectified spirit without payment of excise duty; the arrack manufactured were sold to the State Government and from the bonded depots of the Government the licensees (of exclusive privilege of vending of arrack) were given their requirements of arrack. Government pays the distillers the prices of arrack, but no excise duty was collected from the distillers, nor paid by the Government to itself. The excise duty was collected from the licensees (retail vendors) by the Government when arrack or special liquor was sold to them; this excise duty was treated as part of the sale price for the purposes of levy of sales tax on the turnover of the licensees. Some of the relevant observations of the Bench were: "If the State Government had levied and collected excise duty from the distiller, either immediately after he manufactured arrack or special liquor, or before he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the licensees?" After quoting an extract from the decision of the Supreme Court in George Oakes (P) Ltd.'s case [1962] 12 STC 476 (SC); AIR 1962 SC 1037, the Bench held: "But in the present petition excise duty is not collected by the State Government in its capacity as the seller selling arrack or special liquor to the licensees. On the other hand, excise duty is collected by the State Government under the Excise Act and de hors its role as the seller. Even if arrack or special liquor had been sold by a private person from a bonded warehouse, to the licensees, the State Government could have levied and collected excise duty from the licensees. Hence we think the above observations of Goddard, L.J., and the Supreme Court are not applicable to the sale price at which the State Government sells liquor to the licensees. It is difficult to see how excise duty paid, not by the seller but by the purchaser, to the State Government can become a part of the price at which the goods are sold by that seller to that purchaser. If that is the true position, we think the State Government cannot, under section 19 of the Sales Tax Act, collect sales tax on excise duty which is not a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, but as a tax-payer who was responsible to discharge the tax liability. 7.. Appeal filed by the State Government against this decision was withdrawn by it subsequently. Therefore, the Supreme Court had no occasion to examine the correctness of this decision. The State Government withdrew the appeal against the above decision, obviously, because of an amendment made to the Sales Tax Act, by Mysore Sales Tax (Amendment) Act (17 of 1969). By this amendment, the Act sought to impose a higher levy of sales tax in respect of the sale of arrack, retrospectively, with effect from 1st April, 1969, increasing the rate from 6.5 per cent to 45 per cent. The Act also declared the levy of sales tax levied or collected earlier, as valid. This amendment in no way amended the law so as to cure the defect in the earlier law which resulted in the decision in Cawasji's case [1969] 1 Mys LJ 461, though the object of the Amendment Act was to get over the legal bar found in the said decision against the levy of sales tax on the amount collected as excise duty. This Amendment Act was challenged and the challenge reached the Supreme Court ultimately. The challenge was by the same petitioner who had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has not purported to do so through the amending Act. As a result of the judgment of the High Court declaring such levy illegal, the State became obliged to refund the excess amount wrongfully and illegally collected by virtue of the specific direction to that effect in the earlier judgment. It appears that the only object of enacting the amended provision is to nullify the effect of the judgment which became conclusive and binding on the parties to enable the State Government to retain the amount wrongfully and illegally collected as sales tax and this object has been sought to be achieved by the impugned amendment which does not even purport or seek to remedy or remove the defect and lacuna but merely raises the rate of duty from 6.5 per cent to 45 per cent and further proceeds to nullify the judgment and order of the High Court." 8.. In the instant case before us, the State relied upon the decision of the Supreme Court in McDowell Company Limited v. Commercial Tax Officer [1985] 59 STC 277 (known as Second McDowell case) to contend that the ratio of Cawasji's case [reported in [1969] 1 Mys LJ 461] is no longer good law and therefore demand of sales tax on the amount paid as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 158 of [1977] 39 STC 151 (SC)] that intending purchasers of the Indian liquors who seek to obtain distillery passes are also legally responsible for payment of the excise duty is too broadly stated. The 'duty' was primarily a burden which the manufacturer had to bear and even if the purchasers paid the same under the Distillery Rules, the provisions were merely enabling and did not give rise to any legal responsibility or obligation for meeting the burden." (underlining is by us) Thereafter, the definition of "turnover" in the Andhra Pradesh General Sales Tax Act was referred to, to point out that whatever consideration was paid for the sale, it will be part of the turnover. At page 292, the device adopted by the parties was referred, as: "Admittedly, the bills issued by the appellant did not include the excise duty. As already found, payment of excise duty is a legal liability of the manufacturer; its payment is a condition precedent to the removal of the liquor from the distillery and payment by the purchaser is on account of the manufacturer. According to normal commercial practice, excise duty should have been reflected in the bill either as merged in price or being shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Rules. Section 22 creates a charge by levying the excise duty and countervailing duty on any excisable article manufactured and section 23 prescribes the ways of levying the excise duty. Section 23 in essence directs the levy of excise duty rateably on the quantity of goods produced in or manufactured in or issued from a distillery, brewery, manufactory or warehouse, or imported into the State. Sub-section (aa) thereof pertains to litre-fee levied on the quantity of excisable article imported by any person or recovered by any person when issued from a distillery, brewery, manufactory or warehouse as the case may be. Here again, the State is empowered to adopt one of the ways as may be prescribed. As per rule 2 of the Rules, excise duty or litre-fee or both shall be levied when such excisable articles are issued from any distillery, warehouse or other place of storage. Thus the charge is on the manufacture of goods; and the "ways " of levy is as prescribed. But these provisions, specifically do not charge the tax on the buyer. If so, the impost being an excise duty, should be primarily charged on the manufacturer and the collection of the same from a subsequent buyer cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , defines "sales", as every transfer of the property in goods...for cash or for deferred payment or other valuable consideration, and sub-clause (v) of section 2 defines "turnover" as the aggregate amount for which goods are bought or sold, etc. The payment of excise duty is a basic requirement to be complied with by the licensee before the arrack gets transferred to him. It may be a condition precedent or it may be part of the compulsory consideration for passing of the title in the goods. In the circumstances and having regard to the principles governing the concept of excise duty, it is not unreasonable to hold that here payment of excise duty is part of the consideration and not merely a compliance with a prior condition for the transaction. In view of the above, we are of the view that the decision of the Bench of this Court in Cawasji's case [1969] 1 Mys LJ 461, is no longer good law and is not binding on us in the light of the decision of the Supreme Court in Second McDowell case [1985] 59 STC 277. 15.. One of the reasons given in Cawasji's case [1969] 1 Mys LJ 461 was that, "it is obvious, that excise duty cannot be collected from the State Government which issues liquor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down that the primary responsibility to pay excise duty was on the manufacturer and though it was paid directly to the Government by a purchaser, still it formed part of the turnover of the manufacturer.' (underlining is by us) (This decision was the subject-matter of appeal before the Supreme Court, only on the question of taxability of packing material under section 6-C of that Act and the decision of the Supreme Court is reported in Raj Sheel v. State of Andhra Pradesh [1989] 74 STC 379.) 17.. M.K Papiah Sons v. Excise Commissioner [1975] 35 STC 537 (SC); AIR 1975 SC 1007, cited by the learned counsel for the petitioner, was an appeal by a few of the petitioners against the decision in Cawasji's case (1969) 1 Mys LJ 461, to the extent the High Court did not grant some of the reliefs sought by the petitioners. The appellant was a licensee to vend liquor in retail. The first contention was: "that sections 16, 22 and 23 of the Act read with the Mysore Excise (Distillery and Warehouse) Rules, 1967 and with the Mysore Excise (Excise Duties) Rules, 1968, enable levy of excise duty only when arrack is issued from a distillery or warehouse or other place of storage established or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom condition 19 of the terms of the auction under which the licensee obtained the privilege of vending the liquor. Condition 19, reads thus: "The licensee to vend bottled arrack shall obtain bottled arrack to be sold in his shop from the bottling units. Locations of bottling units and areas to be entered to by them are as under: ----------------------------------------------------------------------------- Sl. No. Location of bottling unit Area to be covered. ----------------------------------------------------------------------------- Bangalore Bangalore Rural District. ----------------------------------------------------------------------------- The licensee shall pay issue price therefor at such rates as may be prescribed from time to time. However, the existing rate of arrack and the bottling charges of the bottles of different capacities is specified below: per bottle of -------------------------------------------------------------------------- Sl. No. 750 ml. 375 ml. 180ml. 100ml. -------------------------------------------------------------------------- Arrack price 1.5300 0.7600 0.3700 0.2030 Duty 3.7500 1.8750 0.9000 0.5000 Sales tax 0.4530 0.2060 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount payable by the purchaser to the dealer as consideration for the sale......" "Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily, it is not shown as a separate item in the bill, but it is included in the price charged by him. The 'sale price' in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. True, the excise duty component of the price would not be an addition to the coffers of the dealer, as it would go to reimburse him in respect of the excise duty already paid by him on the manufacture of the goods. But, even so, it would be part of the 'sale price' because it forms a component of the consideration payable by the purchaser to the dealer. It is only as part of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser. There is no other manner of liability, statutory or otherwise, under which the purchaser would be liable to pay the amount of excise duty to the dealer. And, on this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion treats sale of a container or a packing material when sold along with the goods, differently, from an identical container or a packing material, sold independently and hence offends article 14. Section 5(3-D) is attracted,where goods sold or purchased are (i) contained in containers; or (ii) packed in any packing materials liable to tax under the Act. In such a case, the rate of tax and the point of levy applicable to turnover of such containers or packing materials,shall be the same as those applicable to goods contained or packed (irrespective of the fact that the containers or the packing materials have already been subjected to tax under the Act or not. It is also irrespective of the fact that the price of the containers or of the packing materials is charged separately or not). Proviso says that if the goods, contained in the containers or packed in the packing materials, is exempt from tax, then, no tax under this provision shall be levied on the containers or the packing materials. The result is that the containers are treated as part of the goods contained in the containers (similarly packing material is treated as part of the goods packed) for purposes of taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds that, in a few cases, it is possible that the price of goods is determined upon a consideration of several components of a sale, including the value of packing material, but none the less the price paid for, is the price of the goods. In such -cases it is not open to analyse the value of different components; in other words, when the value of goods is determined by taking into consideration the value of the packing materials also, it is impermissible to analyse and separate the value of the packing material for the purpose of levying the sales tax. Section 6-C of the Andhra Pradesh Act in such a situation, levies the same rate of tax on the packing material as applicable to the goods packed in it. This was held to be valid, because, the transaction between the dealer and the purchaser, is. essentially in respect of the goods. If an account is to be taken of the different components that make the price of the goods, all the components should attract the same rate of tax. The observations of the Supreme Court is extracted below: "Turning to section 6-C of the Act, it seems to envisage a case where it is the goods which are sold and there is no actual sale of the packing mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material and it is only by legal fiction, and for a limited purpose, that such sale can be contemplated. In the circumstances, no question arises of section 6-C being constitutionally discriminatory, and therefore invalid." 25.. The principle behind section 5(3-D) seems to us to be that a buyer bargains for the goods and pays the price in its entirety inclusive of the value of the packing material, whenever the goods are sold in a packed condition (or housed in a container); the consideration for the sale essentially, is the consideration for the goods, though, the price (i.e., the consideration) may have as a component of it, the price of the packing material (or of the container). This is not an irrelevant principle at all, if one considers the practical aspect of a trading transaction. Here, under section 5(3-D) the legislature has thought it fit and convenient to treat the sale of goods contained in a container as an integrated, single transaction of sale of the goods; this levy makes it simpler for the assessee to maintain his accounts, and convenient for the Revenue to levy and collect the tax; it makes it unnecessary to analyse the components of a particular sale and enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods enter the market (including the value of packing material in which the goods is packed). In other words, packing materials in which the goods are packed become a component of the goods manufactured while entering the stream of trade and hence, inclusive of such a component in the assessable value was upheld. The packing material containing the goods, thus, has no special status of its own, but integrates itself within the status of the goods packed. At page 497 Comp Cas (page 442 para-51 of AIR), the Supreme Court held: "Now, the price of an article is related to its value (using this term in a general sense), and into that value have poured several components, including those which have enriched its value and given to the article its marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value up to the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee up to the date of delivery on account of storage charges, outward handling charges, interest on inventories (stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be held as an arbitrary classification, bearing no nexus to the object of the Act. Such a classification also makes the levy and collection simpler reducing the area of disputes to the minimum; it also, prevents the dealers from resorting to tax evading mechanisation, while dealing in goods which are sold in containers or in packed condition by showing unrealistic prices for the container (or the packing materials) and the goods, so as to reduce the sales tax payable in a given case, i.e., if the sale of the goods attracts a higher rate of taxation, then, the dealers are likely to sell the goods for a lesser price and offset the reduction by increasing the sale price of the container; Section 5(3-D), thus, prevents the dealers from being tempted to resort to such a scheme of tax evasion. Taxation operates in the sphere of realities and a law levying a tax normally takes note of such realities. A hypothetical equality is not the basis of article 14 of the Constitution. Whenever, a distinction exists in reality, and such a distinction has a reasonable nexus with the object of the law, the distinction made by the law cannot be nullified as violative of article 14 of the Consti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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