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TMI Blog2007 (4) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... Sri M.V. Seshachala, learned counsel appearing for the appellant, challenging the correctness of the order impugned, made three submissions. Firstly, he submitted that the Tribunal has seriously erred in law in relying upon the judgment of this court rendered in the case of Ugar Sugar Works Ltd. v. State of Karnataka rendered in Writ Petition No. 5008 of 91, disposed of on September 5, 1991, to come to the conclusion that the payment made by the assessee towards the shortfall within the maturity period is allowable as deduction under section 37 of the Income-tax Act (hereinafter referred to as 'the Act'). Elaborating this submission learned counsel pointed out that the amount payable by the assessee for shortfall in the maturity period was treated as additional levy by this court and therefore, the said amount partakes of the character of penalty; and therefore in the light of the Explanation given to section 37 of the Act, the said amount is not deductible towards the expenditure incurred by the assessee. In this connection, he referred to us the discussion made by the Assessing Officer in the order of assessment. Secondly, he submitted that though the amount paid by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to raise the contention for the first time before this court as they cannot be said to be the persons aggrieved by the order passed by the Tribunal. In this connection, he also referred to us clause (a) of sub-section (6) of section 260A of the Act wherein it is provided that the High Court could determine any issue which has not been determined by the Appellate Tribunal. According to him, if the contention is not advanced before the Tribunal, it cannot be contended before this court that the issue has not been determined by the Appellate Tribunal. In support of his submission he also relied upon a decision of the Bombay High Court in the case of CIT v. Tata Chemicals Ltd. reported in [2002] 256 ITR 395. Before we proceed to consider the contentions urged by Sri Seshachala on the merits, we find that it is convenient to first deal with the preliminary objections raised by Sri Prasad that counsel for the appellant, having not urged before the Tribunal that the payment made by the assessee towards the shortfall of maturity period is in the nature of a penalty, cannot be permitted to raise the said contention. No doubt, the contention of Sri Seshachala that the payment made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court involves a substantial question of law, such an appeal would be maintainable before the High Court under section 260A of the Act. Therefore, even if the contention is not urged before the appellate authority, but on the basis of the records, without investigation of any facts, if the substantial question of law is made out by the appellant before the High Court, in our view, it would be permissible for the High Court to entertain an appeal for consideration of such a question. Therefore, as noticed by us earlier, the language employed under subsection (1) of section 260A of the Act is that the case should involve a substantial question of law. The meaning attached to the words "substantial question of law", in our view, should not be given a restricted meaning to understand it as it should involve substantial error of law in the order. While interpreting a provision which provides for a right of appeal, the court should not narrow down the scope of the right of appeal provided to the parties. Sub-section (2) of section 260A of the Act cannot be read de hors sub-section (1) of section 260A of the Act. Sub-section (1) of the said section confers power on the High Court to ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities. From this point of view, we are unable to accept the contention of Sri Shantaraju, learned counsel for the petitioner that there is lack of competence on the part of the Excise Commissioner to issue the circular. On the contrary, as the learned Advocate General rightly submits, once a power is available under sub-rule (3) of rule 14 of the Rules to the Excise Commissioner, a corollary power to meet any eventuality is also available under law by application of the General Clauses Act. This is our interpretation on the circular.' Further, in the case of CIT v. Ahmedabad Cotton Mfg. Co. Ltd. reported in [1994] 205 ITR 163, the Supreme Court while considering the question that when a mill is made liable to pay to the Central Government certain amount on the shortfall in its export of sanforized cloth could be considered as penalty has taken the view that though the amount required to be paid was described as penalty, having regard to the substance of the transaction between the parties, it cannot be considered as penalty. This is clear from the observation made by the court, which reads thus: 'It is no doubt true that the word used in the scheme which we have set out above f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking the payment for shortfall of maturity period in terms of Circular No. 150 dated July 25, 1992. Therefore, the second contention of Sri Seshachala is also liable to be rejected as one devoid of any merit. The only contention that remains to be considered is whether the amount paid by the assessee towards the adhesive labels should have been held by the Tribunal as a fee though sub-rule (8) of rule 15 of the Rules states that the payment made is towards the cost of the labels to the Government, as contended by Sri Seshachala. In our view, there is also no merit in this submission of learned counsel for the appellant. Sub-rule (8) of rule 15 of the Rules imposes an obligation on every licensee, to have the sealed bottles affixed with excise label at his cost, in the presence of the Warehouse Officer, and not to take out any bottle without excise label being affixed, from the warehouse. However, the said rule confers discretion on the Commissioner, on an application being made by the licensee, to allow release of the bottled arrack for sale without labels on payment of the cost of labels to the Government, in case, if he is satisfied that the labels were not available. It is us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arnataka Excise (Manufacturing and Bottling of Arrack) Rules, 1987 (for short "the Rules"). The rule with which we are concerned herein is sub-rule (3) of rule 14 which reads as under: "(3) Arrack after blending shall be matured in such manner and for such period as may be specified by the Commissioner from time to time." The Commissioner of Excise, however, issued a circular stating: "It is hereby specified that the arrack shall be matured in wooden vats for a minimum period of 15 days before bottling the same." A period of 15 days, thus, had been prescribed for the aforementioned purpose. A question, however, arose as to what would happen to the excise article, if for circumstances beyond one's control, the said directives cannot be carried out. With a view to meet that contingency, it was stated: "In case the bottling unit for any reason beyond his control is not able to mature the arrack in the manner and to the extent specified above, the unmatured arrack may be bottled with the prior permission of the officer in-charge of the bottling unit. The penalty for supplying unmatured arrack as specified above would be 29 paise per bulk litre." Indisputably, the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year could be disallowed under section 43 of the Act?" Relying upon a decision of the said court in Ugar Sugar Works Ltd. v. State of Karnataka passed in Writ Petition No. 5008 of 1991 disposed of on 5th September, 1991, the High Court held: (i) The amount in question was not a penalty; (ii) It was also not to be treated either as a fee or excise duty; (iii) The payment made for non-affixation of labels also is not a penalty; stating: "10. Therefore, in the absence of labels not being available, if the assessee was made liable to pay the amount to the Department towards the cost of the labels for getting the bottled arrack released, it is not possible to take the view that such payment was made by way of fees as contended by Sri Seshachala. The language employed in the rule makes it explicit that the amount required to be paid to get the bottled arrack released for sale without labels is by way of cost of labels to the Government. When the language in the rule in explicit terms provides that the amount required to be paid towards the cost of labels and the rule also imposes an obligation on the licensee to get the labels affixed at his cost in the presence of the W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions does not arise. It contemplates an additional levy. The source for such additional levy having regard to the nature of the circular must be found in terms and conditions of the licence. Such terms and conditions of the licence are fixed by the State by reason of the provisions of the Act made in terms of entry 8 of List II of the Seventh Schedule to the Constitution of India. Such payments are, therefore, made in pursuance of or in furtherance of the terms of the licence which is referable to entry 8 and not as a tax on manufacture. This aspect of the matter has been considered by a Constitution Bench of this court in State of Kerala v. Maharashtra Distilleries Ltd. [2005] 11 SCC 1 stating: "79. In this connection we may usefully refer to the decision of this court in State of Punjab v. Devans Modern Breweries Ltd. In that case the State of Kerala was also a party. The State had imposed tax on import of potable liquor manufactured in other States. The stand of the State was that it was within the province of the State to impose restriction on import of potable liquor by imposing import duty. The aforesaid duty had not been imposed by the State in exercise of its statut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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