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TMI Blog2006 (3) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred to as "M.S.I.L." in short) and Mysore Sugar Company Limited (hereinafter referred to as "M.S.C.L." in short) and the State Government represented by its Excise Commissioner, Karnataka, have filed these appeals questioning the correctness of the common order dated October 27, 2003, passed by the learned single judge in W.P. Nos. 6869-6874/2001, connected with W.P. Nos. 6967-6972/2001. The first two appellants are aggrieved by the dismissal of their writ petitions by affirming the orders of assessment passed by the first respondent-Deputy Commissioner of Income-tax (TDS-I). In so far as the third appellant-Excise Commissioner is concerned, he has filed the appeal seeking to set aside the impugned order passed in the writ petitions only in so far as the findings recorded on the circulars issued by him, urging various legal contentions and prayed to quash the orders of assessment passed against the first two appellants for the assessment years 1995-96 to 2000-01, wherein it is directed them to pay a sum covered in the orders by allowing their writ petitions and set aside the common order passed by the learned single judge in the abovesaid writ petitions, urging va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e awarded by conferring leasehold rights upon them for vending of arrack in retail in their respective assigned areas in the State, which rates are fixed by the State under the provisions of the Excise Act and the Rules. The contractors have to remit the requisite amount of excise duty into the State Government Treasury and were required to secure permits for procurement of arrack from the appellants. On production of such permits, the first two appellants herein were required to deliver arrack to the contractors/buyers to vend the same in retail in their respective areas in the State as assigned in the contracts awarded in their favour strictly in terms of the contract. The provisions of section 206C(l) of the Income-tax Act of 1961, provide for collection of income-tax at source from the contractors/buyers by the appellants at the specified rate in the corresponding entry in column (3) of the Table in respect of the goods of arrack purchased by them. We are concerned in these cases with the Explanation part to sub-section (11) of section 206C of the Act which was inserted by the Finance Act with effect from April 1, 1992. In so far as liquor for human consumption (other than In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers at the specified rate under the Table under section 206C(1) of the Act from the contractors/buyers as the Excise Commissioner-the third appellant herein had issued a circular which is produced as annexure A in the appeal of MSIL. Addendum was also issued in terms of annexure B stating that they were not required to deduct the tax at source from the contractors and remit the same to the Department as provided under the provisions of the Act for having sold the liquor to them for vending in retail at the rates fixed by the State Government under the provisions of the Excise Act and the Rules. It is stated by them that the directions contained in the circulars were accepted by appellant Nos. 1 and 2 and, therefore, they did not collect the tax amount from the buyers at their source as provided under the Table provided to the provision of section 206C(1) of the Act, apart from urging the other legal contentions by them in support of their case. Further they had stated the other legal contentions in the writ petitions contending that they are not liable to pay the amount demanded from them by the Department. It is an undisputed fact that even after an opportunity was given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it. The third ground of attack of the impugned assessment orders passed against them is that the lack of jurisdiction for the first respondent to initiate proceedings and pass assessment orders, in support of their legal contention, learned senior counsel Mr. Sarangan, K.P. Kumar contended by placing strong reliance upon the notification issued by the Chief Commissioner of Income-tax Department in exercise of his power under sub-section (1) of section 120 of the Act, read with the Board's notification dated March 30, 1988, and sub-section (2) of section 120 of the Act, is that he had conferred powers upon the various officers of the Department mentioned therein with their designations in column No. (2) of the Notification in respect of the territorial jurisdiction mentioned under column No. (3). At Sl. No. 18 of the notification dated July 6,1998 issued by him the powers are conferred upon the ACIT (TDS)-I, Bangalore, and he had jurisdiction of Bangalore Urban and Rural District in relation to Chapter XVII for collection and recovery at source. But now his designation has been re-designated as Deputy Commissioner of Income-tax (TDS) under column No. (3) of the notification. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, in support of the contention that if the Assessing Officer had no jurisdiction to pass the assessment orders under section 206C of the Act, then the orders are void, hence, the same are not enforceable against them in law. Further it is urged that non-consideration of the important ground in relation to the jurisdiction of the officer who had passed the orders of assessment has not been properly considered by the learned single judge while exercising his extraordinary jurisdiction under article 226 of the Constitution of India, therefore the impugned order challenged in these appeals is vitiated in law and, therefore, liable to be set aside. The impugned orders of assessment, which are affirmed by the learned single judge by dismissing the writ petitions without considering the case of the appellants in a proper prospective and, therefore, the learned senior counsel has contended that the order of the learned single judge is vitiated in law. The impugned orders of assessment passed by the Assessing Officer against appellants Nos. 1 and 2 are void ab initio in law, therefore, non-consideration of this important legal aspect of the matter by the learned single judge while answe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in law, as he has not properly appreciated the legal contentions urged on behalf of appellants Nos. 1 and 2 with regard to the principles of natural justice as the Assessing Officer prior to passing the assessment orders had not complied with the same by affording reasonable opportunity to them and, therefore, the same warrants interference by this court in these appeals. It is also further contended by learned senior counsel that the learned single judge has not applied the decisions upon which strong reliance has been placed by them in support of their above legal contention on the merits though he had referred to in the impugned common order, even though the observations made in the said cases are in all fours applicable to the fact situation and the learned single judge had distinguished the decisions cited by them wherein the various High Courts have interpreted the provisions of section 206C, Explanation to clause (a) "buyer" as inserted by way of an amendment to the Act to sub-section (11) of the Act particularly the phrase "obtained and not purchased" as occurred in sub-clause (iii) by placing reliance upon the definition of Black's Law Dictionary, Chambers 21st Century ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 119 of the Act beneficial to the assessee are to tone down the rigour of the law and therefore, they are binding on the Revenue in the administration of the Act. In this regard, he had placed reliance upon other judgments of the apex court in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913; K.P. Varghese v. ITO [1981] 131 ITR 597 and the Full Bench decision of the Himachal Pradesh High Court in Saini and Co. v. Union of India [2000] 246 ITR 762, Vinod Rathore v. Union of India [2005] 278 ITR 122 of the Madhya Pradesh High Court, Bikul Das v. State of Assam [1998] 231 ITR 247 (Gauhati) and also strong reliance upon a decision of the Supreme Court. It is contended by the learned senior counsel that the learned single judge had accepted the contentions urged on behalf of the Department by its senior standing counsel that the price is not fixed by the State Government under the Act for sale of goods of liquor of arrack in retail by the buyers for the reason assigned by him that as there is a minimum and maximum price and, therefore, there is no price fixed for sale of liquor in retail under the Act or Rules by the State Government. Therefore, he had contended that the finding r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame has not been properly appreciated by the learned single judge though the legal contentions were urged before him as has been stated in these appeals. Therefore, it is contended by him that the impugned orders of assessment and the order of the learned single judge are vitiated on account of error in law as both the Assessing Officer and the learned single judge have wrongly interpreted the provisions of the Act and applied to appellants Nos. 1 and 2 by rejecting their tenable contention holding that they are liable to pay tax to the Department. He has also placed strong reliance upon a Bill which was placed on the floor of Parliament with regard to the existing provision of section 206C by producing the extract from [2003] 260 ITR (St.) 224 with regard to substitute sub-clause (iii) of definition "buyer" in the Explanation to the above section of the Act. Sub-section (1) of section 206C of the Act, inter alia, provides for collection of tax at source at the rate of 10 per cent, as mentioned in the corresponding entry in column No. (3) of the Table in the case of Indian made liquor and scrap other than Indian made foreign liquor from the buyers. The object of introducing such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment advocate Mr. P.G. Chengappa on behalf of the appellant-Excise Commissioner and the State Government contends that the findings and the reasons recorded by the learned single judge with regard to the circulars issued by the Excise Commissioner stating that section 206C of the Act is attracted to the contractors/buyers for payment of tax at source to the Department for having purchased goods of arrack from the appellant-companies who are the sellers. Since the learned single judge has held that the circulars are contrary to the provisions of section 206C of the Act and further he has held that appellants Nos. 1 and 2 should not have applied the circulars to the case on hand, further it is contended by him that the circulars are legal and valid as the same was issued by the Excise Commissioner in exercise of his power under the provisions of the Karnataka Excise Act and Rules. Therefore, the State Government is aggrieved by the findings and observations made in the impugned order with regard to the circulars they have also filed appeal. Learned senior standing counsel for the Department Mr. Indra Kumar had sought to justify the findings and reasons recorded by the learned s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the statute and in terms of the legislative power". He further stated that giving beneficial interpretation to the statutory provisions amounts reviewing the object and intendment of enactment of section 206C which would result in continuing tax evasion by a trader, and, therefore, he submits that the learned single judge had rightly rejected the legal contention urged in this regard by learned senior counsel on behalf of the appellant-companies and rightly applied the statutory provisions to them and correctly answered the contentious issues against appellants Nos. 1 and 2 that arose for his determination in the writ petitions and held that the Department has rightly exercised its statutory power by applying the provisions of section 206C to the appellant companies and fastened the liability by the Assessing Officer upon them, as they did not discharge their statutory obligation as required in law by not collecting the income-tax at source from the buyers for the relevant period and, therefore, they are statutorily liable to pay the tax to the Department as provided under sub-section (6) of section 206C of the Act. He also contends that the Explanation clause (a) "buyer" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferring jurisdiction originally upon the various officers for passing assessment orders against the assessees on the basis of the territorial jurisdiction with reference to the provisions of the Act. Learned standing counsel appearing on behalf of the Department has placed strong reliance upon the judgment of the Supreme Court in the case of Novopan India Ltd. v. CCE and Customs [1994] Suppl. 3 SCC 606 wherein the apex court has laid down the law after examining the Central Government exemption notification issued under the provisions of the Central Excises and Salt Act, 1944 read with Rules and Schedule I, item 16-B, with regard to the goods "unveneered particle boards" at length with regard to exemption from the payment of tax by the assessee in respect of such goods. Learned counsel has placed strong reliance upon para. 12 of the said decision, wherein it has referred to its earlier decision in the case of Mangalore Chemicals and Fertilisers Ltd. v. Deputy CCT reported in [1991] 83 STC 234; [1992] Suppl 1 SCC 21. Para. 24 of the said judgment is extracted in which paragraph another decision of the apex court, viz., CCE v. Park Exports P. Ltd. [1989] 75 STC 105; [1989] 1 SCC 345, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said provision to the Act was to plug the loopholes in the Act and to see that the tax is collected from them at source by the seller by casting statutory obligation upon the seller at the stipulated rate in the Table and remit the same to the Department as provided under sub-section (3) of section 206C. The Explanation clause (a) buyer and exemption sub-clauses (i) to (iii) to sub-section (11) of the above provisions do not suffer from any ambiguity which calls for their interpretation by this court. Therefore, he strongly contends that the appellant-companies do not fall within any of the exemption clauses referred to supra as the contractors/buyers have to pay the income-tax at source to the Department as they had obtained liquor during the relevant period for vending the goods of arrack in retail after acquiring rights from the Excise Department of the State Government in public auction and, therefore, the sellers had got statutory obligation under the above provision of the Act to collect the tax amount by way of deduction from them at the time of sale of goods of Indian liquor of arrack as they have purchased the same from appellants Nos. 1 and 2 during the period in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) and (2) of section 120 of the Act. Strong reliance also has been placed by learned counsel with regard to the various directions issued by the Chief Commissioner of Income-tax in the notification to the first respondent, he had been conferred with the jurisdiction for the purpose of assessment of income-tax payable by the appellant companies. Therefore, the contention urged by the appellants' senior counsel in this regard that the Assessing Officer had no jurisdiction to pass an assessment orders against them is wholly untenable both on the facts and in law, hence, the learned single judge has rightly rejected the said contention which does not have any merit for consideration in these appeals. With regard to the last contention urged on behalf of the appellant-companies that opportunity was not given to them by the Assessing Officer before passing the assessment orders, learned counsel for the Revenue submits that this contention of them is once again factually incorrect. He had submitted with reference to the records that though adequate opportunity was given to them, they have failed to avail of the same by submitting replies, the proceedings went on for a considerable ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and pass the assessment orders against the appellant-companies? (iii) Whether the orders of assessment passed by the Assessing Officer are in compliance with the principles of natural justice? (iv) Whether the impugned common order passed by the learned single judge warrants interference by this court in these appeals? All the above points are answered together by assigning the following reasons: We have examined carefully the statutory provisions of sections 44AC and 206C and the Explanation part to sub-section (11) to the above provisions by way of amendment inserting clause (a) "buyer" and sub-clauses (i) to (iii) of exemption clauses as enumerated therein for the purpose of answering the legal contention as to whether appellants Nos. 1 and 2 were exempted from the applicability of the abovesaid provisions of the Act and that they are not liable to pay tax to the Department. The provisions of sub-section with sub-clauses are extracted hereunder for proper appreciation of the legal submissions of learned senior counsel on behalf of the appellant companies: "Sub-section (11) with which we are concerned provides for an application in this regard. However, in the Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to refer to the decision of the Supreme Court in the case of Keshavji Ravji and Co. v. CIT reported in [1990] 183 ITR 1 upon which strong reliance is placed by learned standing counsel on behalf of the Department with regard to the legal principle that (headnote) "as long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms ambivalent and do not manifest the intention of the Legislature" is the law laid down in the above case which is rightly applied to the fact situation of the present case by the learned single judge. This abovesaid legal principle enunciated in the judgment of the apex court is carefully considered by the learned single judge keeping in view the observations made by the apex court in A. Sanyasi Rao's case [1996] 219 ITR 330. The provisions of section 206C by way of amendment to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid provisions has been made by the learned single judge after a careful examination of the relevant provisions of the Act and also upon the decision of the apex court in the case of United Bank of India v. Abhijit Tea Co. P. Ltd. reported in [2000] 102 Comp Cas 53 (SC); [2000] 7 SCC 357 upon which judgment learned standing counsel for the Department has strongly relied with regard to purpose of interpretation of the provision of the fiscal statute. We have also considered another decision of the apex court in the case of Novopan India Ltd. v. CCE and Customs [1994] Suppl. 3 SCC 606 upon which learned standing counsel for the Revenue has placed reliance in justification of the applicability of the above provisions to the buyers and appellants Nos. 1 and 2 as held by the learned single judge, wherein the apex court had an occasion to examine the exemption notification issued by the Central Government in exercise of its powers under sub-section (3) of section 5 of the Central Excises and Salt Act, 1944 and Schedule I, item 16B with regard to the words and phrases occurred in the above provision, "unveneered particle boards" wherein the apex court at para. 12 has referred to its earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve decision, which is extracted at para. 12 in Novopan's case [1994] Supp 3 SCC 606, 612 which reads as follows: "Shri Narasimhamurty again relied on certain observations in CCE v. Parle Exports P. Ltd. [1989] 75 STC 105; [1989] 1 SCC 345 in support of strict construction of a provision concerning exemptions. There is support of judicial opinion to the view that exemptions from taxation have a tendency to increase the burden on the other unex-empted class of taxpayers and should be construed against the subject in case of ambiguity. It is an equally well-known principle that a person who claims an exemption has to establish his case. Indeed, in the very case of Parle Exports P. Ltd. [1989] 75 STC 105; [1989] 1 SCC 345 relied upon by Shri Narasimhamurty, it was observed: 'while interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided'." With regard to the aforesaid decision of the Supreme Court in Mangalore Chemicals Fertilisers Ltd. [1991] 83 STC 234 referred to Novopan India Ltd. v. CCE a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Additional Government Advocate had produced the Notification Gazetted "Adhisuchane", dated May 10, 2002, pursuant to the direction issued by this court. The notification issued by the fourth respondent Excise Commissioner under rule 4 of the Karnataka Excise (Arrack Vend Special Conditions of Licenses) Rules, 1967, referred to supra purchase of arrack from the Mysore Sugar Company Ltd. who are the manufacturers of the arrack and the learned Government advocate has categorically made the submissions that the purchase of arrack by the buyers and sale of the same at the rate fixed by the State Government under the rules only given to the contractors/buyers by conducting auction. In view of the said notification and by a careful reading of rule 3 of the Karnataka Excise (Lease of Right to Retail Vend of Liquors) Rules, 1969, there is only one kind of buyer of goods of arrack from the manufacturers/sellers during the relevant period. Rule 3 of the Rules provides that the right of retail vending of liquors may be disposed of by the Department: (i) by tenders; (ii) by auction; (iii) by tender-cum-auction or (iv) in any other manner upon these phrases, strong reliance is placed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and, therefore, provision of section 206C of the Act creates a statutory obligation upon the appellant-companies being sellers of liquor in favour of buyers for vending the same in retail in their respective assigned areas awarded in their favour by receiving such amount from such buyer by way of issue of cheque or draft or any other mode collected from the buyer as specified in column No. (3) of the Table. Certainly the goods purchased by the buyers is for the sale of alcoholic liquor for human consumption other than the Indian made foreign liquor. Sub-section (2) of section 206C provides that the power to recover tax from the buyers and the same shall be without prejudice to any other mode of recovery under the provisions of the Act. The provisions of subsection (3) of section 206C of the Act further casts an obligation upon the appellant companies being the sellers that they shall pay or remit the collected tax at source from buyers within the date to the Department. The amount so collected by the seller and remitted to the Department goes to the credit of the Central Government or as the Board directs. Sub-section (5) of section 206C casts an obligation on the part of the sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollect tax from them and remit to the Department. Sub-clause (iii) reads as hereunder: "A buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act." The learned judge in this regard had taken lot of pains by applying his mind analytically to the phrase occurred "obtained", that phrase is preceded by the word "not" which has got a very significant meaning "not obtained by him by way of auction". Under rule 3 of the Rules of 1969, the right of retail vending was conferred upon the contractors/buyers during the relevant period is an undisputed fact. The provisions of the rule expressly state regarding the procedure to be followed for grant of leasehold rights in favour of contractors to enable them to purchase the liquor of arrack from the appellant-companies for retail sale in the assigned areas of the State. It is not the case of both the appellants before this court that the contractors did not purchase the goods of arrack from them pursuant to the leasehold rights acquired by them participating in the public auction, if, that were to be the case, they could have produced th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commencing from July to 30th June of every succeeding financial year and they have obtained arrack for vending in retail from the appellant-companies who are the manufacturers of liquor for the period in question is not disputed. Learned senior counsel placed strong reliance upon various decisions of the Himachal Pradesh, Punjab and Haryana, Gauhati, Madhya Pradesh and Madras High Courts and the decision of the Supreme Court in the case of Union of India v. Om Prakash S.S. and Co. reported in [2001] 248 ITR 105 in support of their legal contention to show that the contractors/buyers during the period in question were exempted from payment of tax under section 206C of the Act, as they were excluded from the Explanation of "buyer" clause (a) under sub-clauses (i) to (iii) is of no assistance in view of the law laid down by the apex court in the cases referred to supra regarding interpretation of the fiscal statutes of exemption provisions upon which the standing counsel for the Revenue had rightly placed reliance. In respect of the judgments referred to supra upon which learned senior counsel for appellants Nos. 1 and 2 has placed reliance, the learned single judge with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udge was right in rejecting the contention urged on behalf of appellants Nos. 1 and 2 and has rightly held that the contractors/buyers of arrack goods for vending in retail for the period in question are liable to pay the income-tax at source. In disputing the appellant-companies statutory obligation under the provision of the Act, they failed to collect the income-tax at source from the contractor buyers for the period in question is the plea taken by them is rightly rejected by the learned single judge by recording valid and cogent reasons. For the foregoing reasons, we have to hold that there is a statutory liability upon the appellant-companies under section 206C, sub-section (5), of the Act, hence, the liability fastened upon it by the Assessing Officer is perfectly justified after the Department has placed the demand upon them and after giving opportunity to them. Therefore, we have to answer the legal submissions made by the appellant-companies counsel that section 206C is not applicable to the contractors/buyers against them as the contention is wholly untenable in law, hence, the same is liable to be rejected and accordingly rejected. With regard to the jurisdiction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holly untenable in law. The last ground urged on behalf of the appellants counsel, namely, that opportunity was not given to them to oppose the demand made by the Department also cannot be accepted by us for the reason that notices were given to them demanding them to pay tax for the period in question as they have not remitted the income-tax at source as required in law. An opportunity has been given to them before passing the orders by the Assessing Officer which they have not availed of for which they cannot blame the Department. Their principal contention in their replies submitted to the demand notices served upon them by the Assessing Officer was that section 206C is not attracted to the fact situation and after perusal of the record, we have noticed that the Assessing Officer has passed the impugned orders of assessment against them after taking into consideration their replies and also the provisions of the Act. It was incumbent upon the appellants to submit their tenable objections by producing the material documentary evidence to show that they are not liable to pay the tax amount as assessed by the Assessing Officer. Since the remedy available to them as prescribed under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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