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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 ..... rned, 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 various facts and legal contentions. Certain necessary undisputed facts for the purpose of appreciating the rival legal contentions urged in these appeals are briefly stated by us in this judgment, to find out whether the impugned common order and the assessment orders passed against the first two appellants require interference by this court in exercise of its jurisdiction and power. The first two appellants are Government of Karnataka undertaking companies engaged in manufacturing of arrack. They are governed under the provisions of the Income-tax Act (hereinafter referred to as "the Act" in short). Prior to 1993 there were separate private bottling un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Indian made' foreign liquor), the percentage of collection of income-tax at source to be collected by the sellers is enumerated under column No. 3 of the Table provided to the said provision. It is the case of the Income-tax Department that the said provision was amended to the statute by way of amendment, as there was a large scale tax evasion from the persons who have been carrying on the business of purchase and sale of the goods mentioned in the Table on account of which huge revenue loss has been occasioned to the Department. Therefore, Parliament thought fit to plug the loopholes of huge evasion of revenue to the Department from such assessees, hence, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars 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 them by the Assessing Officer, they did not comply with the notice of demand dated October 26, 2000. Therefore, the Assessing Officer has passed the impugned assessment orders for the period in question, which are legal and valid as the same are in conformity with the provisions of section 206C, sub-section (6) of the Act. The said orders of assessment passed by the Assessing Officer came to be challenged by the two appellants before this court by filing writ petitions urging various legal contentions, as there is no merit in any one of the grounds urged in the writ petitions, the learned single judge had pawed the impugned order dismissing the writ petitions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein 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. The jurisdiction of the other officers in respect of various other aspects, the relevant provisions of the Act for initiating proceedings and to pass assessment orders are specifically mentioned whereas in respect of the first respondent, the provision of section 206C is not specifically mentioned in the notification by conferring jurisdiction upon him to initiate proceedings and pass assessment orders against appellants Nos. 1 and 2, who had issued the demand notice for not having collected tax at source from the buyers for the relevant period. Therefore, it is urged by them in the writ petitions that the impugned assessment orders passed against them by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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 answering the legal contentions urged on behalf of appellants Nos. 1 and 2 has certainly vitiated the order passed by the learned single judge, hence the same requires interference by this court in exercise of its appellate jurisdiction and power. It is also further contended by them that the assessment orders, which will certainly have a serious civil consequence upon appellants Nos. 1 and 2 as they are burdened with huge sums of crores of rupees payable by them towards tax to the Department for their not collecting the tax at source from the contractors/buyers and remitting the same to the Department. Therefore, the Assessing Officer was required to comply with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Dictionary, Encyclopedic Dictionary, Mitra's Legal & Commercial Dictionary and Judicial Dictionary by Justice L.P. Singh and strongly placed reliance with regard to the interpretation of the said phrase and the judgment of the English courts in the case of Commissioner of Customs and Excise v. Top Ten Promotions Ltd. reported [1969] 3 All ER 39 (HL) and the Privy Council decision reported in Escoigne Properties Ltd. v. IRC [1958] AC 549 (HL). Learned senior counsel Mr. Sarangan, submits that the said approach of the learned judge in not applying the observations made in the cases by various High Courts to the facts of appellants Nos. 1 and 2 and passed the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended 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 recorded by the learned single judge that the provisions of sub-sections (1) and (2) of section 206C of the Act are applicable to appellants Nos. 1 and 2, hence, they were required to collect the income-tax at source from the buyers is an erroneous approach of the learned single judge. Hence, they submit that the impugned order of the learned single judge and assessment orders passed by the Assessing Officer are liable to be set aside and quashed respectively by this court in exercise of this court's judicial review power under articles 226 and 227 of the Constitution of India. Learned counsel Dr. Krishna appearing on behalf of the second appellant Myore Sugar Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bill by Parliament is mentioned, the relevant portion of which is extracted as hereunder: "The Bill proposes to substitute the Table in sub-section (1), inter alia, to provide for collection of tax at source at the rate of ten per cent, in the case of Indian made foreign liquor and scrap. The Bill also proposes to amend the said Explanation so as to make the provisions of the section applicable in the case of 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. These amendments will take effect from June 1, 2003." So as to make the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 single judge in the impugned order contending that the legal contentions urged in these appeals have been carefully examined by him and given due consideration and properly interpreted the provisions of section 206C, subsection (11) and Explanation part clause (a) "buyer" regarding the exclusion of the contractors who are the buyers of the goods of Indian liquor of arrack by referring to the fact situation keeping in view the intendment and object of insertion of the said provisions to the Act, the constitutional validity of section 44AC of the Act has been dealt with by the apex court and upheld the constitutional validity of the provisions the learned single judge has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghtly 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" in so far as the Mysore Sugar Company is concerned, none of the sub-clauses (i) to (iii) are applicable to it for the reason that the buyers/contractors were not excluded on any one of the above exemption clauses or exempted from payment of income-tax at source for purchase of goods of arrack and sale of the same in retail price as fixed by the State Government. But on the other hand, the contractors/buyers statutory leaseholders and, therefore, they had acquired rights for purchase of liquor of arrack on the basis of public auction conducted yearly by the State Government under the Rules, as they were the highest bidders and obtained permits from the State for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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, para. 17 is extracted in the said decision, the relevant portion of which is reproduced in this judgment as hereunder: "'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." Further, the Supreme Court in the case of Novopan India Ltd.'s case [1994] Suppl. 3 SCC 606 at para. 12 has observed thus: "The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the Legislature manifest on the statutory language. Indeed, the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is an undisputed fact. Therefore, the learned single judge has rightly answered the findings against appellants Nos. 1 and 2 on the contentious issues that arose for his consideration by assigning valid and cogent reasons with reference to the judgments of the Supreme Court referred to supra, learned counsel for the Revenue contends that the said findings and reasons recorded in the impugned order are in conformity with the provisions of the Act and the law laid down by the apex court. Therefore, he had contended that the impugned order does not call for interference by this court in these appeals and prayed for dismissal of the same with costs. The learned counsel appearing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 time before the Assessing Officer. Therefore, they cannot blame the Department in the writ petition proceedings contending that they have not been given fair and reasonable opportunity to them to put forth their case before the Assessing Officer prior to passing the assessment orders. In view of the above factual position, the contention urged on behalf of the companies that they are not liable to pay the amount assessed in the impugned orders as the provisions of section 206C was not attracted to buyers who have purchased goods of arrack during the relevant period on the basis of the leasehold rights who were exempted under sub-clauses (i) to (iii) of the Explanation part clause (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swering 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 Explanation it is stated for the purpose of this section. 'Buyer' means a person who obtains in any sale by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include, (i) a public sector company; (ii) a buyer in the further sale of such goods obtained in pursuance of such sale, or; (iii) 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." We have also examined and considered the above legal contention urged on behalf of the companies with reference to the decisions of the Full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Act, were inserted to the Act by Parliament which provisions have come into force with effect from April 1, 1989. The object of the insertion of the said provisions to the Act by way of amendment is that there was huge evasion of income-tax to the Department from the buyers having regard to the nature of business which they have been carrying on trade in the goods of Indian liquor other than foreign made in the country, they have been carrying on their business by getting contracts awarded in the public auction from the State Government which is an undisputed fact, as the sale of arrack in the State is the monopoly trade of the State Government, therefore, it has been conferring leasehold rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 earlier decision which went from this court in the case of Mangalore Chemicals and Fertilisers Ltd. v. Deputy CCT [1991] 83 STC 234; [1992] Suppl 1 SCC 21, it has extracted the relevant paragraphs, namely, paragraphs 24 and 27 which are very relevant to be extracted in this judgment to appreciate the contention of learned senior counsel on behalf of the companies by placing reliance upon exemption provisions to sub-section (11) of section 206C clause (a) "buyer" is explained. We have to examine whether the contractors are the buyers of the goods of arrack from the companies/sellers by virtue of leasehold rights acquired by them in public auction conducted by the Department. The legal contention on beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and Customs [1994] Suppl. 3 SCC 606 referred to supra the Supreme Court has held that "it is an equally well-known principle that a person who claims an exemption has to establish his case". In view of the above, it is also necessary to refer to the observations made at para. 16 with regard to Mangalore Chemicals Fertilisers Ltd. [1991] 83 STC 234 (SC) extracted herein: "We are, however, of the opinion that, on principle, the decision of this court in Mangalore Chemicals [1991] 83 STC 234; [1992] Suppl 1 SCC 21 and in Union of India v. Wood Papers Ltd. [1991] 83 STC 251 (SC); [1990] 4 SCC 256 referred to therein-represents the correct view of law. The principle that in case of ambiguity, a taxing sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification 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 the learned senior counsel appearing on behalf of appellants Nos. 1 and 2 to contend that the right acquired by the contractors to purchase arrack is not necessarily by means of tender or auction, it could be in any other manner also. The said contention of them does not hold water for the reason that rule 3 of the Rules, 1969 provides for conferring right upon the buyers of vending of liquor in retail in the manner referred to supra and the submission made by the learned additional Government advocate placing reliance upon the notification referred to supra is that only one type of buyers were there at the relevant period who have purchased the liquor from appellants Nos. 1 and 2 and, therefore, the liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 seller that collecting tax at source from the buyer in accordance with the provision of sub-section (1) of section 206C shall be remitted within ten days of receipt of the amount from the buyer to whose account such amount is deducted, from whom such payment is received, seeking to deposit the amount collected and specify the amount collected and how the tax is collected from other members may be prescribed. Sub-section (6) further casts a responsibility upon the seller to collect tax, who fails to collect the tax. Notwithstanding such failure, it shall be liable to pay the tax to the Central Government in accordance with the provisions of sub-section (3) of section 206C of the Act. In view of the above pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the orders which were in their possession to show that the contractors/buyers have purchased the arrack by not following the procedure contemplated under rule 3 of the Rules 1969. It is not their case that the buyers during the relevant period have not purchased the liquor of arrack by acquiring leasehold rights. The above relevant material facts were not pleaded in their reply by them and not produced documentary evidence in this regard before the Assessing Officer or in these proceedings to show that the provisions of the Act are not applicable to them and the interpretation sought to be made by learned senior counsel with reference to the provisions of sub-clauses (i) to (iii) of clause (a) "buyer" of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the fact situation of those cases and the present cases as pleaded by the parties is carefully examined and considered with reference to the records and he had rightly distinguished the same and held that those decisions are not applicable to the case on hand. The object of conducting auction for awarding contracts in favour of highest bidders is also referred to in the impugned judgment. For the reasons stated supra we are in full agreement with the learned single judge conclusions and the findings recorded on the legal plea of applicability of section 206C to the contractors/buyers regarding their liability that they were required in law to pay tax to the appellant-companies at source for the relevant pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the Assessing Officer, who had passed assessment orders against the appellant-companies, learned standing counsel has placed strong reliance to sub-section (4) of section 120 of the Act. The learned single judge on this aspect no doubt has made certain observations stating that the appellants being a public sector companies need not take this hyper technical contention to escape from the statutory liability under the provisions of the Act to the Department. In justification of the said finding the learned standing counsel on behalf of the Income-tax Department had rightly placed reliance upon section 120(4) of the Act. The above contention regarding jurisdiction of the Assessing Officer as urged in the writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the provision is not availed of by them, their contention in these proceedings that they are not liable to pay the income-tax is not tenable in law. Hence, this aspect of the matter does not call for consideration and the same has been rightly answered against them by us for the reasons recorded in this judgment by-accepting the findings and conclusions arrived at by him on this contentious issue. For the foregoing reasons the contentions urged in this regard that the assessment orders passed are in violation of the principles of natural justice is required to be rejected as there is no merit in this contention. Accordingly, it is rejected. We are in full agreement with the findings and reasons recorded by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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