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TMI Blog2004 (2) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government in terms of Section 8(5) of the U.P. Sheera Niyantran Adhiniyam, 1964 (hereinafter referred to as "the U.P. Act") constituted a duty or impost in the nature of a tax and consequently not includible in the value as defined in terms of Section 4(4)(d)(ii) of Central Excise Act, 1944 (hereinafter referred to as "the Act"). Background facts : 4.M/s. Chhata Sugar Company Ltd., Tehsil - Chhata, District - Mathura, U.P. (hereinafter referred to as 'the assessee') is engaged in the manufacture and clearance of molasses falling under tariff item No. 1703.10. The assessee is registered with the Department under Rule 174 of Central Excise Rules, 1944. While determining the assessable value of molasses for computing central excise duty, the assessee did not include administrative charges collected from the buyer at Rs. 10 per quintal on behalf of the State Government under the provisions of the U.P. Act. Accordingly, demands show cause notices were issued under the Central Excise Act for alleged contravention of Section 4 of the Act read with Rules 9 and 173G of the Central Excise Rules, 1944. The Assistant Commissioner, Central Excise, Aligarh confirmed the dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch goods are ordinarily sold by the assessee is different for different places of removal, each such price shall, subject to the existence of other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such place of removal; (ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof; (iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary company" and "relative" have the same meanings as in the Companies Act, 1956 (1 of 1956); (d) "Value", in relation to any excisable goods, - (i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee. Explanation. - In this sub-clause, "packing" means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound; (ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale. Explanation. - For the purposes of this sub-clause, the amount of the duty of excise payable on any exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l price is the price at which excisable goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal provided the buyer is not a related person and the price is the sole consideration for sale. However, there are three provisos to section 4(1)(a) to clarify what would be the normal price in the circumstances mentioned in the three provisos. For the purposes of this case we are concerned with proviso (ii) which inter alia states that if excisable goods are sold in course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at the maximum price fixed under any such law, the price or the maximum price as the case may be, so fixed, shall be deemed to be the normal price. Therefore, Section 4(1)(a) indicates what is normal price whereas the three provisos to Section 4(1)(a) indicate three different normal prices in the circumstances mentioned under the three provisos. Consequently, under proviso (ii) to Section 4(1)(a), if the excisable goods are sold by a manufacturer in the course of wholesale trade for delivery at the time and place of remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year shall be same throughout the State, save where, in the opinion of the Controller, a variation is necessitated by any of the following factors : (i) the requirements of distilleries within the area in which molasses may be transported from the sugar factory at a reasonable cost; (ii) the requirement for other purposes of industrial development within such area; and (iii) the availability of transport facilities in the area. The Controller may make such(3) modifications in the order under sub-section (1) as may be necessary to correct any error or omission or to meet a subsequent change in any of the factors mentioned in clause (b) of sub-section (2). The occupier of a sugar factory shall be(4) liable to pay to the State Government, in the manner prescribed, administrative charges at such rate, not exceeding five rupees per quintal as the State Government may from time to time notify, on the molasses sold or supplied by him. The occupier shall be entitled to recover(5) from the person to whom the molasses is sold or supplied an amount equivale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the U.P. Act, the sugar factory has to sell the molasses at the price not exceeding the price prescribed in the Schedule thereto. Further, under the explanation to the said section, prices shall include all costs incidental to loading of molasses into railway tank wagons, lorries or other containers. It is important to note that administrative charges contemplated by Section 8(4) of the U.P. Act are not included in the explanation to Section 10. This is because there is a dichotomy under Section 8(4) of the U.P. Act between the prices of molasses on one hand and the administrative charges. It is for this reason that it is expressly provided under Section 8(5) that the sugar factory shall recover the administrative charges or the amount equivalent thereto from the buyer in addition to the price of molasses. Under Section 22, the State Government is empowered to make rules in order to carry out the purposes of the U.P. Act. 9.At this stage it would be necessary to quote Rule 2(b) and Rule 23 of UP. Sheera Niyantaran Niyamawali, 1974 (hereinafter referred to as "U.P. Rules") which run as under :- "Rule 2. Definitions. - In these Rules, unless there is anything repugnant in the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act that the exclusion under Section 4(4)(d)(ii) was intended for duties of excise, sales tax and other similar levies and not for every levy or duty or charge under a statute, that Parliament has deliberately not incorporated the wide definition of taxation in Article 366(28) of the Constitution in Section 4(4)(d)(ii) of the Act, and the Division Bench failed to notice that the wide definition in Article 366(28) is for interpretation of the expression "taxation" appearing in the Constitution and not for other statutes and that the Division Bench had erred in holding that administrative charges would be covered by the words "other taxes" as it is compulsory exaction made under an enactment and, therefore, a duty or impost must be held to be in the nature of a tax. In this connection, it was also submitted that a levy being under a statute is not decisive of its character as a tax, and a fee can also be a compulsory levy under a statute and reliance was placed on the judgment of this Court in the case of Ratilal Panachand Gandhi v. State of Bombay reported in [1954 SCR 1055]; Sreenivasa General Traders v. State of A.P. reported in [(1983) 4 SCC 353]; BSE Brokers' Forum v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 992) 3 SCC 488]; Krishi Upaj Mandi Samiti & Ors. v. Orient Paper & Industries Ltd. [(1995) 1 SCC 655]; Secretary to Government of Madras & Ors. v. P.R. Sriramulu & Anr. [(1996) 1 SCC 345]; Vam Organic Chemicals Ltd. & Anr. v. State of U.P. & Ors. [(1997) 2 SCC 715]; B.S.E. Brokers' Forum, Bombay & Ors. v. Securities And Exchange Board of India & Ors. [(2001) 3 SCC 482]. Placing reliance on the above judgments it was contended that so far as the regulatory fee is concerned, the service to be rendered is not a condition precedent and the same does not loose the character of a fee provided it is not excessive. The mere fact that the charges may be recovered under Section 8(5) of the U.P. Act by the sugar factory (producer) from the buyer of molasses does not militate against the administrative charges being in the nature of regulatory fees, nor lead to the conclusion that it is a tax. The reason being, since the benefit of the regulation of molasses goes to the buyer, the administrative charges may be recovered from him. It was accordingly submitted that the levy under the U.P. Act is a regulatory fee and not a tax and is, therefore, includible in the assessable value for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rer but that circumstance does not detract from its true nature that it is a levy on the fact of manufacture. Hence, the judgment of this Court in the case of Union of India v. Bombay Tyre International (supra) gives us an insight into the connotation of the words "other taxes" in Section 4(4)(d)(ii) of the Act. Further, Section 4(1)(a) of the Act shows that the assessable value of an article is based on the normal price, which is the price at which excisable goods are ordinarily sold by the assessee to the buyer in the course of wholesale trade. In this case, we are concerned with the provisions of the Act as it stood at the relevant time. It is to be noted that taxes are one of the items of deduction from the normal price to arrive at the assessable value. A normal price under Section 4(1)(a) of the Act includes numerous cost factors including taxes and therefore, under Section 4(4)(d)(ii) the legislature has provided for express deduction of taxes from the normal price to arrive at the assessable value. However, the normal price may vary under the three situations mentioned in the three provisos to Section 4(1)(a) of the Act. Under the second proviso to Section 4(1)(a), which ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative charges levied on the sugar factory under the U.P. Act do not fall within the words "other taxes"; that while construing the said expression under Section 4(4)(d)(ii) of the Act, one cannot take the assistance of the word 'taxation" as defined in Article 366(28) of the Constitution and consequently, the judgment of the Division Bench of this Court in the case of Commissioner of Central Excise v. Kisan Sahkari Chinni Mills Ltd. (supra) needs reconsideration. We may repeat that in our view, administrative charges under the U.P. Act do not enter assessable value under Section 4(1)(a) of the Act. However, even assuming for the sake of argument that administrative charges form part of the assessable value, even then such charges are in the nature of tax and, therefore, excludible in terms of Section 4(4)(d)(ii) of the Act for reasons mentioned hereinafter. 13.Before dealing with the foregoing issue, it may be noted that in this case we are concerned with identification of the nature of levy of administrative charges under Section 8(4) and Section 8(5) of the UP. Act. As stated above, the U.P. Act has been enacted with the object of regulating supply and equal distribution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties are indirect taxes as they are additions of definite amounts to the prices at which the goods upon which they are imposed are, in the ordinary course of business, sold by persons who have paid the duties. This test is also applicable to the present case. Under Section 8(5) of the U.P. Act, administrative charges is in addition to the prices at which goods are sold in the ordinary course of business by the sugar factory (producer of molasses). Moreover, the predominant object of the U.P. Act is to maximise the revenue by way of tax while regulating storage and supply of molasses. The beneficiary under the said Act is the distillery. It is the distillery which provides important source of revenue to the State. In our view, the said levy of administrative charges is in nature of tax. 14.We can look at the problem from another viewpoint. One of the test to decide whether a levy is a tax or fee is that while tax is a compulsory exaction, fee relates to the principle of quid pro quo. This test can usefully be applied to the facts of the present case. As stated above, the beneficiary of the U.P. Act is the distillery (buyer). All regulatory measures are for the benefit of the said b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion; but it must be borne in mind that the legislative competence conferred upon the State Legislature or the Parliament to impose 'tax' or 'fee' having been enumerated in different entries in the three lists contained in the Seventh Schedule of the Constitution of India, the same meaning of the expression "tax" unless the context otherwise requires, should be assigned. 19.Having regard to the fact that different legislative entries have been made providing for imposition of 'tax' and 'fee' separately, indisputably the said expressions do not carry the same meaning. Thus, a distinction between a tax and fee exists and the same while interpreting a statute has to be borne in mind. 20.A distinction must furthermore be borne in mind as regard the sovereign power of the State as understood in India and the doctrine of Police Power as prevailing in the United States of America. In some jurisdictions a distinction may exist between a police power and a power to tax but as in the Constitution of India, the word 'tax' is defined, it has to be interpreted accordingly. 21.The expression 'regulatory fee' is not defined. Fee, therefore, may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l benefit meant for them. We are clear in our mind that if looking at the terms of the provision authorising the levy, it appears that it is not for special services rendered to the person on whom the levy is imposed, it cannot be a fee wherever it may be placed in the statute. A consideration of where Sections 443 and 548 are placed in the Act is irrelevant for determining whether the levy imposed by them is a fee or a tax." It was further observed : The"19. last argument in this connection which we have to notice was based on Sections 126 and 127 of the Act. Section 126 deals with the preparation by the Chief Executive Officer of the Corporation called Commissioner, of the annual budget. The budget has to include an estimate of receipts from all sources. These receipts would obviously include taxes, fees, licence fees and rents. Under Section 127(3) the Corporation has to pass this budget and to determine, subject to Part IV of the Act, the levy of consolidated rates and taxes at such rates as are necessary to provide for the purposes mentioned in sub-section (4). Sub-section (4) requires the Corporation to make adequate and suitable provision for such services as may be requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regulatory statute may also contain taxing provisions. 26.The decisions of this Court point out towards the need of existence of the element of quid pro quo for imposition of fee; be it to the person concerned or be it to a group to which he belongs; irrespective of the fact as to whether the benefit of such service is received directly or indirectly. 27.The point at issue is required to be considered keeping in view the aforementioned legal position. 28.By reason of the provisions of the U.P. Sheera Niyantran Adhiniyam, 1964 (hereinafter referred to as 'the U.P. Act'), the trade carried out by the respondents is sought to be regulated. 29.Some service, therefore, was required to be rendered by the State or the statutory authority to the owners of the factory producing molasses or the molasses industries generally if an impost by way of 'fee' was to be levied. 30.A constitution Bench of this Court in The State of West Bengal v. Kesoram Indusries Ltd. and Ors. [2004 (1) SCALE 425] referring to Synthetics and Chemicals (supra), observed : "It may be seen that the power to levy sales tax on industrial alcohol was available to the State but for the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 135], wherein one of us V.N. Khare, J. (as the Hon'ble Chief Justice of India then was) speaking for the Bench upheld the vires thereof, inter alia, on the ground that the same has been enacted in terms of Entry 33, List III of the Constitution of India. The said Act is, therefore, held to be regulatory in nature. 34.When a statute deals with an essential commodity in terms whereof the price of a commodity is fixed thereunder, the sale price must be determined having regard to the price fixed under the statute and any other sum. [See Neyvelilignite Corporation Ltd. v. Commercial Tax Officer, Cuddalore and Another, (2001) 9 SCC 648 and Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd., 2002 (141) E.L.T. 3 (S.C.) = (2002) 3 SCC 547]. The administrative charges payable by the buyer under the U.P. Act, thus, being in addition to the sale price, the same cannot be a fee. 35.Furthermore, one of the tests for determining as to whether the impost is a 'tax' or 'fee' would, in my opinion, be whether the burden can be passed to the end-user. Under the State Act, the same is permissible. A 'fee' in a situation of this nature cannot be passed on to the en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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