STATE OF KERALA Vs. MAHARASHTRA DISTILLERIES LTD

JUDGEMENT

(1.) In these two batches of appeals, a common question arises, inter alia for consideration by this Court, namely - Whether the incidence of excise duty, having regard to the provision of the Kerala Abkari Act and the relevant Rules, falls upon the manufacturer/distiller such as the respondents herein and therefore includable in their turnover for the purpose of levy of turnover tax, or whether the incidence of excise duty falls on the Kerala State Beverages (Manufacturing and Marketing) Corporation limited, a Government company which alone is liable to pay the excise duty on Indian made Foreign Liquor, and consequently the said component is not includable in the turnover of the respondents/distillers

(2.) These appeals came up for hearing before a 3 Judge Bench of this Court. After hearing the parties for sometime, by order dated October 17, 2001, it was observed that the point involved was an important one and it would be appropriate if the cases are heard by a larger bench. The referring bench observed thus :- the question which arises for consideration in these cases is, whether the excise duty levied under the provisions of the Kerala abkari Act on Indian Made Foreign Liquor which is manufactured forms part of the turn over of the manufacturer for the purpose of levy of turn over tax under the relevant provisions of the Kerala SALE OF GOODS ACT, 1930 the liquor which is manufactured by the respondents has to be sold to the Beverages corporation which can be regarded as sole selling agent or the canalizing agency. The liquor manufactured is removed to the bonded warehouse of the Beverages Corporation. At the time when the liquor is removed from that bonded warehouse, the excise duty is paid by the Beverages Corporation. In the notices which were sent to the respondents, it was stated that this excise duty which was paid by the Beverages Corporation really forms part of the turn over of the respondents in the sale of liquor by them to the Beverages Corporation and, therefore, turn over tax was payable on this element as well. The contention of the State was that this excise duty was really an obligation of the manufacturer and merely because the obligation was discharged by the Beverages Corporation would not mean that the same would not form part of the turn over of the manufacturer. The High Court, on a challenge being made by the respondents, decided in their favour and came to the conclusion that this excise duty which was in fact paid by the Beverages corporation would not be regarded as being part of their turn over for the purpose of levy of turn over tax. Mr. T. L. V. Iyer, learned senior counsel has drawn our attention to a decision of this Court in the case of Mohan Breweries and Distilleries Ltd. v. Commercial Tax Officer, madras and Ors. : JT1997 (8) SC 36 = (1997) 7 SCC 542. In that case this Court was concerned with the levy of turn over tax in respect of liquor which was produced and sold to the State Marketing Corporation. It is the contention of Mr. Iyer that the provisions of the law in Tamil Nadu relating to the levy of this tax is more or less pah materia with the corresponding provisions of law in Kerala. In particular, reliance was placed on paragraph 7 of the aforesaid decision which reads as follows: 7. Excise duty is levied upon goods manufactured or produced (Entry 84 of List I and entry 51 of List II of the Seventh Schedule to the Constitution). Its incidence falls, therefore, on the manufacturer or producer of the goods. The collection of excise duty may be deferred to such later stage as is, administratively or otherwise, most convenient'. Basing itself on the aforesaid observations, this Court concluded that even if Rule 22 of the Tamil Nadu Rules provides for realization of the excise duty from the corporation that was only a convenient method of collection, the primary obligation to pay excise duty being only of the manufacturer. Mr. Iyer, therefore, contended that following the said decision the appeals should be allowed. Mr. F. S. Nariman, learned senior counsel for the respondents has drawn our attention to three Constitution Bench decisions of this court. In the case of A. B. Abdulkadir and Ors. v. The State of Kerala and Anr. (1967) Supp. 2 SCR 741, where at page 751 it was observed as follows : 'it may also be accepted that generally speaking the tax is on the manufacturer or the producer, though it cannot be denied that laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production. ' (emphasis added) in R. C. Jail v. Union of India (1962) Supp. 3 SCR 436, at page 451, it was contended that the excise duty cannot be legally levied on the consignee who had nothing to do with the manufacture or production of coal. This argument was repelled and at page 451, it was observed as follows : 'excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty but only relates to the machinery of collection for administrative convenience. ' in M/s. Guruswamy and Co. Etc. v. State of mysore and Ors. (1967) 1 SCR 548, at page 562, another Constitution Bench held as follows: these cases establish that in order to be an excise duty (a) the levy must be upon 'goods' and (b) the taxable event must be the manufacture or produbtion of goods. Further the levy need not be imposed at the stage of production or manufacture but may be imrelying upon the aforesaid observations of this Court, in cases referred to hereinabove, mr. Nariman contends that the observations of this Court in Mohan Breweries' case (supra) seem to run counter to the earlier decisions of the Constitution Benches. He submits that the Constitution Benches have laid down in no uncertain terms that an excise duty need not necessarily be regarded as being a levy only on the manufacturer and it is possible for a law to provide that excise duty may be levied not on the manufacturer but at a later point of time. He, therefore, contends that the observation to the contrary in Mohan Breweries ' case does not reflect the position in law correctly and he submits that in the present cases, on a correct interpretation of sections 17 and 18 of the Abkari act of Kerala, it must be held that the levy of excise duty, is not on the manufacturer but is at the stage when the liquor is removed by the Beverages Corporation from the warehouse and therefore the same cannot form part of the respondents' turn over. In our opinion, the point involved is an important one and it would be appropriate if this and the connected cases are heard by a larger Bench. We direct, the papers be laid before Hon'ble the Chief Justice for appropriate orders. " that is how these appeals have been placed by the Hon'ble Chief Justice before this Bench for disposal.

(3.) The first batch of appeals arise out of writ petitions filed in the years 1998 - 1999 which were disposed of by a common judgment and order of a Division Bench of the high Court dated 27th November, 1999 in op Nos. 23008-23903/98, 818, 2255, 2264, 12893, 3283; 7437 and 19686/99 whereby the High Court allowed the writ petitions filed by the respondents/distillers holding inter alia that under the Scheme of the Kerala Abkari Act and the Rules, the incidence of excise duty on the manufacture of Indian Made foreign Liquor was required by law to be borne by the Kerala beverages Corporation to whom the liquor was sold at a price which did not include the element of excise duty. Consequently the State of Kerala and its officers were not entitled to levy turnover tax on the respondents/distillers by including in their turnover the excise duty payable on the liquor manufactured and sold by the respondents/distillers to the Kerala State Beverages corporation. The High Court also declared that Section 2 (xxvii) of the Kerala General sale OF GOODS ACT, 1930 authorizing the levy of turnover tax on the amounts of excise duty paid by the Kerala State Beverages Corporation on the distillers was unconstitutional and void.