LAWS(KER)-2009-7-57

STATE OF KERALA Vs. KAYCEE DISTILLERIES

Decided On July 24, 2009
STATE OF KERALA Appellant
V/S
Kaycee Distilleries Respondents

JUDGEMENT

(1.) The main issue raised in the Sales Tax Revision cases filed by the Revenue against the orders of the Tribunal is against cancellation of interest levied under S.23(3A) of the Kerala General Sales Tax Act, 1963 (hereinafter referred to for short as 'the Act') for belated payment of turnover tax on excise duty component of the price. Interest demanded was for the period beginning with the end of each assessment year. The assessments involved are for the years 1998-99 to 2004-05. Even though the Revenue has raised another question on purchase tax liability on purchase of water by the respondent, we do not think, this is a question of law because the finding is based on the conclusions of fact arrived at by the Tribunal. We therefore proceed to consider only the question raised on interest. We have heard Special Government Pleader appearing for the State and counsel appearing for the respondent.

(2.) Respondent is a distillery engaged in manufacture and sale of Indian Made Foreign Liquor. The entire products are sold to the Kerala State Beverages Corporation Limited, a Government of Kerala undertaking engaged in monopoly distribution of liquor in the State. Under the provisions of the Act, sales tax is payable on Indian Made Foreign Liquor at the point of sale by the Beverages Corporation Limited. However, dealers in liquor including manufacturers are liable to pay turnover tax at the rate of 5% on their turnover at all points of sale in the State. By virtue of this provision, respondent as a manufacturer was liable to pay turnover tax on the sale price of liquor. Excise duty under Foreign Liquor Rules was payable on Indian Made Foreign Liquor by the Beverages Corporation Limited at the point of release of liquor by them on sale from their warehouse. However, the Foreign Liquor Rules were amended by the Government with effect from 05/01/1999 whereunder the Beverages Corporation was liable to pay excise duty before lifting the liquor from the warehouse of the manufacturer. Dispute arose as to whether excise duty paid by the Kerala State Beverages Corporation on the liquor purchased from respondent and other distilleries form part of the turnover for payment of turnover tax by manufacturers for period prior to the amendment and after the amendment. This Court in the decision in Kerala Distilleries & Allied Products Ltd. v. Asst. Commissioner, (Assessment (I)), Commercial Tax, Special Circle, Palakkad and Others reported in 2000 (117) STC 553 , though took note of the amendment to the Foreign Liquor Rules, held that excise duty paid by the Beverages Corporation will not form part of turnover of the manufacturer / distillery. Even though this decision of the Division Bench pertains to sales tax assessments for periods prior to amendment of Foreign Liquor Rules with effect from 05/01/1999 and another Division Bench in the decision in Mc Powell & Co. Ltd. v. State of Kerala and Others, 10 KTR 652 though differed from the view expressed by the earlier Division Bench, for sake of consistency, they followed earlier judgment and held that excise duty paid by the Beverages Corporation is not part of the turnover for the purpose of payment of turnover tax by the distillery. After the first Division Bench judgment, explanation was introduced to S.5(2C) of the Act declaring excise duty paid by the Beverages Corporation as turnover with retrospective effect. The retrospective amendment was also challenged before this Court. Ultimately, all cases decided by this Court were taken up in appeal by the State before the Hon'ble Supreme Court and the Supreme Court finally settled the matter by decision in State of Kerala v. Maharashtra Distilleries Ltd. and Others, 2005 KHC 1959 : 141 STC 358 : 2005 (11) SCC 1 : AIR 2005 SC 2594 . The Supreme Court, after noting the amendment to Foreign Liquor Rules with effect from 05/01/1999, held that since the Beverages Corporation remits the duty before lifting the same from the warehouse of the distillery, the purchased liquor is duty paid liquor and so much so, the sales turnover for the distillery includes excise duty though paid by the Beverages Corporation Ltd. The conclusion drawn by the Supreme Court contained in paragraph 82 of the judgment is as follows:

(3.) It is obvious from the judgment of the Supreme Court and the orders dismissing clarification petition that the respondent was liable to pay turnover tax on the excise duty remitted by the Beverages Corporation on the sale of liquor made by respondent from 05/01/1999 onwards. This position is not contested by the respondent. However, since turnover tax on excise duty was not paid by respondent along with the returns filed, the Assessing Officer, while making assessments, levied interest under S.23(3A) of the Act for the belated payment of turnover tax from the end of each year. In fact, amounts paid have been adjusted first towards interest in terms of S.55C of the Act and balance only was adjusted towards turnover tax and it is against these orders statutory appeals were filed. Even though first appeals were dismissed, on second appeals, the Tribunal relying on the decisions of the Supreme Court in J.K. Synthetics Ltd. v. Commercial Taxes Officer reported in 1994 KHC 820 : 94 STC 422 : 1994 (4) SCC 276 : AIR 1994 SC 2393 : 1994 (119) CTR 222 : 1994 UPTC 89 and in Maruti Wire Industries Pvt. Ltd. v. Sales Tax Officer and Others reported in 2001 KHC 364 : 122 STC 410 : 2001 (2) KLT 100 : ILR 2001 (2) Ker. 247 : 2001 (3) SCC 735 : AIR 2001 SC 1413 and the two decisions of this Court, one in Universal Traders and Others v. Agricultural Income Tax and Sales Tax Officer, Adimali and Another, 9 KTR 177 and P. K. Damodaran v. State of Kerala, 12 KTR 133 held that interest for default is payable for periods after expiry of 30 days from the date of service of assessment order along with notice of demand. In other words, Tribunal's finding is that interest is payable only after respondents committed default in payment after service of assessment order and demand notices in 2006. Special Government Pleader appearing for State has relied on later Division Bench decision of this Court in Chandramani Traders v. State of Kerala, 2008 KHC 6214 : 16 VST 294 : 2008 (1) KLJ 698 wherein this Court after taking note of the amendment held that Maruti Wire Industries' case has no application for later period. He also relied on decision of Supreme Court in Commissioner of Trade Tax v. Kanhai Ram Thekedar, 2005 KHC 871 : 141 STC 1 : 2005 (4) SCC 472 : 2005 (2) KLT 948 : AIR 2005 SC 3033 : 2005 (185) ELT 3 wherein the Supreme Court has held that the liability of a dealer to pay interest on late payment of tax arises automatically by operation of law. The counsel for the respondent, however, contended that interest payable under S.23(3A) is for default in payment of tax and respondent assessee cannot be held to be a defaulter because as and when assessments are made after judgment of the Supreme Court, they have remitted the tax. It is the specific case of the respondent that pursuant to the judgment of the Supreme Court, demand was raised on them on regular assessment and as and when regular assessments were completed, they remitted tax. However it is seen that even after judgment of the Supreme Court pronounced on 06/5/2005, respondent has not cared to file revised returns or remit tax on excise duty. Further, though the Assessing Officer issued notice on 13/10/05, respondent filed revised return only for three months, i.e. for January, February and March 2002 and for the remaining period, they waited for assessments to be taken up for filing revised returns, that too without payment of tax.