TMI Blog2005 (5) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid Corporation with effect from January 5, 1999 and pay the turnover tax accordingly - Civil Appeals Nos. 2249-2257 of 2000, 95, 102, 622, 5099, 5100, 5101, 5102, 5103, 6515, 6516, 7952, 7954 of 2003, and 3160 of 2005 - - - Dated:- 6-5-2005 - SANTOSH HEGDE N., VARIAVA S.N., SINGH B.P., SEMA H.K. AND SINHA S.B. JJ. T.L.V. Iyer, Senior Advocate (John Mathew, K. R. Sasiprabhu and Ms. Indra, Advocates, with him) for the appellants. F.S. Nariman and Ashok H. Desai, Senior Advocates (V. Giri, Ms. Indu Malhotra, Ms. Madhu Sweta, Ms. Anjali K. Verma, Niraj Gupta, Ms. Liz Mathew, E.M.S. Anam and Fazlin Anam, Advocates, with them), for the respondents. -------------------------------------------------- The judgment of the Court was delivered by B.P. SINGH, J. Leave granted in Special Leave Petition (C) No. 1032 of 2003. 2.. 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Distilleries Ltd. v. Commercial Tax Officer, Madras See [1997] 107 STC 212. (1997) 7 SCC 542. In that case this Court was concerned with the levy of turnover 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 pari 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 realisation 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nches 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 [1997] 107 STC 212 (SC); (1997) 7 SCC 542. 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' turnover. 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 the honourable Chief Justice for appropriate orders." That is how these appeals have been placed by the honourable Chief Justice before this Bench for disposal. 4.. The first batch of appeals arise out of writ peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax authorities issued notices to the respondents/distillers proposing to provisionally assess the turnover tax payable by the manufacturers from April, 2001 at various rates, the respondents/distillers filed several writ petitions challenging the validity of section 5(2C) of the Kerala General Sales Tax Act read with section 3A of the Kerala Finance Act, 2001 as being unconstitutional, both in its retrospective and prospective operation. They also challenged the consequent actions initiated against them by the sales tax authorities. A division Bench of the Kerala High Court allowed these writ petitions by a common judgment and order of August 9, 2002 in O.P. Nos. 3736, 5139, 1705, 4464, 6075, 6113, 6116, 6122, 6239, 6336, 7639, 7666 of 2002 and 31153 of 2001. The division Bench disposing of the aforesaid writ petitions did not agree in principle with the law as laid down in the earlier judgment disposing of the first batch of writ petitions and was of the view that the incidence of excise duty fell squarely on the respondents/distillers and as such was includable in their total turnover for purpose of computation of turnover tax under the Kerala General Sales Tax Act. However, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in bonded warehouses maintained by the Kerala State Beverages Corporation in accordance with the Bond Rules. The Kerala State Beverages Corporation also executed an agreement in form A under which it was obliged to observe the provisions of the Abkari Act and not to remove goods without payment of duty. The price paid by the Kerala State Beverages Corporation to the respondents/distillers did not include the element of excise duty which was later paid by the Kerala State Beverages Corporation when the liquor moved out of its warehouses. 10.. In view of the policy to create a State monopoly, and having regard to the Scheme of the Kerala Abkari Act and the relevant Rules, the respondents/distillers contended that the Kerala Abkari Act did not impose a liability on the respondents/distillers to pay excise duty since such a liability was imposed only on the Kerala State Beverages Corporation which actually paid excise duty payable on the IMFL. Consequently the element of excise duty did not form part of the turnover of the respondents/distillers and was therefore not includable in the total turnover of the respondents/distillers for the purpose of computation of turnover tax payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be exported under section 7; or (c) permitted under section 11 to be transported; or (d) manufactured under any licence granted under section 12; or (e) manufactured at any distillery, brewery, winery or other manufactory established under section 14; or (f) issued from a distillery, brewery, winery or other manufactory or warehouse licensed or established under section 12 or section 14; or (g) sold in any part of the State: Provided that no duty or gallonage fee or vend fee or other taxes shall be levied under this Act on rectified spirit including absolute alcohol which is not intended to be used for the manufacture of potable liquor meant for human consumption. Explanation . For the purpose of this section and section 18, the expression 'duty of excise', with reference to liquor or intoxicating drugs, include countervailing duty on such goods manufactured or produced elsewhere in India and brought into the State." "18. How duty may be imposed. (1) Such duty of excise may be levied: (a) in the case of spirits or beer, either on the quantity produced in or passed out of a distillery, brewery or warehouse licensed or established under section 12 or sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment from time to time; (b) for transport to another distillery or warehouse, licensed under these rules or to the warehouse licensed under the Foreign Liquor Storage in Bond Rules, 1961. (2) On payment of duty or gallonage fee or vending fee or other taxes, for consumption within the State to licensees authorised to purchase the same. (3) Without payment of duty and without bond or on payment of such reduced rates of duty, taxes or fee as may, from time to time, be prescribed by the Government (in the case of spirits other than denatured spirits) if sold to officers of Government or other persons specially exempted from payment of duty or taxes or fees in full or part and empowered to purchase them. (4) From distilleries, only, free of duty but on payment of gallonage fee or vending fee or taxes as may be prescribed by the Government, after denaturation under the rules prescribed under the Act." Rule 50 deals with removal under bond and reads as follows: "50. Removals under bond. When spirits are removed from the distillery or warehouse without payment of duty, the distiller or warehouse keepers shall execute bond for the payment of duty on them at the prescribed rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h effect from January 5, 1999, in view of the amendment of the Foreign Liquor Rules, the KSBC had been purchasing IMFL from the manufacturers after payment of excise duty. All sales of liquor by the manufacturers to the Corporation took place after the excise duty had been remitted by the KSBC with the result that the system of bonded warehouse in so far as IMFL is concerned was done away with. The KSBC paid excise duty on IMFL before it purchased the same from the concerned manufacturer and therefore the amount of excise duty was paid by the Corporation when it purchased IMFL from the manufacturer. The amount of excise duty paid formed part of consideration for which the property in the goods viz., IMFL was purchased by the Corporation from the manufacturer concerned. It was only after payment of the excise duty that the goods were consigned to the concerned FL9 licensed premises owned and controlled by the KSBC. 19.. The Rules next to be noticed are the Foreign Liquor (Storage in Bond) Rules, 1961 which have been framed under sections 14(d) and 29(2) of the Cochin Abkari Act. Under the Rules "bonded warehouse" means a warehouse where foreign liquor is stored in bond. Sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Foreign Liquor (Storage in Bond) Rules, 1961 and in particular shall deposit all foreign liquor allowed to be imported to the bonded warehouse in a storeroom or other place of storage approved by the Commissioner (hereinafter referred to as 'licensed premises') and shall not remove or issue from the licensed premises before the proper duty or fee, if any has been paid, any foreign liquor except as provided for in the said Rules. And if the obliger(s) pay/pays into the Government Treasury all dues whether excise duty or fees payable by the obliger(s) under the provisions of the Cochin Abkari Act 1 of 1077 and the Rules and orders made thereunder and complies with dirth (sic) all the provisions of the said Act, the said Rules and the orders and notifications issued thereunder. This obligation shall be void but otherwise and on breach in the performance of all or any of the terms and conditions herein contained the same shall be in full force. .." Rules 11 and 14 are also relevant which read as follows: "11. (1) Foreign liquor stored in the bonded warehouse shall be removed only to the premises licensed under the FL 9 licence referred to in sub-rule (C) of rule 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by rule 3(b) of the Bond Rules, 1961. To give effect to the monopoly created in favour of the Kerala State Beverages (Manufacturing and Marketing) Corporation Limited the respondents/distillers are required to supply IMFL to the said Corporation under a rate contract. Offers are required to be made in sealed covers which are subject to certain conditions. The format in which the offers are to be made is titled "data sheet" which includes all necessary particulars. A clause in the data sheet provides as follows: "The above rate includes freight, insurance, export duty, CST, B-deposit, packing charges, handling charges, unloading charges, warehouse, other levies, etc., but does not include Kerala import duty, Kerala excise duty and Kerala sales tax. " 22.. As we have noticed earlier, with effect from January 5, 1999, by amendment of the Foreign Liquor Rules, KSBC was required to pay to the distillers/manufacturers, the duty element levied under section 17 before removing the IMFL to its licensed premises. 23.. We may now briefly refer to the facts of the cases before us. The representative facts are taken from the writ petition filed by M/s. Kerala Distilleries and Allied P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Sales Tax Act on the ground that the assessments made were prejudicial to the interest of the Revenue inasmuch as the assessing authority did not take into account the element of excise duty paid by the fourth respondent, namely, the Kerala State Beverages (Manufacturing and Marketing) Corporation Limited and did not levy turnover tax on the petitioner. A follow-up notice was issued calling upon the petitioner (respondent herein) to produce books of account relating to the years in question. In these circumstances the petitioner (respondent herein) filed the writ petition praying for quashing of the proceedings and for declaration that it was not liable to pay the turnover tax on the amount of excise duty paid by the Kerala State Beverages Corporation on IMFL sold by it to the Corporation. The levy of turnover tax on such amount of excise duty was sought to be quashed as being ultra vires and beyond the legislative competence and therefore unconstitutional. 25.. The State in its counter-affidavit contended, inter alia, that the excise duty paid by the Kerala State Beverages Corporation formed part of the sale turnover of the manufacturer, since it is the obligation of the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant part thereof may be noticed: "5. Levy of tax on sale or purchase of goods. (1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than two lakh rupees and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year, (i) in the case of goods specified in the First or Second Schedule, at the rates and only at the points specified against such goods in the said Schedules; . . .. . .. . .. . .." The relevant part of section 5(2C) reads as follows: "5(2C)(i) Notwithstanding anything contained in this Act or the Rules made thereunder every dealer shall pay turnover tax on the turnover of goods as specified hereunder, namely: (a) by an oil company defined in the Explanation under serial number 97 of the First Schedule to this Act whose total turnover in a year exceeds rupees fifty lakhs at the rate of three per cent on the turnover from the 1st day of April, 1991 till 31st day of July, 1991 and thereafter at the rate of four per cent on the turnover; (b) by any dealer in Foreign liquor (Indian-made) or Fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warehouse of the Beverages Corporation in course of sale effected in favour of the said Corporation. The manufacturer lost control over the goods in question and property passed on from the distillery to the Beverages Corporation. 34.. The levy of excise duty in terms of section 17(f) of the Act read with rule 11 of the Storage in Bond Rules constituting the charging provision of the excise duty under the Abkari Act came into operation at a stage after the property in the goods, namely, the IMFL manufactured by the distillers had been transferred in favour of the Beverages Corporation. In other words the charging provision under the Act came into operation at a point of time subsequent to the transfer of property in goods in favour of the Beverages Corporation. Under such circumstances it was difficult to accept the argument that the amount payable by way of excise duty necessarily became part of the turnover of the manufacturers. 35.. On such reasoning the High Court held that the manufacturers/distillers were not required to pay excise duty which never formed part of their turnover. The finding of the High Court has been summarised in paragraph 41 of the judgment, which is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover of sale of liquor by it to the said Corporation and the turnover for the purpose of this sub-section shall include any duty of excise liable on such liquor at the hands of such manufacturer whether such duty is paid by the manufacturer or by the said Corporation. In view of the amended provision, proceedings were again initiated by the sales tax authorities and the same were again challenged before the High Court. 37.. The second batch of writ petitions was disposed of by a common judgment and order of the High Court dated August 9, 2002. The High Court while disposing of the second batch of writ petitions considered the binding precedents on the subject and observed that irrespective of the manner in which the rules and agreements between the parties changed the point of collection, excise duty in its true character is always a duty payable by the manufacturer of an article and remains the liability of the manufacturer. If as a result of the rules and the agreements it is discharged by someone else such discharge must be held on account of the manufacturer himself. The learned Judges referred to the decision of this Court in Mohan Breweries Distilleries Ltd. See [199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy falls and the points at which the levy falls. The rates were also prescribed. Moreover sub-section (2C) started with a non obstante clause "notwithstanding anything contained in this Act or the Rules made thereunder". Thus the payment of turnover tax under sub- section (2C) was not subject to restrictions enumerated in sub-section (1) and sub-section (2) of section 5 of the Act. One such restriction pertains to the number of points at which the levy can be made. On an interpretation of the aforesaid provision it recorded a categoric finding that the contention of the manufacturers/distillers that the levy of turnover tax falls on the Beverages Corporation and not on them was not acceptable. 40.. Learned counsel appearing on behalf of the State of Kerala drew our attention to the provisions of the Abkari Act and the various other Rules which have been noticed earlier in the judgment. He submitted that it is not in dispute that up to April 1, 1984 the excise duty on the manufacture of liquor was being paid by the distillers/ manufacturers like the respondents. With effect from April 1, 1984 the KSBC came into existence and a monopoly was created in its favour for whole sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erala Distillery and Warehouse Rules, 1968 whereunder no liquor could move out of the distillery premises except on payment of excise duty or under bond executed by the distillery undertaking to pay the excise duty. The incidence of execution of bond was itself proof of the fact that the liability to pay excise duty was cast on the distillers or the manufacturers. Relying upon sub-rule (1) of rule 16 of the Kerala Distillery and Warehouse Rules, 1968 it was submitted that the definition of warehouse clearly meant that part of a distillery where spirits for issue are kept. The warehouse referred to in rule 47 related to the warehouse in the distillery where the distillery kept liquor produced by it before it was removed therefrom. After the monopoly was created in favour of KSBC with effect from April 1, 1984 the liquor stored in the warehouse of the distillery was removed under bond to the Corporation bonded warehouse licenced in form BW1 under the Storage and Bond Rules. Corporation also was required to execute a bond in form A undertaking to pay the excise duty. He, therefore, submitted that the liability to pay excise duty was clearly on the manufacturers/distillers. The amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of goods and this liability falls on the manufacturer though its collection may be deferred to a later stage up to the stage of consumption. He also relied upon various decisions of this Court in support of this proposition. He further submitted that the use of the words "if the Government so directs" in section 17 of the Abkari Act only gives to the Government the discretion to levy or not to levy the excise duty. It has no relation to the stage at which the excise duty was to be levied or collected. The liability arose once the Government directs to levy the duty and issues notification in that regard. The collection may be at one or the other points referred to in clauses (c) to (g). The charging section itself imposes the liability on all those mentioned in clauses (c) to (g) all of which are related to manufacture. According to him all that is required is for the Government to evince its intention by levying the duty by appropriate notification. Such notifications have been issued from time and time and those notifications specified that duty is imposed on the manufacturer of IMFL. That the excise duty liability is of distiller is also evident from the fact that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquor was payable by all dealers on all points of sale. 43.. Mr. Nariman appearing on behalf of the respondents submitted that the levy of duty on liquor was not referable to entry 51 of List II but falls under entry 8 of List II of the Seventh Schedule. He submitted that a close examination of section 17 of the Abkari Act will reveal that the Government has a discretion to impose the levy, and the taxable events are those enumerated in clauses (a) to (g) which include levy on liquor permitted to be imported or exported or transported or manufactured under any licence granted under section 12 or manufactured at any distillery, brewery, winery or other manufactory established under section 14 or issued from a distillery, brewery, winery or other manufactory or warehouse licensed or established under section 12 or section 14, or sold in any part of the State. He submitted that the duty of excise is levied on the manufacture of the goods. The levy contemplated by clauses (a) to (g) of section 17 is not necessarily connected with manufacture of liquor, as it also envisaged the levy of duty on liquor exported or transported under clauses (b) and (c) or even issued from the distiller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined on any preconceived notion of levy of excise duty, i.e., the liability must fall on the manufacturer, but on the language of section 17 which makes it clear that it does not fall under entry 51 of List II. At best the levy is relatable to entry 8 of List II. There can be no excise duty on sale or supply as contemplated by section 17. Therefore, the liability to pay the duty was on the KSBC and not on the manufacturer. He also referred to the notifications issued by the State which went on to show that the levy was not in the nature of excise duty. An essential element of excise duty is uniformity of incidence which cannot vary from notification to notification. The Scheme of the Act itself supports the inference that though it is imposed under the Abkari Act, yet it is not a duty of excise on manufacture, but a consideration for parting with State's privilege, referable to entry 8 of List II. 45.. Before the High Court the same submission was advanced on behalf of the respondents which is noticed in paragraphs 44 and 46 of the judgment, but no finding has been recorded by the High Court on this aspect of the matter. 46.. Alternatively, and assuming without conceding, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturers or warehouse owners. He relied upon the provisions of the Abkari Act and the relevant Rules and submitted that the Government has chosen to impose the liability on the KSBC and not on the manufacturer. The Government had the power to do so. The licence issued to the KSBC obliged it to pay all excise duties which was a condition of the licence and, therefore, the payment of excise duty by the KSBC was not on behalf of anyone else but in terms of its own licence. 48.. He further submitted that if payment of excise duty made by the Corporation is treated as made on behalf of the manufacturer on the hypothesis that the excise duty liability is that of the manufacturer, it must follow that the payment of turnover tax by the Corporation must be similarly treated as having been made on behalf of the manufacturer. He submitted that if the turnover tax on excise duty is paid by the Corporation on its own behalf, then it cannot be treated as part of the turnover of the manufacturer. However, if the excise duty is to be treated as paid on behalf of the manufacturer, then it must follow that the turnover tax on that duty must also be treated as having been paid on behalf of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of duty of excise, though loosely so called. It was in effect the consideration for parting with exclusive privilege of the State of Kerala in favour of KSBC for wholesale trade in the business of liquor permissible under section 18A of the Abkari Act and, therefore, payable only by the KSBC. 51.. Mr. Nariman contended that even if the submission advanced by Mr. T.L.V. Iyer, that the collection of the duty of excise may be deferred to a later stage for the sake of convenience, may not be disputed, yet it must first be shown that the duty levied is in reality a duty of excise. The mere fact that it has been described as a duty of excise is not conclusive unless it is also shown that the duty is on manufacture. There is force in his contention because the mere fact that a duty is described as a duty of excise in a statute may not be conclusive, particularly when there is a competing entry under which such a duty may be levied. It is, therefore, always a question for the court to consider under which entry the tax falls. In Synthetics Chemicals Ltd. v. State of U.P.See [1991] 80 STC 270. (1990) 1 SCC 109 this Court has taken judicial notice of the fact that in many statutes e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty; and what it does and not merely what it says in order to ascertain the true nature of the tax. 55.. In The Province of Madras v. Boddu Paidanna and Sons See [1942] 1 STC 104 (FC). AIR 1942 FC 33 the Federal court observed as under: ".......There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of most of the Indian Excise Acts) when the commodity leaves the factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even though it may be collected later." 56.. In Governor-General in Council v. Province of Madras See [1945] 1 STC 135 (PC). AIR 1945 PC 98 the Privy Council noticed the earlier dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods 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. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on fair construction of the provisions of a particular Act." 58.. The next decision of this Court which may be noticed is the decision of the Full Court in Re: The Bill to amend section 20 of the Sea Customs Act, 1878 and section 3 of the Central Excises and Salt Act, 1944 [1964] 3 SCR 787 in which the law was stated in the following words: "This will show that the taxable event in the case of duties of exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se". The Government has a discretion to levy or not to levy such duty on all liquor and intoxicating drugs in cases covered by clauses (a) to (g) of section 17. Clauses (d) and (e) which relate to liquor manufactured under any licence granted under section 12 or manufactured at any distillery, brewery, winery, or other manufactory established under section 14, no doubt relate to imposition of duty of excise properly so called because the duty levied on liquor manufactured under a licence granted under section 12 or 14 is duty on manufacture and will squarely fall within the meaning of the term "duty of excise". However, clauses (b), (c), (f) and (g) contemplate events which are not related to manufacture, such as liquor permitted to be exported or permitted to be transported under clauses (b) and (c) or liquor issued from a distillery under clause (f) or sold in any part of the State under clause (g). If the duty of excise is levied under section 17 read with clauses (b), (c), (f) and (g) it may not be possible to contend that what is levied is a duty of excise since the taxing event envisaged under the aforesaid clauses do not relate to manufacture. Learned counsel for the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne is entitled to the issuance of licence in form FL9 and which is also issued a licence in form BW1. The Corporation has also executed an agreement in form A which obliges it to pay duties payable on the liquor. In view of these Rules, it was submitted that in effect the State of Kerala has parted with its privilege of wholesale business in IMFL in favour of KSBC for a consideration. The licence issued in favour of KSBC obliges it to pay the duty and it does so not on behalf of anyone else but in terms of its own licence. 67.. Learned counsel for the parties have also drawn our attention to the notifications issued by the Government from time to time under section 17 of the Act. The relevant portion of the notification reads thus: "SRO 60/61 The Government of Kerala hereby direct that the duty under the said section shall be levied on the following kind of liquors manufactured in the area where the said Act is in force or manufactured elsewhere in India and imported into the said area by land or under bond by sea, at the rates mentioned against each kind of liquor." 68.. It was argued that the notifications suggest that such duties are levied either on goods manufactured i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the area. As earlier observed, the duty levied on import of liquor is referable only to entry 8 of List II and not entry 51 thereof. 71.. We may also notice that the stand of KSBC before the High Court and before this Court has been that supplies were effected to it by the manufacturers/distillers in accordance with the relevant Rules without charging excise duty when the supplies were effected. In accordance with the provisions of the Abkari Act and rule 11 of the Foreign Liquor (Storage in Bond) Rules, 1961 goods purchased by the Corporation during the relevant period were without payment of excise duty and the excise duty thereon was payable at the time of removal of goods from the bonded warehouse to FL9 premises. The Corporation remitted turnover tax on the total value of turnover of the Corporation for each year at the rate of turnover tax prevalent during the relevant year. The turnover of the Corporation was computed so as to include the value of the goods at which the supplies were received by the Corporation, excise duty paid by the Corporation, profit margin of the Corporation and sales tax paid by the Corporation. It is thus admitted by the Corporation that under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rivilege to deal in liquor is not a "right" at all. The levy charged for parting with its privilege is neither a tax nor a fee. It is simply a levy for the act of granting permission or for the exercise of power to part with that privilege. This Court referred to numerous decisions of this Court which have clearly held that the State has a right to exercise all forms of control in relation to all aspects regarding potable alcohol and the State Legislature has exclusive competence to frame laws in that regard. The State has exclusive right in relation to potable liquor and there was no fundamental right to do trade or business in intoxicants. The State in its regulatory power has the right to prohibit absolutely every form of activity in relation to intoxicants its manufacture, storage, export, import, sale and possession and all these rights are vested in the State and indeed without such vesting there can be no effective regulation of various forms of activities in relation to intoxicants. In Devans Modern case See [2004] 2 RC 122; 2003 JT (10) SC 485., this Court held: "The Kerala State Beverages Corporation has licence only for wholesale and retail of liquor which will not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the duty levied was a duty of excise but the liability did not fall on the manufacturers/distillers and was payable only by the KSBC after sale of the liquor by the manufacturers. 76.. So far as the judgment in Mohan Breweries See [1997] 107 STC 212 (SC); (1997) 7 SCC 542 is concerned it may be noticed that the question which has been raised in this batch of appeals was not raised therein, and the court proceeded on the basis that the levy was in the nature of duty of excise as is ordinarily understood. In Madras Rubber Factory Ltd. case See [1998] 108 STC 583 (SC); (1998) 1 SCC 616 the charging section imposing the rubber cess was quite clear. Sub-section (1) provided for the levy and collection as a cess a duty of excise on all rubber produced in India at such rate not exceeding one anna per pound of rubber so produced as the Central Government may, by the same or a like notification, from time to time fix. Sub-section (2) provided that the said duty of excise shall be payable by the owner of the estate on which the rubber is produced, and shall be paid by him to the Board within one month from the date on which he received a notice of payment therefor from the Board. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued from a bonded warehouse licensed or established under section 12 or section 14 of the Act is referable to the duty levied under section 17(f) of the Kerala Abkari Act. (7) The notifications issued by the Government relate both to goods manufactured in the area or imported into the area. (8) The duty levied is on goods and not on manufacture. 78.. Taking all these factors into account and having regard to the scheme of monopoly introduced by the State of Kerala in the year 1984 we must hold that the levy of duty is not a levy in the nature of "duty of excise" but is the privilege price payable by KSBC in consideration of the State parting with its exclusive privilege of wholesale trade in IMFL in favour of the aforesaid Corporation. 79.. It was alternatively submitted on behalf of the State that even if it is held that what is levied is privilege price it will still form part of the sale price of the liquor sold by the distillers to the Beverages Corporation and hence part of the taxable turnover for the purpose of levy of turnover tax. The respondents on the other hand contend that by its very nature the privilege price must be paid by the beneficiary and is not capable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over the amount paid to them by the KSBC by way of duty levied under the Abkari Act together with the price of the liquor purchased from them. The learned Judges noticed this fact but granted relief in broad terms as prayed for by the respondents. In our view the High Court fell into an error in doing so. It ought to have held that in any event with effect from January 5, 1999 the respondents-manufacturers/distillers were bound to include in their turnover the amount of duty paid to them by the KSBC since that formed part of the consideration for sale of IMFL to the said Corporation. We, therefore, hold that from January 5, 1999, the date with effect from which the KSBC started paying duty to the manufacturers/distillers before lifting the stock of IMFL to its own licensed premises, the amount of duty paid formed part of the consideration paid by the Corporation to the manufacturers and consequently it formed part of the turnover of the manufacturers. 83.. Mr. Ashok Desai, Senior Advocate appearing on behalf of some of the respondents strenuously urged before us that in view of the provisions of section 5(1) and section 5(2C) of the Kerala General Sales Tax Act, there was no liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords "in Foreign Liquor (Indian-made) or Foreign liquor (Foreign made)". It is the Foreign Liquor which is specified in entries 53 and 54. The words "By any dealer" only go with "in Foreign liquor (Indian-made) or Foreign liquor (Foreign made)". In other words, it isxz the goods, which are specified in entries 53 and 54 of the First Schedule. This becomes very clear if one looks at the First Schedule. The First Schedule deals with "goods in respect of which a single point of tax is leviable under sub-section (1) or sub-section (2) of section 5". The four columns in the First Schedule set out (1) the serial number, (2) description of goods, (3) point of levy and (4) rate of tax %. In the First Schedule there is no column for dealer. The reference to a dealer is only in column (3) which will indicate the point of time at which a dealer will pay tax. If under the charging section the point of time is not to be as per the First Schedule, then one will not consider column (3) at all. This is clear as the only items are "goods", "point of levy" and "rate of tax %". With this in mind if one now look at section 5(1)(i) it becomes clear that thereunder the sales tax is payable on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the point of levy is at time of sale, (b) by a dealer, who is liable to tax under section 5, the levy is at point of first sale. However, if the first sale is to Kerala State Beverages Corporation then at that point there is no levy under section 5(1)(b) because the charging section provide that the levy is to be as per the Schedule. Section 5(2C)(i) does not lay down that tax is to be paid at the point and at the rate specified against the goods in the Schedule. Under section 5(2C)(i) the tax is at the rate of 5 per cent on the turnover at all points. 87.. Thus the respondent would in any event be liable to pay turnover tax on their turnover. Further, in the 1st judgment there is no discussion on this aspect at all. In the 2nd judgment the decision is against the respondents on this aspect against which they have filed no appeal. We entirely concur with the view of the High Court in the second batch of writ petitions on this aspect of the matter. 88.. The High Court, however, held that the amendment of section 5(2C) of the Kerala General Sales Tax Act by adding an Explanation which was brought into effect retrospectively from July 1, 1987, did not remove the constitutiona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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