TMI Blog2000 (12) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain goods, including liquor, with effect from April 1, 1989, and for collection of tax at source with effect from June 1, 1988. This was followed by the Direct Tax Laws (Amendment) Act, 1989, vide which the following proviso was inserted in section 44AC: "Provided that nothing contained in this clause shall apply to 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." In view of these provisions, the distilleries started making deductions of tax on the transactions involving sale of liquor to the holders of L-13 licences granted under the Punjab Excise Act, 1914 (for short, "the 1914 Act"), read with the Punjab Liquor Licence Rules, 1956 (for short "the Rules"). This was challenged by the licensees by filing writ petitions in various High Courts, including this court and the High Court of Himachal Pradesh. In Gian Chand Ashok Kumar and Co. v. Union of India [1991] 187 ITR 188, a Division Bench of the Himachal Pradesh High Court held that L-13 licensees fall within the proviso to section 44AC(1)(a) of the 1961 Act and, therefore, the provisions of section 206C and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduce not being timber or tendu Fifteen per cent. leaves ---------------------------------------------------------------------------------------- Explanation.-For the purposes of this section,-- (a) '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 subsection (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; (b) 'seller' means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society." In the light of the amended section 206C, the petitioners and other distilleries started deducting income-tax at source from L-13 licensees, who challenged the same by filing petitions under article 226 of the Constitution of India, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TCO to L-14 licensees like the petitioners has to be treated as a subsequent sale. Vide circular dated September 15, 1993, the Central Board of Direct Taxes has clarified that section 206C(1) of the Act in relation to the buyer will not apply to public sector undertakings/companies and to any other buyer who obtains goods at a subsequent sale of such goods and the provisions of section 206C will apply only at the time of first sale. Admittedly, CITCO is a public sector undertaking and, therefore, the provisions of section 206C are not attracted in its case. If this position of CITCO is taken into consideration in the light of our finding that the sale of liquor by CITCO to L-14 licensees falls within the expression 'subsequent sale' as used in paragraph 5 of the circular issued by the Central Board of Direct Taxes, there can be no escape from the conclusion that the deduction of tax at source from the petitioners is illegal and without jurisdiction. As a logical corollary, it has to be held that the provisions of section 206C as amended by the Finance Act, 1992, are not available to the Income-tax Department to compel CITCO to deduct income-tax at source from the petitioners." I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquire the right to receive the goods and according to learned counsel the exclusion referred to in clause (a) of the Explanation refers only to (i), i.e., only those buyers who purchase goods and deal with them and therefore the petitioners who have acquired the right to receive the goods on the basis of the licences issued to them by the Excise Department are buyers within the meaning of clause (a) of the Explanation and are not excluded. Learned counsel has placed reliance on a judgment of the Patna High Court in State of Bihar v. CIT [1993] 202 ITR 535. We are unable to accept this contention of learned counsel for the Department. The language of clause (a) in the Explanation is clear and unambiguous and the exclusions referred to therein do exclude from the main provision, the subsequent purchasers of country liquor. It is not disputed by the Department that the petitioners on the basis of their L-14A licences purchased the country liquor from the wholesalers who are L-13 licensees." The court examined the matter from two other angles and ruled in favour of the petitioners by making the following observations: "Before concluding on this aspect, we may also refer to Circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man consumption other than Indian made foreign liquor shall collect from the buyer 10 per cent. of the amount payable at the time of debiting the amount to the account of the buyer or at the time of receipt of any such amount in cash or by cheque or draft or by any other mode. It is thus clear that what is collectible is 10 per cent. of the amount payable. The amount pay able is that amount which is payable at the time of debiting the amount to the account of the buyer or at the time of receiving money from him in cash or by cheque or by draft or by any other mode for the goods sold to him. That amount, in our opinion, is the purchase price which the buyer pays to the seller for the goods sold and in the cases before us the amount which the petitioners pay to the wholesaler after they have obtained a permit from the Excise Department by depositing the excise duty. The amount payable would only be the price which the buyer will pay to the seller. It cannot by any stretch of reasoning include licence fee which the buyer has to pay for the licence that he has obtained. The payment of this fee is wholly unrelated to the amount to be paid at the time of purchasing country liquor from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... points raised by the petitioners, respondent No. 3 issued the impugned demand notices. Simultaneously, he issued notices to the bankers of the petitioners under section 226(3) for payment of the amount of tax from their accounts. The petitioners have challenged the impugned demands/notices on the ground that the same are ultra vires section 206C of the 1961 Act and their fundamental right to carry on trade and business without any restriction. They have averred that L-13 licensees, to whom they had sold liquor, and L-14 and L-14A licensees, who purchased liquor from L-13 licensees do not fall within the meaning of the term "buyer" used in the Explanation appended below section 206C and, therefore, deduction at source cannot be made in respect of the goods sold to such licensees. In support of this plea, they have relied on the two judgments in the cases of K. K. Mittal [1991] 187 ITR 208 (P H) and [1993] 203 ITR 201 (P H) as well as the judgment of the Division Bench in Satya Pal Amrik Singh and Co. v. Union of India [1997] 228 ITR 653 (P H). In the written statement filed on behalf of respondents Nos. 1 and 2, it has been averred that the constitutional validity of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r analysing the provisions of section 44AC and section 206C of the 1961 Act and making reference to the various decisions, including those relied upon by the respondents, the Full Bench held as under: "Having given anxious consideration to the facts and circumstances of the case, in our opinion, the petition deserves to be allowed. It has been observed in the decision of the second Division Bench in Rudra and Co.'s case [1998] 233 ITR 66 (HP), that point regarding deduction of tax at source was covered in Gian Chand Ashok Kumar's case [1991] 187 ITR 188 (HP) wherein it was held that a person holding L-13 licence cannot be said to be termed as 'buyer' within the meaning of the proviso to section 44AC and, hence, would not fall within the mischief of section 206C. According to the Division Bench, however, the ratio of Gian Chand Ashok Kumar's case [1991] 187 ITR 188 (HP) was no more applicable after deletion of section 44AC and insertion of the Explanation in section 206C. For coming to that conclusion, the subsequent Division Bench relied upon a decision of the Supreme Court in A. Sanyasi Rao's case [1996] 219 ITR 330. In our considered opinion, however, the Division Bench was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 219 ITR 330 has no effect on the above principle whatsoever. The subsequent Division Bench in Rudra and Co.'s case [1998] 233 ITR 66 (HP), therefore, in our view, was not right in holding that the legal position was changed and liability of L-13 licensees arose under section 206C. To us, it is clear that by holding so, the subsequent Division Bench in Rudra and Co.'s case [1998] 233 ITR 66 (HP) has committed an error of law. With due respect to the Division Bench, we hold that it did not lay down the correct law. We, therefore, approve the ratio laid down in Gian Chand Ashok Kumar's case [1991] 187 ITR 188 (HP) and overrule Rudra and Co.'s case [1998] 233 ITR 66 (HP). We further state that a similar view has been taken by a Division Bench of the High Court of Punjab and Haryana recently in Naresh Kumar and Co. v. Union of India [2000] 243 ITR 760. For the foregoing reasons, the petition deserves to be allowed and is, accordingly, allowed. We reiterate the ratio laid down in Gian Chand Ashok Kumar's case [1991] 187 ITR 188 (HP) and overrule the decision in Rudra and Co.'s case [1998] 233 ITR 66 (HP). We declare that the persons holding L-13, L13A licences cannot be said to be 'b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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