TMI Blog1999 (11) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... is ultra vires, beyond the legislative competence and unconstitutional. They have also sought for a declaration that section 2(xxvii) of the Kerala General Sales Tax Act, 1963 is unconstitutional and void. 2.. The point raised by the sales tax department is that the petitioner is liable to include excise duty element in the turnover. The department has found that the excise duty is the obligation of the manufacturer and the matter is concluded against the assessee in Mohan Breweries Distilleries Ltd. v. Commercial Tax Officer [1997] 107 STC 212 (SC), and has raised the following important questions among others: (i) Whether the sales tax authorities have no jurisdiction to reopen the earlier assessment proceedings? (ii) Whether the State can include items of expenditure incurred by the purchaser after the sale as money consideration? (iii) Whether the turnover tax now demanded on the element of excise duty incurred by the Corporation is violative of Chapter XIII of the Constitution of India? These and other questions raised by the petitioner are of substantial in nature that they be decided by the division Bench for an authoritative pronouncements. Papers may be plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the law laid at the fourth respondent. The direct effect of the provision is to operate towards non-recoverable turnover tax. This contrasted with the price of comparable goods sold in the course of inter-State trade to fourth respondent on which also there is a 200 per cent countervailing duty under Sl. No. 51 of List II incurred by the fourth respondent. The discriminatory operation of turnover tax at the point of sale by local manufacturer supplying to the fourth respondent is writ large. The levy is ultra vires article 301 and article 304 of the Constitution of India. 5.. The order of the second respondent, Deputy Commissioner, dated October 23, 1998 under section 35 set aside the completed original assessments under section 17. Even for original assessments, the limitation under section 17(6) is four years from the expiry of the year to which assessment relates. Section 19 is for assessment of escaped turnover. Here again, the limitation up to Finance Act, 1998, i.e., before July 29, 1998 was four years from the expiry of the year to which the tax relates. Now it is five years. For the period relating to 1990-91 to 1993-94, the four-year period to assess escaped turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or non-payment of turnover tax on the excise duty actually paid by the Beverages Corporation or the noninclusion of excise duty in the returns filed arises for consideration? (F) Whether the contention of the petitioners that the Deputy Commissioner acted without jurisdiction under section 35 of the Kerala General Sales Tax Act in revising the order of assessment, which had become final, is correct? 5.. Mr. George Poonthottam also raised similar contentions but in different form. Before considering the rival submissions, we shall now briefly state the facts of each case. O.P. No. 23008 of 1999: Petitioner is a distillery engaged in the manufacture and sale of Indian-made foreign liquor at its distillery at Kanjikode. The petitioner is duly registered as a dealer under the Kerala General Sales Tax Act, 1963 and the Central Sales Tax Act, 1956. The Government of Kerala introduced a drastic change by creating a State monopoly in wholesale purchase and sale of Indian-made foreign liquor in the State of Kerala in the year 1984 and a Government company was incorporated by the name Kerala State Beverages (Manufacturing and Marketing) Corporation Limited . The petitioner has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign liquor at prices which excluded the liability for sales tax and excise duty which was laid only on the Corporation. The petitioner submitted returns and in doing so did not pay sales tax under serial No. 53 of the First Schedule and paid only the turnover tax under section 5(2A)(i)(b) of the Act. This turnover tax was only on the price as received by the petitioner from the Corporation and did not include either sales tax payable by the Corporation or excise duty levied on the Corporation. These returns were also accepted and assessments were also concluded accordingly up to the financial year 1995-96. While so the petitioner was served with notice dated July 29, 1998 calling upon the petitioner to submit revised returns to include element of excise duty paid by the Corporation. A notice proposing to impose penalty was also issued on the alleged ground that the element of excise duty paid by the Corporation was not included and the petitioner has not paid turnover tax. The petitioner filed its objections by letter dated September 15, 1998. The first respondent, without adverting to the objections and grounds raised by the petitioner and without giving any opportunity to subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be paid only by the Kerala State Beverages Corporation at the time of removal of the same from the bonded warehouse. According to the petitioner the sale of Indian-made foreign liquor by the petitioner is exclusively in favour of the Corporation and such sale is not exigible to sales tax under entry 53 of the First Schedule of the Kerala General Sales Tax Act. The petitioner, therefore, does not collect any sales tax from the Corporation in relation to the sale of Indian-made foreign liquor effected to it and that the sale has been made as per the policy of the Government. It is also submitted that the petitioner is a dealer within the State but the entire sale of Indianmade foreign liquor effected by the petitioner is exclusively in favour of the Corporation and consequently the petitioner is not a dealer liable to tax under section 5(2C)(b) of the Act. In this case also the assessing authority issued notices stating the petitioner did not include the amount of excise duty in the monthly returns filed by it nor did the petitioner pay the turnover tax due on the excise duty, and therefore, the petitioner is liable to pay interest on the balance amount of turnover tax. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 and 5 are not entitled to levy or collect any amount by way of turnover tax on the turnover actually returned by the petitioner and to quash exhibits P19 and P23. The other prayer relates to the disposal of the appeals filed by the petitioner in relation to the assessment years 1993-94 to 1996-97 and also to dispose of the revision filed by the petitioner in relation to the orders of penalty pending before it. O.P. No. 3283 of 1999: 12.. The prayer is to quash exhibits P3 to P10 and also the declaratory reliefs as in the other writ petitions. A relief in the nature of mandamus commanding the assessing authority to complete the assessment of the respondents 1 and 2 to refund the amounts which is found due to the petitioner in consequence of the reliefs prayed for. O.P. No. 7437 of 1999: 13.. The prayer is to quash exhibits P7, P8 to P10 in so far as it included turnover tax on the turnover of the petitioner including excise duty paid by the Corporation on the Indian-made foreign liquor sold by the petitioner. O.P. No. 12893 of 1999: 14.. This case was placed before us by K.S. Radhakrishnan, J. by order dated August 30, 1999 to be heard along with other petitions. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while selling it to the retail licensee is only the part of the privilege price collected by the State from the licensees through the Corporation and what is paid to the petitioner is only the cost of the product for the manufacture of liquor on behalf of the State while parting the privilege. It is therefore submitted that it is not correct in law to say that what is collected is excise duty. The consideration collected by the Corporation is indivisible and an integrated one for the grant of the privilege. The levy of excise duty is collected for the purpose of convenience in accordance with the direction given by the Government. The amount collected though included under the head excise duty is in reality part of the consideration for transfer of the privilege by the State. It is not excise duty as such but only a measure of the collecting the consideration by the State for the grant of the privilege. This has been held so by a Full Bench of this honourable Court following the judgment of the Supreme Court in State of Haryana v. Jage Ram AIR 1980 SC 2018 as well as the State of Andhra Pradesh v. Y. Prabhakara Reddy AIR 1987 SC 933. S. It is submitted that the concept of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led O.P. No. 12893 of 1999, which had been referred to this Bench. While admitting the same the Bench recorded the undertaking of the Government Pleader that there is no immediate threat of recovery of money pursuant to the demand notice issued. In this case the petitioner has sought for a declaration that section 2(xxvii) of the KGST Act as unconstitutional. While so the petitioner was served with notice under section 45A(2) of the KGST Act alleging submission of untrue and incorrect return for the financial years 1997-98 and 1998-99 proposing to impose maximum penalty of 200 per cent for the alleged evasion of tax. The notices were issued under exhibits P2 and P2(a) respectively. The petitioner was also served with a notice under rule 21(9) of the Kerala General Sales Tax Rules, 1963 for submission of untrue and incorrect return in form No. 9 for the months of April, May and June. Another notice was also served on the petitioner under section 45A(2) of the Act proposing to impose penalty for the submission of incorrect return. The petitioner submitted a reply in response to the said notice under exhibit P4. 17.. Counter-affidavits were filed by the respondents in O.P. No. 230 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is/was payable at the time of removal of the goods from the bonded warehouse to FL-9 premises. Accordingly, on those stocks of IMFL purchased from the petitioner/suppliers the excise duty payable was paid by the Corporation whenever the goods were transferred from the bonded warehouse to FL-9 godown. 21.. In paragraph 6 of the counter-affidavit, the details in regard to the turnover tax payable by the Corporation (in lakhs) during the period from 1992 to 1998 as per the provisions of sub-section (2A) of section 5 of the KGST Act has been furnished. The details are as under: Rate of turnover tax amount paid (in lakhs) The details of the turnover tax paid by the Corporation is also filed along with this counter and marked as exhibit R4(b). 22.. It is further stated in paragraphs 6 and 7 as follows: Accordingly the Corporation has remitted turnover tax on the total value of turnover in respect of the total turnover of the Corporation for each year at the rate of turnover tax prevalent du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence: 5(2A)(i) Notwithstanding anything contained in this Act or the rules made thereunder every dealer other than an oil company defined in the Explanation under serial number 140 of the First Schedule to this Act, whose total turnover in a year exceeds rupees twenty-five lakhs shall pay turnover tax at the rate of half percentum on the turnover of goods coming under the First or Fifth Schedule to this Act and in the case of an oil company whose total turnover in a year is rupees fifty lakhs and above shall pay turnover tax at the rate of (one and a half percentum) on the turnover. ................... (b) by any dealer in foreign liquor and liquor as defined in Explanations I and II to serial number 76A of the First Schedule to this Act other than arrack and toddy at the rate of two per cent on the turnover at the points, and; 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such purchase shall be liable to tax in the year in which the purchase acquires the character of last purchase. Section 2(xxv): taxable turnover means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed, but shall not include the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India. According to the learned Government Pleader, the petitioners are undisputedly suffering turnover tax in respect of the sales turnover of IMFL in their hands barring the excise duty component. According to the Government counsel, the contention of the petitioners is that they are not liable to pay turnover tax with reference to the excise duty element and that they are not at all liable to pay turnover tax in respect of their turnover placing an interpretation of section 5(2A) of the Act. The turnover tax is payable by every dealer on the turnover of goods, as specified thereunder, that in respect of liquor is to be paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of U.P. AIR 1961 SC 1170 and Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax [1963] 14 STC 976; AIR 1964 SC 766, were also relied on by the counsel for the State. The Supreme Court in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. State of U.P. AIR 1961 SC 1170 held: In the interpretation of statutes the courts always presume that the Legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect. In Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax [1963] 14 STC 976 (SC); AIR 1964 SC 766, it was held: The Legislature is deemed not to waste its words or to say anything in vain and a construction which attributes redundancy to the legislation will not be accepted except for compelling reasons. It is further argued that since the interpretation given by the petitioners limits the operation of section 5(2A) of the Act to dealers dealing in liquor only at the point at which tax is to be levied under section 5(1) of the Act and prohibits levy of turnover tax at all points, which is actually contemplated by section 5(2A) or 5(2C) as the case may be. Such an interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of penalty or the proposal for imposition of penalty under section 45A is tenable against the distilleries for non-payment of the turnover tax with reference to the excise duty component in time in the latter part of this judgment. 28.. The learned Government Pleader contends that the excise duty levied on the Indian-made foreign liquor manufactured within the State should also go into the reckoning of the turnover of the petitioners and should therefore be subjected to levy of turnover tax in terms of section 5(2A) of the Act. This argument can be summarised as follows: (a) Excise duty is levied on consumable alcohol under provisions which are traceable to entry 51 in List II of the Seventh Schedule to Constitution of India. (b) The very nature of excise duty contemplates that it is a levy on the manufacture of goods. (c) The incidence of excise duty is the manufacture of goods. (d) The liability to pay excise duty is, therefore, on the manufacturer. (e) The provisions in the rules framed under the Abkari Act providing for the different stage of collection of excise duty will not detract from fundamental nature and character of the levy. (f) The Beverages Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or authorise the establishment of private warehouses wherein liquor may be deposited and kept without payment of duty under a licence granted under this Act. Section 14(d) prescribes the mode of supervision that may be necessary in a distillery, brewery, winery, etc., or in any other manufactory where preparations containing liquor or intoxicating drugs are manufactured, to ensure the proper collection of duties, taxes and other dues payable under this Act or the proper utilization of liquor or intoxicating drugs. Section 29 of the Act provides for the rule-making power of the Government. The Government in exercise of that power passed the Foreign Liquor (Storage in Bond) Rules, 1961 which are intended to provide for establishment of bonded warehouses for the storage in bond of goods. It is not in dispute that the bonded warehouse licence has been issued in the State only to the Beverages Corporation which is a Government of Kerala undertaking constituted as a sole marketing agency for the purchase and distribution of Indianmade foreign liquor within the State. The licence for the bonded warehouse is to be taken in form FL 9. As already noticed the Beverages Corporation is the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises of the distillery and any sale is to be effected to the Beverages Corporation, the manufacturer loses control over the goods in question and the property passes on from the distillery to the Corporation once the sale is effected. Thus, in our view 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 for the excise duty under the Abkari Act comes into operation at a stage after the property in the goods over the Indianmade foreign liquor manufactured by the petitioners have been transferred in favour of the Beverages Corporation. In other words, the charging provision under the Act comes into operation at a point of time subsequent to the removal of the goods from the manufacturer and subsequent to the acquisition over the property in the goods by the Beverages Corporation. Under such circumstances it is not possible for us to accept the argument of the learned Government Pleader that the payment of excise duty will necessarily become part of the turnover of the petitioners/ manufacturers. 32.. We shall now consider few case laws on the point. McDowell Co. Ltd. v. Commercial Tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or arrangement by any other person it would amount to meeting of the obligation of the manufacturer and nothing more. 33.. Thus the submission of Mr. C. Natarajan, learned Senior Advocate, Mr. V. Giri and Mr. George Poonthottam that the judgment in McDowell case Obviously the case relates to Shinde Brothers v. Deputy Commissioner, Raichur [1967] 1 SCR 548-Ed. [1985] 59 STC 277 (SC), was a case of a levy as well as collection being laid on the manufacturer, but an arrangement being adopted by the manufacturer as advised to avoid sales tax on excise duty is well-founded and merit acceptance. 34.. Mohan Breweries Distilleries Ltd. v. Commercial Tax Officer [1997] 107 STC 212 (SC), was relied on by the Revenue also. A reading of the relative provisions indicates that the levy of duty remained on the manufacturer, but only the collection was postponed to the State owned marketing Corporation (TASMAC). In this case rule 22 of the Manufacture Rules framed under the Tamil Nadu Prohibition Act was considered. The said rule specifically provides that excise duty is to be paid by the person who removes the goods from the manufactory. That is to say, the charging provision came int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a part of the manufacturer s turnover. 36.. In the instant case the levy of excise duty under the Abkari Act takes place at a point of time when the property in the goods have already been subjected to a transfer from the hands of the petitioners to the Beverages Corporation. There is a transfer of title in the case from the petitioners to the Beverages Corporation and acquisition of title in the goods by the Corporation takes place subsequent to such transfer and thereafter only the charging provision comes into operation. Under such circumstances, it is not known by which process such excise duty can again be included in the turnover of the manufacturers. There is no satisfactory answer from the Revenue for this question. Therefore, the turnover of the petitioner as a dealer under the Sales Tax Act cannot take in the excise duty leviable on the goods manufactured. 37.. For proposition Nos. 1 and 2 Mr. C. Natarajan has relied on State of Kerala v. Madras Rubber Factory Ltd. [1998] 108 STC 583 (SC). This judgment dealt with section 12 of the Rubber Act, 1947 as amended by Act 21 of 1960 and rule 33-D of the Rubber Rules, 1955. B.N. Kirpal, J., speaking for the Bench, found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mysore [1967] 1 SCR 548, Jullunder Rubber Goods Manufacturers Association v. Union of India AIR 1970 SC 1589, A.B. Abdul Kadir v. State of Kerala [1976] 2 SCR 690 and McDowell Company Limited v. Commercial Tax Officer [1985] 59 STC 277 (SC). 38.. However, as per the submission of the learned counsel for the petitioners, this judgment may not be an authority in a situation where the levy of imposition of duty is postponed to the wholesale buyer, if permissible under section 17(1)(f) of the Abkari Act. 39.. Learned counsel for the petitioner next cited Hindustan Petroleum Corporation Ltd. v. State of Kerala [1993] 89 STC 106 (Ker) [FB]. In this case the Full Bench was considering a case of purchase effected by transfer from bonded warehouse to bonded warehouse. Central excise duty was paid directly to Government by the purchaser. The court held that the payment was in discharge of liability of manufacturer and that the same is includable in purchase turnover of the purchaser. Hindustan Petroleum Corporation Ltd. v. State of Kerala [1993] 89 STC 106 (Ker) [FB] is in line with the earlier case. Section 3(1) provided for the levy and collection of duty. It reads: There shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cure their Indian-made foreign liquor requirements under Bond from the distilleries and other foreign liquor (compounding, blending and bottling) units operating in the State of Kerala. The summary of the above would indicate the following: (i) That a duty of excise is leviable under section 17 either at the point of manufacture or at the point of issue from a manufacturer or warehouse. The choice is that of the Government. (ii) That the duty may be imposed either on the quantity produced or passed out from a distillery, brewery or warehouse. (iii) For ad valorem the value is such at which the fourth respondent purchases from the suppliers. (iv) The petitioner does not have any licence except for compounding, blending and bottling in form No. 1, in form No. 2 and form No. 4. (v) The fourth respondent is the exclusive marketing organisation in the State of Kerala and all sales have to take place to the said organisation. (vi) The fourth respondent alone holds licence in FL9 and alone competent to have a bonded warehouse granted under BW1. They have executed requisite Bond in form A and entered into an agreement with the Government for payment of duty of excise. (vii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not mere postponement of collection. 43.. We hold that the excise duty paid by the Beverages Corporation and included in its turnover cannot again be included in the turnover of the petitioners/ manufacturers. We answer this issue in favour of the petitioners and against the revenue. 44.. Proposition No. 3 in O.P. No. 23008 of 1998 and additional grounds R and S raised in O.P. No. 12893 of 1999 can be clubbed together and considered. According to the learned counsel appearing for the petitioners, excise duty laid on the Beverages Corporation is not price and outside bargain and hence not turnover . According to the petitioners, the licence for the manufacture of IMFL is granted by the State by virtue of legislative sanction under section 18A of the Abkari Act. The manufacture of liquor by the petitioners, who are only licensees of the State and the sale of liquor through the retail outlets and by the Beverages Corporation are all parting the privilege of the State by the issuance of licence. Therefore the price paid to the petitioners by the Beverages Corporation and the price collected by the Beverages Corporation towards cost of product, collection of tax and excise duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h collections is illegal. Subsequent Act validated certain assessments up to certain period. The validity of the Act was questioned. The nature of such collection was also discussed in the judgment. The Supreme Court in pages 485 and 486 of the above judgment has observed as follows: These observations show that when the seller passes on the tax and the buyer agrees to pay sales tax in addition to the price, the tax is really part of the entire consideration and the distinction between the two amounts-tax and price-loses all significance from the point of view of legislative competence. The matter is not in any way different under the Turnover and Assessment Rules. It is true that in column II of form A the amount collected by way of tax under section 8-B has to be shown; that does not, however, mean that an immutable distinction such as will go to the root of legislative competence has been drawn and must be always maintained. It appears to us that the true effect of section 8-B and the Turnover and Assessment Rules is that (a) a registered dealer is enabled to pass on the tax, (b) an unregistered dealer cannot do so, and (c) the amount collected by way of tax is to be shown se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aser; the seller is required to collect the tax from the purchaser which he has to pay over to the Government. Section 21-A makes the seller a collector of tax for the Government, and the amount collected by him as tax under this section cannot therefore be a part of his turnover. Under the Madras General Sales Tax Act, 1959, the dealer has no statutory duty to collect the sales tax payable by him from his customer, and when the dealer passes on to the customer the amount of tax which the former is liable to pay, the said amount does not cease to be the price for the goods although the price is expressed as X plus purchase tax (Paprika Ltd. v. Board of Trade [1944] 1 All ER 372). But the amounts collected by the assessees concerned in these appeals under a statutory obligation cannot be a part of their taxable turnover under the Madras General Sales Tax Act, 1959. In [1979] 44 STC 352 (Mad.) [E.I.D. Parry (India) Ltd. v. State of Tamil Nadu], the question was whether the gallonage fee collected by the distillery at the occasion of sale from licensee to wholesalers, in addition to the price of spirit and separately charged in the sale invoices, would constitute the sale price a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharging it. In view of the above, the court held that the gallonage fee realised was not price nor turnover. In [1988] 68 STC 1 (SC) (Food Corporation of India v. State of Kerala), the only question posed for consideration was whether the administrative surcharge and the price equalisation charge could be legitimately included in the turnover of the appellant assessable to tax under the KGST Act. In that case, the appellant-Food Corporation of India entered into an agreement with the Government of Kerala for the distribution of certain articles and commodities covered by the Kerala Rationing Order and under the agreement, the Food Corporation of India was required to collect the administrative surcharge and the price equalisation charge from the retailers due by them to the Government in accordance with the rates fixed by the Government from time to time. For the assessment years in question, the appellant was assessed to sales tax under the KGST Act on turnover which included the amount of the administrative surcharge and price equalisation charge collected by the appellant from the retailers. The Food Corporation of India contended before the Appellate Tribunal that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir purchase of the exclusive privilege of the State for manufacture or sale. The State is farming out the privilege for the manufacture and sale of liquor. Therefore, the concept of duty attached to production and manufacture is not available when it comes to liquor since the manufacture and sale are the exclusive privilege of the State. The State authorises another to do the exercise by charging a price for parting with its privilege. It is submitted that it is not the excise duty as such, but only a measure of the consideration payable by the contractors for the grant of the privilege. This levy is styled as excise duty. It is only for the purpose of convenience and facility of collection it is described as excise duty and, therefore, even when it is called and collected as excise duty , it is only the privilege price and not excise duty in reality. Therefore, it is submitted that the liability to pay excise duty on production or manufacture by the distillery does not arise when it comes to liquor as the amount collected or charged is not excise duty. It is only the privilege price collected by the State for parting the exclusive privilege and as such the manufacturer is not cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The next proposition argued by the counsel is that the levy is ultra vires articles 301 and 304 of the Constitution of India. Section 17 of the Abkari Act provides for a levy of duty on liquor manufactured or issued from warehouse. Serial No. 51 of the State List indicates that the Constitution seeks to maintain parity in the matter of levy even in respect of alcoholic liquor, whether manufactured within the State or imported from other States. This entry reads thus: Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India- (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics; but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. It is argued that the turnover tax as imposed on the petitioners on the element of excise duty incurred by the Corporation and laid on it with a bar of collection by the petitioner under section 5(2A)(iii) is ex facie violative of Chapter XIII of the Constitution of India. The levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d inside Kerala while being incurred by the Beverages Corporation on receipt and later paid. The countervailing duty is to counter balance the price structure and imposed on the import by the Beverages Corporation. The turnover tax impinges on the liquor manufactured in Kerala and not on the corresponding countervailing duty. Chapter XIII protects intra-State as well as inter-State trade. Article 301 applies not only to inter-State trade, commerce and intercourse but also intra-State trade, commerce and intercourse. The words throughout the territory of India clearly indicate that trade and commerce, whose freedom is guaranteed has to move freely also from one place to another in the same State. The Supreme Court in the decision reported in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232, has elaborately dealt with the scope of the above article 301 in paragraphs 42, 48 and 51. In the conclusion, in para 18 at page 242, the court held that the trade, commerce and intercourse throughout the territory of India are not absolutely free, but are subject to certain powers of legislation by Parliament or the Legislature of a State and that the freedom declared by article 301 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Andhra Pradesh [1988] 69 STC 305 (SC), Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 (SC), State of Uttar Pradesh v. Laxmi Paper Mart [1997] 105 STC 1 (SC) and Shri Digvijay Cement Co. v. State of Rajasthan [1997] 106 STC 11 (SC). [1986] 61 STC 165 (SC) (H. Anraj v. Government of Tamil Nadu) is a Bench decision of two learned Judges. In that case, the Government of Tamil Nadu exempted tax on the lottery tickets issued by it totally, while levying tax on the lottery tickets issued by other States and sold in Tamil Nadu. The court held that laws imposing taxes can amount to restriction on trade, commerce and intercourse if they hampered the free-flow of trade unless they are compensatory in nature and that the sales tax which had the effect of discriminating between goods of one State and another may affect free-flow of trade and would be offensive to article 301 unless saved by article 304(a). It was held that the direct and immediate result of the notification was to impose an unfavourable and discriminatory tax. At pages 159 and 162 of the decision in [1997] 104 STC 148 (SC) (Shree Mahavir Oil Mills v. State of Jammu and Kashmir), the Bench has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturers to the Corporation under the Act. It has been held that the protection of Chapter XIII is available in so far as fiscal levies are concerned, which operate as a tariff wall/barrier or operate as a discrimination, as could be seen from [1986] 61 STC 165 (SC) (H. Anraj v. Government of Tamil Nadu and AIR 1966 SC 1686 (Kalyani Stores v. State of Orissa). 52.. The next question relates to the jurisdiction of the Deputy Commissioner under section 35 of the KGST Act. The Deputy Commissioner by order dated October 23, 1998 set aside the original assessments passed under section 17 of the Act. According to the petitioner in O.P. No. 23008 of 1998, the assessments were completed from time to time and that the petitioner had secured firm orders from the Corporation for sale of IMFL at prices which excluded the liability for sales tax and excise duty which was laid only on the Corporation. They submitted returns and did not pay sales tax under serial No. 53 of the First Schedule. They paid only the turnover tax under section 5(2A)(i)(b) of the Act. This turnover tax was only on the price as received by the petitioner from the Corporation and did not include either sales tax paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istillery. In this case, for the assessment years 1991-92, 1992-93 and 1993-94 orders were passed by the third respondent, assessing the petitioner to tax in relation to sale of IMFL effected by it in favour of the Beverages Corporation. The petitioner was also assessed to turnover tax on such turnover which included sale of the IMFL sold by it to the Corporation. The relevant assessment orders are produced as exhibits P4 to P6. While so, the second respondent-Deputy Commissioner of Commercial Taxes, Thrissur, purportedly exercising the powers of suo motu revision under section 35 of the Act issued a notice to the petitioner on January 5, 1999 proposing to revise the orders of assessment passed under exhibits P4 to P6 on the ground that the assessing authority has not included in the turnover of the petitioner the excise duty paid by the Corporation for and on behalf of the petitioner. The Deputy Commissioner thereupon proceeded to pass an order under section 35 of the Act setting aside the orders of assessment passed under exhibits P4 to P6 and directing fresh orders of assessment be passed by the assessing authority by including the excise duty paid by the Corporation for and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in form No. 9 for the respective months. The said notices are produced as exhibits P3, P3(a) to P3(e). The petitioner in response to the said notices, submitted a reply under exhibit P4. It is submitted by Mr. George Poonthottam that the action initiated by the Revenue is improper, illegal, arbitrary and without the authority of law. 55.. It is seen from the records in O.P. No. 23008 of 1998 that the assessments were completed for the years 1990-91 on August 2, 1996, 1991-92 on August 5, 1996, 1992-93 on March 23, 1996, 1993-94 on March 27, 1996, 1994-95 on June 11, 1996 and 1995-96 on May 31, 1997 by the assessing officer. 56.. It is argued by the learned counsel appearing for the respective petitioners that under section 19(1), a special power is given to the assessing officer to make an assessment of the turnover which has escaped for any reason. The escapement may be the whole or any part of the turnover of business of a dealer. Section 19(1) deals with two categories of escapement- (i) where the whole or any part of the turnover of business has escaped assessment to tax in any year; and (ii) where the whole or any part of the turnover has been under-assessed or has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Kerala v. K.E. Nainan [1970] 26 STC 251 (SC), Reliance Motor Company Private Ltd. v. State of Tamil Nadu [1992] 84 STC 201 (Mad.), Joint Commercial Tax Officer II, Tuticorin v. Ekambareeswarar Coffee and Tea Works [1991] 83 STC 457 (Mad.) and Madras Rubber Factory Ltd. v. State of Kerala [1979] 44 STC 208 (Ker) [FB]. 58.. Arguing the case with reference to exhibit P8 dated October 23, 1998 in O.P. No. 23008 of 1998, the learned Senior Counsel submitted that assessments already passed under section 17 of the Act by the assessing authority do not suffer from any error and relate to the assessment on the consideration of sale and if the assessing authority did not assess excise duty as part of turnover, it was a case of escaped turnover independently to be assessed and such an independent order shall also stand separately as held in Joint Commercial Tax Officer-II, Tuticorin v. Ekambareeswarar Coffee and Tea Works [1991] 83 STC 457 (Mad.), which was referred to and approved in Commissioner of Income-tax v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC); AIR 1993 SC 43. It is further submitted that the Deputy Commissioner has set aside a valid original assessment under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and section 35 are conferred on two distinct authorities and that being the position, the exercise of the power by one cannot be termed as trenching of jurisdiction of the other. As far as the power under section 19 is concerned, the same could be exercised by the assessing authority within four years from the end of the assessment year concerned and the power under section 35 could be exercised within four years from the date of the order sought to be revised. He also submitted that the Deputy Commissioner has exercised his powers in the interest of the Revenue and that the notice under section 35 had been issued by the Deputy Commissioner and revisional order has been passed by him. In support of his contention that the power conferred on two different authorities, viz., the assessing authority and the revisional authority, are distinct and mutually exclusive, he relied on the decisions reported in [1979] 44 STC 208 (Ker) [FB] (Madras Rubber Factory Ltd. v. State of Kerala), 1976 KLT 382 (SC) (Commissioner of Agricultural Income-tax, Trivandrum v. Lucy Kochuvareed), (1998) 6 KTR 318 (Devidas Keshava Menon v. State of Kerala), (1998) 6 KTR 415 (K.A. Ammarkunhi Amme v. Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excise duty in their return. At the same time, it is conceded that the assessee had disclosed the turnover actually reflected in their bills. It is also not the contention of the Revenue that there was any sale by the assessee to any person other than the Beverages Corporation. It is also not their case that the entire sale effected by them in favour of the Beverages Corporation is not reflected in the return. The penalty is imposed under section 45A of the Act. It is argued that the jurisdictional factors constituting imposition of penalty under section 45A of the Act is the definite intention on the part of the assessee to evade tax. Courts have held that the proceedings for imposition of penalty are declared to be quasi-criminal in character. When the conduct of the assessee in filing a return disclosing the turnover constituting the sale price of the commodity sold by it and it was accepted by the department at all relevant times in all these cases and similarly situated assessees, it is incomprehensible as to how the assessee can be blamed for not including the excise duty which was actually paid by the Beverages Corporation and factually included in the return of the Beverag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one month time was requested to file objections only after getting legal advice from their legal advisors. Naturally the legal advisors being specialists in tax matters cannot plead ignorance of the existence of the verdict of the highest court of land on the element of excise duty. The officer has proposed to impose penalty under section 45A at twice the tax for the period in question. Here again, the officer refers a Supreme Court decision and states: Though this position is known to you earlier, you have not revised the returns and paid the turnover tax. A reading of the above exhibit would clearly reveal that the Revenue itself was not sure of the legal position and has taken to Mohan Breweries case [1997] 107 STC 212 (SC), decided on September 9, 1997, to issue notices only by July, 1998. This fact itself would clearly indicate that the petitioners cannot be held guilty of deliberate or dishonest conduct or mens rea. The penalty proceedings in all these cases, in our opinion, are, therefore, vitiated by non-application of mind and the same is liable to be set aside as arbitrary and unreasonable. 64.. This apart, the entire penalty proceedings are liable to be quashe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners in regard to the jurisdiction of the officers including the excise duty component paid by the Beverages Corporation to the turnover of the petitioners and rejected the contention of the Revenue. The notices issued for re-opening the assessment and the orders passed without giving adequate and reasonable opportunity to the petitioners and the further issuance of notices by the assessing officer to proceed further in accordance with the directions of the Deputy Commissioner and the notices issued for imposition of penalty and the orders passed thereon are totally without jurisdiction and arbitrary exercise of powers. The counter-affidavit filed by the Beverages Corporation would clearly go to show that the distilleries have to make their supplies only to the Beverages Corporation and accordingly on the stocks of IMFL purchased from the distilleries/manufacturers/petitioners/suppliers, the excise duty payable was paid by the Beverages Corporation whenever the goods were transferred from the bonded warehouse to FL-9 godown and as per the provisions of sub-section (2A) of section 5 of the KGST Act, turnover tax is payable by the Corporation during the relevant period. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporation from the manufacturers concerned. Prior to the amendment of the Foreign Liquor Rules, the levy of excise duty under the statute is at a point of time when the property in goods have already been transferred by the manufacturer in favour of the Corporation. Therefore, the property becomes the property of the transferee and vested in them. It is submitted that according to the Corporation there is duplication of work and they have requested the Government to do away with the system of keeping liquor in bonded warehouses and they are proposed to stock duty-paid liquor for supply to other licensees. It is also claimed that if the proposal is accepted, they will be in a better position to render their service more efficiently. The Government have accepted the proposal of the Beverages Corporation and decided to amend the Foreign Liquor Rules, 1953 accordingly. It is stated that the notification is intended to achieve the above object. Therefore, at present, permits are issued as duty-paid permits and the duty for a specified quantity of Indian-made foreign liquor is being paid by the Beverages Corporation before it issues permits. It is, therefore, that the goods are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r tax on the petitioner in terms of sub-clause (b) of sub-section (2C) of section 5 of the Act, now re-numbered as sub-clause (b) of sub-section (2C) of section 5, including any excise duty payable on the liquor manufactured and sold by the petitioner in favour of the State Beverages Corporation under the provisions of the Abkari Act or under the Storage in Bond Rules. Proceedings under exhibits P3, P6 and P10, in so far as it assess the petitioner to turnover tax on the sale of IMFL effected by it to the Beverages Corporation for the respective years, are quashed. So also exhibits P8 and P9 proceedings are quashed. It is also declared that section 2(xxvii) of the KGST Act in so far as it contemplates levy of turnover tax on amounts of excise duty paid by the Beverages Corporation as part of the turnover of the petitioner is unconstitutional and void. A mandamus is issued directing the second respondent to dispose of the appeals filed by the petitioner in relation to the assessment years 1987-88 to 1991-92 pending before it in consequence of the reliefs granted supra. Mandamus is also issued to the third respondent directing him to dispose of the appeals filed by the petitioner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under exhibits P19 and P23 are quashed. It is also declared that section 2(xxvii) of the KGST Act in so far as it contemplates levy of turnover tax on amounts of excise duty paid by the Beverages Corporation as part of the turnover of the petitioner is unconstitutional and void. A mandamus is issued commanding the 5th respondent to dispose of the appeals filed by the petitioner in relation to assessment years 1993-94 to 1996-97 and provisional order of assessment for the year 1998-99 pending before it in consequence of the relief granted above. Mandamus is also issued to the 4th respondent directing him to dispose of the revisions filed by the petitioner in relation to the orders of penalty pending before it in consequence of the reliefs granted supra. O.P. No. 3283 of 1999: It is declared that respondents 1 and 2 are not entitled to levy any turnover tax on the petitioner on the turnover actually returned by the petitioner for the concerned assessment year based on the sale price collected by the petitioner for the sale of IMFL in favour of the third respondent, viz., State Beverages Corporation. It is also declared that respondents 1 and 2 are not entitled to levy any turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excise duty paid by the State Beverages Corporation on the IMFL sold by the petitioner and that levy of turnover tax on such amounts of excise duty is ultra vires beyond legislative competence and unconstitutional. It is also declared that section 2(xxvii) of the KGST Act providing for or authorising levy of turnover tax on the amounts of excise duty paid by the State Beverages Corporation is unconstitutional and void. It is declared that the excise duty collected by the State Beverages Corporation on the IMFL is not excise duty and it only forms part of privilege price for parting with the right of the State in manufacturing and selling liquor. It is further declared that no turnover tax is payable by the petitioner for the privilege price in parting the privilege by the State and the demand for the turnover tax on the excise duty component is opposed to law and contrary to law. O.P. No. 19686 of 1999: Proceedings under exhibits P2, P2(a), P3, P3(a) to P3(e) are quashed. It is declared that the excise duty collected by the Beverages Corporation on the IMFL is not excise duty and it only forms part of privilege price for parting with the right of the Government in selling li ..... 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