TMI Blog2003 (4) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... ct Taxes under section 119 of the Income-tax Act. - Hence in view of the circular dated June 27, 2002, this writ petition is allowed. - - - - - Dated:- 17-4-2003 - Judge(s) : M. KATJU., PRAKASH KRISHNA. JUDGMENT The judgment of the court was delivered by M. KATJU J.- Heard learned counsel for the parties. This writ petition has been filed against the order dated March 22, 2002, passed by the Income-tax Officer, TDS, Muzaffarnagar, annexure 6, to the writ petition and the order dated May 7, 2002, annexure 12, to the writ petition passed by the Commissioner of Income-tax, Muzaffarnagar. The petitioner is a company and incorporated under the Companies Act. It has distilleries at Shamli, Muzaffarnagar and at Pilkhani, district Saharanpur under licences granted by the U.P. excise authorities for manufacturing of potable alcohol. In the excise year 2001-2002, the U.P. Excise Commissioner in exercise of powers under section 41 of the U.P. Excise Act framed rules for opening of wholesale shops of country liquor known as the U.P. Excise (Settlement of Wholesale Shop of Country Liquor) Rules, 2001 vide annexure 2 to the petition. As regards retail licences, the U.P. Excise (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the wholesaler the cost price and tax, excise duty and cess. The Income-tax Department cannot recover TCS on the excise duty component. True copy of the notification dated March 31, 2001, has been annexed as annexure 4 to the writ petition. In paragraph 13 of the writ petition it is alleged that the excise duty which is payable to the State of U.P. as the price for a privilege cannot constitute income or profits of the retailers or wholesalers. The cost price and excise duty are charged separately and are mentioned in the sale invoices. Wholesale price fixed by the Government virtually becomes the minimum sale price of country liquor for the retail licencee. Thus, for a retail licensee both the minimum and maximum prices are fixed and the scope for bargain is small with regard to consumers. In paragraph 16 of the writ petition it is alleged that the retail licensees have to fulfill the eligibility conditions and are selected by the District Committee and are identifiable, and hence they cannot evade payment of income-tax. The Chief Secretary, U.P., by letter dated March 30, 2002, to the Finance Secretary, Government of India, with a copy to the Chairman, Central Board of Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor 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." It may be mentioned that prior to the insertion of the above Explanation to section 206C with effect from April 1, 1992, there was a provision in section 44AC(1)(a) which was in identical terms. The memorandum explaining the reasons for insertion of the provisions of section 44AC and section 206C are stated. The Central Board of Direct Taxes has also explained the purpose and context for the insertion of the provisions of section 44AC and section 206C of the Act in its circular dated December 16, 1988, vide annexure 8 to the writ petition. The provisions of section 44AC and section 206C were introduced for working out the profits on presumptive basis in certain cases to get over the problem being faced in assessing the income and recovering the taxes in the case of persons trading in country liquor, etc. When section 44AC was inserted in the year 1988, the proviso to section 44AC(1)(a) was not there. This pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since in those cases it was held that the wholesalers are not buyers and in the case of the petitioner there are no wholesalers between the distillery and the retailers, since the distilleries are selling liquor directly to the retailers. It has been alleged by learned counsel for the petitioner that the impugned order of the Commissioner of Income-tax has failed to appreciate that as per sub-clause (iii) to the Explanation to section 206C the petitioner is not a buyer since the sale price of the goods to be sold by him is fixed under the State Act. The petitioner has also relied on various decisions referred to in paragraphs 37, 38 and 44 of the writ petition. A counter affidavit has been filed and we have perused the same. In paragraph 3 it is stated that retail licensees purchase liquor at negotiated prices and only the maximum retail price has been fixed by the State. The respondents have denied that they cannot recover the tax deducted at source from the petitioner. In paragraph 13 of the same it is stated that there is no bar against issue of CL-5C licences to persons who are permanent residents of other districts in U.P. or of other states of the Union of India. In all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 8 of the same it is stated that the maximum retail price fixed has been declared to be the sale price referable to in the Explanation to section 206C of the Income-tax Act by the circular dated June 27, 2002, vide annexure RA-1, to the rejoinder affidavit. In paragraph 12 of the same it is stated that retail licences are granted to persons who have a solvency certificate in their favour, which specifically records their permanent address, the property possessed by them, etc., and such retail licensee has also to deposit security money, hence it is wholly misconceived on the part of the respondents to suggest that the retail licensees may evade payment of income-tax. At any event the question has now officially been decided by a circular of the Ministry of Finance dated June 27, 2002, which is binding on the income-tax authorities. Hence, the question as to whether the retail licensees were selling liquor at a price lower than the maximum retail price has lost all relevance. In our opinion after the circular of the Central Board of Direct Taxes dated June 27, 2002, the controversy in this case really does not survive since under that circular the maximum retail price is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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