Taxable turnover treatment of liquor levies: collected sales tax excluded, but gallonage fee remained includible.

Foreign liquor that had already borne sales tax and gallonage fee under the Madras Prohibition Act was held not to be exempt from tax under section 8 read with item 3 of Schedule III of the Madras General Sales Tax Act, 1959, because prior levy under the Prohibition Act did not take the sales outside the charging provisions. The gallonage fee was treated as part of the seller's cost and therefore includible in taxable turnover, while sales tax collected under section 21-A was excluded because the statute clearly distinguished that tax from the sale price. The challenge succeeded only to that limited extent; the remaining assessments were sustained.

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Issues: (i) Whether foreign liquor on which sales tax and gallonage fee had been paid under the Madras Prohibition Act was exempt from tax under section 8 read with item 3 of Schedule III of the Madras General Sales Tax Act, 1959; (ii) whether the sales tax collected under section 21-A and the gallonage fee paid under section 18-A of the Madras Prohibition Act formed part of the taxable turnover under the Madras General Sales Tax Act.

Issue (i): Whether foreign liquor on which sales tax and gallonage fee had been paid under the Madras Prohibition Act was exempt from tax under section 8 read with item 3 of Schedule III of the Madras General Sales Tax Act, 1959.

Analysis: The earlier decisions construing the same statutory scheme had held that payment of sales tax under section 21-A and gallonage fee under section 18-A of the Madras Prohibition Act did not take the sales of foreign liquor outside the charging provisions of the Madras General Sales Tax Act. The exemption clause was therefore not available merely because the goods had already suffered levy under the Prohibition Act.

Conclusion: The exemption claim failed and the assessment to tax under the Madras General Sales Tax Act was upheld.

Issue (ii): Whether the sales tax collected under section 21-A and the gallonage fee paid under section 18-A of the Madras Prohibition Act formed part of the taxable turnover under the Madras General Sales Tax Act.

Analysis: The gallonage fee was treated as entering into the cost price of the goods and therefore as part of turnover. By contrast, the sales tax collected under section 21-A was held to stand apart from the sale price because the provision created a clear distinction between the price of the goods and the tax collected, so that such tax could not be included in taxable turnover.

Conclusion: The sales tax collected under section 21-A was excluded from taxable turnover, while the gallonage fee was rightly included.

Final Conclusion: The challenge succeeded only to the limited extent of exclusion of the sales tax collected under section 21-A from turnover, and the remaining assessments were sustained.

Ratio Decidendi: Where a special levy statutorily distinguishes the tax collected from the sale price, the collected tax is not part of taxable turnover, but amounts forming part of the seller's cost remain includible in turnover.

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