1992 (12) TMI 199 - HC - VAT and Sales Tax

Inclusion of Excise Duty in Purchase Turnover for Taxation

The excise duty paid by the petitioner, an oil company, for goods transferred outside Kerala was held to be part of the purchase turnover liable to tax ... Excise duty as part of purchase turnover - incidence of excise duty - primary liability of manufacturer - collection machinery versus incidence - inclusion in taxable turnover - bonded warehouse and payment under bond - liability under section 5A of the Kerala General Sales Tax Act, 1963Excise duty as part of purchase turnover - primary liability of manufacturer - bonded warehouse and payment under bond - inclusion in taxable turnover - liability under section 5A of the Kerala General Sales Tax Act, 1963 - Excise duty paid by the purchaser (HPC) in respect of petroleum products removed from bonded warehouse and sent outside the State is includible in the purchaser's purchase turnover for the purpose of levy under section 5A of the Kerala General Sales Tax Act, 1963. - HELD THAT: - The Court held that excise duty is a levy whose incidence is directly relatable to the manufacture or production of goods and that the primary obligation to pay excise duty rests on the manufacturer (Cochin Refineries Ltd.). The Central Excise Act and Rules permit storage in licensed/bonded warehouses and postpone collection, but do not alter the essential character of excise as a manufacturer's liability; payment by a subsequent buyer pursuant to bonds or release conditions operates as discharge of the manufacturer's liability. The Tribunal's finding that the petitioner, by paying duty on removal, merely discharged CRL's contractual and statutory liability under the bond and the Central Excise Rules was upheld. Applying the statutory definitions of 'turnover' and 'taxable turnover' under the Kerala Act, and the principle that excise duty (though collected later or shown separately) forms part of the consideration payable by the purchaser when it is legally relatable to the manufacturer's liability, the Court concluded that the excise element must be included in the purchase turnover subject to tax under section 5A. The Court overruled the earlier Division Bench decision in Deputy Commissioner of Sales Tax v. Burmah Shell Oil Storage and Distributing Company Ltd. to the extent it held otherwise, and affirmed the Tribunal's view that the duty paid by HPC was in discharge of CRL's liability and therefore includible in taxable turnover. [Paras 6, 9, 11, 12, 13]Excise duty paid by the petitioner in discharge of the manufacturer's liability is part of the purchaser's purchase turnover and is taxable under section 5A; earlier contrary decision in Burmah Shell is overruled.Final Conclusion: The tax revision petitions are dismissed; excise duty paid by the petitioner on removal of petroleum products from bonded warehouse is includible in purchase turnover for purposes of section 5A of the Kerala General Sales Tax Act, 1963, and the earlier contrary Division Bench decision in Burmah Shell is overruled. Issues Involved:1. Whether excise duty paid by the petitioner in respect of goods transferred outside the State of Kerala formed part of the purchase turnover liable to tax u/s 5A of the Kerala General Sales Tax Act, 1963Rs.Summary:Issue 1: Inclusion of Excise Duty in Purchase TurnoverThe core question is whether excise duty paid by the petitioner for goods transferred outside Kerala forms part of the purchase turnover liable to tax u/s 5A of the Kerala General Sales Tax Act, 1963. The assessee, an oil company, contended that excise duty paid directly to the government should not form part of the purchase price paid to IOC. However, the Tribunal held that excise duty paid by the assessee is in discharge of the liability of the manufacturer, Cochin Refineries Limited (CRL), and thus includible in the purchase turnover.The Court examined the provisions of the Central Excise Act and Rules, highlighting that excise duty is a duty on the production or manufacture of goods. The Tribunal found that the bond executed binds the assessee to pay excise duty, which is primarily the liability of the manufacturer. The Supreme Court's decisions in cases like McDowell & Company Limited v. Commercial Tax Officer [1985] 59 STC 277 and Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 were cited, emphasizing that excise duty forms part of the consideration for the sale of goods and is includible in the turnover of the manufacturer, even if paid by the purchaser.The Court concluded that excise duty paid by the petitioner was in discharge of the liability of CRL and, therefore, it forms part of the purchase turnover for the purpose of section 5A of the Kerala General Sales Tax Act. The decision in Deputy Commissioner of Sales Tax v. Burmah Shell Oil Storage and Distributing Company Ltd. [1981] 48 STC 37 was overruled, and the tax revision cases were dismissed.Conclusion:The excise duty paid by the petitioner is part of the purchase turnover liable to tax u/s 5A of the Kerala General Sales Tax Act, 1963, as it discharges the liability of the manufacturer, CRL.Petitions dismissed.