Excise duty under bonded warehouse scheme may fall outside manufacturer turnover when statutory liability shifts to the purchaser-corporation.

Excise duty paid by the purchasing corporation on Indian-made foreign liquor, under the bonded warehouse scheme, was treated as a statutory liability arising only after the goods had passed from the manufacturer. On that basis, the duty was not part of the manufacturer's sale price or bargain and could not be included in turnover under the Kerala General Sales Tax Act, 1963. The same reasoning also undermined penalty proceedings based on non-inclusion of that duty in returns, because the chargeable turnover did not comprise the excise duty element. The note distinguishes situations where duty remains a burden on the manufacturer and collection is merely postponed.

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Issues: (i) Whether excise duty paid by the Kerala State Beverages Corporation on Indian-made foreign liquor could be included in the manufacturer's turnover and subjected to turnover tax under the Kerala General Sales Tax Act, 1963. (ii) Whether penalty proceedings for non-inclusion of such excise duty in the returns were sustainable.

Issue (i): Whether excise duty paid by the Kerala State Beverages Corporation on Indian-made foreign liquor could be included in the manufacturer's turnover and subjected to turnover tax under the Kerala General Sales Tax Act, 1963.

Analysis: The levy of excise duty under the Abkari scheme was held to arise at the stage of removal from the bonded warehouse, when the property in the goods had already passed from the manufacturer to the Corporation. The Corporation alone executed the bond and bore the statutory obligation to pay duty under the Foreign Liquor (Storage in Bond) Rules, 1961 read with the relevant provisions of the Kerala Abkari Act, 1077. On that scheme, the duty paid by the Corporation was not part of the manufacturer's sale price or bargain and could not be treated as part of the manufacturer's turnover within section 2(xxvii) of the Kerala General Sales Tax Act, 1963. The Court also distinguished authorities where the duty remained a burden on the manufacturer and only collection was postponed.

Conclusion: The excise duty paid by the Corporation could not be again added to the manufacturer's turnover, and turnover tax could not be levied on that component; the challenge succeeded in favour of the assessee.

Issue (ii): Whether penalty proceedings for non-inclusion of such excise duty in the returns were sustainable.

Analysis: The penalty notices were founded on the assumption that the excise duty element formed part of the assessee's turnover. Since the Court held that the duty was not includible in the manufacturer's turnover, the foundational basis for penalty disappeared. The Court further found that the assessments had been accepted earlier and that the legal position had been uncertain when the notices were issued, making the proceedings arbitrary and unsustainable on the facts of the batch of cases.

Conclusion: The penalty proceedings could not stand and were quashed in favour of the assessees.

Final Conclusion: The batch of writ petitions was allowed on the principal tax issue, with the impugned demands and penalty proceedings set aside and the assessees held not liable to pay turnover tax on the excise duty component collected and paid by the Corporation.

Ratio Decidendi: Where excise duty under the governing statutory scheme is levied and collected only after the goods have passed from the manufacturer and is borne by the purchaser-corporation as the statutory obligor, that duty does not form part of the manufacturer's turnover and cannot be subjected to turnover tax.

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