2010 (9) TMI 984 - HC - VAT and Sales Tax

State Excise Duty Deemed Sale Price for Sales Tax

The court held that the State excise duty paid by C.L. II license holders is deemed part of the sale price for sales tax purposes under the Bombay Sales ... Whether the State excise duty paid directly by the C.L. II licence holders, the purchasers of country liquor from the petitioners, who are the manufacturers, is to be included in the sale price to be exigible to the payment of sales tax under the Bombay Sales Tax Act, 1959? Held that:- In view of what has been held by the apex court in Mohan Breweries case [1997 (9) TMI 500 - SUPREME COURT OF INDIA] in our view, the petitioners cannot escape the liability to pay sales tax on the State excise duty for the period in question. Though the petitioners had challenged the constitutional validity of Explanation I to clause (29) of section 2 of the said Act and had also in the alternative prayed that in the event the court upholds the constitutional validity, then the said provision be read down so as to mean than the sale price does not include the State excise duty and therefore no sales tax is payable on the State excise duty paid directly by the C.L. II licence holders on the sale of country liquor by the petitioners. No submissions were advanced in support of the said challenge by the learned counsel for the petitioners and, therefore, it would have to be understood that the petitioners have given up the said challenge. Appeal dismissed. Issues Involved:1. Whether the State excise duty paid directly by C.L. II license holders should be included in the sale price for sales tax purposes under the Bombay Sales Tax Act, 1959.2. The constitutional validity of Explanation I to clause (29) of section 2 of the Bombay Sales Tax Act, 1959.Detailed Analysis:Issue 1: Inclusion of State Excise Duty in Sale PriceThe main question in this case was whether the State excise duty paid directly by C.L. II license holders (purchasers of country liquor from the petitioners, who are manufacturers) should be included in the sale price for the purpose of sales tax under the Bombay Sales Tax Act, 1959.Facts:- The petitioners are engaged in the manufacture and sale of country liquor and are registered under the Bombay Sales Tax Act, 1959.- The country liquor is subject to State excise duty under the Bombay Prohibition Act, 1949, and sales tax under the Bombay Sales Tax Act, 1959.- The dispute period is from October 1, 1995, to January 14, 1997.- Excise duty on country liquor is paid directly by C.L. II license holders, as per a circular dated October 25, 1993, issued by the Commissioner of State Excise, Maharashtra.- The petitioners did not include the excise duty in their invoices or books of accounts and paid sales tax only on the basic price.Arguments by Petitioners:- The excise duty paid by C.L. II license holders should not be included in the sale price as it is not reflected in their invoices or accounts.- The circular dated October 25, 1993, obliges the C.L. II license holders to pay the excise duty, and therefore, it should not be part of the sale price.- The inclusion of excise duty in the sale price is ultra vires the Constitution of India and beyond the legislative competence of the respondent.Arguments by Respondents:- The State excise duty is deemed part of the sale price as per Explanation I to clause (29) of section 2 of the Bombay Sales Tax Act, 1959.- The circular dated October 25, 1993, is an administrative arrangement and does not shift the primary liability of excise duty payment from the petitioners to the C.L. II license holders.- The case is covered by the Supreme Court's decision in Mohan Breweries & Distilleries Ltd. v. Commercial Tax Officer, Madras, which held that excise duty is part of the sale price.Court's Analysis:- The court examined the definition of 'sale price' under section 2(29) of the Bombay Sales Tax Act, 1959, which includes any duties levied or leviable on goods.- The circular dated October 25, 1993, is a modality to facilitate the payment of excise duty and does not shift the primary obligation of payment from the manufacturer to the C.L. II license holders.- The court referred to the Supreme Court's decision in Mohan Breweries, which held that excise duty, even if paid by a party other than the manufacturer, is in discharge of the manufacturer's obligation and forms part of the sale price.- The court concluded that the petitioners are liable to pay sales tax on the State excise duty for the period in question.Issue 2: Constitutional Validity of Explanation I to Clause (29) of Section 2The petitioners challenged the constitutional validity of Explanation I to clause (29) of section 2 of the Bombay Sales Tax Act, 1959, which includes duties paid by the purchaser as part of the sale price.Court's Analysis:- No specific submissions were advanced by the petitioners' counsel in support of the constitutional challenge.- The court inferred that the petitioners had given up the challenge to the constitutional validity.Conclusion:The court dismissed the petition, holding that the State excise duty paid by C.L. II license holders is part of the sale price for the purpose of sales tax under the Bombay Sales Tax Act, 1959. The constitutional challenge to Explanation I to clause (29) of section 2 was not pursued by the petitioners.