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Issues: (i) whether the licence condition requiring payment of compensation equal to excise duty on liquor not lifted and sold by the licensees was valid and enforceable; (ii) whether the State was estopped from levying sales tax on retail sales of country spirit after an earlier exemption notification and assurances at the auction.
Issue (i): Whether the licence condition requiring payment of compensation equal to excise duty on liquor not lifted and sold by the licensees was valid and enforceable.
Analysis: The U.P. Excise Act, 1910 authorised levy of excise duty or countervailing duty only on excisable articles imported, exported, transported, manufactured, cultivated, collected, or dealt with under the statutory scheme. Neither section 28 nor section 29, nor any other provision of the Act, authorised recovery of an amount described as compensation for liquor not lifted by the licensees. The challenged condition was therefore treated as a demand for excise duty on unlifted quantity, which had no statutory basis.
Conclusion: The condition was invalid and unenforceable, and the demand on this footing could not be sustained; this issue was decided in favour of the licensees.
Issue (ii): Whether the State was estopped from levying sales tax on retail sales of country spirit after an earlier exemption notification and assurances at the auction.
Analysis: Section 3-A and section 4 of the U.P. Sales Tax Act, 1948 empowered the State Government to impose sales tax. A prior exemption notification did not bar the State from withdrawing the exemption and imposing tax in exercise of its legislative and sovereign powers. The doctrine of estoppel does not ordinarily operate against the State in matters of legislation or governmental action, and a representation by officers at the auction could not defeat the statutory power to levy tax.
Conclusion: The sales tax demand was valid and the State was not estopped from recovering it; this issue was decided in favour of the Revenue.
Final Conclusion: The challenges to the compensation demand failed, but the objection to the sales tax demand also failed, so the appeals were disposed of with only the sales tax demand being upheld.
Ratio Decidendi: A levy or recovery can be sustained only if it is authorised by statute, and the doctrine of estoppel cannot defeat the State's exercise of legislative or sovereign taxing power.
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