Wholesale vend fee excluded from manufacturer turnover; reassessment penalty also fails when the wrong statutory basis is used.

Vend fee collected from the wholesale licensee under Rule 15(2) of the Tamil Nadu Indian Made Foreign Spirits (Supply by Wholesale) Rules, 1981 is treated as a privilege-related exaction on the wholesale licensee, not as part of the manufacturer's sale consideration. It therefore does not form part of the manufacturer-assessee's taxable turnover. Penalty cannot be sustained under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 where the reassessment proceeds under Section 16, since the penalty provision must match the nature of the assessment and, in any event, the penalty basis falls away once the vend fee is excluded from turnover.

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Issues: (i) Whether vend fee paid by the wholesale licensee under Rule 15(2) of the Tamil Nadu Indian Made Foreign Spirits (Supply by Wholesale) Rules, 1981 could be included in the manufacturer-assessee's taxable turnover. (ii) Whether penalty could be sustained under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 when the reassessment was made under Section 16 of that Act.

Issue (i): Whether vend fee paid by the wholesale licensee under Rule 15(2) of the Tamil Nadu Indian Made Foreign Spirits (Supply by Wholesale) Rules, 1981 could be included in the manufacturer-assessee's taxable turnover.

Analysis: The levy under Rule 15(2) is distinct from the excise duty and vend fee payable under Rule 22(2) of the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules, 1981. Rule 22 operates in the context of manufacture and collection of duty connected with removal from the manufactory, whereas Rule 15(2) separately fastens vend fee on the wholesale licensee for the wholesale privilege granted under the statutory scheme. Read with Sections 17-C and 17-D of the Tamil Nadu Prohibition Act, 1937, the wholesale levy is in the nature of a privilege-related exaction on TASMAC and has no nexus with the consideration received by the manufacturer for sale of goods. It is not an amount forming part of the assessee's sale price merely because it is collected from the wholesale licensee in the course of the statutory wholesale arrangement.

Conclusion: The vend fee paid under Rule 15(2) by the wholesale licensee is not includible in the assessee's taxable turnover and the inclusion made by the Revenue cannot stand.

Issue (ii): Whether penalty could be sustained under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 when the reassessment was made under Section 16 of that Act.

Analysis: Penalty under Section 12(5)(iii) applies to an incorrect or incomplete return in a regular assessment setting, whereas reassessment under Section 16 is governed by its own framework, including Section 16(2) where the statutory requirement is wilful non-disclosure. The penalty in these cases was levied under the wrong provision, and in any event the foundation for penalty disappeared once the vend fee was held outside the assessee's taxable turnover. No sustainable basis remained for imposing penalty on the reassessed turnover.

Conclusion: The penalty could not be sustained and was liable to be set aside.

Final Conclusion: The revisions succeeded, the assessment could not be sustained to the extent it included the wholesale vend fee, and the consequential penalty also fell.

Ratio Decidendi: A fee or exaction imposed on the wholesale licensee as part of the statutory privilege to supply liquor by wholesale does not become part of the manufacturer's sale consideration or taxable turnover; penalty must also conform to the correct statutory basis applicable to the nature of assessment.

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