Basic excise licence fee is not sale consideration and falls outside tax collection under section 206C

The Uttarakhand HC held that the basic licence fee charged under the U.P. Excise Licences (Tender-cum-Auction) Rules, 1991 is consideration for the grant of the exclusive excise privilege to vend liquor, not the sale price of liquor itself. Section 206C of the Income-tax Act applies only to collection of tax on the actual sale of specified goods by a seller from a buyer. Because the basic fee is paid to obtain the licence and the liquor price is separately payable when goods are lifted from the bonded warehouse, the fee does not attract the buyer-seller machinery under section 206C.

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Issues: Whether the basic fee charged under the U.P. Excise Licences (Tender-cum-Auction) Rules, 1991 is consideration for sale of liquor and is taxable under section 206C of the Income-tax Act, 1961.

Analysis: Section 206C of the Income-tax Act, 1961 applies where a seller collects tax from a buyer on the sale of specified goods, including alcoholic liquor for human consumption. The statutory scheme of the U.P. Excise Act, 1910 and the Rules shows that the bid-money, including the basic licence fee, is the consideration for the grant of the exclusive privilege to vend liquor and is payable for obtaining the licence. The basic licence fee is fixed with reference to the minimum guaranteed quantity and the notified rate, and it forms part of the amount paid for the privilege of retail sale. The actual price of the intoxicant, on the other hand, is separately payable at the stage of lifting goods from the bonded warehouse under rule 31. The amount realised as basic licence fee is therefore not the sale price of liquor and does not attract the buyer-seller machinery under section 206C.

Conclusion: The basic licence fee is not taxable under section 206C of the Income-tax Act, 1961. The question is answered in favour of the assessee and against the Revenue.

Ratio Decidendi: A licence fee paid for the grant of an exclusive excise privilege is not consideration for sale of goods; section 206C applies only to the actual sale price of specified goods between a seller and a buyer.

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