TaxTMI 
TaxTMI 
2003 (10) TMI 38
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....then sell it in retail trade within their allotted area. The arrack trade is controlled by the State Government. The Karnataka Excise Act has framed several rules for appropriate enforcement of excise laws. In the year 1993, the Government discontinued private bottling units from engaging in the manufacture or bottling of arrack and instead decided as a policy to restrict those operations in the hands of the companies or agencies owned and controlled by the State Government. The petitioner-M.S.I.L and another Karnataka Government undertaking were entrusted with this taste of bottling arrack and marketing it on behalf of the State Government. The petitioner was entrusted with bottling in northern districts of the State of Karnataka. Mysore Sugar was assigned with the task in the rest of the State. According to the petitioner, the job was in the nature of works contract. An excise supervisor is stationed and the petitioner's operations in manufacturing and bottling arrack when manufactured belongs to the State of Karnataka so much so the property therein vests with the State. The fourth respondent, Excise Commissioner, determines the amount realisable by the petitioner from the excis....
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....y State Act. The petitioner finds fault with the order passed by the first respondent. The petitioner has raised several grounds in support of his case. The main ground is that section 206C is not applicable to the operation of the petitioner. With these facts and grounds the petitioner is challenging the order passed by the respondent at annexures E1 to E6 and consequent demand notices in terms of annexures F1 to F6 in these petitions. The facts in W.P. Nos. 6967 to 6972 of 2001 in brief are as under: The petitioner is a public limited company and the majority of its shares are owned by the Government of Karnataka. It is managed by a senior IAS officer appointed by the State Government. The petitioner is engaged in the manufacture of sugar and also owns a distillery for the manufacture of alcohol. The petitioner manufactures arrack for human consumption in terms of the Karnataka Excise Rules. The petitioner bottles arrack under the supervision of the fourth respondent. Raw materials for arrack, that is rectified spirit, is lifted by the petitioner from distilleries as per the permit issued by the fourth respondent. The arrack, when manufactured belongs to the fifth respondent. T....
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....ell-knit together constituting an integrated act. Therefore, in reality, there exists only a single act, namely, purchase of goods but executed in two stages: (1) granting the excise contractors by conducting an auction and issuing permits, (2) the petitioner effecting sales of liquor to the excise contractors on production of permits issued by the Excise Department. The excise contractors are not bound to sell liquor at a specific fixed price. The excise contractors are at liberty to sell the liquor at any rate between the minimum and the maximum price at which sale of liquor can be effected and this, in terms of the percentage may come to almost 56 per cent. The respondents also refer to the provisions of the Act to contend that the action of the respondents are fully justified in law. According to the respondent, the Excise Commissioner absolutely has no jurisdiction to issue any such circular interpreting the provisions of the Income-tax Act and on erroneous interpretation tax at source in terms of section 206C of the Act. The respondents also refer to various provisions and support the order of the Department. They deny various allegations/averments made in the writ petition.....
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....raswati Industrial Syndicate Ltd. v. Union of India [1974] 2 SCC 630 and Mohd. Rajab Gujari v. State of Jammu and Kashmir [1975] 2 SCC 323. Learned counsel argues that in terms of the income-tax laws, the person who has issued the notice is incompetent and is a person who is without jurisdiction. Reliance is placed on the notification issued by the Government. Dr. Krishna, learned counsel for the other petitioner, supports Sri K.P. Kumar, learned counsel, with regard to the auction sale being independent in character. Learned counsel also says that the buyer concept is accepted but the entire articles/goods belong to Government and the petitioner only undertakes labour contract. There is already a first sale taken place and therefore, the second sale if at all cannot be subjected to rejection. Per contra, Sri. Indra Kumar, learned standing counsel took me through the history of section 44AC and the need for interpretation of section 206C(3). He read to me the judgment of the Supreme Court with regard to the laudable object of deduction at source in the case of excise trade. Learned counsel says that the Act identifies liquor trade and timber and this sequence has been introduced....
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.... facilitate the collection of tax on that income which is bound to arise or accrue, at the very inception itself or at an anterior stage. These provisions are akin to advance tax. The standard by which the amount of tax is measured, being the purchase price, will not in any way alter the nature and basis of levy, viz., that the tax imposed is a tax on income. It cannot be labelled as a tax on purchase of goods. The court ultimately ruled that section 44AC is a valid piece of legislation and is an adjunct to and explanatory to section 206C of the Act. The Supreme Court in the very same judgment noticed as under with regard to the object of the provision: "It appears that the Government wanted to get over the problems in assessing income and recovering tax in the case of persons dealing in country liquor, timber, forest produce, etc. Experience revealed that a large number of persons dealing in the said commodities did not maintain any books of account or the books of account maintained by such persons, were incomplete. The business of the above mentioned persons existed only for a short period a year or two. After the period of contract or agreement, it was impossible to trace the....
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....sel have placed before me several case laws with regard to law and interpretation of statute. Sri K.P. Kumar, learned counsel and Dr. Krishna, learned counsel appearing for the petitioners, invited my attention to law and interpretation of statutes. According to them, the interpretation is to be in their favour to see that the interpretation has to be in conformity with the excise operation in Karnataka. On the other hand, Sri Indra Kumar, learned counsel refers to me various case laws in support of his submissions. It is well settled that Parliament intends that an enactment shall remedy a particular mischief. It is presumed, therefore, that Parliament intends the court, in construing the enactment, to endeavour to apply the remedy provided by it in such a way as to suppress that mischief. According to Sri Indra Kumar, learned counsel, the mischief of a particular trade is to be taken note of by this court in interpreting section 206C. The Supreme Court in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191 (SC); AIR 1975 SC 1871, considered the scope of section 7 A of the Tamil Nadu General Sales Tax Act in paras. 26 and 34. The court ruled that, "It may be remembered that....
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.... LR 527, at page 538 (1947)). That principle has been applied to this very Act by this court recently in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 (SC); [2000] 4 SCC 406. If the said principle is applied, it is clear that the provision in section 31 must be construed in such a manner that, after the Act, no suit by the bank is decided by the civil court and all such suits are decided by the Tribunal'." Again in para. 35, the court notices as under: "The court while interpreting the provision of a statute, although, is not entitled to rewrite the statute itself, is not debarred from 'ironing out the creases'. The court should always make an attempt to uphold the rules and interpret the same in such a manner which would make it workable.". Para. 36 is also relevant, which I deem it proper to quote: "It is also a well settled principle of law that an attempt should be made to give effect to each and every word employed in a statute and such interpretation which would render a particular provision redundant or otiose should be avoided." Ultimately, in para. 40, the court emphasizes the need of purposive construction which gives effect to the legislative purpose. The c....
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....xt year. After acceptance of the bid, the agreements are entered into between the State and the excise contractors. In the light of the amendment to the Excise Act, they are compelled to procure their arrack from the petitioners who are the sole manufacturers in arrack in terms of excise laws. It is equally admitted before me that these petitioners do sell arrack to the excise contractors but they have not deducted tax at source at the time of sale transaction. At this stage, I must notice a somewhat interesting argument of, Dr. Krishna, learned counsel, with regard to "no sale" in the case on hand. In this connection, one has to see the pleadings. In the pleadings, it is stated that the fourth respondent as per the provisions of the Excise Rules, licenses the retail vendors of arrack to lift arrack and vend it in retail, on payment of kist to the State. The licensees are permitted to lift the arrack from the petitioner. Such a permit is granted after the licensees deposit the excise duty with the fourth respondent. The petitioners receive from such licensees the amount fixed by the fourth respondent to cover the cost of rectified spirit. The property in the arrack vests in the fi....
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....iable for deduction in terms of the provisions. In these circumstances, I am not able to accept the submissions of Dr. Krishna, learned counsel, that there is no sale at all between the petitioner and the excise contractor in the given set of facts and in the absence of any factual foundation. Section 206Cis a beneficial provision meant for arresting revenue loss. After noticing large scale tax evasion in liquor trade, Parliament in its wisdom provided for deduction at source in the case of various taxpayers including certain category of dealers. Section 206C is a special provision providing for collection from the buyer of any goods of the nature specified in column 2 of the Table below a sum equal to the percentage specified in the corresponding entry in column 3 of the said Table. The Table provides for 10 per cent. in the case of alcoholic liquor for human consumption. Sub-section (2) provides for collection without prejudice to any other mode of recovery. Sub-section (3) provides for seven days payment after collection. Sub-section (4) provides for a deemed payment of tax on behalf of the person from whom the amount has been collected in terms of the income-tax laws. Sub....
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.... when the message imparted by a statute is unclear, what the Legislature would have wanted them to do in such a case of failed communication'." In the case on hand, the definition of buyer and seller has to be noticed for proper understanding of the case by the petitioners. These expressions have been debated, discussed, explained and argued by both counsel. The history as I narrated above would show that sections 206C and 44AC have been inserted with a laudable object of plugging the revenue loss from certain type of traders in the light of the experience of the State as with regard to those transactions. The law of interpretation as held by the Supreme Court is to achieve the object of the statute and every word in it has a meaning. The legislative intent is to be discovered from the history and the language so as to see the purpose of legislation is achieved while interpreting. The main argument of the petitioners with regard to section 206C is concerned is that section 206C provides for four categories of buyers and the petitioners stood excluded from the scope of section 206C. According to the petitioners, section 206C is not applicable to the facts of the case since accordi....
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....cal plea of diluting the facts of "not obtaining arrack" by way of auction. Auction cannot be wiped out or erased in a transaction like this between the petitioners and the excise contractors. Auction is the foundation not only to have a right but also a subsequent consequential obtaining arrack by way of sale as a buyer in terms of laws. It is of interest to note that the real aggrieved party, namely, the excise contractors, have not chosen to plead this plea at any point of time. The petitioner strongly relies on the following judgments: (1) Saini and Co. v. Union of India [2000] 246 ITR 762 (HP) [FB]; (2) K.K. Mittal and Co. v. Union of India [1991] 187 ITR 208 (P&H); (3) Ashak Kumar v. Union of India [2001] 252 ITR 200 (P&H); and (4) Chandigarh Distillers and Bottlers Ltd. and Patiala Distilleries and Manufacturers Ltd. v. Union of India [2002] 253 ITR 205 (P&H). Let me see as to whether these judgments could be made applicable to the facts of these cases. The Full Bench of the Himachal Pradesh High Court in the case of Saini and Co. v. Union of India [2000] 246 ITR 762 considered section 206C of the Act. Before noticing the law laid down, it is necessary to notice the f....
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....y for the licence that he has obtained. The payment of this fee is wholly unrelated to the amount to be paid at the time of purchasing country liquor from the wholesalers. Even if an L-14A licensee does not purchase any country liquor, the licence fee has nevertheless to be paid by him to the Department and it will be preposterous to suggest that income-tax should still be recovered. The licence fee is therefore, not a part of the amount payable at the time of the sale of country liquor. In this view of the matter, we have no hesitation in holding that the amount payable in section 206C of the Act does not include the licence fee which has to be paid by the licensee to the State Government. The Deputy Commissioner of Income-tax was in error in including the licence fee in the amount payable under section 206C of the Act and the Excise and Taxation Commissioner was not required to collect 10 per cent. of the licence fee from the L-14A licensees like the petitioners and it follows that the petitioners were not liable to deposit that amount." The court was considering deduction from the licence fee in the said case. In the case of Chandigarh Distillers and Bottlers Ltd. v. Union of ....
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....e Supreme Court has also ruled that "the buyer has to be a buyer of goods and not merely a person who acquires a licence to carry on the business." Sri Indra Kumar, learned counsel, heavily relies on the judgment to contend that the argument of the petitioner is totally diluted or required to be rejected in the light of the clear pronouncement of the Supreme Court. The Supreme Court was considering the case of Naresh Kumar [2000] 243 ITR 760 (P&H) wherein section 206C was pressed into service at the time of grant of licence. Noticing that, the Supreme Court ruled that a licence only enables to carry on trade or business. But the Supreme Court ruled that when the movement of order is placed, at that point of time section 206C is get attracted. In the case on hand, the demand is when the excise contractors have placed an order on the manufacturer, namely, the petitioner, for supply of goods and the Department sought for deduction in terms of section 206c. The point of time is the placement of an order in terms of the apex court rulings. In the case on hand, the demand is made not at source, namely, grant of licence or licence fee but at that point of time, namely, placement of an or....
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....tions Ltd. [1969] 3 All ER 39 (HL). That was a case dealing with duty of pool betting. The court ruled that the words to be construed are like chameleons. They take their colour from their context. There are in my view certain general considerations which should guide us in determining which of their many possible shades of meaning Parliament intended the words to bear. The court also notices that there are few greater stimuli to human ingenuity that the prospect of avoiding fiscal liability. Experience shows that under this stimulus human ingenuity outreaches Parliamentary prescience. Once the transaction to be taxed has been described by reference to its legal characteristics the potential taxpayer gets to work to devise new transactions whose legal characteristics do not comply with the statutory description yet nevertheless achieve the same kind of economic result. In construing such an amendment the court should start with a predilection for the view that Parliament did not intend to alter the rational basis of the tax but to protect the Revenue by applying it to the new transactions. I must also notice in the same judgment reading as under: "As always happens in cases where....
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....ute to the given situation. I return, therefore, to the question: What is the true meaning of section 42 as it stands? This cannot be answered by simply looking at the words of the statute and nothing else. A statute is not passed in a vacuum, but in a framework of circumstances so as to give a remedy for a known state of affairs. To arrive at its true meaning, you should know the circumstances with reference to which the words were used: and what was the object, appearing from those circumstances, which Parliament had in view. That was emphasized by Lord Blackburn in River Wear Commissioners v. William Adamson [1877] 2 AC 743 and by the Earl of Halsbury LC in Eastman Photographic Materials Co. Ltd. v. Comptroller-General of Patents, Designs and Trade Marks [1898] AC 571 in passages which are worth reading time and again. But how are the courts to know what were the circumstances with reference to which the words were used? And what was the object which Parliament had in view? Especially in these days when there are no preambles or recitals to give guidance. In this country we do not refer to the legislative history of an enactment as they do in the United States of America. We do....
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.... rely on Hindustan Lever Ltd. v. Municipal Corporation of Greater Bombay. [1995] 3 SCC 716 and Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775 (SC). Per contra, the respondents deny the same. Hindustan Lever Ltd. v. Municipal Corporation of Greater Bombay [1995] 3 SCC 716 ruled in para. 11 that when interpretations are reasonably possible one beneficial to the assessee is to be given. In the case on hand, in my view, there cannot be any two interpretations and there could be only one interpretation on facts and that is the interpretation of obtaining arrack by way of auction. The second judgment Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775 (SC) says that interpretation has to be given while interpreting the tax notwithstanding the statute. Interpretation of statute benefit has to be given. That would depend upon the facts of each case. When a fiscal statute is introduced to eliminate a mischief, the court cannot provide a beneficial interpretation thereby continuing the mischief which is to be avoided in terms of the statute and in terms of the legislative power. Therefore, I am clearly of the view on the facts of this case that beneficial interpretation cannot be given to the ....
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....he Act. Fixation of retail price: I have come to a conclusion on the facts in the light of statutory principles and the laws governing that there is a buying in terms of auction. The second limb of the argument, namely, whether fixation of price by the State is also necessary in the light of the context of the applicability of section 206C in the light of exclusion of the exemption in terms of section 206C(11), Explanation. However, I deem it proper to give a finding on this issue as well since the arguments have been advanced before me. The authority also has concluded in the order in the light of the objection that prices are fixed by the Government thereby attracting section 206C of the Act. The authority has rightly ruled that the petitioners are the sellers and they have collected the tax. For the purpose of fixed price, the authority has noticed the word "fixed" and thereafter he comes to a conclusion that prices are fixed by the excise department and that therefore, there is a fixed price available in terms of the statute. The same is disputed by the petitioners. The petitioners argue that no doubt, the Excise Commissioner has fixed the price. But that price is in the li....
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.... near to this case. Sir Shadi Lal Enterprises Ltd. v. Union of India [2003] 262 ITR 166 (All) is another judgment relied on by the petitioners. A reading of the said judgment would show that retail licensees purchase liquor at the price fixed by the State and there is no negotiation in that auction. There was also a circular issued by the Commissioner with regard to no collection. That stands on a different footing. Courts cannot give a go-by to the facts in a given circumstances and only rely on certain passage in a judgment. The judgment has to be read in its entirety in the context of the facts and law for the purpose of applicability of the case law to the given set of circumstances. In the case of the Allahabad judgment in Sir Shadi Lal Enterprises Ltd. v. Union of India [2003] 262 ITR 166, the court was considering the retail price under rule 16 of the Rules. In terms of the Rules, the petitioner was required to provide string of regular place of manufacture, full work and quantity of work. Therefore, the said judgment stands totally on a different footing compared to the facts of this case. At the most, the fixation price and the actual price can be treated as range of sal....
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.... of revenue collection to the country as a whole. Such circular defeats the object of tax evasion. In so far as the petitioners are concerned, it is to be stated here that both the petitioners are large public sector undertakings. They have to apply their mind before blindly following the circular particularly in the matter of revenue collection and in the larger interest of tax evasion. At the most, these two circulars may, to a certain extent show bona fides and certainly these circulars cannot be pleaded as a legal excuse for non-recovery. A statute has a prime place and a circular cannot dilute or deface a statutory provision. (b) Observations and relief: Having come to these conclusions that all the legal contentions of the petitioners are unsustainable, I have no option but to confirm the order of the authority. But at the same time, I cannot forget that the petitioners are public authorities. Now they are virtually paying tax where the same is payable by the excise contractors. Large sums of money are involved in the case on hand. Though, I have confirmed the order still I deem it proper to reserve liberty to the petitioners even now to place such material as are necessa....