TaxTMI 
TaxTMI 
2024 (7) TMI 517
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.... appellant and other writ petitions filed by the above parties against the orders dated 17.01.2001 passed by the Deputy Commissioner of Income Tax (TDS)-1, Bengaluru (referred to hereinafter as "the assessing officer" or "the revenue") under Section 206C(6) of the Income tax Act, 1961 (referred to hereinafter as "the Income Tax Act") for the assessment years 2000-2001, 1999-2000, 1998-1999, 1997-1998, 1996-1997 and 1995-1996 as well as the consequential demand notices of even date issued under Section 156 of the Income Tax Act. By the orders dated 17.01.2001, the assessing officer held that the appellant is a "seller" and the liquor vendors are "buyers" in terms of Section 206C of the Income Tax Act and hence the appellant was under a legal obligation to collect income tax at source from the liquor vendors (contractors) for the financial years relevant to the aforesaid assessment years. Accordingly, the assessing officer declared certain sums as income tax collectible at source by the appellant which it failed to do. Therefore, the appellant was directed to deposit the amounts so quantified as income tax deductible at source. Further, interest was also levied on the aforesaid am....
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....te enforcement of the excise law. These rules, inter alia, are: (i) The Karnataka Excise (Arrack Vend Special Conditions of Licenses) Rules, 1967 ("the 1967 Rules" hereinafter); (ii) The Karnataka Excise (Lease of the Right of Retail Vend of Liquors) Rules, 1969 (briefly "the 1969 Rules" hereinafter); (iii) The Karnataka Excise (Manufacture and Bottling of Arrack) Rules, 1987 ("the 1987 Rules" hereinafter). 4.2. In the year 1993, the state 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 state government companies or undertakings, such as, Mysore Sales and Mysore Sugar Company Limited (appellant in Civil Appeal No. 2169/2007 which was dismissed for non-prosecution by this Court on 12.10.2023). Thus, Mysore Sales and Mysore Sugar were entrusted with the task of bottling arrack and marketing it on behalf of the state government. Mysore Sales was entrusted with the above task for the northern districts of the State of Karnataka while for the rest of the state, Mysore Sugar was entrusted with the responsibility. It is the case o....
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....cer passed orders dated 17.01.2001 under Section 206C(6) of the Income Tax Act for the assessment years under consideration. As pointed out earlier, by the aforesaid orders, the assessee was directed to pay certain sums of money as TDS which it had failed to collect from the liquor vendors or contractors. Following such orders, consequential demand notices for the respective assessment years under Section 156 of the Income Tax Act were also issued to the assessee by the assessing officer. 4.9. Mysore Sales filed writ petitions before the High Court. While the main contention was that Section 206C(6) of the Income Tax Act was not applicable to it, a corollary issue raised was that before passing the order under Section 206C(6) of the Income Tax Act, no opportunity of hearing was given to it. Therefore, there was violation of the principles of natural justice. Learned Single Judge vide the judgment and order dated 27.10.2023 dismissed the writ petitions confirming the orders passed under Section 206C(6) of the Income Tax Act. 4.10. Thereafter, Mysore Sales and others preferred writ appeals before the Division Bench. However, by the judgment and order dated 13.03.2006, the writ ....
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....are just exceptions carved out in Section 206C in which cases, income tax is not required to be collected at source. 6.4. Learned counsel further submits that the objective behind introduction of Section 206C in the Income Tax Act was to ensure proper tax collection in matters relating to profits and gains from the business of trading in alcoholic liquor etc. However, a taxing statute has to be interpreted strictly. It cannot be interpreted in an overly expansive and wide manner so as to bring persons within the tax net who are otherwise exempted from paying tax. Both the Single Bench and the Division Bench had erred in adopting such an interpretation and wrongly holding that Section 206C was applicable in respect of Mysore Sales and since it had not deducted TDS, the same was required to be recovered. Both the Benches had erred in taking the view that purchase of arrack was by way of public auction only and not in any other manner and that the "seller" (Mysore Sales) had an obligation to collect income tax at source from such "buyers" who would be further vending the same in retail. 6.5. Even if the view taken by the revenue and affirmed by the High Court is accepted, it can....
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....o be set aside and quashed. The civil appeal may be allowed accordingly. 6.10. In support of his submissions, learned counsel for the appellant has placed reliance on the following decisions: (i) Gian Chand Ashok Kumar and Company Vs. Union of India (1991) 187 ITR 188 (HP); (ii) K.K. Mittal Vs. Union of India (1991) 187 ITR 208 (P&H); (iii) State of Bihar Vs. Commissioner of Income Tax (1993) 202 ITR 535 (PAT); (iv) M/s Naresh Kumar and Company Vs. Union of India ILR (2000) 2 P&H; (v) Saini and Company Vs. Union of India (2000) 246 ITR 762 (HP); (vi) Chandigarh Distillers and Bottlers Ltd. Vs. Union of India (2002) 253 ITR 205 (P&H); (vii) Union of India Vs. Om Parkash S.S. and Company (2001) 3 SCC 593. 7. Learned senior counsel for the revenue at the outset submits that the impugned order of the Division Bench of the High Court does not suffer from any error or infirmity to warrant interference. The civil appeal is misconceived and is, therefore, liable to be dismissed. 7.1. Learned senior counsel submits that the assessing officer had issued notices to the assessee and had also verified relevant materials. Th....
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.... for an uniform excise law in the State of Karnataka. It covers the entire spectrum from production to sale of liquor and intoxicating drugs and the levy of excise duty thereon. Section 2 defines various words and expressions used in the Excise Act. Section 2 (2) defines the expression "to bottle" to mean transferring liquor from a cask or other vessel to a bottle, jar, flask, polythene sachet or similar receptacle for the purpose of sale, whether any process of manufacture be employed or not and includes re-bottling. "Manufacture" is defined in Section 2 (19) to include every process whether natural or artificial, by which any fermented, spirituous or intoxicating liquor or intoxicating drug is produced or prepared and also redistillation and every process for the rectification of liquor. As per Section 3(1), the state government may appoint, by notification, an officer not below the rank of Deputy Commissioner as the Excise Commissioner in the State of Karnataka. He shall be the chief controlling authority in all matters connected with the administration of the Excise Act. Powers of the Excise Commissioner are dealt with in sub-section (2) of Section 3. He shall have the overall ....
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....missioner or by the Excise Commissioner, the licensee may vend arrack on such rates as he may deem fit. Heading of Rule 5 is, licensee to buy arrack only from warehouse, etc. As per sub-rule (1), the licensee to vend arrack by retail shall purchase the required quantity of arrack for sale only from the warehouse or depot authorized by the Excise Commissioner, on payment of issue price fixed by the Excise Commissioner from time to time. This provision, being relevant, is extracted hereunder: 5. Licensee to buy arrack only from Warehouse, etc.: - (1) The licensee to vend arrack by retail shall purchase the required quantity of arrack for sale only from the warehouse or depot authorized by the Excise Commissioner, on payment of issue price fixed by the Excise Commissioner from time to time. 10.1. Rule 5(2) clarifies that no arrack except in sealed bottles of the approved sizes with the excise labels or in sealed polythene sachets obtained from the authorized warehouse or depot shall be sold in the licenced premises. 10.2. Rule 6 says that the consignment of arrack should be under seal. All the consignments of arrack issued from the warehouse or depot shall be s....
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....fied in such certificate. 11.2. As per Rule 10(1), where the right of retail vend of liquor within a district is to be disposed of by auction, the Deputy Commissioner of that district and where the disposal of the right is in more than a district in a Division, the Divisional Commissioner of that Division shall hold the auction on the date, time and place as may be notified. The procedure to be followed in the auction is laid down in Rule 11. 12. Under Section 71 of the Excise Act, Government of Karnataka has framed another set of rules called the Karnataka Excise (Manufacturing and Bottling of Arrack) Rules, 1987 (already referred to as "the 1987 Rules" hereinabove). Rule 2(b) defines "arrack" to mean the spirit manufactured by blending or reducing the spirit and includes spiced arrack, but does not include Indian or foreign liquor. "Blending" is defined in Rule 2(c) to mean the mixing of spirits with other spirits of the same or different strengths. As per Rule 2(e), "commissioner" means the Excise Commissioner. Rule 2(n) defines "warehouse" to mean any distillery or other place where spirit is stored, blended, matured, fortified, diluted or flavoured to produce arrack and ....
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....nt to the distillery for the rectified spirit supplied by the distillery to the warehouse, the price to be paid by the government to the warehouse for manufacture and bottling of arrack and the price to be paid by the lessees for the right of retail vend of arrack to the government for the supply of bottled arrack shall be fixed by the Commissioner from time to time with prior approval of the government and the same shall be communicated to the persons concerned. 13. From the above conspectus, we find that under Section 17 of the Excise Act, the state government grants lease of right to any person for manufacture etc. of liquor, arrack in this case. The licencing authority i.e. Excise Commissioner may grant to the lessee a licence in terms of his lease. In supplement to the above provision, Rule 3(1) of the 1987 Rules provides that the Excise Commissioner shall grant a licence for any specified area or areas for the manufacture or bottling of arrack. From 01.07.1993, subrule (2) of Rule 3 has come into force as per which provision the licence under Rule 3 of the 1987 Rules shall be issued only to a company or agency owned or controlled by the state government or to a state gover....
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....n per cent (iii) Timber obtained by any mode other than under a forest lease Five per cent (iv) Any other forest produce not being timber or tendu leaves Fifteen per cent Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid Table are to be utilized for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force. (2) The power to recover tax by collection under subsection (1) shall be without prejudice to any other mode of recovery. (3) Any person collecting any amount under subsection (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs. (4) Any amount collected in accordance with the provisions of this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so....
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....prejudice to the provisions of sub-section (6), if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of one and one-fourth percent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid. (8) Where the tax has not been paid as aforesaid, after it is collected, the amount of the tax together with the amount of simple interest thereon referred to in subsection (7) shall be a charge upon all the assets of the seller. (9) Where the Assessing Officer is satisfied that the total income of the buyer justifies the collection of the tax at any lower rate than the relevant rate specified in sub-section (1), the Assessing Officer shall, on an application made by the buyer in this behalf, give to him a certificate for collection of tax at such lower rate than the relevant rate specified in sub-section (1). (10) Where a certificate under sub-section (9) is given, the person responsible for collecting the tax shall, until such certificate is cancelled by the Assessi....
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....edit shall be given to such person for the amount so collected and paid at the time of assessment proceeding for the relevant assessment year. Sub-section (5) says that every person collecting such tax shall issue a certificate to the buyer within 10 days of debit or receipt of the amount. Sub-section (5A) requires the person collecting tax to prepare half yearly returns for the periods ending on 30th September and 31st March for each financial year and submit the same in the prescribed form before the competent income tax authority. 14.2. Sub-section (6) is relevant. Sub-section (6) says that any person responsible for collecting the tax but fails to collect the same shall notwithstanding such failure be liable to pay the tax which he ought to have collected to the credit of the central government in accordance with the provisions of sub-section (3). Sub-section (7) deals with a situation where such tax is not collected in which event the seller is liable to pay interest at the prescribed rate. Sub-section (8) on the other hand deals with a situation where the seller does not deposit the amount even after collecting the tax. In such an event also, he would be liable to pay inte....
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....ese two conditions are joined by the word 'and'. The word 'and' is conjunctive to mean that both the conditions must be fulfilled; it is not either of the two. Therefore, to be excluded from the ambit of the definition of "buyer" as per Explanation(a)(iii), both the conditions must be satisfied. 15. In view of the above, let us examine the position of an excise contractor. In the scheme under consideration which we have discussed above, would such an excise contractor be construed as a "buyer" within the meaning of Explanation(a) to the Section 206C of the Income Tax Act? Going back to the Excise Act and the rules framed thereunder, it is seen that Mysore Sales is the licensee for the manufacture and bottling of arrack for specified area(s). By a process of auction or tender or auction-cum-tender etc., excise contractors are shortlisted who are thereafter granted permits to vend arrack by retail in their respective area(s). These retail vendors i.e. excise contractors have to procure the arrack from the warehouse or depot maintained by Mysore Sales on payment of the issue price fixed by the Excise Commissioner. The arrack is procured in sealed bottles or in sealed polythene sach....
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....er of goods and not merely a person who acquires a licence to carry on the business. 15.2. After the arrack is obtained in the above manner by the excise contractor, the requirement of the second condition under Explanation(a)(iii) is that he has to sell the same in the area(s) allotted to him at the sale price fixed as per Rule 4 of the 1967 Rules. The language of the second condition is that the sale price of such goods to be sold by the buyer is fixed by or under any state statute. As already noted above, Rule 4 of the 1967 Rules enables the excise contractor to sell the arrack in retail at a price within the range of minimum floor price and maximum ceiling price which is fixed by the Excise Commissioner. A minimum price and a maximum price are fixed within which range the arrack has to be sold by the excise contractor. Thus, the price of arrack to be sold in retail is not dependent on the market forces but pre-determined within a range. Therefore, though price range is provided for by the statute, it cannot be said that because there is a price range providing for a minimum and a maximum, the sale price is not fixed. The sale price is fixed by the statute but within a partic....
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....ure to deduct TDS. 19. Though there is no express provision in sub-section (6) or any other provision of Section 206C of the Income Tax Act regarding issuance of notice and affording hearing to such a person before passing an order thereunder, nonetheless, it is evident that an order passed under Section 206C(6) of the Income Tax Act, as in the present case, is prejudicial to the person concerned as such an order entails adverse civil consequences. It is trite law that when an order entails adverse civil consequences or is prejudicial to the person concerned, it is essential that principles of natural justice are followed. In the instant case, though show cause notice was issued to the assessee to which reply was also filed, the same would not be adequate having regard to the consequences that such an order passed under Section 206C(6) of the Income Tax Act would entail. Even though the statute may be silent regarding notice and hearing, the court would read into such provision the inherent requirement of notice and hearing before a prejudicial order is passed. We, therefore, hold that before an order is passed under Section 206C of the Income Tax Act, it is incumbent upon the a....