# MC DOWELL & COMPANY LTD. ETC v. COMMERCIAL TAX OFFICER, VII CIRCLE, HYDERABAD ETC. \. October 25. 1976

- **Citation:** [1977] 1 S.C.R. 914
- **Court:** Supreme Court of India
- **Decided:** 1975-11-28
- **Case number:** Civil Appeal Nos. 248-251 of 1976
- **Bench:** H. R. Khanna, Jaswant Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mc-dowell-company-ltd-etc-v-commercial-tax-officer-vii-circle-hyderabad-etc-6999
- **Pages:** 11

## Headnote

•
A1ulhra Pradesh General Sales Tax Act, 1957-Excise mu!
countervai/i•w
duty paid by the buyers directly illlo the Treasury-Neither the invoice
,;0~.
books of the assessee (111a11ufact11rer) show the exci,e duty-Excise dwy..:._/f
(.alls 111ul~r "any sums charged by the dealer" occurring in the dt,inition of
turnover .
Section 2 ( 1 )( s) of the Andhra Pradesh General Sales Tax Act
defines
··.turnover" to mean the total amount set out in, the bill of sale ~s the' consideration for t~e sale or. purchase of goods including any sums charged by tile dealer
for anythmg done m respect of goods sold at the time of or before the delivery
of the goods.
. The appellants in the first two sets of appeals are manufacturers of Indian
liquors. A buyer of Indian liquor from the distilleries pays, in the first instance,
the excise duty m the Treasury and obtains a distillery pass for the release of
liquor.
On presentation of the distillery pass an invoice is prepared by the
manufacturers showing the price of liquor.
Neither
invoice nor the
account
\Jooks of the manufacturers show the excise duty paid by the purchasers.
Under the system in vogue in the second set of appeals, the appellant who is
the owner of a bonded warehouse prepares a bill for the liquor required by the ·
purchaser who pays the countervailing duty in the Treasury in his own name
and obtains a pass from the excise authorities for the removal of the liquor
from the warehouse.
lll both the, cases the Sales Tax Authorities included the excise duty in the
taxable turnover' of the appellants.
The High Court dismissed tiJ0 writ petiti:m
of the appellants impugning the orders of the Sales Tax Officers.
~
Allowing the appeal,
HELD : (I) Excise duty and countervailing duty paid directly by the buyers
for the Indian liquors did not constitute a part of the turnovers of the appellants.
[924 CJ
(2) The phrase 'any sums charged by the dealer' occurring in the definition
of 'turnover' has to be understood in its ordinary' popular sense.
So construed,
it means what is demanded and collected or received by the dealer. (923 BJ
In the instant case the excise duty or the countervailing duty has not been
charged or received by the dealer but has been charged by the excise :mthorites
and deposited directly by the buyers of the liquor in the State exchequer.
Tt
cannot be said that the excise duty or the countervailing duty was charged by
the appellants.
In M /s. George Oakes (Private) Ltd. v. The State of Madras & Ors., this
Court held in relation to the defintion of• tum-over that the aggregate am<;>unt
includes the tax as part of the price paid by the bu:,:er;. the amount goe.s mto
the common till of the dealer till he pays the tax; 1t 1s the money which he
keeps using for his business till he pays the tax; it i~ the m~:mey which he keeps
·using for his business till he pays it over to \)overnmenl; 1t be~om~s a pa!t of
the circulating capital of the tradesman and 1s
turned over m lus busmess.
Secondly the price paid by· the purchaser was ~ot s.o
much
mon!'y for .th.e
cause turnover means the: amount of money which JS turned over m the, business. [923 E-GJ
f
•
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MC DOWELL & co. v. COMM. TAX OFFICER (Jaswant Singh, J.) 915
In the instant case the excise and the countervailing duties did not go into
A
the common tills of the appellants and did not become a part.of their circulating capital.
The. Sales tax authorities were not competent co include jn . the
turnovers of the appellants the excise .duty and the countervailing duty which
was not charged by them but was charged by and paid directly to the excise
authorities by the buyers of the liquors: [924 A]
.
A. V. Fernandez v. The State of Kera/a [1957] S.C.R. 837 followed.
R. C. Jail v. Union of India [l 962] Supp. 3 S.C.R. 436, Seit Custums Act
B,
[1964] 3 S.C.R. 787, A. B. Abdul Kadir & Ors. v. State of Kera/a [1976] 3 S.C.R.
219, K!rlyani Stores v. The State of OrfasCJ & Ors. [1966] 1 ~.~.R. 865 & Mis.
Mohan Meakin Brewaries Ltd. v. Excise & Tax

## Text

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914
MC DOWELL & COMPANY LTD. ETC.
v.
COMMERCIAL TAX OFFICER, VII CIRCLE, HYDERABAD ETC.
\.
October 25. 1976
(H. R. KHANNA AND JASWANT SINGH, JJ.]
•
A1ulhra Pradesh General Sales Tax Act, 1957-Excise mu!
countervai/i•w
duty paid by the buyers directly illlo the Treasury-Neither the invoice
,;0~.
books of the assessee (111a11ufact11rer) show the exci,e duty-Excise dwy..:._/f
(.alls 111ul~r "any sums charged by the dealer" occurring in the dt,inition of
turnover .
Section 2 ( 1 )( s) of the Andhra Pradesh General Sales Tax Act
defines
··.turnover" to mean the total amount set out in, the bill of sale ~s the' consideration for t~e sale or. purchase of goods including any sums charged by tile dealer
for anythmg done m respect of goods sold at the time of or before the delivery
of the goods.
. The appellants in the first two sets of appeals are manufacturers of Indian
liquors. A buyer of Indian liquor from the distilleries pays, in the first instance,
the excise duty m the Treasury and obtains a distillery pass for the release of
liquor.
On presentation of the distillery pass an invoice is prepared by the
manufacturers showing the price of liquor.
Neither
invoice nor the
account
\Jooks of the manufacturers show the excise duty paid by the purchasers.
Under the system in vogue in the second set of appeals, the appellant who is
the owner of a bonded warehouse prepares a bill for the liquor required by the ·
purchaser who pays the countervailing duty in the Treasury in his own name
and obtains a pass from the excise authorities for the removal of the liquor
from the warehouse.
lll both the, cases the Sales Tax Authorities included the excise duty in the
taxable turnover' of the appellants.
The High Court dismissed tiJ0 writ petiti:m
of the appellants impugning the orders of the Sales Tax Officers.
~
Allowing the appeal,
HELD : (I) Excise duty and countervailing duty paid directly by the buyers
for the Indian liquors did not constitute a part of the turnovers of the appellants.
[924 CJ
(2) The phrase 'any sums charged by the dealer' occurring in the definition
of 'turnover' has to be understood in its ordinary' popular sense.
So construed,
it means what is demanded and collected or received by the dealer. (923 BJ
In the instant case the excise duty or the countervailing duty has not been
charged or received by the dealer but has been charged by the excise :mthorites
and deposited directly by the buyers of the liquor in the State exchequer.
Tt
cannot be said that the excise duty or the countervailing duty was charged by
the appellants.
In M /s. George Oakes (Private) Ltd. v. The State of Madras & Ors., this
Court held in relation to the defintion of• tum-over that the aggregate am<;>unt
includes the tax as part of the price paid by the bu:,:er;. the amount goe.s mto
the common till of the dealer till he pays the tax; 1t 1s the money which he
keeps using for his business till he pays the tax; it i~ the m~:mey which he keeps
·using for his business till he pays it over to \)overnmenl; 1t be~om~s a pa!t of
the circulating capital of the tradesman and 1s
turned over m lus busmess.
Secondly the price paid by· the purchaser was ~ot s.o
much
mon!'y for .th.e
cause turnover means the: amount of money which JS turned over m the, business. [923 E-GJ
f
•
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MC DOWELL & co. v. COMM. TAX OFFICER (Jaswant Singh, J.) 915
In the instant case the excise and the countervailing duties did not go into
A
the common tills of the appellants and did not become a part.of their circulating capital.
The. Sales tax authorities were not competent co include jn . the
turnovers of the appellants the excise .duty and the countervailing duty which
was not charged by them but was charged by and paid directly to the excise
authorities by the buyers of the liquors: [924 A]
.
A. V. Fernandez v. The State of Kera/a [1957] S.C.R. 837 followed.
R. C. Jail v. Union of India [l 962] Supp. 3 S.C.R. 436, Seit Custums Act
B,
[1964] 3 S.C.R. 787, A. B. Abdul Kadir & Ors. v. State of Kera/a [1976] 3 S.C.R.
219, K!rlyani Stores v. The State of OrfasCJ & Ors. [1966] 1 ~.~.R. 865 & Mis.
Mohan Meakin Brewaries Ltd. v. Excise & Taxation Comm1s1sonff, Cha11d1garh
& Ors. [1976] 3 S.C.C. 421 referred to.
Mess1~ George Oakes (Private) Ltd. v. The Stcite of Madras & Ors. (12
S.T.C. 476) and (13 S.T.C. 98) referred to and distinguished.
The Government of Andhra (now Andhra Prade"h) v. East India CommerC
cial Co. Ltd. (8 S.T.C. 114) distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 248-251
of
1976.
(Appeals by Special Leave from the Judgm~nt a~d Or.d~r dated
28-11-1975 of the Andhra Pradesh High Court m Wnt Pet1t10ns Nos.
1195-1198/75).
D
CIVIL APPEALS Nos. 934-936 of 1976.
(Appeals by Special Leave from the Judgment and Order dated
28-11-1975 of the Andhra Pradesh High Court in Writ Petitions Nos.
3931, 3944 and 4029/75).
ClVIL APPEALS No. 693 of 1976.
(Appeal by Special Leave from the Judgment and Order dated
28-11-1975 of the Andhra Pradesh High Court in Writ .Petition No.
16790/74).
Soli Sornbji and K. J. John for the Appellant (CAs 248-251/76).
A. Subba Rao for the Appellant (CAs. 934-936/76).
Babu! Reddy and K. J. John for the Appellant (CA. 693/76).
Niren De, Attorney General for India, P. P. Rao, D. V.
Sastry
and T. V. S. N. Ohari for the Respondents (in CAs. 248-251/76 and
CAs. 934-936/76).
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T. V. S. N. Chari for the Respondent (Jn CA No. 693/76)..
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The Judgment of the Court was delivered by
JASWANT SINGH, J.-This batch of appeals by special leave which
are directed against three separate judgments of the High Court of
Andhra Pradesh at Hyderabad' dismissing three sets of writ petitions
Nos. 1195 to 1198 of 1975, 3931, 3944 and 4929 of 1975 and 6790
of 197 4 filed by the appellants to challenge certain orders of the sales
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tax authorities made in respect of re-determination of their turnover
for certain years under the Andhra Pradesh General Sales Tax Act,
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. 91.6
SUPREME COURT REPORTS
[1977] 1 s.c.R.
1957 (hereinafter referred to. as 'the Act') shall be disposed of by this
judgment, as they raise a common question as to w~ther the excise
duty lleposited directly in a State treasury or a sub-treasury by the
purchasers of the Indian-made foreign liquor called 'Indian
liquor'
before removing the said liquor from a distillery and the countryvailing
duty remitted directly to a State Treasury or a sub-treasury by the
purchasers of the aforesaid specie of liquor before removing it from a
bonded warehouse can properly be said to form part of the turnover
of he manufacturer and of the owner of the bonded warehouse respectively and as such liable to sales tax under the Act.
•
The circumstances which ii.ave given rise to these appealStlie in a
short compass and may be briefly stated : The appellants in the first
two sets of Appeals Nos. 248 to251of1976 and 934 .. to 936 of 1976
carry on the business of manufacture of 'Indian liquors' in their distilleries established in Andhra Pradesh under licences issued to them
by the Commissioner of Excise under the Andhra Pradesh Excise Act,
1968 (Act 17 of 1968) and the rules made thereunder and sell their
finished products to the wholesale dealers who in turn sell them to
retail dealers. Under Rule 76 of the Andhra Pradesh Distillery Rules,
1970 removal of any liquor manufactured or stored without prepayment of the excise duty specified in rule 6 is forbidden.
Rule 77
of the Rules prohibits issue of any liquor until its quantity and strength
have been duly v~rified by the distillery officer. Rule 79 of the Rules
authorises the distillery officer on payment of excise duty to grant a
distillery pass for removal of the liquor fit for human consumption to
the persons specified in the said rule including a person holding a
licence for sale of liquor by wholesale or ·retail. Under Rule 81 of the·
Rules, every application for a distillery pass for removal of liquor has
to be addressed in writing to the distillery officer
and has to be
accompanied by a challan in- original for paymr;;nt of excise duty therefor and a general or special permit for the purpose of removal of the
liquor. Rule 82 of the Rules enjoins the distillery officer upon tender
of ca>h payment of excise duty by !the applicant to fill up the challan
for presentation with the cash at a treasury' or sub-treasury of the
district in which the distillery is situate, and the applicant for distillery pass to present the treasury receipt in token of his having made
payment of the duty whereafter the distillery officer has to affix the
said receipt to the counterfoil of form D-6.
Rule 83 of the Rules
casts responsibility upon an applicant for a distille"ry pass to make
a correct calculation and full payment of the excise duty upon the
liquor desired to be removed.
Rule 84 of the Rules requires,
the
distillery officer to issue the liquor under a pass in form D-6 sending
a duplicate thereof to the Excise Superintendent of the district of
destination on being satisfied that the applicant is entitled under the
Rules to remove the liquor and has made payment of the requisite
excise duty.
Accordingly every buyer of the Indian liquor
from
either of the appellants' distilleries during the
years
in
question
obtained the distillery pass for release ·of the liquor after making
payment of the excise duty and presented the same at the concerned
distillery whereupon bill of sale or in-V.oice was prepared by the distillery showing the price of the liquor. The said bill did not include
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MC DOWELL & co. v. COMM. TAX OFFICER (Jaswant Singh, J.) 917
the excise duty paid by the buyer. The appellants' books of acc?unts
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also did not contain any reference regarding the excise duty p~1d by
the purchasers in the manner stated above.
The appellants paid the
sales tax in full as per final assessments made by the sal~s tax authorities under the Act. It appears that after the completion of the
a·ssessments of the sales tax under the Act for the years in questio~
the Commercial Tax Officer felt that there had been a failure
to
include the excise duty paid on the aforesaid liquors vended by the
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appellants in their taxable turnover.
Accordingly, acting under the
pro.-isions of section 14(1) of the Act, the Commercial Tax Officer
issued notices in February, 1975 to the )appellants in the aforesaid
first two sets of appeals to show cause why the assessments be not
reope~ed. Aggrieved by the said action of ithe Commercial
Tax
Officer, the appellants filed writ petitions Nos. 1195 to 1198 of 1975
and 3931, 3944 and 4929 of 1975 in the High Court of Andhra c
Pradesh challenging the said notices which, as already stated, were
dismis-sed by the High . Court.
The appellant in Appeal No. 693 of 1976 is a firm which is a licensed wholesale dealer in liquors and owner of a bonded
warehouse
under the Andhra Pradesh Indian Liquor (Storage in bond) Rules,
1969 where it stores or deposits lhdian Liquors such as whisky,
brandy. gin ·etc. imported by it from various States outside the
State of Andhra Pradesh without pre-payment of countervailing duty
or other fee and issues the same according to the rules to its customern.
The modus operandi of' the appellant is that it makes a bill for the
value of the liquor required by an intending purchaser, who thereafter
pays the requisite countervailing duty in his own name and the Excise
Officer incharge of the bonded warehouse grants him a pas:s entitling
him to remove the liquor from the warehouse.
According to the
appellant, it gets only the price of the liquor from its buyers.
For
the assessment year 1971-72, the Commercial Tax Officer, Hyderabad
UI by its order dated August 16, 1972 included the amount representing the countervailing duty paid by the purchasers in respect of the
Indian liquors in bond which was not included in the bil11S of sale issued
by the appellant.
On appeal, the Assistant Commissioner by its
order dated March 26, 1973 deleted from the turnover of the appellant
the item pertaining to the excise duty paid directly by the purchasers
holding that the excise duty so paid by the purchasers did not,
in
the circumstances, form part of the turnover of the appellant. Sometime thereafter, the Sales Tax Appellate Tribuna.J by its order dated
August 5, 1974 passed in T.A. Nos. 331 of 1973 and 5 of
1974
upheld the assessment made under similar circumstances by the Com.:
mercial Tax Officer, Vijayawada, on the turnover of M/s Shaw Wallace
& Co.
Thereupon the Deputy Commissioner,
Commercial Taxes,
Hyderabad by virtue of the power vested in him
under section 20
of the Act issued the impugned notice dated October 9, 1974 to the
appellant calling upon it to show cause why the order passed by the
Assistant Commissioner, Commercial Taxes on March 26, 1973 should
not be set aside and the original assessment order of the Commercial
Tax Officer dated August 16, 1972 restored.
The appellant
was
also required to file objections and adduce evidence in support thereof within 7 days from the date of receipt of the impugned
notice,
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918
SUPREME COURT REPORTS
[1977] 1 S.C.R.
Aggrieved by the notice, the appellant filed a petition being petition
No. 6790 of 1974 before the High Court of Andhra Pradesh, seeking
issue of an appropriate writ, order or direction declaring that
the
appellant was not liable to pay sales tax on exci:se duty paid by the
purchasers in their own names and restraining the Deputy Commissioner, Commercial Taxes, Hyderabad, respondent in the
appeal
from taking further proceedings in pursuance of the said notice.
'rhe
said petition having been dismissed, the appellant has, as already stated,
come up in appeal to this Court.
At the hearing of these appeals, Mr. Sorabji and the other colijlsel
appearing on behalf of the appellants have assailed the aforesaid Judgments and orders of the High Court by urging in the first instance that
the view taken by the High Court about the nature and chara«er of
excise duty and countervailing duty is not correct. They have also after
trying in vain to argue for considerable length of time that on
the
true construction of the Andhra Pradesh Excise Act,. 1968, the Andhra
Pradesh Distillery Rules, 1970, the Andhra Pradesh Foreign
and
Indian Liquor Rules, 1970 and the Andhra Pradesh Indian Liquor
(Storage in bond) Rules, 1969, a manufacturer of Indian liquors and
an owner of a bonded warehouse are not primarily responsible for
payment of the excise duty or countervailing duty, as the case may be,
contended that a manufacturer and owner of the bonded warehoUJse
are not solely responsible for payment of the said duties and a pmchaser of the liquor who obtains a distillery pass or ,a werehouse pass
and transport permit is also legally responsible for payment therefor
and if he does pay the duty, it is something which he does in discharge
of his own statutory liability and not something which he does
for
or on behalf or for the benefit of the manufacturer or the owner of
the bonded warehouse.
They have alternatively contended
that on
a true construction of the expression 'turnover' a's defined in section
2(1) (s) of the Act, the determinative factor is the total amcunt set
out in the bill of sale as consideration for the s.ale of the liqllor and
since the excise duty or the countervailing duty was
dir~ctly paid
by the purchasers to the excise authorities and did not at all form part
of the consideration for the sale of the said liquor as se:: out in the
bills of sale, it was not permissible for the sales tax authorities to assess
the turnover by roping therein something which was not set out in
the bills of sale as consideration for the sales.
They have
lastly
contended that in any event as the excise duty or the countervailing
duty was at no time charged by the appellants for anything done in
respect of the liquors sold but was charged by the "excise authorities
before removal of the liquors under the Andhra Pradesh Excise Act,
1968 and the rules made thereunder, it could not constitute a part of
the turnover and taxed under the Act.
Although some controve11sy was sought to be raised by
counsel
for the appellants regarding the nature and character of the
excise
duty and countervailing duty but as rightly pointed out by the learned
Attorney General, the matter has been put beyond doubt by
the
decisions of this Court.
In R. C. Jail v. Union of Tndia( 1 \ after •.1
review of the authorities bearing on the matter, it was held by
this
Court as follows :-
(I) [l 962] Supp. 3 S.C.R. 436.
\
MC DOWELL & co. v. COMM. TAX OFFICER (Jaswant Singh, J.) 919
"The excise duty is primarily a duty on the production or
manufacture of· goods produced or manufactured within the
country.
Subject always to the legislative competence of
the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost is not lost.
The method of collection does not affect the essence
of
the duty but only relates to the machinery of collection for
administrative convenience."
Again In re Sea Customs Act(I) it was observed:
"The. question with respect to excise duties was considered
by this Court in the case of Amalgamated Coalfields Ltd. v.
• Union of India (A.LR. 1962 S.C. 1281).
After considerA
ing 1he previous decisions of the Federal Court In re. The
<;emral Provinces and Berar Sales of Motor and Lubricant
C
Taxaiion Ac;t (1939 F.C.R. 18); The' Province of Madras v.
Mis Boddu Paidanna (1942 F.C.R. 90) and of the Judicial
Committee of
the Privy Council in Governor General in
Council v. Province of Madras (1945 F.C.R. 179),
this
Court observed as follows at p. 1287 :
"With great respect, we accept the principles laid down
by the said three decisions in the matter of levy of an excise
duty and the machinery for collection thereof.
Excise duty
is primarily a duty on the production or manufacture
of
goods produced or manufactured within the country.
It is
an indirect duty which the manufacturer or producer passes
on to the ultimate consumer, that is, ultimate incidence will
always be on the cu1stomer.
Therefore, subject always to
the legislative competence of the taxing authority, the said
tax can be levied at a convenient stage so long as the character of the impost, that is, ~t is a duty on the manufacture or
production, is not lost.
The method of collection
does
not affect the essence of the duty, but only relates to
the
machinery of collection for administrative convenience."
Thi1s will show that the taxable event in the case
of
duties of excise is the manufacture of goods and the duty is
not directly on the goods but on the manufacture thereof.
We may in this connection contrast sales tax which is also
imposed with reference to goods sold, where the taxable
event, is the act of 1Sale.
Therefore, though both excise duty
and sales-tax are levied with reference to goods, the two
are very diofferent imposts; in one case the imposition is on
the act of manufacture or production while in tlie other it
is on the act of sale.
In neither case therefore can it be
said that the excise duty or sales tax is a tax directly on the
goo<!s for in-that event they will really become the same tax. It
would thus appear that duties of excise partake of the nature
of indirect taxes as known to standard works on economics
and are to be distinguished from direct· taxes like taxes (Jn
property and income."
----
(!)
[1964] 3 S.C.R. 787.
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SUPREME COURT REPORTS
(1977] l S.C.R.
It is, therefore, clear that excise duty is a duty on the production
or manufacture of goods produced or manufactured within the country
though as observed by one of us (Khanna, J.) in A. B. Abdul Kadir
& Ors. v. State of Kerala(l) laws are to be found which impose a duty
of excise at stages subsequent to the manufacture or production.
The position with r\!gard_ to the nature and character of countervailing duty has equally been made clear in a number of decisions of
this
Court.
In Kalyani Stores v. The State of Orissa & Ors.( 2 )
which was followed in. M/s Mohan Meakin Breweries Ltd. v. Excise &
Taxation Commissioner, Chandigarh & Ors.("), Shah, J. (as he then
was) observed :
"This brings us to the consideration of the meaning of •
the expression "countervailing duties" as used in E,ntry 51,
List II of the Seventh Schedule to the Constitution.
The
expression "countervailing duties" has not been defined it!
the Constitution or the Bihar & Orissa Act 2 of 1915.
We
have, therefore, to depend upon its etymological sense and
the context in which it has been u1Sed in Entry 51.
In its
etymological sense, it means to counter-balance; to avail
against with equal force or virtue; to compensate for something or serve as an equivalent of or \Substitute for : see
Black's Law Dictionary, 4th Edn. 421.
This would suggest
that a countervailing duty is imposed for the purpose of
counterbalancing or to avail against something with equal
force .or to compensate for something as an equivalent.
Entry 51 in List II of the Seventh Schedule to the Constitution gives power to the State Legislature to impo:se duties
of excise on alcoholic liquors for human consumption where
the goods are manufactured or produced in the State. If
also gives power to levy countervailing duties at the same or
lower rates on similar goods manufactured or
produced
elselwhere in India.
The fact that countervailing duties
may be imposed at the same or lower rates suggests that the:
are meant to counterbalance the duties of excise imposed on
goods manufactured in the State.
They may be imposed
at the same rate as e!xcise duties or at "a lower rate, presumably to equalise the burden after taking into account
the cost of transport from the place of manufacture to the
taxing State.
It iseems, therefore, that countervailing duties
are meant to equalise the burden on alcoholic liquors imported from outside the State and the burden placed by
excise duties on alcoholic Jiquous manufactured or produced
in the State.
If no alcoholic liquors similar t~ those imported into the State are produced or manufactured,
the
right to impose counterbalancing duties of excise levied on
the goods manufactured in the State will not arise.
It may.
therefore, be accepted that countervailing duties can only be
levied if similar goods are actually produced or manufactur~d
in the State on which excise duties are being levied."
(!) (1976] 3 s.c.c. 219.
(2) [1966] 1 S.C.R. 865.
(3)
[19761 3 s.c.c. 421.
I
MC DOWELL & co. v. COMM. TAX OFFICER (Jmwant Singh, !.) 9 21
Having seen that a provision can be inserted in the excise law for
A
collection of the excise duty at a stage subsequent to the manufacture
-0r production of the excisable article, we shall now proceed to examine
the main contentions raised by counsel for the appellants.
We
have first to see as to how far the contention of counsel for the appellants that apart from a manufacturer of Indian liquors and an owner
of a bonded wareholliSe (who in our opinion cannot but be regarded
as primarily responsible for payment of excise duty and countervailing
B
duty respectively in view of sections 21, 28 & 65 of the Andhra Pradesh
Excise Act, 1968, and rules 3, 4, 5, 6, 67 & 76 of the Andhra Pradesh
Distillery Rules, 1970, and condition No. 9 of the Distillery Licence
granted under rule 5 of these Rules; rules 5 & 10 of the Andhra
Pradesh Indian·Liquor (Storage in bond) Rules, 1969, conditions Nos.
7 & 1 c1 of the licence granted in form B.W. 1 under rule 5 (2), the
phraseology of the application for receipt of liquor into the bonded
C
warehouse prescribed by rule 9(2) and the terms of the counterpart
agreement required to be executed by a licensee of an Indian liquor
bonded warehouse under rules 3 (2) and 5 (2) of these Rules) tr.e
buyers of the said liquors are also liable under the law for payment of
the aforesaid duties can be sustained.
For a proper determination
-0f this question, it is necessary to recall the provisions of the Andhra
Pradesh Distillery Rules, 1970 which have been set out in the earlier
D
part of this judgment. The said rules particularly rules 79, 81, 82, 83
and 84 lend a good deal of support, in our opinion, to the contention
of counsel for the appellants and make every intending buyer of the
Indian liquor liable for payment of the excise duty before obtaining
the distillery pass and lifting the quantity mentioned therein from
the distillery.
Accordingly agreeing with counsel for the appellants
we hold that intending purchasers of the Indian liquors who seek to
E
obtain distillery passes are also legally responsible for payment
of
the excise duty which is collected from them by the authorities of the
Excise Department.
·
The position in regard to the countervailing duty is not, howe1cr,
dear though rule 10(1) of the Andhra Pradesh Indian Liquor (Storage
in bond) Rules, 1969 and rules 5 (2) and 17 of the Andhra Pradesh
Foreign and Indian Liquor Rules, l 970 enable the intending buveni
of Indian liquors to remove the same from a bonded warehouse · on
payment of the said duty, to the excise authorities.
This is. not, howe".er, sufficient to dispose of the matter.
The
real and pivotal question that requires to be determined is whether
t~e excise duty or _the count~~vailing duty, as the case may be,
paid
d!fectly to the exc1s~ authonties of the State or deposited directh· in
the State excheg_uer .in respect of the Indian liquor by the buyers thereof before removmg it from any of the aforesaid distilleries or the warehouse can. be, said to form part of the taxable turnover of the appellants,
as accord!ng to . sect10n 5 of. the Act which is the
charging section,
sales tax 1s requrred to be paid by the appellants on their turnover of
the year.
It will be useful at this stage to advert to the definitions
of the words 'turnover' and 'sale' as given in clauses (s) and (n) of
sub-section (1) of section 2 of the Act.
Shorn of unnecessary
details, these definitions run as under :
F
G
H
A
B
c
D
E
F
G
H
922
SUPREME COURT REPORTS
[1977] 1 S.C.R.
"turnover" means the total amount set out in the bill
of sale (or if there is no bill of sale, the total amount charged) as the consideration for the sale or purchase of goods
(whether such consideration be cash,
deferred
payment
er any other thing or value) including any sums charged by
t:Je dealer for anything done in respect of goods sold at the
time of or before the delivery of the goods and any other
sums charged by the dealer, whatever be the description,
name or object thereof. . . . . . . . . . . . . . . . . . . . . . ...... .
"sale" with all its grammatical variations and cognate expressions means every transfer of the property in goods by
one person to another in the course of trade or business, ior
cash, or for deferred payment, or for any other
valuable
i:onsideration. . . . . . . .. . . . . . . . . . . . . .
. . . . . . ...
•
Jn !he instant case, it is not disputed .that excise duty or countervailing duty paid directly to the excise authorities by the purchasers of
Indian liquors before removal thereof from the distilleries or the bond-
·ed warehouse on the strength of the distillery and warehouse passes
was not included in the bills of sale as the consideration for the sales,
but !hat a:one, according to the Attorney General, is not determinative
of the matter.
He has invited our attention to the second part of
the definition of the word 'turnover' as set out above and has strenuously urged that as in addition to the price of the liquor set out in
the bills of sale as consideration for the sales, other sums charged by
the dealer at the time of or before the delivery of the goods also form
part of turnover, and according to the well established canon of
cornstruc:ion, a taxing statute has to be interpreted reasonably so that
there is no evasion of the tax, the phrase 'any sums charged by the
dealer' occurring in the aforesaid definition of the word 'turnover'
must be construed as meaning any item of expense including the excise
duty or the countervailing duty to which the buyers were put by
the manufacturers of the liquors or the owner of the bonded warehouse.
We find ourselves unable to accept the construction sought to be put
by him as it is opposed to the plain meaning of the said phrase.
It
will be 3dvantageous here to refer to the decisions of this Court in
A. V. Fernandez v. The State of Kerala(l) where Bhagwati, J. speaking
for the Bench after quoting the observations made by Lord Russell
of Killowen in Inland Revenue Commissioners v. Duke of Westminster(2) which were approved by the Privy Council in the Bank of Chettinad v. Income Tax Commissioner(3) observed :
·'It is no doubt true that in construing fiscal statutes and
determining the liability of a subject to tax one must have
regard to the strict letter of the law and not merely to the
spirit of the statute or the substance of the law. If the
Revenue safa;fies the Court that the case falls strictly within
the provisions of the Jaw, the subject can be taxed.
If, on
the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be
(1) [1957] S.C.R. 837.
(2) [1936] A.C.l, 24.
(3) A.LR. 1940 P.C. 183.
t
t
f
'(
'
::\1C DOWELL & co. v. COMM. TAX OFFICER (Jaswant Singh, J.) 923
imposed by inference or by analogy or by trying to probe into
the intentions of the legislature and by considering what was
the substance of the matter.
We must of necessity, therefore, have regard to the actual provisions of' the Act and the
rules made thereunder before we can come to the conclusion
that the appellant was liable to assessment as contended by
the Sales Tax Authorities."
Bearing in mind the principle set out in A. V. Fernandez's case
(supra) the phrase 'any sums charged by the dealer' has to be
unders4Jod in its ordinary popular sense.
So construing the phrase,
it means "what is demanded and collected or received by the dealer."
In the instant cases, the exci1se duty or the countervailing duty has,
A
B
as alreadf stated, not been charged or received by the dealer but has
been charged by the excise authorities and deposited directly by the
C
buyers of the liquor in the State exchequer. It is, therefore, difficult
tO hold that excise duty or countervailing duty was charged by the
appellants.
The reason for inclusion of tax or a duty in the turnover was explained in two decisions of this Court bearing the same cause title viz.
Messrs George Oakes (Private) Ltd. v. The State of Madras & Ors.
D
(12 S.T.C. 476) and (13 S.T.C. 98).
fn the first of these cases, it
was observed :-
"Under the definition of turnover the aggregate amount
for which goods are bought or sold is taxable.
This aggregate amount includes the tax :JJS purt of the price paid by
the buyer.
The amount goes into the common till of
the
dealer till he pays the tax.
lt is money which he keeps
· usin~ for his business till he pays it over to Government.
Indeed, he may turn it over again and again till he finally
hands it to-Government."
In the other decision, Hidayatullah, L (as he then was) said :
"In laws dealing with sales tax, turnover has, in England
and America also, been held to include the tax.
The reason for such inclusion is stated to be that the dealer who
realises the tax does not hand it over forthwith to Government but keeps it with him, and turns it over in his business
before he parts wit:h it.
Thus, the tax becomes, for the
time being, a p<1rt of the circulating capital of the tradesman,
and is turned over in his business.
Again, it was said that
the price paid by the purchaser was not so much money for
the article plus tax but a composite sum.
Therefore,
in
cakulating the total turnover, there is nothing wrong in
treating the tax as part of the turnover, because "turnover"
means the amount of money which is turned <Jver in the
business."
In the instant case;, the excise and countervailing duties did not
go into the common tills of the appellants and did not become a part
of their circulating capital.
We are, therefore, of the view that the
9-t338SCJ/76
.
E
F
G
H
A
B
c
D
924
SUPREME COURT REPORTS
(1977] 1 S.C.R.
Sales Tax authorities were not competent to include in the turnovers
of the appellants the excise duty and the countervailing duty which
was not charged by them but was closed by and paid directly
to
the excise authorities by the buyers of the liquors as stated above.
The Full Bench decision of the High Court of Andhra Pradesh in
The Government of Andhra (Now Andhra Pradesh) v.
East India
Commercial Co. Ltd.(') relied upon by the Revenue is clearly distinguishable. In that case, it was the actual collection of certain sums as
dharamarn or charity by the dealer from the purchasers on the occasion
of the sales that made the learned Judges to hold that they constitute
part of the turnover. In Messrs George Oakes (Private) Ltd.'J case
(supra) also, the tax in question was collected by the registered dealer.
We have, therefore, no hesitation in holding that the e~ise duty
and the countervailing duty paid directly by the buyers of the Indian
liquors as stated above did not constitute a part of the turnovers of
the appellants.
For the foregoing reasons, we allow the appeals and set aside the
impugned judgments and orders.
In the circwnstances of the case,
we leave the parties to pay and bear their own costs of t!hese appeals.
P. B. R.
Appeals allowed.
•
(1) 8 S.T.C. 114.