# STATE OF KERALA AND ORS v. MAHARASHTRA DISTILLERIES LTD. AND ORS

- **Citation:** [2005] Supp. 1 S.C.R. 91
- **Court:** Supreme Court of India
- **Decided:** 2005-05-06
- **Case number:** Civil Appeal Nos. 2249-2257 • t . . of 2000
- **Bench:** N. Santosh Hegde, S.N. V Aria Va, B.P. Singh, H.K. Sema, S.B. Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-kerala-and-ors-v-maharashtra-distilleries-ltd-and-ors-20651
- **Pages:** 55

## Headnote

Excise Laws:
Kera/a Abkari Act-Section 17(a) to (g)-Kerala General Sales Tax
Act, 1963-Sections 2(xxvii), 5(2C)-Foreign Liquor Rules, 1953-Rule 13(9)-
Kerala Abkari Shops (Disposal in Auction) Rules, 1974-Foreign Liquor
(Storage in Bond) Rules, 1961-Kerala Distillery and Warehouse Rules, 1968:
B
c
Monopoly created by Government of Kera/a in wholesale trade of lMFL D
in favour of Government Company KSBC-Jn view of monopoly, distillers
required to sell entire manufacture of lMFL to KSBC only-KSBC not required
to pay excise duty to manufacturers of lMFL but pay it later when lMPD
moved out of its warehouse~Sales Tax Authorities requiring manufacturers of
IMFL to include amount of excise duty paid by KSBC in the turnover for the E
purpose of turnover tax--Correctness of-Held: Levy of duty is under Section
17(/) since the State intended to recover duty from KSBC on the issue of liquor
from its warehouses in course of its monopoly wholesale trade-Duty so levied
is not excise since taxing event envisaged in Section I 7(/) does hot relate to
manufacture-Amount of excise duty paid by KSBC is actually not excise duty F
in real sense but a privilege price and hence does not form part of turnover
of manufacturer-However rules were amended in 1999 contemplating that
KSBC to pay excise duty to manufacture at the time of purchase-Therefore,
with effect from 1999 that amount of excise duty would form part of
consideration to the manufacturer and included in their turnover for the purpose G
of levy of Turnover tax.
Liability to pay excise duty-Taxable event-Held: Use of words 'duty
of excise' in Section 17 of the Kerela Abkari Act is not conclusive and it is
91
H
92
SUPREME COURT REPORTS [2005] SUPP. I S.C.R.
A for the courts to examine in each case as to whether it is in fact a 'duty of
excise '-Jn order that duty may be characterized as duty of excise, it must be
shown that it is a duty on manufacture of goods-If it is unrelated to the
manufacture of goods, it may be any other impost permitted by law, but would
not qualify as duty of excise.
B
The respondent is engaged in the manufacture and sale of Indian
Made Foreign Liquor (IMFL). Pursuant to the policy decision of the
Government of Kerela to create a monopoly in wholesale trade of IMFL,
a Government company was incorporated, namely Kerala State Beverages
C Corporation Limited (KSBC). Necessary amendments to the Abkari Act
and the relevant Rules were made with a view to effectuate this policy. In
view of monopoly created, the respondents could not sell IMFL
manufactured by them to anyone, and had to deliver the same to KSBC
only for which purpose they had to submit tenders each year for the
D various brands of IMFL manufactured by them. KSBC was granted
licence in Forms BWl and FL9 under the Bond Rules. The IMFL supplied
by the respondents/distillers was stored in bonded warehouses maintained
by the KSBC in accordance with the Bond Rules. KSBC also executed an
agreement in Form - A under which it was obliged to observe 'the
E provisions of the Abkari Act and not to remove goods without payment
of duty. The price paid by the KSBC to the respondents did not include
the element of excise duty which was later paid by the KSBC when the
liquor moved out of its warehouses.
Accordingly assessments were made from time to time on the basis
F that liability to pay sales tax and excise duty was on KSBC. The respondent
paid turnover tax on the basis of price paid to it by KSBC. It, therefore,
did not include the excise duty element while computing its total turnover.
However, Sales Tax authorities on 19.7.1998 called upon the respondent
to submit revised returns including element of excise duty paid by the
G KSBC. The High Court, on a challenge being made by the respondents
held that this excise duty which was in fact paid by KSBC would not be
regarded as being part of turn over of respondents for the purpose of levy
,of turn over tax and also declared that Section 2(xxvii) of the Kerala
General Sale

## Text

_Characters 0–39,582 of 134,532. This is a partial read: ask again with offset=39582 for what follows._

STATE OF KERALA AND ORS.
v.
MAHARASHTRA DISTILLERIES LTD. AND ORS
MAY 6, 2005
[N. SANTOSH HEGDE, S.N. V ARIA VA, B.P. SINGH, H.K. SEMA
AND S.B. SINHA, JJ.]
Excise Laws:
Kera/a Abkari Act-Section 17(a) to (g)-Kerala General Sales Tax
Act, 1963-Sections 2(xxvii), 5(2C)-Foreign Liquor Rules, 1953-Rule 13(9)-
Kerala Abkari Shops (Disposal in Auction) Rules, 1974-Foreign Liquor
(Storage in Bond) Rules, 1961-Kerala Distillery and Warehouse Rules, 1968:
B
c
Monopoly created by Government of Kera/a in wholesale trade of lMFL D
in favour of Government Company KSBC-Jn view of monopoly, distillers
required to sell entire manufacture of lMFL to KSBC only-KSBC not required
to pay excise duty to manufacturers of lMFL but pay it later when lMPD
moved out of its warehouse~Sales Tax Authorities requiring manufacturers of
IMFL to include amount of excise duty paid by KSBC in the turnover for the E
purpose of turnover tax--Correctness of-Held: Levy of duty is under Section
17(/) since the State intended to recover duty from KSBC on the issue of liquor
from its warehouses in course of its monopoly wholesale trade-Duty so levied
is not excise since taxing event envisaged in Section I 7(/) does hot relate to
manufacture-Amount of excise duty paid by KSBC is actually not excise duty F
in real sense but a privilege price and hence does not form part of turnover
of manufacturer-However rules were amended in 1999 contemplating that
KSBC to pay excise duty to manufacture at the time of purchase-Therefore,
with effect from 1999 that amount of excise duty would form part of
consideration to the manufacturer and included in their turnover for the purpose G
of levy of Turnover tax.
Liability to pay excise duty-Taxable event-Held: Use of words 'duty
of excise' in Section 17 of the Kerela Abkari Act is not conclusive and it is
91
H
92
SUPREME COURT REPORTS [2005] SUPP. I S.C.R.
A for the courts to examine in each case as to whether it is in fact a 'duty of
excise '-Jn order that duty may be characterized as duty of excise, it must be
shown that it is a duty on manufacture of goods-If it is unrelated to the
manufacture of goods, it may be any other impost permitted by law, but would
not qualify as duty of excise.
B
The respondent is engaged in the manufacture and sale of Indian
Made Foreign Liquor (IMFL). Pursuant to the policy decision of the
Government of Kerela to create a monopoly in wholesale trade of IMFL,
a Government company was incorporated, namely Kerala State Beverages
C Corporation Limited (KSBC). Necessary amendments to the Abkari Act
and the relevant Rules were made with a view to effectuate this policy. In
view of monopoly created, the respondents could not sell IMFL
manufactured by them to anyone, and had to deliver the same to KSBC
only for which purpose they had to submit tenders each year for the
D various brands of IMFL manufactured by them. KSBC was granted
licence in Forms BWl and FL9 under the Bond Rules. The IMFL supplied
by the respondents/distillers was stored in bonded warehouses maintained
by the KSBC in accordance with the Bond Rules. KSBC also executed an
agreement in Form - A under which it was obliged to observe 'the
E provisions of the Abkari Act and not to remove goods without payment
of duty. The price paid by the KSBC to the respondents did not include
the element of excise duty which was later paid by the KSBC when the
liquor moved out of its warehouses.
Accordingly assessments were made from time to time on the basis
F that liability to pay sales tax and excise duty was on KSBC. The respondent
paid turnover tax on the basis of price paid to it by KSBC. It, therefore,
did not include the excise duty element while computing its total turnover.
However, Sales Tax authorities on 19.7.1998 called upon the respondent
to submit revised returns including element of excise duty paid by the
G KSBC. The High Court, on a challenge being made by the respondents
held that this excise duty which was in fact paid by KSBC would not be
regarded as being part of turn over of respondents for the purpose of levy
,of turn over tax and also declared that Section 2(xxvii) of the Kerala
General Sales Tax Act authorizing the levy of turnover tax on the amounts
H of excise duty paid by the KSBC on the distillers was unconstitutional and
STA TE OF KERALA v. MAHARASHTRA DISTILLERIES LTD.
93
void. State filed appeal before this court.
A
Pending the appeals on 1.4.2001 the State of Kera la amended Section
r
5(2C) of the Kerala General Sales Tax Act, by the Finance Act of 2001,
by adding an explanation which was brought into effect retrospectively
from July 1, 1987 stating that the distillery selling liquor manufactured B
by it within the State to KSBC would be liable to pay turnover tax on the
turnover of sale of liquor by it to KSBC which shall include any duty of
excise liable on such liquor at the hands of such manufacturer whether
such duty is paid by the manufacturer or by the said Corporation.
The Sales Tax authorities issued notices to the respondents/distillers c
proposing to provisionally assess the turnover tax payable by the
manufacturers from April 2001 at various rates. The respondents/distillers
filed several writ petitions challenging the validity of Section 5(2C) of the
Kerala General Sales Tax Act read with Section 3A of the Kerala Finance
Act, 2001 as being unconstitutional, both in its retrospective and D
prospective operation. They also challenged the consequent actions
initiated against them by th~ Sales Tax authorities. A Division Bench of
the Kerala High Court allowed these writ petitions. Aggrieved State came
up in appeal before this Court.
Disposing of the appeals, the Court
E
HELD: 1.1. The duty on liquor is imposed under Section 17 of the
Abkari Act. There is no doubt that it is described as a 'duty of excise'.
The Government has a discretion to levy or not to levy such duty on all
liquor and intoxicating drugs in cases covered by clauses (a) to (g) of F
Section 17. Clauses (d) and (e) which relate to liquor manufactured under
any licence granted under Section 12 or manufactured at any distillery,
brewery, winery or other manufactory established under Section 14, no
doubt relate to imposition of duty of excise properly so called because the
duty levied on liquor manufactured under a licence granted under Section G.
12 or 14 is duty on manufacture and will squarely fall within the meaning
of the term 'duty of excise'. However, clauses (b}, (c}, (t) and (g)
contemplate events which are not related to manufacture, such as liquor
permitted to be exported or permitted to be transported under clauses (b)
~
and (c) or liquor issued from a distillery under clause (t) or sold in any H
94
SUPREME COURT REPORTS [2005] SUPP. 1 S.C.R.
A part of the State under clause (g). If the duty of excise is levied under
Section 17 read with clauses (b), (c), (t) and (g) it may not be possible to
contend that what is levied is a duty of excise since the taxing event
envisaged under the aforesaid clauses do not relate to manufacture.
B
c
[133-B-E]
1.2. In the instant case the levy of duty is under clause (t) of Section
17 since the State intended to recover duty from KSBC on the issue of
liquor from its warehouses in course of its monopoly wholesale trade.
Section 18A which related to grant of exclusive or other privilege of
manufacturing or supply by wholesale etc. enabled the State to grant such
privilege on the basis of annual rental by way Of consi~eration for the grant
of such privilege and the rental could be collected to the exdusion of or
in addition to the duty or tax leviable under Sections 17 and 18.
[133-E-G]
D
1.3. Thus, the levy of duty under Section 17 need not necessarily be
a duty of excise stricto sensu. In each case the Court has to consider
whether, having regard to the nature of.levy, it is a duty of excise or other
impost. The mere fact that a duty is described as a duty of excise in a
statute may not be conclusive, particularly when -there is a competing entry
E under which such a duty may be levied. In order that a duty may be
characterized as "duty of excise" it must be shown that it is a duty on
manufacture of goods. If it is unrelated to the manufacture of goods, it
may be any other impost permitted by law, but would not qualify as a
duty of excise. [133-G-H; 139-E]
F
Synthetic and Chemicals Ltd and Ors. v. State of UP. and Ors., [1990]
1 SCC 109; Re : Central Provinces and Berar Sales of Motor Spirit and
Lubricants Taxation Act, 1938 : AIR 1939 FC 1 ; The Province of Madras v.
Messrs. Boddu Paidanna and sons AIR (1942) FC 33; Governor-General in
Council v. Province of Madras, AIR (1945) PC 98; R.C. Jail v. Union of India,
G [1962) Sppl 3 SCR 436; Re: The bill to amend Section 20 of the Sea Customs
Act, 1878 and Section 3 of the Central Excises and Salt Act, 1944: [1963] 3
SCR 787; Mis. Guruswamy and Co. etc. v. State a/Mysore and Ors., [1967]
1SCR548; Mis. Mcdowell and Co. Ltd v. C.T.0., [1977) 1SCC441; Mis.
Mcdowell and Co. Ltd v. C. T.O., [1985) 3 SCC 230; Mohan Breweries and
Distilleries Ltd v. Commercial Tax Officer, [1997) 7 SCC 542 and State of'
H
-,
STATE OF KERALA v. MAHARASHTRA DISTILLERIES LTD.
95
).
Kera/av. Madras Rubbery Factory Ltd., [1998) 1 SCC 616, referred to.
A
2.1. Perusal of various Notifications issued .from time to time under
Section 17 shows that different rates of duties have been prescribed for
different kinds of liquor. If the duty imposed was in the nature of excise
duty on manufacture, different rates could not have been· prescribed
B
depending upon whether it is sold in the market or consumed by the
defence services personnel. Having regard to the language of the
Notifications it cannot be said that duty is levied on manufacturer because
Notifications suggest that such duty would be levied either on the goods
manufactured in the area or imported in the area. The duty levied on
import of liquor is referable only to Entry 8 of List II and not Entry 51 c
thereof. [135•B, F, G]
2.2. In accordance with the provisions of the Abkari Act and Rule
11 of the Foreign Liquor (Storage in Bond) Rules, 1961, goods purchased
by KSBC during the relevant period were without payment of excise duty D
and the excise duty thereon was payable at the time of removal of goods
from the bonded warehouse to FL9 premises. KSBC remitted turnover
tax on the total value of its turnover for each year at the rate of turnover
tax prevalent during the relevant year. The turnover of KSBC was
computed so as to include the value of the goods at which the supplies were
"
received by them; excise duty and sales tax paid by them and profit E
margin. Therefore, the duty was levied at the stage of movement of the
goods from the bonded warehouse of KSBC to the FL9 premises and,
therefore, the levy of duty in terms of Rule 11 must necessarily be traced
to Section 17(t) which levied duty on liquor "issued from a distillery,
brewery, winery or other manufactory or warehouse licensed or F
established under Section 12 or Section 14". It would therefore not be
correct to contend that the duty was levied on manufacture only.
(136-B-E)
3.1. Thus, the duty imposed is not a duty of excise but represents G
the privilege price charged by the Government from KSBC as a
consideration for parting with its exclusive privilege to sell liquor by
wholesale in the State of Kerala, the respondents are not liable to include
..(
that duty paid by KSBC in their turnover. [141-B)
-~
3.2. However, the position changed radically with effect from H
SUPREME COURT REPORTS .[2005) SUPP. I S.C.R.
A January 5, 1999. With effect from January 5, 1999, by amendment of the
Foreign Liquor Rules, KSBC was required to pay to the distillers/
manufacturers, the duty element levied under Section 17, before removing
the IMFL to its licensed premises. In view of the_ amendment, KSBC could
not purchase IMFL from the manufact~rers/distillers without payment of
B duty. Thus KSBC paid to the manufacturers 'the duty payable in ·respect
of IMFL and consequently the amount of ·duty paid formed part 'or the
consideration for whi~h the property in goods passed to KSBC. ThererJre,
~
.
~'.)
..
from January 5, 1999, the date with effect from which KSBC started
paying duty to the manufacturers/distillers b·~t6re lifting the stock' ~r' IMFL
to its own licensed premises, the amount of duty p
1aid formed part 'or the
C consideration paid by KSBC to the manu.facturer~ _and consequently it
formed part of the turnover of the manufacturers. 1141-C, D, E, G] -
4.1. The contention of respondents ·that in' view o·r the provisions of
Secti~ns 5(1) and 5(2C) of Kerela General Sales Tax A
1
ct~ th~re was no
D liability on the manufacturer of liquor to pay turnover tax ·on the sale of
IMFL has no merit. T~e levy of tax under Kerela General Sales Tax Act
is by virtue of Section 5. Section 5(1) deals with levy of Sales Tax, whilst
Section 5(2C)(i). Under Section 5(1)(i) of Kerala General Sales Tax Act,
tax is payable (a) on goods specified in the First and Second Schedule, (b)
E at the rates and '(c) at the points specified against such goods ill the said
Scti'edules. However, under Section 5(2C) which is the chargin_g Section
"Notwithstanding anything contained in' this Act or the Rules" "every
dealer shall pay turnover tax." Thus, no dealer is exempted from paying
turnover tax. The turnover tax is to be paid "as specified hereunder", and
not at rates and at points specified in the Fi~st Schedule. The rate is
F specified in (2C)(i)(b) at 5% on the turnover at all points. The words "By
any dealer" only go with "in Foreign Liquor (Indian made) or Foreign
Liquor (Foreign made). The First Schedule deals with "goods in respect
of which a single point of tax is leviable under sub-section (1) or sub-section
(2) of Section 5". The four columns in the First Schedule set out (1) the
G Serial Number, (2) Description of goods, (3) Point of levy and (4) Rate of
Tax - %. In the First Schedule there is no column for dealer. The reference
'
'
to a dealer is only in column (3) which will ir~icate, the P.Oint of time at
which a dealer will pay tax. If under the charging S~ction.th~, poin.t of time
is not to be as per the First Schedule, then one will not consider column ,_
H (3) at all. This is clear as the only items are ''goods", "point of levy" and
' I
I-
STATE OF KERALA v. MAHARASHTRA DISTILLERIES LTD.
97
--
"Rate of Tax - •1.". Whilst co~sidering point and rate at which levy is to A
be made under Section 5(l)(i) the levy and rate will be as per the First
Schedule but under Section 5(2C)(i)(b) the levy is at all points and at 5%
of the turnover. It is only If one has to see at wh~t point and at what rate
the levy is to be made that one will take columns (3) and (4) of the First
Schedule into consideration. As against this under Section 5(2C)(i) the B
turnover tax is on "Foreign Liquor" specified in entries 53 and 54, i.e., in
J
column (2) of entries 53 and 54. Thus, in Section 5(2C)(i) there is no
--
reference to columns (3) and (4) .or the First Schedule. This is clear from
the fact that under Section 5(2C), which is the charging Section, turnover
tax is payable by "all dealers". The term "dealer" is defined in Section c
2(viii) and admittedly covers the Respondents. (142-A, B, G; 143-A-GI
4.2. If submission on behalf of the Respondents is accepted and it is
held that the words "as specified in entries against serial numbers 53 and
54 of the First Schedule" go with the words "by any dealer", even then
und!r column (3) of Entries 53 and 54 of the First Schedule the relevant D
words are "by a dealer who is liable to pay tax under Section 5".
Admittedly, the Respond~nts are dealers who are liable to pay tax under
Section 5. They only get exempt from paying tax under Section S(l)(b)
,..
because the sales tax is to be paid "af the rates" and "only at points
·,
specified against the goods in the First Schedule". Under column (3) of E
the First Schedule in entries 53 and 54 the points of levy are (a) for KSBC
the point of levy is at time of sale, (b) by a dealer, who is liable to tax
I
under Section 5, the levy is at point of first sale. However, if the first sale
\
· is to KSBC then at that point there is no levy under Section 5(l)(b) because
.
the charging Section provide that the levy is to be as per the Schedule. F
Section 5(2C)(i) does not lay down that tax is to be paid at the point and
at the rate specified against the goods in the Schedule. Under Section
5(2C)(i) the tax is at the rate of 5% on the turnover at all points.
(144-B, c',
1D)
5.1. Thus the Respondent would in any event be liable to pay G
turnover tax on their turnover. High Court, was right in holding that the
/
amendment of Section 5(2C) of the Kerala General Sales Tax Act by
adding an explanation which was brought into effect retrospectively from
~
July I, 1987, did not remove the constitutional invalidity in the statute
because in view of the finding recorded by the High Court that the H
98
. SUPREME COURT REPORTS [2005] SUPP. I S.C.R.
--: A manufacturers w~re not liable to pay exci~e d~ty, an amendment to the
Sales Tax Act could serve no purpose 1mless lacuna 'was removed by
appropriate amen~men_t to ihe Abkari Aet: u'the Act ht1posing'the' levy
did not impose upon the manufacturers the liability to pay excise duty,
.
.
~ .. t
t
~
. ·' .
by an amendment of th~ Sales _Tax Act the same co~ld not be included ·in
B their turnover. (144-E, F, G, H; 145-A]
5.2. Respondents - manufacturers/ distillers are liable to pay turnover
tax. It is. declared that the respondents - manufacture.rs are liable to
include in their turnover the amount of duty paid to them by KSBC and
C included in the consideration for sale of IMFb to KSBC with effect from
January 5, 1999 and pay the turnover tax accordingly. (145-A, -BJ
Mohan Breweries and Distilleries Limited v. Commercial .Tax Officer.
Madras and Ors., (19971 7 SCC 542; A.B. Abdulkadir and. Ors. v. The State
of Kera/a and Anr., (19671 Supp. 2 SCR 741;_ R.C. Jail v. Union ofln~ia,
D (1962) Supp. 3 SCR 436; Mcdowell and Co. ~td. v. C.T.O., (1985] 3 SCC
230; State of Kera/a v. Madras Rubber Facto1y, (19981 I SCC 616 and
Deputy Commissioner of Sales Tax (Lall), _B9ard of Revenue_ (Taxes),
Ernakulam v. Hindustan P,etroleum Corporation- (2000) 10 SCC. 535;
Hindustan Petroleum Corporation. v. State of Kera/a, (1989) STC ,106; Mis.
E South. Travancore Distilleries and Allied Products, Trivandrum v. State of
Kera/a dated 2nd August, 1989 by Ker~la High C~urt; Sou_thern
Pharmaceuticals & Chemicals v. State of Kera/a, AIR (1981) SC 1863; Moni
Simon v. State of Kera/a, (1984) KLT-1060;.State of Punjab and Anr v. Mis.
Devans Modern Breweries and Anr (2003) J'f (10) 485 and Synthetics and
F Chemicals Ltd. and Ors. v. State ofU.P. and Or;s., (1990) 1SCC109, referred
to.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2249-2257
•
t
.
.
of 2000.
G
From the Judgment and Order dated 27 .11.99 of the Kerala High Court
•.
.r ·'.
,
in O.P. Nos. 23008/98-L, 23903/98-U, 818/99, 2255/99, 2764/99, 12893/99,
.
.
~ .
3283/99, 7437/99 and 19686 of 1999.
·-
·WITH
C.A. Nos. 95, 102, 622/2003, 3160doo5, 5099, 5100, 510i, 5102,
H 5103, 6515, 6516, 7952, 7954 of 2003.
' ;
....
A
'
•· ,.__
l
)-
i '
STATEOFKERALA v.MAHARASHTRADISTILLERIESLTD.[B.P.SINGH,J.]
99'
T.L.V. Iyer, John Mathew, K.R. Sasiprabhu and Ms. Indra with him for A
the Appellants.
F.S. Nariman and Ashok H. Desai, V. Giri, Ms. Indu Malhotra, Ms.
Madhu· Sweta, Ms. Anjali K. Venna, Niraj Gupta, Ms. Liz Mathew, E.M.S.
Anam and Fazlin Anam with them for the Respondents.
The Judgment of the Court was delivered by
.
B.P. SINGH, J. Leave granted in Special Leave Petition (C) No. 1032
of 2003.
B
In these two batches of appeals, a common question arises, inter alia C
for consideration by this Court, namely - Whether. the incidence of excise
duty, having regard to the provision of the Kerala Abkari Act and the relevant
Rules, falls upon the manufacturer/distiller such as the respondents herein
and therefore includable in their turnover for the purpose of levy of turnover
tax,_ or whether the incidence of excise duty falls on the Kerala State Beveragc:s D
(Manufacturing and Marketing) Corporation Limited, a Government company '
which alone is liable to pay the excise di.it}' 'on Indian Made Foreign Liquor,
and consequently the said component is not inchidable in the turnover of the
respondents/distillers?
, ·
Thes·e appeals came up for. hearing before a 3 ·Judge Bench of this E
Court. After hearing the parties for sometime, by order dated -October 17,
200 l, it was observed that the point .involved was .an important one and it
would be appropriate if the cases are heard by a Larger bench. The referring
Bench observed thus :-
"The question which arises for consideration in these cases is, F
whether the excise duty levied· under the provisions of:,,the Kerala
Abkari Act on Indian Made Foreign Liquor which is manufactured
fonns part of the turn over of the manufacturer for •the purpose of
levy of turn over tax under the relevant provisions of the Kerala Sales
Tax Act?
The liquor which is manufactured l:iy the respondents has to be
sold to the Beverages Corporation which· can be regarded as sole
selling agent or the canalizing agenc'y. The liquor manufactured is
removed to the bonded warehouse of the Beverages'Corporation. At
the. time when the liquor is removed from that bonded warehouse, thi.:
G
H
100
SUPREME COURT REPORTS (2005] SUPP. I S.C.R.
A
excise duty is paid by the Beverages·Corporation.
In the notices which were sent to the respondents, it was stated
that this excise duty which was paid by the Beverages Corporation
really forms part of the tum over of the respondents in the sale of
liquor by them to the Beverages Corporation and, therefore, tum over
B
tax was payable on this element as well. The contention of the State
was that this exci~~·duty was really an obligation of the manufacturer
and merely because the obligation was discharged by the Beverages
Corporation would not mean that the same would not form part of the
tum over of the manufacturer.
c
The High Court, on a challenge being made by the respondents,
decided in their favour and came to the·conclusion that this excise
duty which was In fact paid by the Beverages Corporation would not
be regarded· as being part of their tum over for the purpose of levy
of tum over tax.
D
Mr. T.L.V. Iyer, learned senior counsel has drawn our attention
to a decision of this Court in the case of Mohan Breweries &
Distilleries Ltd v. Commercia/'Tax Offif.er, Madras and Ors., [1997)
7 SCC 542. In that case this Court was concerned with the levy of
I
/
tum over tax in respect of liquor which was produced and sold to the.
'
E
State Marketing Corporation. It is the contention of Mr. Iyer that th~ · ..
provisions of the Jaw in Tamil Nadu relating to the levy of this tax
-to"
is more or less parimateria with the corresponding provisions of law
in Kerala. In particular, reliance was placed on paragraph 7 of the
aforesaid decision which reads as follows:
F
'7. Excise duty is levied upon goods manufactured or produced
(Entry 84 of List I and Entry 51 of List II of the Seventh Schedule
to the Constitution). Its in.cidei1ce falls, therefore, on the
'
manufacturer or producer of the goods. The collection of excise
I ;
duty may be deferred to such later stage as is, administratively
j
I
or otherwise, most convenient'.
r
G
' ..
Basing itself on the aforesaid observations, this Court concluded
'
that even if Rule 22 of the Tamil Nadu Rules provides for realization
of the excise duty from the Corporation that was only a convenient
method of collection, the primary obligation to pay excise duty being
only of the manufacturer. Mr. Iyer, therefore, contended that following
~
H
the said decision the appeals should be allowed.
-·
~·
STATE OF KERALA v. MAHARASHTRA DISTILLERIES LTD. [B.P. SINGH, J.] I 0 I
Mr. F.S. Nariman, learned senior counsel for the respondents has A
drawn our attention tp three Constitution Bench decisions of this
Court. In the case of A.B. Abdullcadir and Ors. v. The State of Kera/a
and Anr., [ 1967) Supp. 2 SCR 741, where at page 751 it was observed
as follows :
'It may also be accepted that generally speaking the tax is on the B
manufacturer or the producer, though it cannot be denied that laws
are to be found which impose a duty of excise at stages subsequent
to the manufacture or production . •
(emphasis added)
In R. C. Jail v. Union of India, [ 1962) Supp. 3 SCR 436, at page
451, it was contended that the excise duty cannot be legally levied on
the consignee who had nothing to do with th~ manufacture or
production of coal. This argume~t was repelled and at page 451, it
was observed as follows :
'Excise duty is primarily a duty on the production or manufacture
c
D
of goods produced or manufactured within the country. •tis an indirect
duty which the manufacturer or producer passes on to the ultimate
consumer, that is, its ultimate incidence will always be on the
consumer. Therefore, subject always to the legislative competence of E
the taxing authority, the sa~d tax can be levied at a convenient stage
so long as the character of the impost, that is, it 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.'
In Mis. Guruswamy & Co. Etc. v. State of Mysore and Ors., F
[1967) 1 SCR 548, at page 562, another Constitution Bench held as
follows :
'These cases establish that in order to be an excise duty (a) the
levy must be upon 'goods' and (b) the taxable event must be the G
manufacture or production of goods. Further the leliy need not be
imposed at the stage of production or manufacture but may be imposed
later."
(Emphasis added)
H
102
SUPREME COURT REPORTS [2005] SUPP. 1 S.C.R.
J{-
· Relying .. upon the aforesaid observations of this Court, in cases
B
c
referred to hereiriabove, Mr. Narimari contends that the observations
·ofthis Court in M~han Breweries"ca'se'(supra) seem to run counter ..
10· the'earlie~ decisions of the Constittition Benches. He submits that
the Constitution Benches have laid down in no uncertain terms that
an excise duty need not necessarily be regarded as being a levy only
,..,..., ~
...
.
:
.
.
.
.
.
on the manufacturer and it is possible for a law to provide that excise
' .
. .
. .
'.
. " '
'
duty may be levied not on the manufacturer but at a later point of
~.
. .
'
. ~
··,
.
time. He, therefore, contends that the observation to the contrary in
Mohan Breweries ' case does not reflect the position in law correctly
·and he.submits that in the present cases, on a correct interpretation
of Sections 17 and 18 of the Abkari Act of Kerala, it must be held
that t~~· le.vy of excise duty, is iiot on the manufacturer but is at the
stage when the liquor is removed by the Beverages Corporation from
the ·warehouse and therefore' 'the' same cannot form part of the
respondents' turn over:
D
In our opinion, the point involved is an important one and it
would be appropriate· if this and the connected cases are heard by a
larger Bench: '
We direct, the papers be laid before Hon'ble the Chier'Justice'for
appropriate orders."·
Th~~ is how these appeals have been placed by the Hon'ble Chief
Justice before this Bench for disposal.
·
!
•
~
.
•
•
The first bateh of appeals arise out ~f writ petitions filed in the years
1998 - 1999 which were disposed of by a common judgment and order of a
F Divisio_n \Bench of the High Court dated 27th November, 1999 in OP Nos.
23008-239,03/98, 818, 2255, 2264, ~.2.893, 32.83; 7437 and 19686/99 whereby
the High Court allowed the writ petitions filed by the respondents/distillers
holding inter alia that under the Scheme of the Kerala Abkari Act and the
Rules, the incidence of excise duty on the manufacture of Indian Made Foreign
Liquor was required by law to be borne by the Kerala Beverages Corporation
G to whom the liquor was sold at a price which did not include the element of
excise duty. Consequently the State ofKerala and its officers were not entitled
to levy turnover tax on the respondents/distillers by including in their turnover
the exci~e duty payable on the liquor manufactured and sold by the
respondents/distillers to the Kerala State Beverages Corporation. The High
H Court also declared that Section 2(xxvii) of the Kerala General Sales Tax'Act
I.
STATE OF KERALA v. MAHARASHTRA DISTILLERIES LTD. [B.P. SINGH, J.] 103
JI>
authorizing the levy of turnover tax on the amounts of excise duty paid by A
the Kerala State Beverages Corporation on the distillers was unconstitutional
and void.
After the judgment of the High Court in the first batch of writ petitions,
and while the appeals against the said judgment and order were pending
B
before this Court, on 1.4.2001 the State of Kerala amended Section 5(2C) of
the Kerala General Sales Tax Act, by the Finance Act of 2001, by adding an
explanation which was brought into effect retrospectively from July 1, 1987
which reads as follows :-
"Explanation : For the removal of doubt it is hereby clarified that any c
distillery in the State which sells liquor manufactured by it within the
State to the Kerala State Beverages Corporation shall be liable to pay
turnover tax on the turnover of sale of. liquor by it to the said
Corporation and the turnover for the purpose of this sub-section shall
include any duty of excise liable on such liquor at the hands of such
manufacturer whether such duty is paid by the manufacturer or by the D
said Corporation."
Since the Sales Tax authorities issued notices to the respondents/distillers
proposing to provisionally assess the turnover tax payable by the manufacturer~
from April 2001 at various rates, the respondents/distillers filed several writ
petitions challenging the validity of Section 5(2C) of the Kerala General E
Sales Tax Act read with Section 3A of the Kerala Finance Act, 2001 as being
unconstitutional, both in its retrospective and prospective operation. They
also challenged the consequent actions initiated against them by the Sales
Tax authorities. A Division Bench of the Kerala High Court allowed these
writ petitions by a common judgment and order of August 9, 2002 in OP F
Nos. 3736, 5139, 1705, 4464, 6075, 6113, 6116, 6122, 6239, 6336, 7639,
7666 of 2002 and 31153 of 2001. The Division Bench disposing of the
aforesaid writ.petitions did not agree in principle with the law as laid down
in the earlier judgment disposing of the first batch of writ petitions and was
of the view that the incidence of excise duty fell squarely on the respondents/
distillers and as such was includable in their total turnover for purpose of G
computation of turnover tax under the Kerala General Sales Tax Act. However,
the Division Bench held itself bound by the earlier decision rendered by the
High Court and, therefore, following the earlier decisitm held that by adding
an explanation to Section 5(2C) by the Kerala General Sales Tax Act the
.~ ..
constitutional lacuna pointed out in the earlier judgment had not been removed H
104
SUPREME COURT REPORTS [2005) SUPP. I S.C.R.
A by appropriate amendment to the Kerala Abkari Act. By merely adding the
explanation to Section 5(2C) of the Kerala General Sales Tax Act, the excise
duty element ·paid by the Corporation could not be added to the turnover of
the respondents/distillers since it had been held in the earlier judgment that
excise duty was leviable only on the purchaser, namely, the Kerala State
B Beverages Corporation.
c
In this view of the matter the High Court allowed the writ petitions and
declared that the explanation appended to Section 5(2C) of the Kerala General
Sales Tax Act was unconstitutional and invalid both in its prospective operation
from 1st April, 2001 and in its retrospective effect from 1st July, 1987.
· OP No. 1477112002 out of which C.A. No. 7954 of 2003 arises was
also disposed of in the same terms by the High Court by its order dated
August 12, 2002.
To appreciate the rival contentions of the parties iris necessary to refer
D; to the relevant provisions of the Kerala Abkari Act and the relevant Rules as
also the provisions of the Kerala General Sales Tax Act, 1963. The provisions
have to be viewed in the light of the policy decision of the Government of
Kerala to create a State monopoly in manufacture, wholesale purchase and
sale of Indian Made Foreign Liquor (IMFL) with effect from 1.4.1984. A
Government company ·was incorporated; namely Kerala State Beverages
E (Manufacturing and Marketing) Corporation Limited (Kerala Beverages
Corporation). Necessary amendments to the Abkari Act and the relevant
Rules were made with a view to effectuate this policy. The respondents/
distillers could not, in view of the monopoly created in favour of the Kera la
State Beverages Corporation, sell IMFL man~factured by them to anyone,
F and had to deliver the same to the Kerala State Beverages Corporation for
which· purpose they had to submit tenders each year for the various brands
of IMFL manufactured by them. The Kerala State Beverages Corporation
was granted licence in Forms BWI and FL9 under the Bond Rules. The
IMFL supplied by the respondents/distillers was stored in bonded warehouses
maintained by the Kerala State Beverages Corporation in accordance with the
G Bond Rules. The Kerala State Beverages Corporation also executed an
agreement in Form - A under which it was obliged to observe the provisions
of the Abkari Act and not to remove goods without payment of duty. The
price ·paid by the Kerala State Beverages Corporation to the respondents/
distillers did not include the element of excise duty which was later paid by
H the Kerala State Beverages -Corporation when the liquor moved out of its
I
(
}
I
STATEOFKERALA v. MAHARASHTRA DISTILLERIES LTD. [B.P. SINGH,J.] 105
warehouses.
In view of the policy to create a State monopoly, and having regard to
the Scheme of the Kerala Abkari Act and the relevant Rules, the respondents/
distillers contended that the Kerala Abkari Act did not impose a liability on
A
the respondents/distillers to pay excise duty since such a liability was imposed
only on the Kerala State Beverages Corporation which actually paid excise B
duty payable on the IMFL. Consequently the element of excise duty did not
form part of the turnover of the respondents/distillers and was therefore not
includable in the total turnover of the respondents/distillers for purpose of
computation of turnover tax payable by them under the Kera la General Sales
Tax Act.
c
The Kerala Abkari Act was formerly known as Cochin Abkari Act
enacted in the year 1902. It applied to the territories comprised within the
State of Cochin but with effect from I Ith July, 1967, by Act IO of 1967, the
provisions of the Act were extended to the whole of the State of Kerala.
Chapter IV of the Act deals with manufacture, possession and sale of liquor. D
The relevant part of Section 12 reads as follows :-
"12. (l) Manufacture of liquor or intoxicating drug prohibited except
under the provisions of this Act:- No liquor or intoxicating drug shall
be manufactured.
except under the authority and subject to the terms and conditions of
a licence granted by the Commissioner in that behalf, or under the
provisions of Section 21;
Section 14 deals with establishment and control 6f distilleries, Beverages,
warehouses etc. and provides as follows :-
"14. Establishment and control of distilleries, breweries, warehpuses,
etc. :- The Commissioner may, with the previous approval of the
Government:-
E
F
(a) establish public distilleries, breweries or wineries, or authorize the
establishment of private distilleries, breweries, wineries or other
manufactories in which liquor may be manufactured under a license H
106
SUPREME COURT REPORTS [2005] SUPP. l S.C.R.
A
granted under this Act;
(b) establish public warehouse or authorize the establishment of private
warehouses wherein liquor may be deposited and kept without paym~nt
of duty under a license granted under this Act;
·
B
(c) discontinue any public or private distillery, brewery, ·winery or
other manufactory or warehouse so established;
(d) prescribe the mode of supervision that may be necessary in a
distillery, brewery, winery or other manufactory or warehouse so
established, or in any other manufactory where preparation containing
C
liquor or intoxicating drugs are manufactured, to ensure the proper
collection of duties; taxes and other dues payable under this Act or
the proper utilization of liquor or intoxicating drugs;
D
Chapter v. of the Act deals with duties, taxes and rentals. Sections 17
E
F
G
H
and 18, which are relevant, provide as follows :-
"17. Duty on liquor or intoxicating drugs :- A duty of excise or
luxury tax or both shall, if the Government so direct, be levied on all
liquor and intoxicating drugs
(a) permitted to be imported under Section 6; or
(b) permitted to be exported under Section 7; or
(c) permitted under Section 11 to be transported ; or
(d) manufactured under any licence granted under Section 12; or
(e) manufactured at any distillery, brewery, winery or other
manufactory established under Section 14; or
.
1
(f)
issued from a distillery, brewery, winery or other manufactory or
warehouse licensed or established under Section 12 or Section
14; or
(g) sold in any part of the State ;
Provided that no duty or gallonage fee or vend fee or other taxes shall
be levied under this Act on rectified spirit including absolute alcohol
which is not intended to be used for the manufacture C\f potable
liquor meant for human consumption.
;
;
•
STATE OF KERALA v. MAHARASHTRA DISTILLERIES LTD. [B.P. SINGH, J.) 107
Explanation :- For the purpose of this section and Section l S, the A
expression "duty of excise", with reference to liquor or intoxicating
drugs, include countervailing duty on such goods manufactured or
produced elsewhere in India and brought into the State."
"IS. How duty may' be imposed :- (I) Such duty of excise may be
levied:
B
(a) in the case of spirits or beer, either on the quantity produced in
or passed out of a distillery, brewery or warehouse licensed or
established under Section 12 or Section 14 as the case may b~ or in
' accordance with such scale of equivalents, calculated on th~ quantity
of materials used or by the degree of attenuation of the wash or wort C
or on the value of the liquor as the case may be as the Government
may prescribe ;
D
Section I SA of the Act provides as follows :-
"I SA. Grant of exclusive or other privilege of manufacture, etc., on
payment of rentals :- (I) it shall be lawful for .the Government to
grant to any person or persons, on such conditions and for such E.
period as may deem fit, the exclusive 9r other privilege-
(i)
of manufacturing or supplying by wholesale; or
(ii) of selling by retail; or
(iii) of manufacturing or supplying by wholesale and selling by retail,
any liquor or intoxicating drugs within any local area on his or F
their payment to the Government of any amount as rental in
consideration of the grant of such privilege. The amount of rental
may be settled by auction, negotiation or by any other method as
may be determined by the Government from time to time, and
may be collected to the exclusion of, or in addition, to the duty G
or tax leviable under Sections 17 and l S.
(2) No grantee of any privilege under sub-section (1) shall exercise
th.e same until he has received a licence in that behalf from the
Commissioner.
H
108
SUPREME COURT REPORTS [2005) SUPP.