South Travancore Distilleries and Allied Products Maruthoor, Neyyattinkara, Thiruvananthapuram v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY, THE 01ST DAY OF OCTOBER 2018 / 9TH ASWINA, 1940** **ST.Rev. No.62 of 2012** **AGAINST THE ORDER IN TA NO.33/2007 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, THIRUVANANTHAPURAM DATED 30-11-2011** ## **PETITIONER:** **SOUTH TRAVANCORE DISTILLERIES AND ALLIED PRODUCTS MARUTHOOR, NEYYATTINKARA, THIRUVANANTHAPURAM.** **BY ADV. SRI.A.KUMAR** ## **RESPONDENT:** **STATE OF KERALA REPRESENTED BY SECRETARY, MINISTRY OF FINANCE, THIRUVANANTHAPURAM-695 001.** **BY SR. GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 01.10.2018, ALONG WITH ST.Rev. NO.63/2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ST.Rev. Nos.62 & 63 of 2012 2 ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY, THE 01ST DAY OF OCTOBER 2018 / 9TH ASWINA, 1940** ## **ST.Rev. No.63 of 2012** **AGAINST THE ORDER IN TA NO.27/2007 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, THIRUVANANTHAPURAM DATED 30-11-2011** ## **PETITIONER:** **SOUTH TRAVANCORE DISTILLERIES AND ALLIED PRODUCTS MARUTHOOR, NEYYATTINKARA, THIRUVANANTHAPURAM.** **BY ADV. SRI.A.KUMAR** ## **RESPONDENT:** **STATE OF KERALA REPRESENTED BY SECRETARY, MINISTRY OF FINANCE, THIRUVANANTHAPURAM-695 001.** ## **BY SR. GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 01.10.2018, ALONG WITH ST.Rev. NO.62/2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ST.Rev. Nos.62 & 63 of 2012 3 ## **JUDGMENT** ## **K. Vinod Chandran, J.** **The issue raised in the above revisions are connected. A question raised as to inclusion of excise duty in the taxable turnover, agitated before this Court, spanning over more than a decade, culminated in the decision of the Hon'ble Supreme Court in** _**State of Kerala and Others v. Maharashtra Distilleries Ltd. and Others [(2005) 11 SCC 1]**_ **. The question as to whether the excise duty component could be added to the turnover of the distilleries for the purpose of computing the turnover tax payable under the Kerala General Sales Tax Act [for brevity, the KGST Act] was answered looking at the provisions of the Abkari Act and the Rules framed there-under which regulated the sale of liquor within the State.** **2. The issue arose in the year 1998-1999 in a batch of writ petitions, which were disposed of by a common judgment and order of the Division Bench of this Court dated 27.11.1999 in O.P. 23008 of** ST.Rev. Nos.62 & 63 of 2012 4 **1998 and connected cases. This Court allowed the original petitions filed by the assessee distilleries finding that under the scheme of the Kerala Abkari Act and Rules, the incidence of excise duty on the manufacturer/Indian Made Foreign Liquor [IMFL] was required to be satisfied by the Kerala State Beverages (Manufacturing and Marketing) Corporation Limited [for brevity, the KSBC], after the sale, and the transfer of property in the goods, viz: IMFL (Indian Made Foreign Liquor), had been effected to the KSBC; at a price, which did not include the element of excise duty. This Court declared Section 2(xxvi) of the KGST Act authorising the levy of turnover tax on the amount of excise duty paid by the KSBC on the assessee/ Distilleries unconstitutional and void.** **3. Then there was an amendment made to Section 5(2-C) of the KGST Act by the Finance Act, 2001, which, according to the State, clothed the States with the authority to include the excise duty** ST.Rev. Nos.62 & 63 of 2012 5 **component within the turnover of the distilleries, who were the manufacturers, despite the fact that even then the amounts were paid by the KSBC. Section 5(2-C) after amendment, had an Explanation which clarified that the turnover of any distillery manufacturing and selling IMFL to KSBC shall include excise duty in its turnover for the purpose of paying turnover tax. The second batch of writ petitions were decided by a judgment dated 09.08.2002 in O.P. No.31153 of 2001 and connected cases. Another Division Bench of this Court did not agree with the earlier judgment, but found themselves bound by the earlier decision. Progressing on such reasoning the later Division Bench found that the infirmity pointed out by the earlier Division Bench had not been cured by the State in making amendments to Section 5(2-C) of the KGST Act. Appeals were filed from both the aforesaid decisions to the Hon'ble Supreme Court, which culminated in** _**Maharashtra Distilleries (supra)**_ **.** ST.Rev. Nos.62 & 63 of 2012 6 **4. The Hon'ble Supreme Court in** _**Maharashtra Distilleries(supra)**_ **found that the levy under Section 17 was one under sub-section (f), which was to be paid by the KSBC when lifting the stock from its bonded warehouse, the payment of which was agreed to by KSBC. The levy was found to be not an “excise duty”** _**stricto senso**_ **but a privilege price paid by the KSBC to the State for parting with the privilege of wholesale trade of IMFL within the State, by creating a monopoly to be enjoyed by the KSBC. The levy was found to be one sourced to Entry 8 of List II of the Seventh Schedule to the Constitution and not Entry 51 List II.** **5. Then the learned Judges noticed that on 05.01.1999 an amendment was brought to the Foreign Liquor Rules, 1953, whereby the KSBC could not purchase IMFL from the manufacturers without payment of the excise duty. From 05.01.1999, when it was mandated that the liquor can be lifted from the manufacturers, only after payment of excise** ST.Rev. Nos.62 & 63 of 2012 7 **duty by the KSBC. It was found by the Hon'ble Supreme Court that the provision would result in the KSBC paying the amounts on behalf of the manufacturer for the purpose of lifting the liquor from the godown of the manufacturer. The Hon'ble Supreme Court categorically held that from 05.01.1999, based on the amendments to the Foreign Liquor Rules, the excise duty component would be part of the turnover of the manufacturer and there could be turnover tax levied on that component also.** **6. In the present S.T. Revisions, the question raised is slightly different, though the forestated issue has a bearing, arising from the assessment year 1998-1999. We will refer to S.T. {Rev.} No.62 of 2012. The original assessment for that year was completed as on 15.01.2003. The Assessing Officer in the year 2003, based on the amendments made to Section 18 of the Kerala Abkari Act, 1077, proceeded to reopen the original assessment levying turnover tax on the excise duty** ST.Rev. Nos.62 & 63 of 2012 8 **component also. Annexure A dated 31.10.2003 was the order passed levying such turnover tax on the excise duty component also. Statutory appeals were taken and in the meanwhile the Hon'ble Supreme Court, in the year 2005, had decided the** _**Maharashtra Distilleries**_ **case, categorically holding that the excise duty component can be included in the turnover only from 05.01.1999 onwards. Based on the aforesaid declaration of law, the Assessing officer issued Annexure B termed as a special order dated 15.06.2006, reducing the liability to turnover tax, deleting that levy and liability on the excise duty component prior to 05.01.1999.** **7. ST[Rev] No.62 of 2012 is from Annexure A order and ST[Rev] No.63 of 2012 is from Annexure B order. The learned Counsel for the assessee has only one contention. Admittedly the amendments under Section 18 of the Abkari Act did not enable treatment of the excise duty component as part of the turnover. Though a further contention with** ST.Rev. Nos.62 & 63 of 2012 9 **respect to no manufacture having been carried on by them has been taken in the revision, the learned Counsel does not press the same before this Court. The compelling argument advanced is that when Annexure A order could not have been passed, there could be no rectification made to that order and Annexure B will also have to be set aside.** **8. It is argued that ST[Rev] No.62 of 2012 has to be allowed finding that the amendment to Section 18 by the Finance Act, 2003 could not have enabled treatment of excise duty component as includable in the turnover for the purpose of levying turnover tax. When that revision is allowed and Annexure A is set aside, then Annexure B does not have any legs to stand, since there is no order available to be rectified. The original order of assessment is way prior to the limitation prescribed for rectification.** **9. We are not convinced that such a course can be adopted, especially noticing that Annexure B is** ST.Rev. Nos.62 & 63 of 2012 10 **an order passed in rectification reducing the liability as mulcted in Annexure A on the basis of the binding declaration of the Hon'ble Supreme Court in Annexure A. As of now the challenge against Annexure A need not be considered since already it has been modified by Annexure B. Annexure B has to be be sustained for reason of the Hon'ble Supreme Court having directed specifically in the judgment to carry out assessments as per the declaration, for all the years commencing from 05.01.1999.** **10. The contention taken by the learned Counsel is that when Annexure A dated 31.10.2003 goes, Annexure B passed on 15.06.2006 has to be treated as a rectification of the original order passed on 15.01.2003, which is not permissible since the limitation provided is of three years. We would say that even if Annexure A order was not passed and only the original assessment of 15.01.2003 was available, on the basis of the decision of the Hon'ble Supreme Court, there could** ST.Rev. Nos.62 & 63 of 2012 11 **have been a fresh assessment made, levying turnover tax on the excise duty component from 05.01.1999. The Assessing Officer could have then reopened the assessment within the time provided as per the decision of the Hon'ble Supreme Court. Even otherwise, the challenge to Annexure A in any event, could survive only to the extent of the inclusion of excise duty made to the turnover prior to 05.01.1999.** **11. In such circumstances, ST[Rev] No.62 of 2012 is to be rejected since the order challenged has been already modified deleting the levy of turnover tax on the component of duty levied under Section 17(f), prior to 05.01.1999; subsequently. Even if the revision was considered independently the levy made under Annexure A could have been sustained only in its levy from 05.01.1999. ST[Rev] No.62 of 2012 is dismissed since the levy therein is in accordance with the decision of the Hon'ble Supreme Court.** **12. The question of law whether Annexure B** ST.Rev. Nos.62 & 63 of 2012 12 **order can be sustained for reason of Annexure A having been set aside against the assessee; does not arise. Annexure A to the extent it levied turnover tax on the excise duty component from 05.01.1999 has to be upheld, though on different grounds from that revealed in Annexure A order and hence the further rectification made within three years by Annexure B is perfectly valid. The revisions are rejected directing that the additional levy can be sustained only to the extent of Annexure B, in so far as the excise duty component being added to the turnover and the turnover tax computed on that basis from 05.01.1999 with also determination of interest as per the KGST Act. No order as to Costs.** **Sd/K. VINOD CHANDRAN, JUDGE** **Sd/ASHOK MENON, JUDGE** **sp/06/10/18** **//TRUE COPY//** **P.A. TO JUDGE** ST.Rev. Nos.62 & 63 of 2012 13 ## **APPENDIX OF ST. Rev. NO.62/2012** **PETITIONER'S EXHIBITS:** **ANNEXURE A TRUE COPY OF THE ORDER DATED 31.10.2003. ANNEXURE B TRUE COPY OF THE ORDER DATED 28.10.2006. ANNEXURE C TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 30.11.2011.** ## **APPENDIX OF ST. Rev. NO.63/2012** **PETITIONER'S EXHIBITS:** **ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1998-99 DATED 31.10.2003. ANNEXURE B TRUE COPY OF THE ORDER DATED 15.06.2006 PASSED IN RESPECT OF ASSESSMENT YEAR 19981999. ANNEXURE C TRUE COPY OF THE ORDER DATED 28.10.2006. ANNEXURE D TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 30.11.2011.** ## **RESPONDENT'S EXHIBITS:- NIL** **//TRUE COPY// P.A. TO JUDGE**