Full Judgment Text
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PETITIONER:
STATE OF KERALA
Vs.
RESPONDENT:
M/S MADRAS RUBBER FACTORY LTD. ETC. ETC.
DATE OF JUDGMENT: 19/12/1997
BENCH:
S.C. AGRAWAL, B.N. KIRPAL, D.P. WADHWA
ACT:
HEADNOTE:
JUDGMENT:
THE 9TH DAY OF DECEMBER, 1997
Present:
Hon’ble Mr. Justice S.C.Agrawal
Hon’ble Mr. Justice B.N. Kirpal
Hon’ble Mr. Justice D.P. Wadhwa
K.N. Bhat, Additional Solicitor General;, A.S.Nambiar,
John Mathew, Harish n. Salve, R.F.Nariman,
Joseph Vellapally, Sr. Advs., G.Prakash, Dhruv Agarwal,
Ms. Suman Khaitan, Gouri Rasgotra, K.R. Nambiar,
Ravinder Narain, Ashok Sagar, Amit Bansal, Sonu Bhatnagar,
Vineet Kumar, Yakesh Anand Sanjeev Anand, B.V. Desai,
Shashi Soharu, P.J. Mehta, P.N. Ramalingam, K.K.Bhaduri,
M.P.Vinod, Advs. with them for the appearing parties.
J U D G M E N T
The following Judgment of the court was delivered:
CIVIL APPEAL NOS. 3435-36/21, 69/92, 659/93, 657/93,
4983/91, 5656-57/94, 5594-95/95, 5759/95, 5760-61/95, 5762,
5763-64, 5765, 5766, 5767, 5768-72,6226,8014,9182,OF 1995,
4869/91, 7230/93, 5296/93, 2193/93, 9183/93, 4742/91, 3442-
43/91, 10386-89/96, 2253/93, 2254/93, 2355/93, 2356/93,
11027, 11769, 11626, 11029-30, 11028, 9518 OF 1996, 4300/93,
1699-1704/88, 4593/89, and Civil appeal Nos 8874-8875 of
1997 arising our of S.L.P. (C) Nos. 9649-50 of 1997
KIRPAL, L.
Special leave granted in SLP (Civil) Nos. 9649-50 of
1997.
The only question which arises for consideration in
this batch of cases is whether the cess payable under the
provisions of the Rubber Act, 1947 will form part of the
purchase turnover of the respondents under the kerala
General Sales Tax, 1963.
M/s M.R.F. Ltd., Ceat Tyers of India Ltd., Bata India
Ltd., Goods Year India Ltd. etc., hereinafter referred to as
the dealers, are the respondents in these cases. They
purchased rubber in Kerala. This rubber was purchased either
from the producer or from the dealers. The rubber so
purchased was either used in the manufacture within the
State of kerala or was sent out or the State for use
elsewhere.
Under the provisions of Section 5 of the Kerala General
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Sales Tax Act, 1963 (hereinafter referred to as ‘the Sales
Tax Act’) the tax on rubber is a single point tax. According
to the said section read with the schedule thereto the tax
is leviable on the last producer of rubber within the State.
The liability to pay tax on the purchases so made under the
Sales Tax Act is not in dispute but what has been contended
by the dealers is that in computing the turnover on which
the tax is to be paid, the quantum of cess payable under the
provisions of the Rubber Act, 1947 (hereinafter referred to
as the "Rubber Act") could not be included in the purchase
turnover. The contention of the dealers before the Sales Tax
Authority, was that the said cess was not a part of the
purchase price and therefore, not includible in their
turnover. The assessing authority did not agree and
following the decision of the kerala High Court in the case
of Deputy Commissioner of Sales Tax (Law) Board of Revenue
(Taxes) Vs. Bata India Ltd. and Ors. ([1986] 62 STC 436), it
Included the cess in the purchase turnover of the dealers.
This order was confirmed in appeal by the Deputy
Commissioner and thereafter by the appellate Tribunal.
The revision petition filed by the dealers came up for
hearing before the Kerala High Court. A Division Bench of
that Court was of the opinion that there was conflict
between two decisions of that High Court and, therefore, the
case was referred to a Full Bench.
By judgment dated 29th march, 1989 the Full Bench, by
majority, allowed by revision petition holding that the
earlier decision In Bata’s case (supra) was wrongly decided
and the cess payable and paid under the rubber Act and the
Rules could not form part of the dealers’ purchase. In view
of the importance of the point in issue the High Court
granted certificate for leave to appeal this Court. Hence
these appeals.
In order to examine the rival contentions it is
necessary to refer to the relevant provisions of the sales
Tax Act and the Rubber Act and the rules framed thereunder.
In respect of MRF the assessment years in question are 1972-
73, 1976-77 and 1977-78. At that time under Schedule I Entry
71 of the Sales Tax Act rubber was taxable at the point of
last purchase in the State, by a dealer, who was liable to
pay under Section 5 of Act. The relevant provisions of the
said Act and the Rules are as follows:
"Section 2 (xxvii):
"TURNOVER" means the aggregate
amount for which goods are
either bought or sold,
supplied or distributed by a
dealer, either directly or
through another, on his own
account or on account of
other, whether for cash or for
deferred payment for other
valuable consideration,
provided that the proceeds of
the sale by a person of
agricultural or horticultural
produce, grown by himself or
grown on any land in which he
has an interest whether as
owner, unsufructuary
mortgagee, tenant or
otherwise, shall be excluded
from his turnover.
Section 2 (xxv):
"TAXABLE TURNOVER" means the
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turnover on which a dealer
shall be liable to pay tax as
determined after making such
deductions from his total
turnover and in such manner as
may be prescribed, but shall
not include the turnover of
purchase of sale in the course
of inter-state trade or
commerce or in the course of
export of the goods out of the
territory of India or in the
course of import of the goods
into territory of India.
Section 5:
Levy of "tax on sale or
purchase of goods:- (1) Every
dealer (other than a casual
trader or agent of a non-
resident dealer) whose total
turnover for a year is not
less than one lakh rupees and
every casual trader or agent
of a non-resident dealer,
whatever be his total turnover
for the year, shall pay tax on
his taxable turnover for that
year.
(i) In the case of goods
specified in the First or
second Schedule, at the rates
and only at the points
specified against such goods
in the said schedules.
Schedule I
ENTRY 71
"Rubber" At the point of last
purchase in the State by a
dealer who is liable to tax
under Section 5."
Rules 8 : Determination of
total turnover : (1) Save as
provided in "sub-rules (2) and
(3) the total turnover of a
dealer for the purpose of
these Rules shall be the
amount for which the goods are
sold by the dealer.
(2) In the case of goods
mentioned below the total
turnover of a dealer for the
purposes of these rules shall
be the amount for which the
goods are bought by the dealer
:-
(a) (i) grabled pepper
(ii) Ungrabled pepper
(b) green and dried ginger
(c) xxxxxxxxx
(d) xxxxxxxxx
(e) xxxxxxxxx
xxxxxxxxx
(n) rubber"
The controversy being with regard to the Inclusion of
the cess payable under the Rubber Act, 1947 on the purchase
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turnover of the dealers, it is appropriate to refer to the
relevant provision, namely, section 12 of the Rubber Act
1947 and Rule 33 D framed under the said Act, which are as
follows :
"Imposition of rubber cess:- (1)
With effect from such date as may
be notified by the Central
Government in this behalf, there
shall be levied and collected as a
cess for the purposes of this Act a
duty of excise on all rubber
produced in India at such rate not
exceeding one anna per pound of
rubber so produced as the Central
Government may by the same or a
like notification, from time to
time :
(2) The said duty of excise shall
be payable by the owner of the case
on which the rubber is produced,
and shall be paid by him to the
board within one month from the
date on which he receives a notice
of demand therefor from the Board.
(3) The said duty of excise may be
recovered as if it were an arrear
of lend revenue.
(4) For the purpose of enabling the
Board to assess the amount of the
duty of excise payable by the owner
of an estate under this section-
(a) the Board shall by notification
in the Gazette of India, fix the
period in respect of which
assessments shall be made and
(b) Without to the
provisions of Section 20, every
owner of an estate shall furnish to
the Board a return stating
amount of rubber produced on the
estate in each over period not
later than fifteen days after the
expiry of the period to which the
return relates:
Provided that in respect of an
estate situated only party in
India. The owner shall in the said
return show separately the amounts
of rubber produced within and
outside India.
(5) If any owner of an estate fails
to furnish in due time the return
referred to in sub-section (4) or
furnishes a return which the board
has reason to believe is incorrect
or defective, the Board may assess
the amount payable by that owner in
such manner as may be prescribed.
(6) Any owner of an estate
aggrieved by an assessment made
under this section may within three
months of the service of the notice
under sub-section (2) apply to the
District Judge for the cancelation
or modification of the assessment,
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and the District Judge shall, after
giving the Board an opportunity of
being heard, pass such order (which
shall be final) as he thinks
proper.
(7) The proceeds of the duty of
excise collected by the Board and
any of the fees levied under this
Act (all of which shall from part
of the consolidated Fund of India)
reduced by the cost of collection
as determined by the Central
Government, shall, if Parliament by
appropriation made by law in this
behalf so provides, be paid to the
Board for being utilised for the
purposes of this Act."
Section 12 of the Rubber Act, after its amendment by
Act 21 of 1960, is extracted herein below:
"Imposition of new rubber cess:-
(1) With effect from such data as
the Central Government may, by
notification in the official
Gazette appoint, there shall be
levied as a cess for the purposes
of this Act, a duty of excise on
all rubber produced in India at
such rate, not exceeding fifty naya
paice per kilogram of rubber so
produced as the Central Government
may fix.
(2) The duty of excise levied under
sub-section (1) shall be collected
by the Board in accordance with
rules made in this behalf either
from the owner of the estate on
which the rubber is produced or
from the manufacturer by whom such
rubber is used.
(3) The owner or, as the case may
be, the manufacturer shall pay to
the Board the amount of the duty
within one month from the date on
which the receives a notice of
demand therefor from the Board and
if he fails to do so the duty may
be recovered from the owner or the
manufacturer, as the case may be,
as an arrear of land revenue.
(4) For the purpose of enabling the
Board to assess the amount of the
duty of excise levied under this
section
(a) the * shall, by
notification in the Official
Gazette, fix a period in respect of
which assessments shall be made and
(b) without prejudice to the
provisions of section 20, every
owner and every manufacturer shall
furnish to the Board a return not
later then fifteen days after the
expiry of the period to which the
return relates, stating-
(i) in the case of an owner, the
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total quantity of rubber produced
on the estate in each such period:
Provided that in respect of an
estate situated only partly in
India are owner shall in the said
return show separately the quantity
of rubber produced within and
outside India.
(ii) in the case of a manufacturer,
the total quentity of rubber user
by him in such period out of the
rubber produced in India.
(5) If any owner of or manufacturer
fails to furnish within the time
prescribed the return referred to
in sub-section (4) of furnishes a
return which the Board has reason
to believe is incorrect or
defective, the Board may assess the
amount payable by that owner in
such manner as may be prescribed.
(6) Any owner of an estate
aggrieved by an assessment made
under this section may within three
months of the service of the notice
under sub-section (2) apply to the
District Judge for the cancellation
or modification or a assessment,
and the District Judge shall, after
giving the Board an opportunity of
being heard, pass such order (which
shall be final) as he thinks
proper.
(7) The proceeds of the duty of
excise collected by the Board and
any of the fees levied under this
Act (all of which shall form part
of the Consolidated Fund of India)
reduced by the cost of collection
as determined by the Central
Government, shall , if Parliament
by appropriation made by law in
this behalf so provides, be paid to
the Board for being utilised for
the purposes of this Act, if
parliament by appropriation made by
law in this behalf so provides."
Rule 33-D of the Rubber Rules,
reads thus:-
"(1) Every manufacturer shall by
demand notice sent through
registered post or in such other
manner as the Board may direct be
intimated of the amount assessed on
the quantity of rubber acquired
during the periods specified in
rule 33 (c). On receipt of such
notice, the manufacturer shall pay
to the Board the amount specified
therein either in cash at the
Board’s office at kottayam or by
money order or by bank draft or
cheque duly crossed and payable at
kottayam to the Board within 30
days from the date of receipt of
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the said notice.
(2) On such demand being made, if a
manufacturer fails to pay the
amount within the due date, the
Board may take step to report the
fact to the Central Government or
the State Government concerned for
recovery of the outstanding amount
as an arrear of land revenue."
On behalf of the appellant it was submitted by Mr. K.N.
Bhat, learned Additional Solicitor General, that under
Section 12 (1) what is levied is a cess which is duty of
excise on all rubber produced in India. Before the amendment
in 1960 this duty was payable by the owner of the estate.
After its amendment the Rubber Board is empowered to collect
the duty of excise levied under Section 12 either from the
owner of the estate of from the manufacturer by whom the
rubber is used in accordance with the rules. The incidence
of duty of excise was relatable to the production of rubber
and this position did not alter after the amendment in 1960.
The incidence of the cess, being in the nature of duty of
excise, it was submitted, continued to be related to the
production of rubber only and it was for the sake of
convenience that it was thought expedient that this cess,
instead of being collected from the innumerable producers of
rubber could most conveniently be collected from the
ultimate user thereof, namely, the manufacturer. It was
submitted that the definition of turnover in Section 2
(xxvii) of the Sales Tax Act was wide enough to include the
liability to pay cess under the Rubber Act as being part of
the purchase turnover.
The learned counsel appearing on behalf of the dealers
submitted that on the correct interpretation of Section 2
(xxvii) of the Sales Tax Act, the aggregate of the sum by
the buyer to the seller "including payment made on his
behalf" would constitute a part of the turnover of the buyer
for levy of sales tax. The cess which was to be paid under
the Rubber Act was not required to be paid by the
manufacturer on behalf of the seller because according to
Section 12 (2) read with Rule 33-D, though the incidence of
the duty was on the production of rubber but it was not the
liability of the producer. After the amendment of Section 12
in 1960 and with the promulgation of Rule 33-D, neither
producer nor the dealer was required to pay the cess under
Section 12 at any point of time. Inasmuch as there was no
statutory liability on either the producer or the dealer to
pay the cess, therefore, the quantum of cess payable on the
goods purchased by the dealer could not be regarded as being
part of the purchase price or turnover. the liability to pay
tax was only of the manufacturer and it arose not by reason
of the purchase of rubber but it arose when the manufacturer
used the same.
That the cess which is collected is a duty of excise on
all the rubber produced in India is evident from the
provisions of Section 12 (1) of the Rubber Act. The rate of
cess is prescribed in Section 12(1) itself. The excise duty
referred to in Section 12(1) is not determined with
reference to any price but the duty is determined by
applying a fixed rate to the weight of the rubber produced.
This sub-section was not amended in 1960. The main change
brought about relates only to the manner of collection of
duty. After the amendment of sub-section (2) of Section 12
the duty is to be collected by the Board in accordance with
the rules made in this behalf either from the owner of the
estate on which the rubber is produced of from the
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manufacturer by whom such rubber is used. What is important
to note, however, is that the opening words of the sub-
section (2) refers to "the duty of excise levied under sub-
section (1) [emphasis added]. These words clearly provide
that the levy of excise duty is not under sub-section (2)
but is under sub-section (1) of Section 12. It is the duty
which is statutorily levied under sub-section (1) on the
rubber produced which is to be collected, under sub-section
(2), in the manner provided by the rules.
By reason of Section 12 (1) of the Rubber Act a cess at
the rate prescribed is statutorily levied on the rubber so
produced and the liability to pay the said amount of cess
gets attached to the rubber so produced. If the rules do not
provide for the excise duty to be paid by the producer then
whoever purchases the said rubber would be purchasing goods
to which is attached the liability of payment of duty. In
other words, the duty element would be inherent in the price
which is paid for the purchase of the said goods. The duty
of excise is one which is directly relatable to the
production or manufacture of goods but can be collected at a
latter stage is now no longer open to doubt in view of
several decisions of this Court some of which are R.C. Jall
Vs. Union of India (AIR 1962 Sc 1281), Guruswamy and Co. Vs.
State of Mysore [(1967) 1 SCR 548 ], Jullundur Rubber Goods
Manufacturers’ Association Vs. Union of India (AIR 1970 SC
1589, A.B. Abdul Kadir Vs. State of Kerala [(1976) 2 SCR
690] and McDowell and company Ltd. Vs. Commercial Tax
Officer {91985) 59 STC 277 SC].
In an effort to show that the Rubber Act and the Rules
framed thereunder provide that the liability to pay the cess
arises only when the manufacturer uses the rubber and that
the liability was not of the producer and, therefore, cess
could not from part of the purchase turnover, reliance was
placed on the decision of this Court in Jullundur Rubber
Goods Manufacturers’ Association Vs. Union of India [(1970)
2 S.C.R. 68], wherein after referring to Rules 33 (e), 33A,
33B and 33D (1), this Court had observed at page 79 as
follows:-
"Now the above Rule seems to
contemplate the filing of return
both by the owners of rubber
estates and manufacturers. But
under Rule 33D the demand notice
can be sent only to a manufacturer
on receipt of which the must make
payment to the Board of the amounts
specified therein. On his failure
to make such payment the Board can
take steps for recovery of the
amounts due as arrears of land
revenue by reporting to the Central
Government or the State Government
as the case may be. There is no
such procedure prescribed with
regard to owners of estates. It
would follow that under the rules
the demand notice is to be sent
only to the manufacturers and the
amounts of duty are to be realised
from them alone. The substantive
provisions of sub rules (4), (5)
and (6) of Section 12 also
contemplate assessment being made
with regard to the returns to be
furnished by owners and
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manufacturers. Any person aggrieved
by an assessment has been given the
right of appeal to the District
judge. But as pointed out earlier,
there is no provision either in the
statute or in the rules for a
demand to the made and a coercive
process to be employed in the event
of failure to make the payment.
That is done by Rule 33D alone from
which it would be manufacturers who
are liable to pay the amount of
duty. The rules can, therefore, be
said to make a definite provision
with regard to the category of
persons from whom the collection of
the duty is to be made, namely, the
manufacturers."
From the above the learned counsel contended that this
Court had clearly held that the statutory liability for
payment of cess was on the manufacturer alone who would be
paying the same directly to the Central Government and/or
the Rubber Board. It was submitted that no part of this
amount which is directly paid by the manufacturer to a
person other than the grower of rubber in fulfilment of its
own statutory liability could form part of the sale price
which a manufacturer has to pay.
In our opinion the aforesaid decision does not lead to
the inference which the dealers are seeking to derive. In
Jullundur Rubber Goods manufacturers’ Association case
(supra) the challenge was to the amended provisions of the
Rubber Act, 1947 whereby Section 12(2) was amended giving
the discretion to the Rubber Board to frame rules for the
purpose of providing whether to collect the cess from the
consumer or the manufacturer. three contentions had been
raised before the Court and they were as follows:-
" The contentions which have been
raised are: (1) the duty sought to
be imposed under s.12 as amended
being outside the ambit of Entry 84
of List I in the Seventh Schedule
to the Constitution is beyond the
legislative competence of the
Parliament; (2) Section 12(2)
suffers from the vice of excessive
delegation. It confers uncontrolled
and unrestricted discretion upon
the Rubber Board to levey upon and
collect duty of excise from either
the owners of the rubber producing
estates or the users so called
manufacturers (of rubber) without
specifying the circumstances under
which it should be imposed upon the
one or the other nor has any
guiding policy of principle been
laid down in the Act for making a
choice. (3) In any case, the Rules
which have been framed do not
satisfy the provisions of s. 12(2)
of the Act and do not indicate with
sufficient clarity and precision on
whom the levy is to be made and
from whom the duty is to be
collected as between the owners of
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the estates and the manufacturers."
While dealing with the said three contentions this Court
upheld the validity of Section 12 (2) and in support of
contention (1) it has been argued that once the incidence of
tax was shifted to the user by reason of Section 12 (2), the
tax would cease to be one which will fall within entry 84.
This contention was repelled with the Court observing at
page 73 as follows:
The above statement of law in no
way support the argument that the
excise duty cannot be collected
from persons who are neither
producers nor manufacturers. Its
incidence certainly falls directly
on the production of manufacture of
goods but the method of collection
will not affect the essence of the
duty. In our opinion sub-section
(2) of s.12 provided for the method
of collection as the excise duty
can be collected either from the
producers or from the manufacturers
as defined by the Act which would
include members of the appellant
association who use rubber in the
manufacture of chappals."
Having categorically come to the conclusion that the
Incidence of cess falls directly on the production or
manufacture of the goods while dealing with the third
contention relating to the interpretation of the rules the
Court observed that the rules did make a definite provision
with regard to the category of persons from whom the
collection of duty was to be made. When this Court observed
that under the rules it is only the manufacturers who are
liable to pay the amount of duty, it was referring only to
the persons or the stage at which the duty which is levied
under Section 12(1), is to be collected. In other words, the
rules state as to who was to discharge the liability of cess
imposed under Section 12 (1) by payment of the amount of
duty.
It was also contended by mr. Harish N.Salve, learned
senior counsel appearing for the dealers, that the manner in
which the consideration has been made and the components
thereof do not matter and any payment made directly or
indirectly by the buyer to the seller, including any sum
paid by the buyer for and on behalf of the seller, would be
includible in the turnover as long as the same is paid as a
term of the contract of sale. It is the aggregate of the
sums paid by the buyer to the seller "including payment made
on his behalf", which would constitute a part of the
turnover of the buyer for levy of purchase tax. It was
further submitted that the right of the seller to recover
the said amount must flow from a contract to sell the goods.
If, however, the seller has any statutory right to pass on
any burden of any charge or levy to the buyer, then such a
sum is not a part of his turnover. In this connection
reliance was placed on Anand Swarup Mahesh Kumar Vs. The
Commissioner of Sales Tax ([1981) 1 S.C.R. 707). In this
question arose whether payment of this fee could be included
in the turnover of producers for assessment of sales tax
under the Act. Anand Swarup’s case (supra) was considered
and distinguished by a Constitution Bench of this Court in
McDowell & Company Ltd. Vs. Commercial Tax Officer ([1985]
59 STC 277). The decision in McDowell’s case (supra) clearly
supports the submissions urged on behalf of the appellant.
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In McDowell’s case excise duty on sale of liquor was payable
by the appellant - manufacturer. The appellant sold the
liquor to buyers who themselves paid the excise duty
directly but the department sought to Include the amount
representing the excise duty paid by the buyer as a part of
the appellant’s turnover for the purpose of levy of sales
tax. Referring to the earlier decisions of this Court, it
was observed that "the Incidence of excise duty was directly
relatable to manufacturer but its collection can be deferred
to a latter stage as a measure of convenience." It was
accordingly held that the excise duty paid by the buyer
would be regarded as part of the consideration for the sale
and includible in the taxable turnover. Anand Swarup’s
decision was distinguished by this Court in the following
words:
"Mr. Sorabji in the course of his
submission relied on a Division
Bench decision of this Court in
Anand Swarup Mahesh Kumar V.
Commissioner of Sales Tax (1980) 46
STC 477 (SC); 1981 1 SCR 707. This
Court was considering the liability
for sales tax under the
corresponding U.P. Act in respect
of a dealer carrying on business at
Mandi Anandganj, Baraut in the
District of Meerut. The sales tax
authorities had included in the
dealer’s purchase turnover "market
fee" and the commission payable to
the commission agent operation
within the market area for the
purpose of computing sales tax. The
decision turned on the definition
of "turnover of purchase" in the
U.P. Act and the provision of the
Adhiniyam and the Rules made
thereunder . Market fee and
commission payable to an agent are
very different from excise duty and
a very different position emerges
in law in regard to them. No
support is available from that
occasion for the appellants case.
We would like to point out that the
relevant consideration is not
whether the law permits the
incidence of the duty to the duty
to be passed on to the purchaser
but whether there is a prohibition
against the passing of it. If there
is no bar, the incidence would be
passed on to the purchaser in
accordance with normal commercial
practice.
On behalf of the dealers it was also contended that
though Section 12 (2) postulates that the cess can be
collected either from the owner of the estate of
manufacturer, it can, in no circumstances, be collected from
the dealer from whom the manufacturers purchase raw rubber.
Therefore, it was submitted, that the sale price to the
licensed dealer is wholly independent of the cess paid by
the manufacturer on his own account to the Central
Government. In our opinion, there is an inherent fallacy in
this contention. As we have already noted, and this is
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apparent from the reading of Section 12(1) and (2), the
incidence of the duty arises the moment the rubber is
produced. On the rubber so produced duty at a specified rate
becomes payable. When the producer sells the said rubber to
a licensed dealer it would be legitimate to infer that in
determining the amount of price payable they incidence of
the cess would be taken into account. What is purchased by
the licensed dealers is rubber to which is attached a charge
of cess payable at the prescribed rate. Even though the
rubber Act and the Rules framed thereunder do not
contemplate that the licensed dealer has to pay the cess,
nevertheless because the goods are not to be used by the
licensed dealer but have ultimately to be used by the
manufacturer, therefore, the transfer of the goods by the
dealer to the manufacturer would occasion the realisation of
the cess by the department from the manufacturer. The cess
which will be so realised is the one which stood imposed by
the provisions of the statute itself, viz., Section 12 (1),
at the time when the rubber was produced and before it was
purchased by the dealers or manufacturers.
It is no doubt true that Section 12 (1) does not
specifically state that the taxable person is a producer or
the grower of the rubber. It is, however, not possible to
accept the contention that the rules alone are to be looked
at in order to fix the liability of payment of cess. Section
12 (1) and 12(2) have to be read together. Excise duty being
a levy on the manufacture or production of goods could
ordinarily have been collected at the stage itself. This
was, in fact, the position prior to the amendment of Section
12 (2) in 1960. Section 12 (2) after amendment makes it very
clear that the levy of cess is under sub-section (1) Section
12 and not under sub-section (2). It is only with regard to
the collection of the cess that an option is given to
collect the same either from the producer or the
manufacturer. A charge under a taxing statute can only under
the Act and not under the Rules. The rules normally provide
for the procedure to be followed for the realisation of the
statutory dues. It is in this context that sub-section (2)
enables the framing of the rules whereby the duty instead of
being realised from the producer is realised at a latter
stage, namely, from the manufacturer. Once the liability of
payment of cess has got attached to the rubber when
manufactured and that duty is ultimately paid by the end
user, namely, the manufacturer, it would be implicit that
the element of the cess payable would be one of the factors
in determining the price payable in respect thereof.
The aforesaid analysis is also supported by a recent
decision of this Court in the case of Mohan Breweries a
Distilleries Ltd. Vs. Commissioner Tax Officer, Madras and
Ors. [JT 1997 (8) 36]. In that case liquor was manufactured
by the appellant. According of Section 18 B of the Tamil
Nadu prohibition Act, 1937 excise duty at a specified rate
was leviable on all excisable items manufactured under any
licence granted under the Act. Section 18 C provided that
the excise duty under Section 18B could be paid in one or
more of the ways provided under Section 18C. Rule 22 of the
TNIMFL Rules, 1981 provided that the excise duty shall be
paid by the person who removes the goods from a manufactory.
Sub-rule (2) of Rule 22 further provided that a vend fee of
rupees two per bulk litre shall be paid by the licensee on
all stocks of Indian-made Foreign Spirit issued from the
manufacturer. Rule 15 (1) of the Tamil Nadu Indian-made
Foreign Spirits (supply by wholesale) Rules, 1981 required
the licensee, namely, the wholesaler to pay the excise duty
on removal of the stock by him. The contention which was
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raised by the manufacturer was that in view of the
provisions of the Act and the said Rules, the liability to
pay the excise duty lay not upon the manufacturer but upon
the wholesaler, who was the licensee who was required to pay
under the aforesaid Rule 15 (1) of the Tamil Nadu Indian-
made Foreign Spirits (supply by wholesale) Rules, 1981. In
this connection it was submitted that the manufacturer
neither collected the excise duty from the wholesaler nor
had they statutory or contractual authority to realise the
same from it and, therefore, the manufacturers were not
liable to pay sales tax on the excise duty which was neither
part of the sale price nor a consideration for the sale
Repelling this contention it was held that excise duty was
levied upon the goods manufactured, though its collection
may be deferred to such latter stage as was administratively
or otherwise most convenient. After referring to as case in
Union of India Vs. Bombay Tyre International Ltd. and Ors.
[1984 (1) SCC 467], it was observed that the method of
collection did not affect the essence of duty but only
related to the machinery of collection for administrative
convenience. Dealing with Rule 22 and its effect, it was
observed that "as we look at it, the primary obligations to
pay excise duty on the IMFL is of the manufacturer thereof.
Rule 22 only provides for a convenient method for its
collection. When the excise duty is collected from a party
removing the IMFL from the factory its producer, other than
the manufacturer, the payment of excise duty is in discharge
of the obligation of the manufacturer. That party does not,
as it would ordinarily do, pay the excise duty component
along with the sale price of the IMFL it purchases from the
manufacturer; it pays the sale price to the manufacturer and
it pays the excise duty into the Treasury for and on behalf
of the manufacturer. In effect, therefore, the element of
excise duty does enter into the turnover of the manufacturer
just as much as it would ordinarily do. The definition of
"turnover" in Section 2 (r) of the Sales Tax Act, referring
as it does to "the aggregate amount for which goods ar
bought of sold" and "whether for case or ...other valuable
consideration", is wide enough to cover such excise duty.
That the excise duty does not physically enter the
manufacturer’s till is, as held in the second Mc Dowell
case, not the decisive test for determining whether or not
it would be a part of the manufacturer’s turnover."
In our opinion the aforesaid decision is clearly
applicable to the present case. Like the Mohan Brewerles
case the excise duty under Section 12 (1) is levied on the
production or manufacture of rubber at the rate specified
thereunder. it is only by Rule 33 (1) similar to Rule 22 of
TNIMFL that the cess had to be paid at a stage subsequent to
the production. Merely because for the sake of convenience
the excise duty, which would essentially be payable at the
time of production of rubber is realised at a latter point
of time it cannot mean that the excise duty, in the form of
cess, was not part of the sales turnover of the producer and
correspondingly, be the purchase turnover of the purchaser
of rubber.
In our opinion, therefore, the incidence of duty is
directly relatable to the production of rubber. The
character of levy is not altered merely because the payment
of duty is deferred till the purchase of the rubber by the
manufacturer, The character of levy is on the production of
the rubber and the duty paid should, therefore, be deemed to
be part of the price that the producer had paid for the
goods purchased. Neither a provision for deferred payment
nor the liability case on the manufacturer of rubber goods
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for payment of the duty to facilitate easy collection, can
alter the duty as being one on the production of rubber as
provided by Section 12 (1) of the Rubber Act and such duty
even though paid later, will be a part of the price of goods
purchased and would, therefore, form part of the producers
turnover.
For the aforesaid reasons these appeals are allowed and
the judgment under appeal is set aside and the decision of
the Sales Tax Authorities restored. There will be on order
as to costs.