Md. Parwez Ahmed v. Union of India — 1994 DIGILAW 155 (PAT)

JUDGMENT Radha Mohan Prasad, J. – Initially in all these writ applications the petitioners had challenged the constitutional validity of section 44AC of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) as in force upto the assessment year 1992-93 and section 206 of the Act on various grounds. However, as we have been informed that the constitutional validity of the aforementioned provisions is under challenge before the Supreme Court in which the Supreme Court has issued direction to all the High Courts in the country not to decide the constitutional validity with a further direction to only consider the prayer for grant of interim relief made in different writ applications, initially by order dated 20.4.1993 this Court with a view to passing of an interim order, directed the respondents to ascertain the amount which would have been otherwise assessed as payable by the petitioners on the basis of the assessment which could have been made under section 28 of the Act. This was done only for the purpose of ascertaining as to what amount this Court may direct the petitioners to deposit as condition for the grant of stay as a purely interim measure. Further, this Court directed the petitioners to inform as to the nature of security which could be furnished by it to ensure the payment of demand if the writ application fails. In the meantime, an interim order was also passed that the demand raised on the basis of the provisions contained in section 44AC of the Act shall not be enforced. Thereafter, this matter was heard on different occasions for consideration of passing of the interim order. However, on the last date Mr. Jain, learned counsel appearing for the petitioners, in disregard of the validity/constitutionality of section 44AC of the Act ventured to submit that the deemed income at the rate of 40 percent had to be calculated on the basis of the cost price of the country spirit after excluding the excise duty payable thereon and not on the basis of the purchase price, including the excise duty. 2. The short relevant facts in the present case are that the petitioners are retail vendors of country liquor, which is alcoholic liquor meant for human consumption. They have to maintain all necessary books of accounts in the regular course of business. 2. The short relevant facts in the present case are that the petitioners are retail vendors of country liquor, which is alcoholic liquor meant for human consumption. They have to maintain all necessary books of accounts in the regular course of business. According to them, they are attached to specific warehouse from where only they can get the supply. This privilege they have acquired by participating in auction-cum-tender system of settlement of shops envisaged under the Bihar Excise Act, 1950 and the rules framed thereunder. 3. This system was, however, not applicable in the case of the petitioners of CWJC No. 3781 of 1993 and 3784 of 1993. The shops of the petitioners of the aforesaid two cases were located in West Bengal where, according to the petitioners of the said two writ applications, there is no system of auction and the prices are also fixed. The petitioners are required to lift country spirit from the specified warehouses every month from the wholesalers, all of whom acquired the privilege of supply in wholesale of country spirit from the respective warehouse to these petitioners. 4. According to the petitioners, the retailers at the relevant time were required to deposit the excise duty and the cost price of the country spirit under different heads by way of challan with the treasury of the State Government. However, now after the change of the law i.e. deletion of section 44AC and substitution of new section 206C of the Act recently, the retailers are required to deposit excise duty by challans whereas the cost price is deposited by them by bank draft directly to the wholesalers. 5. In this background Mr. Jain, learned counsel appearing for the petitioners, ventured to submit that in spite of the aforementioned order of the Supreme Court, this Court can in disregard to the constitutional validity of the aforementioned two provisions can consider as to whet her the deemed income in terms of the said provision has to be calculated on the basis of the cost price of country spirit after excluding the excise duty payable thereon. I may mention here that the order of the Supreme Court has not been produced before us and thus, I am not fully aware as to what order has been passed by the Supreme Court in the matter pending before it where the constitutional validity of the aforementioned two provisions is under challenge. I may mention here that the order of the Supreme Court has not been produced before us and thus, I am not fully aware as to what order has been passed by the Supreme Court in the matter pending before it where the constitutional validity of the aforementioned two provisions is under challenge. 6. Mr. Jain contended that an explanation was added to clause (a) to sub-section (1) of section 44AC of the Act by Finance Act, 1990 with effect from 1.4.11991, which reads as follows: "[Explanation. - For the purposes of this clause, "purchase price" means any amount (by whatever name called) paid Dr payable by the buyer to obtain the goods referred to in this clause, but shall not include the amount paid or payable by him towards the bid money in an auction, or, as the case may be, the highest accepted offer in case of tender or any other mode;]" According to him, the purchase price was not defined earlier hut by the aforesaid explanation the same now stands defined. It was further submitted that the addition of the said explanation clearly indicates the intention of the Legislature that the purchase price as defined in clause (a) of sub-section (1) would be actual cost price of the goods and will not include the excise duty. In this connection he placed reliance on a Bench decision of this Court in the case of Ramjee Prasad Sahu v. The Union of India and others [ (1993) 202 ITR 800 : 1993 (2) PLJR 555] in which case in view of the amended provisions contained in section 206C of the Act, as it stood after its substitution by Finance Act, 1992 with effect from April, 1992, this Court held that no amount as income tax can be collected with reference to the excise duty payable to the Government on account of purchase of the country spirit. 7. Learned counsel submitted that in view of the said Bench decision and in view of the aforementioned explanation, the petitioners cannot be saddled with the liability of paying tax on the excise duty paid by them for purchase of the country spirit. 7. Learned counsel submitted that in view of the said Bench decision and in view of the aforementioned explanation, the petitioners cannot be saddled with the liability of paying tax on the excise duty paid by them for purchase of the country spirit. Accordingly, he submitted that the petitioners arc prepared to deposit the tax assessed on the cost price of the country spirit purchased by them and not on the excise duty paid by them and they may not be directed to furnish any security in respect thereof while considering their prayer for grant of interim order. 8. On the of her hand, Mr. Rastogi, learned counsel appearing for the Revenue, submitted that the explanation docs not enlarge the definition of purchase price rather it curtails as it excludes the amount paid or payable by the buyer towards the hid money in an auction from the purview of the tax liability under the said provision. He further submitted that in respect of the tax liability equal to forty percent there has been no change brought in by addition of the explanation. According to Mr. Rastogi, from the words used in the aforementioned provisions "as the purchase price" the intention of the Legislature is clear to include the cost price as well as the excise duty. He laid emphasis on the word 'as' and submitted that had it been the intention of the Legislature to compute the tax liability only on the cost price, they would have used the expression either the cost price or only the purchase price. The world 'as' is used in relative sense and means to the extent and not with reference to any particular item. He also submitted that the aforementioned explanation further makes it clear that the purchase price is not confined to any of the items such as cost price but means any amount (by whatever name called) paid or payable by the buyer to obtain the goods, except the amount paid or payable towards bid money in an auction. In this connection, he referred to the Supreme Court decision in the case of Mc Dowell & Co. In this connection, he referred to the Supreme Court decision in the case of Mc Dowell & Co. Ltd. v. Commercial Tax Officer [(1959) ITR 2271 in which the Supreme Court has quoted the passage from the judgment reported in [(1944) 1 All ER 618] in the case of Love v. Norman Wright (Builders) Ltd. in which it has been held that "where an article is taxed, whether by purchase tax, customs• duty, or excise duty, the tax becomes part of the price which ordinarily the buyer will have to pay". 9. The Supreme Court, while dealing with the Sales Tax Law but in the context that in the hands of the buyer the cost of liquor is what is charged by the appellant under its bill together with excise duty which the buyer has directly paid on seller's account, held that the consideration for the sale is thus the total amount and not what is reflected in the hill. Their Lordships in the Supreme Court in that context have held as follows: "We are, therefore, clearly of the opinion that excise duty though paid by the purchaser to meet the liability of the appellant, is a part of the consideration for the sale and is includible in the turnover of the appellant. The purchaser has paid the tax because the law asks him to pay it on behalf of the manufacturer." This was held in the light of the earlier decision referred therein that "where an article is taxed, whether by purchase tax, customs duty, or excise duty, the tax becomes" part of the price which ordinarily the buyer will have to pay. The price of an ounce of tobacco is what it is because of the rate of tax, but on a sale there is only consideration though made up of cost plus profit plus tax. So, if a seller offers goods for sale, it is for him to quote a price which includes the tax if he desires to pass it on to the buyer. If the buyer agrees to the price, it is not for him to consider how it is made up or whether that seller has included tax or not. So far as the purchaser is concerned, he pays for the goods what the seller demands, namely, the price even though it may include lax. If the buyer agrees to the price, it is not for him to consider how it is made up or whether that seller has included tax or not. So far as the purchaser is concerned, he pays for the goods what the seller demands, namely, the price even though it may include lax. That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turnover." 10. Yet in another case in the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Bata India Ltd. and others (1986) 62 STC 436 ), though again dealing with the Sales Tax matter, it has been held by the Division Bench of Kerala High Court, which is as follows: "Since the incidence of duty is directly relating to production of rubber, a deferred payment after the purchase by the manufacturer does not alter the character of the levy as one on the production of goods, and the duty paid should, therefore, be deemed to form part of the price that the purchaser had paid for the goods purchased. Neither a provision for deferred payment, nor the liability cast on the manufacturer of rubber goods for payment of the duty to facilitate easy collection would alter the nature of the levy as one on the production of rubber and such duty, even though paid later, will be a part of the price of the goods purchased and would, therefore, from part of the purchase turnover of the respective assessees." 11. Mr. Rastogi also referred to [(1989) 178 I.T.R. 31 at page 60] (A. Sanynsi Rao and another v. Government of Andhra Pradesh and others) in which a Division Bench of the Andhra Pradesh high Court, with reference to sections 44AC and 206C of the Act, has considered the meaning of the expression 'purchase price' and has repelled the contention that the same means only the issue price and does not include the privilege fee or the licence fee. Further their Lordships observed that the said sections arc meant not only for the Andhra Pradesh High Court but the entire country and the expression cannot be understood in a different manner in each State. Further their Lordships observed that the said sections arc meant not only for the Andhra Pradesh High Court but the entire country and the expression cannot be understood in a different manner in each State. He further referred to a Bench decision of this Court in the case of State of Bihar and another v. Commissioner of Income-Tax and another [ (1993) 202 ITR 535 : 1993 (2) PLJR 80 ]. It was submitted by him that this Court in the said case, with reference to the aforesaid two provisions, namely, 44AC and 206C of the Act, besides holding that the State of Bihar would come within the meaning of the word 'seller', also held that for the purpose of section 206C of the Act, tax has to be deducted not only on the basis of cost price but for that purpose the amount of excise duty has also to be taken into consideration. According to him, in the said case the Bench after noticing the fact and the provisions of the Excise Act and the Rules that the "spirit" all along remains in the joint possession of the State and the distillers/wholesale dealers, the State, in truth and substance, exercises all control over the intoxicants. The Court also noticed the facts that the wholesale dealer has no say in the matter of sale of the intoxicants and that the "right to vend" country liquor in retail being the privilege of the State, the same can be exercised only by persons in whose favour settlement of shops are made by the State and the distiller/wholesaler has at no point of time any independent possession or control over the same and, further, that the same also lies within the domain of the State. In that case their Lordships found that the distillers have to wait for receipt of the price of the spirit as only when the State debits the same in its account they become entitled for the same. Thus, in this context, their Lordships held that the State Government comes within the purview of the provisions of section 44AC and 206C of the Act as it was held to be the agent of the distiller/wholesaler. Accordingly, Mr. Rastogi submitted that the petitioners are not entitled for any interim order merely because the constitutional validity of the provisions relating thereto are under challenge. Accordingly, Mr. Rastogi submitted that the petitioners are not entitled for any interim order merely because the constitutional validity of the provisions relating thereto are under challenge. It was further submitted that in any case the blanket order of stay of realization of tax may not be granted to the petitioners as later it will be difficult for the Revenue or realize the tax in the event, the petitioners do not ultimately succeed in this Court. According to him, they must at least be directed to furnish adequate security in respect of any interim order that this Court considers proper to pass. 12. On the other hand, Mr. Jain, learned counsel appearing for the petitioners, submitted that the question as to whether the excise duty has also to be taken into consideration for the purpose of assessment of the Act under the aforementioned two provisions was not at issue before their Lordships in the case of State of Bihar and another v. Commissioner of Income-Tax and another (Supra). The only question was as to whether the State of Bihar is a seller and in that context their Lordships held that the Sate of Bihar would come within the meaning of the word ‘seller’ as envisaged under section 44AC and 206C of the Act. 13. It is true that in the aforesaid judgment their Lordships were mainly considering the question as to whether the State of Bihar would come within the meaning of the word “seller” under the aforementioned provisions of the Act but their Lordships have also noticed that the tax had to be deducted not only on the basis of the cost price but for that purpose the amount of excise duty shall also be taken into consideration. 14. The aforesaid view gets also support from the reading of the subsequent case of Ramjee Prasad Sahu (Supra) wherein G.C. Bharuka, J. repelled the contention of Mr. Rastogi in that the aforesaid earlier decision ground that the provisions contained in sections 44AC and 206C of the Act were the subject-matter of interpretation, which are no more on the statute book and the provisions of the substituted section 206C of the Act, which are being considered in the later case, are materially different in certain important aspects. Rastogi in that the aforesaid earlier decision ground that the provisions contained in sections 44AC and 206C of the Act were the subject-matter of interpretation, which are no more on the statute book and the provisions of the substituted section 206C of the Act, which are being considered in the later case, are materially different in certain important aspects. His Lordships while noticing the distinction between the earlier two provisions and later substituted provisions contained in section 206C of the Act, held as follows: “The originally incorporated section 206C of the Act has acquired the meaning which statutorily included the persons selling as well as his agent within the ambit of expression “seller”. But now section 44AC stands repealed and section 206C which is self-contained does not include the agent of a person selling the goods within the definition of “seller” for the purposes of the said section. Therefore, the State Government, which was held to be a seller being an agent of the wholesaler ceases to be a seller portent aspect is that by the Finance Act, 1990, an explanation was inserted in sub-section 1(a) of section 44AC of the Act whereby “purchase price” was defined to mean any amount (by whatever name called) paid or payable towards bid money in an auction, or, as the case may be, the highest accepted offer in case of a tender or any other mode. As explained by the Central Board of Direct Taxes in Circular No. 585, dated November 27, 1990 (see [1990] 186 ITR (St.) 156), the said definition was incorporated so as to make incumbent the collection of income-tax at source also by reference to the excise duty. The said concept of the “purchase price” has not been retained by the Legislature in the substituted provisions. Therefore, in my opinion, the Bench decision, referred to above has no bearing on the question involved in the present cases." 15. The said concept of the “purchase price” has not been retained by the Legislature in the substituted provisions. Therefore, in my opinion, the Bench decision, referred to above has no bearing on the question involved in the present cases." 15. Thus from the reading of the above it is clear that prior to the deletion and substitution of new section 206C in place of the original provision, as it then stood, his lordship besides holding that the Stale Government which was held to be a seller, in the earlier case, being an, agent of the wholesaler ceases to be a seller for the present purposes, has also considered the scope of explanation inserted in sub-section 1(a) of section 44AC or the Act as also the circular or the Central Board of Direct Taxes dated 27th November, 1990 and held that the definition of "purchase price" was incorporated in the aforesaid sub-section 1(a) of section 44AC of the Act, so as to make incumbent the collection of income-lax at source also with reference to the excise duty. In the judgment of S.B. Sinha, J. his Lordship has noticed that in view of the accepted position by the learned Additional Advocate General that the cost price of country liquor was realised by the State along with the excise duty by way of challans which are kept in a separate account and the State Government, thereafter, debits the cost price in the account of the distiller and has observed that for the purpose of section 206C of the Act, Tax has to be deducted not only on the basis of the cost price but for that purpose the excise duty has also to be taken into consideration. Thereafter, his Lordship proceeded to consider the case in hand on the basis of a qualitative change in the expression "seller" as contained in section 206C of the Act and held that is the meaning of the word "seller" within the meaning or section 44AC is no longer available and also by noticing the fact that the cost price is now required to be paid to the Contractor, the same would be the amount to be debited by the "seller" which would not include the amount of "excise duty" as the same is required to be paid separately to the State. Agreeing with the view of G. C. Bharuka, J. his Lordship has held that income tax is now payable on the cost price of the country spirit. His Lordship also categorically stated that the situation obtaining in the case of Ramjee Prasad Sahu (Supra) is absolutely different as, by reason of the present arrangement, excise duty is to be paid separately to the State of Bihar, whereas the cost price is to be paid directly by way of Bank draft to the contractors and the retail dealers are required to deposit excise duty payable to the State of Bihar, which is realisable from them. They do not pay any excise duty which is payable by the contractors and in this context his Lordship held that the income tax is now payable on the cost price of the country spirit. 16. In view of the admitted position in the present case that the petitioners, who are retailers, are required to deposit excise duty and the cost price by way of treasury challan with the State Government and in view of the earlier Bench decision in the case of State of Bihar and another v. Commissioner of Income-tax and others (Supra) and consequently in the decision in the case of Ramjee Prasad Sahu (Supra), the purchase price in the present case will include the excise duty as well and the petitioners are liable to pay the tax accordingly under section 44AC of the Act. 17. Thus, there being no ambiguity in the provision, as contained in section 44AC of the Act as also in view of the explanation inserted by Finance Act, 1990 with effect from 1.4.1991 in which the meaning of the words "purchase price" has been explained, it is absolutely clear that the purchase price would not only be the price that the buyer will have to pay as the cost price, hut will also include the excise duty. The computation of the profits and gains has to he made on the basis of the price the buyer has to pay as the purchase price of the country spirit and not as to what will be the cost price of the goods. The computation of the profits and gains has to he made on the basis of the price the buyer has to pay as the purchase price of the country spirit and not as to what will be the cost price of the goods. That is why the Legislature in the explanation has used the expression "any amount (by whatever name called) paid or payable by the buyer to obtain the goods referred to in this clause" and has not confined to the amount that is paid or payable by the buyer towards the cost price of the goods referred therein. This further finds support from the substitution of section 206C in the Act in the year 1992 by which a major change has been brought in. Earlier every person being a seller referred to in section 44AC was required to collect a sum equal to forty percent specified in the table of such amount of income tax on income comprise therein, whereas now after amendment the words "referred to in section 44AC" have been deleted. In respectful agreement with the view taken by G. C. Bharuka, J. in the case of Ramjee Prasad Sahu (Supra) the definition, as inserted by explanation, was incorporated so as to make the tax computable with reference to the excise duty as well. 18. A reference in this connection may also be made to a Division Bench decision in the case of Uma Shankar Prasad v. Union of India [ 1993(2) PLJR 75 ] in which the writ applications were dismissed in view of the earlier decision in the case of State of Bihar & another v. The Commissioner of Income-Tax, Bihar (Supra) (CWJC No. 2429 of 1992 disposed of on 15th May, 1992) wherein after thorough consideration of the provisions as they existed till 31st March, 1992, it was held that with respect to the supplies of the country liquor to the retain vendors, the State of Bihar will be deemed to be seller for the purposes of the impugned provisions and keeping in view the statutory definition of ‘purchase price’ given under section 44AC, which was to govern section 206C as well, the excise duty payable in respect of the said sale were also deemed to be a part of the purchase price for limited purpose of those provisions. 19. 19. Earlier a Division Bench of this Court in the case of Haroon Rashid v. Union of India and others (CWJC No. 5685 of 1991) in which the vires of the aforementioned provisions of the Act had been challenged vide order dated 5.9.1991 adjourned the said case till the disposal of the connected matter by the Supreme Court but refused to grant any interim relief. Their Lordships relied upon a Division Bench decision of the Gujarat High Court in the case of R. Laxichand and Co. & ors. v. Union of India and others [(1990) 184 ITR 376] as also the decision of the Supreme Court in the case of Assistant Commissioner of Central Excise, Chandan Nagar v. Dunlop India Ltd. and others [(1985) 154 ITR 172] where their Lordships have strongly deprecated the stay of realization of the revenue merely because a constitutional question had been raised. Their Lordships also quoted the one line from the said decision of the Supreme Court which reads as follows: “The practice certainly needs to be strongly discouraged.” Further, their Lordships for refusing to grant any interim relief have given the following reasons: “If it is held that the amount collected by the department is more than the liability of the petitioner, the petitioner is certainly entitled to the refund of the amount with interest under the provisions of the Income-tax Act itself.” Their Lordships have also distinguished the order passed by the Ranchi Bench in CWJC No. 1313 and 1314 of 1991(R) granting interim relief “..that no coercive steps shall be taken for deducting income-tax from the petitioners by the seller(s)” by saying that there is no consideration of the provision of refund with interest under the Income Tax Act. 20. Relying upon the aforesaid Bench decision in a similar situation, another Division Bench of this Court in the case of Jaishree Traders v. Union of India [ 1993 (2) PLJR 80 ] refused the prayer for grant of interim relief as it appears that their Lordships considered that it will amount to staying the operation of the impugned provisions itself. However, it was observed that the same will abide by the ultimate decision of the Supreme Court in this regard. In that view of the matter, I do not feel inclined to grant any interim relief to the petitioners and the same is, accordingly, rejected. 21. However, it was observed that the same will abide by the ultimate decision of the Supreme Court in this regard. In that view of the matter, I do not feel inclined to grant any interim relief to the petitioners and the same is, accordingly, rejected. 21. In regard to the claim of the petitioners in CWJC No. 3781 and 3784 of 1993 that their cases are covered by the proviso to clause (a) of section 44AC whereby the application of the said provision to a such buyer where the goods are not obtained by him by way of auction and where the sale price of goods to be sold by the buyer is by or under any State Act is excluded and in the absence of denial by the Revenue, I direct that their cases may be considered afresh by giving them an opportunity and till the determination of their aforesaid claim, the authority will not take any coercive measure to realise the tax computed on the basis of the excise duty. 22. I would like to clarify that in view of the direction of the Supreme Court I have not examined the validity of the provisions of the Act and in this regard the cases of these petitioners shall also be governed by the ultimate decision of the Supreme Court. 23. In this result, CWJC No. 3781 and 3784 of 1993 are disposed of in the aforementioned terms and other writ applications are dismissed but without costs. Aftab Alam, J. – I agree.