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2007 DIGILAW 287 (PAT)

United Distillers Ltd. v. State Of Bihar

2007-02-08

AFTAB ALAM, REKHA KUMARI

body2007
Judgment AFTAB ALAM, J. 1. This writ petition seeks to challenge the judgment and order, dated 28.12.1999 passed by the Commercial Taxes Tribunal, Bihar, Patna in Revision Case No. ME-380/93 by which it rejected the petitioners application and upheld the order of the Assessment Officer passed for the assessment period 1983- 84. 2. The controversy in the case relates to a number of despatches of India Made Foreign Liquor (IMFL) by the petitioner. The despatches in dispute were made under 539 bills and the consignments were admittedly sent to different parties outside the State in whose respective names road permits were obtained in Form XXVIIIB under the Bihar Finance Act. According to the petitioner, the despatches to the different parties were made on the instructions of its buyer who issued in its favour the necessary declarations in Form C under Section 8(4) of the Central Sales Tax Act. The Assessment Officer, and later the Tribunal, rejected the petitioners case that the sales of IMFL covered by the 539 bills were to someone other than those to whom the consignments were despatched as shown in the road permits in form XXVIIIB. Further, the Revenue took the much higher figures shown in the road permits (and not the lower figures stated in the 539 bills) as representing the true value of the liquor and subjected the higher amount of road permits to the levy of Central Sales Tax. Furthermore, the declarations in form C with regard to the despatches in question issued by the party whom the petitioner claimed to be its real buyer were held irrelevant and in the absence of the declarations in form C by the parties to whom the despatches were actually made, the sales were held to be in favour of unregistered dealers and were subjected to Central Sales Tax at the much higher rate of @ 25%, as applicable in this State. 3. The petitioner M/s United Distillers Ltd. is a company registered under the Companies Act. It is engaged in the manufacture and sale of IMFL and it has its manufactory at Mirganj in the district of Gopalganj. It is stated on behalf of the petitioner that there is another company called Herbertsons Ltd. It carries on the business of marketing IMFL under various brand names owned by it e.g Bagpiper Whiskey, Bagpiper Gold, Honey Bee Brandy, Bee Hive etc. It is stated on behalf of the petitioner that there is another company called Herbertsons Ltd. It carries on the business of marketing IMFL under various brand names owned by it e.g Bagpiper Whiskey, Bagpiper Gold, Honey Bee Brandy, Bee Hive etc. Herbertsons Ltd. (HL) does not have any manufactory of its own. It gets IMFL manufactured by different manufacturers in the country under its brand names which are its registered trademarks and purchases the product from the manufacturers under agreements entered into for the purpose. On behalf of the petitioner, it is emphasised that the petitioner and HL are two independent, separate and distinct legal entities and even their respective Boards of Directors were never common and were always different. It is further stated that HL and the petitioner had entered into a written agreement in terms of which the petitioner would manufacture some of the HL brands of IMFL in Bihar. The manufactured liquor would be purchased by HL for the purpose of import into other States of the country. Some of the salient features of the agreement between the petitioner and HL are stated in the writ petition as follows: "(a) HL will purchase 3 lacs cases of IMFL per annum (20% plus/minus) (Clause 1) "(b) The supplies are to be made at mutually agreed intervals (Clause 2) "(c) UDL (the petitioner) is to despatch the goods directly to HL or to HLs nominees (Clause 3) "(d) Transit insurance is to be done by HL at its own cost (Clause 3) "(e) Purchase price of IMFL will be mutually settled between HL and UDL from time to time. (Clause 4) "(f) For all supplies of goods, whether supplied directly to HL or to HLs nominees, HL alone is responsible and liable to UDL for payment of the price thereof for which a grace period of 45 days has been allowed (Clause 5) "(g) The orders placed by HL on UDL is on principal to principal basis (as opposed to principal and agent) (Clause 6)" 4. On behalf of the petitioner, it is stated that during the year 1983-84, HL purchased IMFL manufactured by the petitioner in its brand names. Part of the liquor purchased by it was despatched directly to HL against import permits obtained by it in its name. On behalf of the petitioner, it is stated that during the year 1983-84, HL purchased IMFL manufactured by the petitioner in its brand names. Part of the liquor purchased by it was despatched directly to HL against import permits obtained by it in its name. But a large part of the liquor was despatched by the petitioner, as directed by HL in its indent -cum- proforma invoices, to its nominees to whom HL had agreed to sell the liquor purchased by it from the petitioner. The despatches that were made to HL directly were accepted by the Assessment Officer as sales to it but the despatches that were made to HLs nominees, following its directions were not accepted by the Assessment Officer as sales to HL but were held to be sales by the petitioner to the nominees who were further held to be unregistered dealers. 5. The writ petition also gives a description of the procedure followed in making despatches of liquor to the HLs nominees. 6. It is stated that the petitioner would receive from HL indent-cum-proforma-in-voices with necessary documents instructing it to despatch certain quantities of liquor (manufactured by it and purchased by HL in terms of the agreement) to different parties as indicated in the indent and to send the transporters receipts to HL, Bombay along with the petitioners sale invoices. As required by the Excise law, the different parties (to whom despatches were to be made as per HLs instructions) would obtain import permits in their respective names and send the permits to HL. HL would forward the import permits received from its customers to the petitioner. It is stressed that the petitioner did not receive any import permits directly from any of the HLs nominees/ customers. The import permits were always sent to HL and forwarded by it to the petitioner. On the basis of the import permits the petitioner would obtain the necessary documents from the Excise Department and the road permits for the movement of the liquor out of the State. The export permits and the road permits would naturally be obtained in the names of the parties as stated in the import permits. Further, the liquor would be booked to the destinations of HLs nominees showing the petitioner as the consignor and the HL as the consignee. The export permits and the road permits would naturally be obtained in the names of the parties as stated in the import permits. Further, the liquor would be booked to the destinations of HLs nominees showing the petitioner as the consignor and the HL as the consignee. The transporters receipts along with the petitioners sale invoices would be sent only to HL and never directly to the parties nominated by HL to whom the liquor were despatched as advised by HL. HL would then endorse the transporters receipts in favour of its nominees (the customers) and send the transporters receipts to them in cases where payments were received by it in advance from the customers. In cases where payments were not received, the transporters receipts were endorsed in favour of HLs bankers or to the parties concerned but those were sent only to the HL bankers for delivery to the parties concerned on payment of the liquor price by them. The parties in such cases would get the transporters receipts from the bankers after payment of the price and would take delivery of the liquor from the transporters by surrendering the transporters receipts. 7. In substance, the case of the petitioner was that the it sold the liquor manufactured by it to HL and the movement of the liquor from this State was occasioned as a result of its sale to HL, in terms of the agreement. The despatches were, however, made to different parties on the instructions of HL in a consequence of subequent sale of the liquor by HL to those different parties. According to the petitioner, therefore, the sale of liquor even in case of despatches that were made to different parties squarely fell under Sec. 3(a) of the Central Sales Tax Act and were fully covered by the declarations in form C issued by HL. 8. In its return for the year 1983-84, the petitioner showed a gross turnover of Rs. 3,91,56,977/- out of which sales in course of inter-State trade and commerce amounted to Rs. 3,62,13,354/-. The Assessment Officer found that the sales during the period in question were made under 644 bills. The despatches under 105 bills, amounting to Rs. 65,58,444/-, were made directly to HL/Mc. Dowell Co. Ltd. (MDL). 3,91,56,977/- out of which sales in course of inter-State trade and commerce amounted to Rs. 3,62,13,354/-. The Assessment Officer found that the sales during the period in question were made under 644 bills. The despatches under 105 bills, amounting to Rs. 65,58,444/-, were made directly to HL/Mc. Dowell Co. Ltd. (MDL). The road permits with regard to those bills were also taken out in the names of HL/MDL and the value of the consignment shown in the bills was exactly the same as stated in the corresponding road permits. The Assessment Officer, therefore, accepted those sales as inter-State sales to HL/MDL, subject to levy of Central Sales tax @ 4%. The trouble, however, arose with respect to the despatches under the remaining 539 bills. Out of those 539 bills, 533 bills were raised on HL and 6 bills were raised on MDL. Though, the bills were raised in the names of HL/MDL, the corresponding road permits in form XXVIIIB were obtained, on the basis of the import permits, in the names of different parties. Further, the value of the consignments as shown in the road permits was much higher than the value stated in the corresponding bills raised by the petitioner. The Assessment Officer found that the total value of liquor shown in the 539 bills amounted to Rs. 2,99,57,866.64 paise but the value of the same liquor as stated in the road permits in Form XXVIIIB added upto Rs. 5,88,38,204.11 paise. Thus, there was a difference of Rs. 2,88.80,337.47 paise on which, according to the Assessment Officer, Central Sales Tax was evaded. On behalf of the petitioner, the explanation was given that the value shown in its bills was the price of the liquor charged by the petitioner from HL in terms of the written agreement whereas the value shown in the road permits was actually the price for which the liquor was sold by HL to the different parties. It was emphasised that the petitioner received from HL only the amounts of money as shown in its bills raised on HL and not the amounts stated in the road permits. The Assessment Officer, however, rejected the petitioners case. It was emphasised that the petitioner received from HL only the amounts of money as shown in its bills raised on HL and not the amounts stated in the road permits. The Assessment Officer, however, rejected the petitioners case. Referring heavily to the provisions of the Excise Act and the Rules, he pointed out that the movement of the liquor can only take place on production of import permit from the importing State and on payment of excise duty and issuance of other statutory documents e.g. road permit in form XXVIIIB under the Bihar Finance Act. All those documents invariably stating the name of the party to whom the liquor was to be exported on being taken out of the warehouse and following its movement outside the State. He, accordingly, found and held that the despatches under the 539 bills represented inter-State sales not to HL but to the different parties whose names were shown in the import permits, export permits, road permits etc. The agreement with the and other papers concerning HL and MDL were brought into existence with the intention to evade payment of Central Sales Tax. 9. In revision the Tribunal affirmed the order passed by the Assessment Officer. It upheld the findings of the Assessment Officer substantially for the same reason as given in the assessment order. On the basis of the parties contention the Tribunal framed a number of issues. Issues (i), (vi) and (viii) that had a direct bearing on the controversy were as follows: (i) Whether the petitioner/U.D.L has sold goods to H.L.? (vi) Whether U.D.L. has sold goods to the customers? (viii) Whether two sales are involved? 10. The Tribunal answered all the issues against the petitioner and in favour of the Revenue. It held that the despatches made by the petitioner under the 539 bills to different parties did not involve two sales but only one sale and that sale was not between the petitioner and HL but between the petitioner and the different paries to whom the liquor were actually sent. The Tribunal extensively referred to the provisions of rules 8 and 11A-18 of the Bihar Excise Rules that contain provisions regulating the movement and export of IMFL from Bihar to other States. It then referred to Sec. 3 of the Central Sales Tax Act. The Tribunal extensively referred to the provisions of rules 8 and 11A-18 of the Bihar Excise Rules that contain provisions regulating the movement and export of IMFL from Bihar to other States. It then referred to Sec. 3 of the Central Sales Tax Act. On a conjoint reading of the provisions of the Excise Rules and Sec. 3 of the Central Sales Tax Act, it found and held that the despatches under the 539 bills constituted sale by the petitioner not to HL but directly to the different parties to whom the despatches were made. 11. Mr. K. N. Jain, Senior Advocate appearing for the petitioner submitted that the Tribunals order suffered from two basic and fundamental errors. One, it mixed up the incidence of sale with the movement of the sold goods and two, it badly misconstrued the provisions of Sec. 3(a) of the Central Sales Tax Act. Mr. Jain submitted that the two incidences of sale of goods and the movement of goods were completely different and separate from each other. The provisions of the Excise Rules, heavily relied on by the Tribunal, regulated export and the movement of IMFL with a view to securing the excise duty on IMFL before its movement or removal from the bonded warehouse. The provisions of the excise rules had got nothing to do with the sale of liquor by the manufacturer to anyone. Further, no provision in the Excise Act or the Rules framed thereunder prohibited the sale of liquor by its manfacturer to someone but the actual export/despatch of the sold liquor to another person as per the instructions of the buyer. Learned Counsel submitted that the issue was specifically raised before the Tribunal but it misled itself into error due to misconstruction of Section 3(a) of the Central Sales Tax Act. He referred to paragraph 18 of the Tribunals judgment where this issue raised by the petitioner is discussed. 18. The learned Counsel for the petitioner argued that the aforesaid provisions of Excise Rules only govern the movements of the I.M.F.L. and the prohibitions are in respect of movements only and that such prohibitions on movement of the I.M.F.L. cannot stop a sale transaction of these commodities. 18. The learned Counsel for the petitioner argued that the aforesaid provisions of Excise Rules only govern the movements of the I.M.F.L. and the prohibitions are in respect of movements only and that such prohibitions on movement of the I.M.F.L. cannot stop a sale transaction of these commodities. No doubt, a sale can take place and title to the goods purchased may pass at the place where goods are kept at the time of sale and the goods may be subsequently moved away. Certainly this could have happened in the present case also when sale of the goods (I.M.F.L.) had been claimed within the premises of the petitioner/ U.D.L. but that would have become a case of local sale or interstate sale which is not at all the case of the petitioner. An inter-state sale takes place only at the movement when the goods are handed over to the transporter and TR is obtained in the name of the purchaser. For handing over the goods for onward transmission, removal of the goods (IMFL) from sellers premises (the petitioner/UDL in this case) to the transporters premises is necessary and for this removal or movement of the goods, purchasers import permit and sellers export permit and transport pass are required due to the prohibition on the movement of these goods (IMFL) under Excise Law in absence of import and export permit and transport pass. Thus the removal of the goods (IMFL) to the transporters premises for jts; book- ing there, is an integral part- or necessary element to the constitution of interstate sale and it must happen independently but in the present case it is not so happening. 12. Mr. Jain referred to paragraph 13 of the Tribunals judgment where the following observation is made with regard to Section 3 (a) of the Central Sales Tax Act. 13. The perusal of Sec. 3 (a) of the Central Sales Tax Act shows that an inter-state sale takes place when the sale is effected by handing over the goods to the transporter for being carried to the purchser and when after handing over the goods TR is obtained in the name of the purchaser 13. He also referred to paragraph 17 where similar observations are made with regard to Sec. 3(a) of the Central Sales Tax Act. Paragraph 17 reads as follows: 17. He also referred to paragraph 17 where similar observations are made with regard to Sec. 3(a) of the Central Sales Tax Act. Paragraph 17 reads as follows: 17. As already stated the sales u/s 3(a) and 3 (b) of the CST Act are quite independent and separate. So a Sale u/s 3 (a) CST Act has to take place on its own independent elements. The import permit obtained by the customers and the concerned export permit and transport pass could be relevant between the HL or MDL and the customers only when a sale u/s 3(b) CST between them is claimed. These permits and passes are not relevant between the HL or MDL and the petitioner/ UDL when inter-state sale between them is being claimed under sec. 3(a) CST Act. As a sale under sec. 3(a) CST takes place when goods are handed over to the transporter and TR is raised in the name of the purchaser it is necessary that goods are removed from the manufacturer i.e. the petitioner/ UDLs premises to the transporters premises. But this cannot happen because the HL or MDL had no import permit or the relevant export permit and transport pass for the removal of the goods from the petitioner/UDLs premises to the transporters premises. 14. Mr. Jain submitted that the afore- quoted passages from the judgment of the Tribunal clearly show that it had failed to grasp the true meaning and scope of Sec. 3 (a) of the Central Sales Tax Act. 15. Sec. 3 of the Central Sales Tax Act reads as follows: 3. When is sale or purchase of goods said to take place in the course of inter-state trade or commerce-A sale or purchase of goods shall be deemed to take place in the course of inter-state trade or commerce if the sale or pur-chase- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. 16. Mr. Jain submitted that all that is required for a sale to fall under Sec. 3 (a) of the Act is that it should occasion the movement of goods from one State to another. 16. Mr. Jain submitted that all that is required for a sale to fall under Sec. 3 (a) of the Act is that it should occasion the movement of goods from one State to another. In case the movement (that is removal from the warehouse and export of liquor) from Bihar to another State was stringently regulated by the provisions of the Excise Rules that would have no bearing on the sale of the liquor and that sale being the cause to occasion the liquors movement from one State to another. Mr. Jain pointed out that Sec. 3 (a) of the Act never envisaged that the sale would take place when goods were handed over to the transporter and the transporters receipt was raised in the name of the purchaser as wrongly assumed by the Tribunal. 17. Mr. Purnendu Singh, JC to the AG representing the State tried to defend the stand of the Revenue with reference to the order passed by the Assessment Officer. He referred to certain portions of the assessment order. 18. In my view, the Tribunals order can not be defended with reference to any observations or findings made in the original assessment order. The Tribunals judgment must stand on its own legs. I am also inclined to accept Mr. Jains submission that the Tribunals judgment betrays a patent misunderstanding of the provisions of Section 3 of the Central Sales Tax Act. The error is fundamental to the issue and it renders the Tribunals judgment unsustainable. 19. In my view, therefore, the matter requires a re-consideration by the Tribunal in light of a proper application of Section 3(a) of the Central Sales Tax Act to the facts of the case. Hence, without expressing any opinion on the rival contentions the Tribunals judgment and order, dated 28.12.1999 is set aside and the case is remitted to it for passing a fresh order in accordance with law after giving the parties an opportunity of hearing. 20. In the result, this writ petition is allowed but with no order as to costs. REKHA KUMARI, J. 21 I agree.