COMMISSIONER OF CENTRAL EXCISE, LUCKNOW, U.P. v. M-S. CHHATA SUGAR CO. LTD

Citation: [2004] 2 S.C.R. 790

Court: Supreme Court of India

Bench: V.N. KHARE, S.B. SINHA, S.H. KAPADIA

Case summary

COMMISSIONER OF CENTRAL EXCISE, LUCKNOW, U.P. v. M-S. CHHATA SUGAR CO. LTD.pdf

Judgment text

e COMMISSIONER OF CENTRAL EXCISE, LUCKNOW, U. P. v. MIS. CHHA TA SUGAR CO. LTD. FEBRUARY 27, 2004 [V. N. KHARE CJ. , S. B. SINHA AND S. H. KAPADIA, JJ. ] Central Excise Act, 1944-Section 4, 4(/)(a), 4(4)(d)(ii)-U. P. Sheera Niyantran Adhiniyam, 1964-Section 8(4), (5) and section JO-Assessable value of molasses for purposes of levy of excise duty-Determination of~ Whether administrative charges collected by sugar fact01y from buyers on behalfofState Government for molasses sold, duty or impost in the nature of tax and as such includible or not includible in the value ofmolasses-Held: Administrative charges levied, is in addition to and separate from the statutory price ofmolassesfixed wider section 10 ofUP. Act, which is the normal price under section 4(/)(a) of 1944 Act-It never formed part of normal price as such cannot come within the ambit of assessable value-Further applying various tests levy of administrative charge is i!

J nature of tax and n --- charges payable by the assessee under section 8 (4) of the U. P. Act are to be included while determining "value" of goods for the purposes of assessment under the Act. We have analysed both the Acts earlier. Briefly it may be mentioned that section 3(1) of the Act is a charging section which creates the liability to pay the excise duty on the goods produced as manufactured in India and the said sub-section indicates the nature and character of the duty' viz. that it is a tax on production and manufacture of goods, while section 4 of the Act is a machinery provision and therefore meant to worry out the basic concept of excise duty. Section 4 of the Act provides for determination of value for the purpose of charging the excise duty under the Act. However, the valuation is based on the price thereof, that is to say, the price at which the excisable goods are ordinarily sold by the manufacturer to a buyer. In the case of Union ofIndia and Ors. etc. v.

Bombay Tyre International Ltd. and etc. , :-eported in AIR [1984] SC 420, it was inter alia held that under the Act while the levy is on the manufacture or production of goods, the stage of collection need not in point of time tally with the completion of the manufacturing process, that while the levy has the status of a constitutional concept, the point of collection is located where the Act declares it will be and that where the excise duty is levied on advoloram basis the value on which such duty is levied is a "conceptual value". This judgement of the Apex Court is relevant for two reasons. Firstly, it lays down that levy under the Act has the status of a constitutional concept. Therefore, we do not find merit in the argument of the learned Attorney General that the definition of the word "taxation" in Article 366(28) cannot be read into the words "other taxes" under section 4(4)(d)(ii) of the Act.

Secondly, it lays down that an article becomes an object of assessment when it is sold by the manufacturer but that circumstance does not detract from its true nature that it is a levy on the fact of manufacture. Hence, the judgment of this Court in the case of Union ofIndia v. Bombay Tyer International (supra) gives us an insight into the connotation of the words "other taxes" in section 4(4)(d)(ii) of the Act. Further, Section 4(l)(a) of the Act shows that the assessable value of an article is based on the normal price, which is the price at which excisable goods are ordinarily sold by the assessee to the buyer in the course ofwholesale trade. In this case, we are concerned with the provisions of the Act as it stood at the relevant time. It is to be noted that taxes are one of the items of deduction from the normal price to arrive at the assessable value.

A normal price under section 4(l)(a) ofthe Act includes numerous cost factors including taxes and therefore, under section 4(4)(d)(ii) the legislature has provided for - express deduction of taxes from the normal price to arrive at the assessable value. However, the normal price may vary under the three situations mentioned in the three provisos to section 4(1 )(a) of the Act. Under the second proviso to section 4(l)(a), which applies to facts of this case, the nonnal price is the statutory price fixed under any law for the time being in force or at a price, being the maximum, fixed under such law, which in the present case is the U. P. Act. Under section 10 of the U. P. Act the sugar factory has to sell molasses at the prescribed price. The said price is the \_ maximum price fixed by the Controller under section 8 of the U. P. Act. Under section 8(5) of the U. P.

Act, however, administrative charges are levied in addition to the price of molasses which the buyer has to pay to the sugar factory (producer). Therefore, these administrative charges are distinct, separate and in addition to the price of the molasses, which price is the statutory price fixed under section IO of the U. P. Act and which consequently is the normal price under section 4(1 )(a) of the Act. Under the second proviso to section 4(1 )(a) of the Act the nonnal price which is the assessable value is the statutory price and since the statutory price under the U. P. Act does not include administrative charges there is no question of deducting these administrative charges from the normal price to arrive at the assessable value in terms of section 4(4)(d)(ii) of the Act. Hence, there is no merit in the contention advanced on behalf of the revenue that administrative charges payable by the assessee under section 8(4) of the U. P.

Act are includible while detennining "value" of goods for the purposes of assessment under the Act. The matter can also be looked at from a conceptual angle. An assessee under the Act incurs expenses in the course of manufacture of goods, which includes taxes. The concept of price covers cost plus profit plus taxes. -= Therefore, under section 4(l)(a) ifthe nonnal price includes taxes, See (1978] 4 SCC 271, they have to be deducted. But if an item of. expenditure or cost does not fall in the nonnal price, there is no question of deduction of that item from such a price as such a component never fonned part of the nonnal price in the first instance and, therefore, it cannot come within the ambit of assessable value under section 4(l)(a) of the Act. On this very point, this matter stands· concluded. 12. However, as stated above, in these civil appeals, we are required to decide the true purport of the words "other taxes" in section 4(4)(d)(ii) of the Act.

It is argued on behalf of the Department that administrative charges levied on the sugar factory under the U. P. Act do not fall within the words "other taxes'', that while construing the said expression under section 4(4)(d)(ii) of the Act, one cannot take the assistance of the word "taxation" as defined in Article 366(28) of the Constitution and consequently, the judgment of the Division Bench of this Court in the case of Commissioner of Central excise v. Kisan Sahkari Chinni Mills Ltd. (supra) needs reconsideration. We may repeat that in our view, administrative charges under the U. P. Act do not enter assessable value under section 4(1 )(a) of the Act. However, even assuming for the sake of argument that administrative charges fonn part of the assessable value, even then such charges are in the nature of tax and, therefore, excludible in terms of section 4(4)(d)(ii) of the Act for reasons mentioned hereinafter. 13.

Before dealing with the foregoing issue, it may be noted that in this case we are concerned with identification of the nature of levy ofadministrative charges under section 8(4) and section 8(5) of the U. P. Act. As stated above, the U. P. Act has been enacted with the object of regulating supply and equal distribution of molasses to distilleries and other industrial establishment. Under section 8(4) of the U. P. Act, every sugar factory is made liable to pay to the Government administrative charges at the specified rate on sale or supply of molasses to the distillery. Under section 8(5), every sugar factory is entitled to recover from the buyer administrative charges in addition to the prices of molasses. Under section 10(1) of the U. P. Act, the sugar factory has to sell molasses at a price not exceeding that prescribed in the Schedule. Therefore, the levy of administrative charges is1 on production for sale of molasses. In the case of Mis. Chotabhai Jethabhai Patel and Co. etc. v.

Union ofIndia and Anr. etc. reported in AIR (. 1962) SC 1006, the question before this Court was the nature and character of the duty of excise. It was held that the duty of excise was a tax or duty not intended by the taxing authority to be borne . by the person on whom it is imposed and from whom it is collected but it is intended to be passed on to those who purchased the goods on which the duty was collected. That excise duty is a tax as it is imposed in respect of some dealing with the commodities, such as their import or sale, or production for sale. It has been further held that going by the general tendency of a tax, it is capable of being passed on to the consumer or the buyer.

In our view, the above test is important because a tax is capable of being passed on to the consumer or the buyer whereas a fee is a counterpayment by the buyer who receives the benefit of the services for which he is charged and such fees are not capable of being passed on as fees to the consumer or the buyer. The above point of distinction is applicable to the facts of this case. ln the present matter, as stated above levy of administrative charges under section 8(4) of the U. P. Act is on the producer of molasses; it is imposed on production of molasses for sale and under section 8(5) the same is passed on to the buyer- distillery. In the circumstances, levy of administrative charges under the U. P. Act is a tax. There is one more circumstances which indicates that the levy of administrative charges under the U. P. Act is a tax. In the case of Mathews v.

The Chicory Marketing Board (Victoria), reported in (1938] 60 Commonwealth Law Reports 263, it has been held that customs and excise duties are indirect taxes as they are additions ofdefinite amounts to the prices I at which the goods upon which they are imposed are, in the ordinary course \....... __ of business, sold by persons who have paid the duties. This test is also applicable to the present case. Under Section 8(5) of the U. P. Act, administrative charges is in addition to the price at which goods are sold in the ordinary course of business by the sugar factory (producer of molasses). Moreover, the predominant object of the U. P. Act is to maximize the revenue by way oftax while regulating storage and supply of molasses. The beneficiary under the said Act is the distillery. It is the distillery which provides important source of revenue to the State. In our view, the said levy of administrative charges is in nature of tax. 14. We can look at the problem from another viewpoint.

One of the test to decide whether a levy is a tax or fee is that while tax is a compulsory exaction, fee relates . to the principle of quid pro quo. This test can usefully be applied to the facts of the present case. As stated above, the beneficiary of the U. P. Act is the distillery (buyer). All regulatory measures are for the benefit of the buyer. The sugar factory is merely a collecting agent of administrative charges for the State Government. The administrative charge is not a component of the consideration received by the sugar factory. This is clear from the provisions of Section 8(5) which state that the administrative -charges shall be collected in addition to the price of the molasses from the buyer-distillery. The said administrative charges do not form part of the revenue of the sugar factory. The said administrative charges cannot be appropriated to the revenue account of the sugar factory.

Therefore, there is no element of quid pro quo as far as the administrative charges in the hands of the sugar factory are concerned. On the other hand, under section 8(4) of the U. P. Act read with Rule 23 0f the said U. P. Rules, every sugar factory is required to deposit administrative charges on the molasses sold/supplied before actual delivery to the distillery (buyer), which brings in the principle of compulsory exaction. Hence, administrative charge under the U. P. Act is a tax and not a fee. 15. We have decided this case in the light of the scheme of the U. P. Act and the Rules framed thereunder and, therefore, it is not necessary to C. C. E. v. CHHATA SUGAR CO. LTD. [SINHA, J. ] 811 examine numerous judgments cited at the bar on the question of difference between the tax and fee. Ultimately, each matter will have to be decided in the light of the provisions of the statute in question.

We are, therefore, in agreement with the view expressed in the case of Commissioner ~j Ce~tral Excise, Meerut v. Kisan Sahkari Chinni Mills Ltd. (supra) , For the above reasons, all the civil appeals herein stand dismisses with no order with no order as to costs. S. B. SINHA, J. 'Taxation' is defined in clause (28) of Article 366 of the Constitution of India to mean : "taxation" includes the imposition of any tax or impost, whether general or local or special, and "tax" shall be construed accordingly;" The Constitution of India postulates either a tax or a fee. However, the use of expression 'tax' or 'fee' in a statute is not decisive; as on a proper construction thereof and having regard to its scope and purport, 'fee' may also be held to be a tax. The definition of 'tax' in terms of Clause (28) of Article 366 of the Constitution is wide in nature.

The said definition may be for the purpose of the Constitution; but it must be borne in mind that the legislative competence conferred upon the State Legislature or the Parliament to impose 'tax' or 'fee' having been enumerated in different entries in the three lists contained in the Seventh Schedule ofthe Constitution of India, the same meaning of the expression "tax" unless the context otherwise requires, should be assigned. Having regard to the fact that different legislative entries have been made providing for imposition of 'tax' and 'fee' separately, indisputably the said expressions do not carry the same meaning. Thus, a distinction between a tax and fee exists and the same while interpreting a statute has to be borne in mind. A distinction must furthermore be borne in mind as regard the sovereign power of the State as understood in India and the doctrine of Police Power as prevailing h1 the United States ofAmerica.

In some jurisdictions a distinction ~ay exist between a police power and a power to tax but as in the Constitution . of India, the word 'tax' is defined, it has to be interpreted accordingly. The expression 'regulatory fee' is not defined. Fee, therefore, may be held to be a tax if no service is rendered. While imposing a regulatory fee, although the element of quid pro quo, as understood in common parlance, may not exist but it is trite that regulatory fee may be in effect and substance a tax. [See The Corporation of Calcutta and Anr. v. Liberty Cinema, AIR (1965) SC 1107. In Municipal Corporation, Amritsar v. The Senior Superintendent of Post Offices, Amritsar Division and Anr. , JT (2004) l SC 561, it was held: "The question, whether the demand so made was by way of 'service charge' or 'tax' need not detain us any longer.

The demand so made was with regard to the services rendered to the respondents' department, like water supply, street lighting, drainage and approach roads to the land and buildings. In the counter, the respondents averred that they are paying for the services rendered by the appeilant- Corporation by way of waterand sewerage charges and power charges separately. It is also categorically averred that no other specific services are being provided to the respondents for which the tax in the shape of service charges can be levied and realized from the respondents. There is no provision in the Municipal Corporation Act for levying services charges. The only provision is by way of tax. Undisputedly, the appellant-Corporation is collecting the tax from general public for water supply, street lighting and approach roads etc. Thus, the 'tax' was sought to be imposed in the garb of 'service charges...

" We may furthermore notice that a seven-Judge B~mch of this Court in Synthetics and Chemicals Ltd. and Ors. v. State of UP. and Ors. , [1990] l sec 109, while considering the question as to whet'1er the levy on industrial alcohol by the State is justifiable, inter alia, held that when revenue earned out of the impost is substantial, the same would not be justifiable as fee. In Liberty Cinema (supra), this Court, while interpreting Section 548 of the Calcutta Municipal Act providing for grant of a licence, observed : "... The reference to the heading of Part V can at most indicate that the provisions in it were for conferring benefit on the public at large. The cinema house owners paying the levy would not as such owners be getting that benefit. We are not concerned with the benefit, if any, received by them as members of the public for that is not special benefit meant for them.

We are clear in our mind that if looking at the terms ofthe provision authorising the levy, it appears that it is not for special services rendered to the person on whom the levy is C. C. E. v. CHHATA SUGAR CO. LTD. [SINHA, J. ] 813 • imposed, it cannot be a fee wherever it may be placed in the statute. A consideration of where Ss. 443 and 548 are placed in the Act is irrelevant for determining whether the levy imposed by tnem is a fee or a tax. " It was further observed : "19. The last argument in this connectio:ri w! :'! sh we have to notice was based on Ss. 126 and 127 of the Act. Section 126 deals with the preparation by the Chief Executive Officer of the Corporation called Commissioner, of the annual budget. The budget has to include an estimate of receipts from all sources. These receipts would obviously include taxes, fees, licence fees and rents. Under S.

127(3) the --- Corporation has to pass this budget and to determine, subject to Part IV of the Act, the levy of consolidated rates and taxes at such rates as are necessary to provide for the purposes mentioned in sub-section (4). Sub-section (4) requires the Corporation to make adequate and suitable provision for such services as may be required for the fulfillment of the several duties imposed by the Act and for certain other things to which it is not necessary to refer. The first point made was that these sections showed that the Act made a distin'<tion between fees and taxes. It does not seem. to us that anything turns on this as the only question now is whether the levy under S. 548 is a fee. The other point was that clauses (3) and (4) of Section 127 showed that the Corporation could fix the consolidated rates and taxes and that the determination of rates for these had to be in accordance with the needs for carrying out the Corporation's duties under the Act.

It was said that as the licence fee leviable under Section 548 did not relate to any duty of the Corporation under the Act, it being optional for the Corporation to impose terms for grant of licences for cinema houses, ---/ the rate for that fee was not to be fixed in reference to anything except rendering of services. We are unable to accept this argument and it is enough to say in regard to it that it is not right that Section 443 does not impose a duty on the Corporation. We think it does so, though in what manner and when it will be exercised it is for the Corporation to decide. It is impossible to call it a power, as the respondent wants to do, for it is not given to the Corporation for its own benefit. The Corporation has been set up only to perform municipal duties and its powers are for enabling it to perform those duties.

Furthermore there is no doubt that an estimate of the licence fee has to be included in the budget and therefore the word 'tax' in Section 127(3) must be deemed to include the levy under Section 548. The words "subject to the provisions of Part IV" in Section 127(3) must be read with the addition of the words "where applicable".. 20. The conclusion to which we then arrive is that the levy under S. 548 is not a fee as the Act does not provide for any services of special kind being rendered resulting in benefits to the person on whom it is imposed. The work of inspection done by the Corporation ·-which is only to see that the terms of the licence are observed by the licencee is not a service to him. No question here arises of correlating the amount of the levy to the costs of any service. The levy is a tax. It is not disputed, it may be stated, that if the levy is not a fee, it must be a tax. " A regulatory statute may also contain taxing provisions.

The decisions of this Court point out towards the need of existence of the element ofquidpro quo for imposition of fee; be it to the person concerned or be it to a group to which he belongs; irrespective of the fact as to whether the benefit of such service is received directly or indirectly. The point at issue is required to be considered keeping in view the aforementioned legal position. By reason of the provisions of the U. P. Sheera Niyantran Adhiniyam, I964 (hereinafter referred to as 'the UP Act'), the trade carried out by the respondents is sought to be regulated. Some service, therefore, was required to be rendered by the State or the statutory authority to the owners of the factory producing molasses or the molasses industries generally if an impost by way of 'fee' was to be levied. A Constitution Bench of this Court in The State of West Bengal v. Kesoram lndusries Ltd. and Ors.

, (2004) I SCALE 425 referring to Synthetics and Chemicals (supra), observed : "It may be seen that the power to levy sales tax on industrial alcohol was available to the State but for the provisions of the Ethyl Alcohol (Price Control) Orders on account of which the State could not charge sales tax on industrial alcohol. The State could levy any fee based on quid pro quo... " [Emphasis supplied] C. C. E. v. CHHATA SUGAR CO. LTD. [SINHA, J. ] 815 In the aforementioned case, it was observed by one of us : "In ascertaining the subject matter, or the scope or purpose of the legislation, the Court is entitled to give due regard to its economic effect. (See The King v. Barger, (1908) 6 CLR 41 and Attorrzey- General for Alberta v. Attorney General for Canada, (1939) AC at pp. 130-132). The aforementioned decisions have been referred to in The S(ate of South Australia and Anr. v. The Commonwealth and Anr. , (1942) 65 C. L. R. 373. Excise duty is considered to be an indirect tax.

The Supreme Court of United States in Hylton, Plaintiff in Error v. The United States, US SCR 1 Law. Ed. Dallas 169, observed : "The term taxes, is generical, and was made use ofto vest in Congress plenary authority in all cases of taxation. The general division of taxes is into direct and indirect. Although the latter term is not to be found in the constitution, yet the former necessarily implies it. Indirect stands opposed to direct. There may, perhaps, be an indirect tax on a particular article, that cannot be comprehended within the description of duties, or imposts, or excises, in such case it will be comprised under the general denomination of taxes. For the term tax is the genus, and includes, 1. Direct taxes. 2. Duties, imposts, and excises. 3. All other classes of an indirect kind, and not within any of the classifications enumerated under the preceding heads. " We may notice that the validity of U. P.

Act came to be considered by a Full Bench of the Allahabad High Court in Mis. Shriram Industrial Enterprises Ltd v. The Union of India and Ors. , AIR (1996) (Allahabad) 135, wherein one of us V. N. Khare, J (as the Hon'ble Chief Justice of India then was) speaking for tht! Bench upheld the vires thereof, inter alia, on the ground that the same has been enacted in terms of Entry 33, List III of the Constitution of India. The said Act is, therefore, held to be regulatory in nature. When a statute deals with an essential commodity in terms whereof the price of a commodity is fixed thereunder, the sale price must be determined having regard to the price fixed under the statute and any other sum. [See Neyvelilignite Corporation Ltd. v. Commercial Tax Officer, Cuddalore and Anr. , [2001) 9 SCC 648 and Commissioner ofCentral Excise, Delhi v. Maruti Udyog Ltd. , [2002) 3 SCC 547. The administrative charges payable by the buyer under the U. P.

Act, thus, being in addition to the sale price, the same cannot be a fee. Furthermore, one of the tests for determining as to whether the impost is a 'tax' or 'fee' would, in my opinion, be whether the burden can be passed to the end user. Under the State Act, the same is permissible. A 'fee' in a situation of this nature cannot be passed on to the end user, a 'tax' can be. In any event regulatory fee imposed for the purpose of regulating the industry producing molasses, in my opinion, cannot be passed on to the buyers as they are not subjected to any regulation under the Act. The nature of impost is such that burden thereof is to be borne by the buyers and the respondents herein are merely the agents for collecting the same on behalf of the State. The impost, therefore, cannot be termed as a 'fee' so as to deprive the respondents of the benefit of deduction of the tax for the purpose of Section 4(4)(d)(ii) of the Central Excise Act, 1944.

We may also notice that in terms of rule Rule 23 of the UP Sheera Niyantaran Niyamawali, 1974, the occupier of a sugar factory is obligated to deposit the administrative charges even prior to delivery of molasses and recovery thereof from the buyers. The impost levied in terms of the said Act must, thus, be held to be a special tax applicable to a section of the people, namely, buyers of molasses. In this Case, this Court is not concerned with the validity or otherwise of the impost, in which event only the question as to whether the same has sufficient constitutional protection or not whether viewed as a tax or fee or either; was required to be considered as was the case in Gasket Radiators Pvt. Ltd. v. Employees' State Insurance Corporation and Anr. , [1985] 2 SCC 68. We may also notice a decision of this Court in Tata Iron and Steel Co-:- Ltd v. Collector ofCentral Excise, Jamshedpur. , [2002] 8 SCC 338, wherein a Bench of this Court distinguished C. C. E. v.

Kisan Sahakari Chinni Mills Ltd, [2001) 6 SCC 697 holding that the impost impugned therein did not have a backing of a statutory provision and, thus, would not be a tax. But it was clearly held that the same would be so if the levy is imposed by any C. C. E. v. CHHATA SUGAR CO. LTD. [SINHA, J. ] 817 central or State legislature or any statutory authority. The principles enunciated A in Kisan Sahakari Chinni Mills Ltd. (supra) was, therefore, not deviated from. Therefore, in agreement with the judgment and order proposed to be delivered by Brother Kapadia, J. , I am also of the opinion that Kisan Sahakari Chinni Mills Ltd. (supra) lays down the correct law. B N. J. Appeals dismissed. -