Deputy Narcotics Commissioner vs Trade Tax Tribunal Bench-III

Satish Chandra J.

All the present revisions are the cross-revisions filed by the assessee (Deputy Narcotics Commissioner) as well as by the Department against the different judgments/orders passed by the Trade Tax Tribunal, Lucknow, for the assessment years mentioned above. The brief facts of the revisions are that the assessee is a Department of the Central Government who is engaged in the manufacturing and sale of drugs. Opium is a raw material for manufacturing of various drugs. So, opium is cultivated by the farmers on behalf of the Central Government and for such cultivation, a licence is granted by the Central Government through Narcotics Commissioner to various cultivators. It is also claimed that each and every opium poppy is accounted for on account of the Central Government. For violation of the direction or selling the opium to another person is a punishable offence against the cultivator. Thus, the cultivator has no right over the opium. It is claimed by the Department that there is no sale or purchase activity. Thus, cultivators are handing over the opium exclusively to the assessee, i.e., Narcotic Department. So, there is no question of sale or levy of the tax, but the Trade Tax Department has levied the tax as well as charged the interest.

Earlier, these revisions have come up before this court and this court vide order dated September 7, 2009 referred the matter to the High Power Committee by observing that the dispute is between the Departments of the Central Government and the State Government. It is reported by both the counsel for the parties that the High Power Committee failed to resolve the dispute. So, the recall applications have been filed along with the applications for condonation of delay.

In view of above, the applications are allowed. The order dated September 7, 2009 is recalled. Delay is condoned and the matter is hereby decided on merit.

On merits

I. Sri R.S. Chitravanshi, learned counsel for the Narcotic Department submitted that the assessee is a Department of the Central Government, who is exclusively owner of the crop of the opium as per the contract with the cultivators. The Narcotic Department granted a licence to each and every cultivator to grow the opium on behalf of the assessee. Thus, the Department is the owner of the crop. So, there is no question of "sale of opium" by the cultivator to the Department. However, he admitted that the sale of the opium is taxable item as per the judgment passed by the honourable Supreme Court in the case of Civil Appeal No. 4354 of 2000 dated September 28, 2005, Union of India v. Sales Tax Officer, Ghazipur. He also relied on the ratio laid down in the case of Board of Revenue and Others Vs. A.M. Ansari and Others, . But he submits that the honourable Supreme Court did not discuss the licence part. So, the judgment of the case is not applicable in the instant case.

On the other hand, Sri H. P. Srivastava, learned Additional Chief Standing Counsel submits that the honourable'' Supreme Court has observed in the above-mentioned case that the sale of the opium to the Narcotic Department is taxable item. For this purpose, the honourable Supreme Court has discussed the ratio laid down in the case of Vishnu Agencies (Pvt.) Ltd. Vs. Commercial Tax Officer and Others, , where the majority views observed that (page 63 in 42 STC):

The conclusion which therefore emerges is that the transactions between the appellant, M/s. Vishnu Agencies (Pvt.) Ltd., and the allottees are sales within the meaning of section 2(g) of the Bengal Finance (Sales Tax Act), 1941. For the same reasons, transactions between the growers and procuring agents as also those between the rice-millers on the one hand and the wholesalers or retailers on the other are sales within the meaning of section 2(n) of the Andhra Pradesh General Sales Tax Act, 1957. The turnover is accordingly exigible to sales tax or purchase tax as the case may be.

It was also observed by the honourable Supreme Court in para 53, which reads as under (page 38 in 42 STC):

The difficulty arises from the fact that, although the ingredients of a ''sale'', as defined in Benjamin''s Treatise on ''sale'', may seem to be satisfied even if delivery of goods is in obedience to an order to deliver them for a consideration, fixed or to be fixed, if we stretch mutual assent to cover assent resulting from orders given, yet, it is difficult to see how such a transaction would be based on a contractual tie. According to section 4(3) of our Sale of Goods Act, a sale results only from a contract which presupposes a minimal area of freedom of choice where the ordinary mechanism of proposal and acceptance operates.

The learned counsel also relied on the ratio laid down in the case of Coffee Board, Karnataka, Bangalore Vs. Commissioner of Commercial Taxes, Karnataka and Others, , where it was observed by the honourable apex court that (pages 197 and 198 in 70 STC):

The coffee growers being agriculturists are not dealers and therefore are not liable to pay any sales tax or purchase tax, it was submitted. The demand for purchase tax is in effect a demand on the growers who were exempt from such levy, as the monies required for paying the tax if the same is lawful has necessarily to come out of the monies otherwise payable to the growers. The object of the pool marketing system is not to deprive the growers of a fair compensation for their produce by making them suffer a tax which they would not otherwise be required to suffer. An analysis of the different provisions of the Coffee Act makes it clear that there was no sale to attract exigibility to duty, it was submitted. We are unable to accept these submissions. Section 6 of the Karnataka Sales Tax Act, 1957, meets the situation created by such circumstances. This was examined by this court in The State of Tamil Nadu Vs. M.K. Kandaswami and Others, which examined section 7A of the Tamil Nadu General Sales Tax Act, 1959, which was in pari materia with section 6 of the Karnataka Sales Tax Act. In that view of the matter section 6 of the Karnataka Act would be attracted.

The alternative submission of the appellant was that the Coffee Board was a trustee or agent of the growers. We are unable to accept this submission either. There is no trust created in the scheme of the Act in the Coffee Board; it is a statutory obligation imposed on the Coffee Board and does not make it a trustee in any event. It is also not possible to accept the submission that the Central Sales Tax Act will not be applicable to any sale by the Coffee Board because it was an export sale by the Coffee Board. In Consolidated Coffee Ltd. and Another Vs. Coffee Board, Bangalore, , it has been held that there must be a prior agreement at the time when the transaction of sale takes place. No such prior agreement existed in this case.

In New India Sugar Mills Ltd. Vs. Commissioner of Sales Tax, Bihar, , Hidayatullah, J. as the Chief Justice then was, observed that so long as the parties trade under controls at fixed price and accept these as any other law of the realm because they must be deemed to have contracted at a fixed price both sides having or deemed to have agreed to such price. Consent under the law of contract need not be expressed, it can be implied. This is the position under the scheme of the Coffee Act. It has to be emphasised like the Vishnu Agencies (Pvt.) Ltd. Vs. Commercial Tax Officer and Others, , a person for all practical purposes is free to become or not to become a grower of coffee. So it is also covered by the ratio of Vishnu Agencies (Pvt.) Ltd. Vs. Commercial Tax Officer and Others, .

In the aforesaid view of the matter, we are of the opinion that the imposition of tax in a manner done by the sales tax authorities which has been upheld by the High Court is correct and the High Court was right.

Lastly, he made a request that the revisions filed by the assessee may kindly be dismissed.

After hearing both the parties and on perusal of the record, it appears that the honourable Supreme Court has passed the order in the case of Union of India v. Sales Tax Officer, Ghazipur in Civil Appeal. No. 4354 of 2000 dated September 28, 2005, where the judgments of the Vishnu Agencies (Pvt.) Ltd. Vs. Commercial Tax Officer and Others, and Coffee Board, Karnataka, Bangalore Vs. Commissioner of Commercial Taxes, Karnataka and Others, were relied and finally, it was observed that the opium grown by the cultivators is taxable item to trade tax. For this purpose, the judgment and order dated January 21, 2000 passed by this honourable court in the case of Union of India v. Sales Tax Officer, Ghazipur (W.P. No. 167 of 1989) was upheld by the honourable Supreme Court. When it is so, then the revisions filed by the Narcotic Department (T.T.R. Nos. 85, 86, 87, 88 of 2006 and T.T.R. Nos. 10, 11, 12, 13 of 2000) have no merits and the same are hereby dismissed.

II. Trade Tax Revision Nos. 185, 202, 203, 204, 205 and 206 of 2008 are concerned with the interest imposed u/s 8(1) of the U.P. Trade Tax Act, 1948.

After hearing both the parties, it appears that section 8, sub-clause (1) of the U.P. Trade Tax Act, 1948 deals regarding the interest. On reproduction, the said provision reads as under:

8(1). Payment and recovery of tax.--The tax admittedly payable shall be deposited within the time prescribed or by 31st day of August, 1975, whichever is later, failing which simple interest at the rate of (fourteen percent per mensem) shall become due and be payable on the unpaid amount with effect from the day immediately following the last date prescribed or till the date of payment of such amount, whichever is later, and nothing contained in section 7 shall prevent or have the effect of postponing the liability to pay such interest.

In the above section, the word "shall" is mandatory. So, charging of the interest is mandatory.

Moreover, the charging of the interest is mandatory and courts have no power to waive or restrict it, as per the ratio laid down in the following cases:

(1) Commissioner of Income Tax Vs. Sant Ram Mangat Ram Jewellers and Others, ;

(2) Commissioner of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala and Others, ; and

(3) Commissioner of Income Tax Vs. Insilco Ltd., .

Further, in the case of Pepsico India Holdings Ltd. Vs. Commissioner of Trade Tax, Lucknow, U.P., , it was observed by the honourable Supreme Court in the following paras (pages 224 and 225 in 40 VST):

As in the present case the tax becomes admittedly payable once it has been held that the tax is payable under the Act, the interest would be payable in terms of sub-section (1) of section 8 of the Act and not in terms of sub-section (1B) of section 8 of the Act.

This court in the case of The Commissioner of Sales Tax Vs. Qureshi Cruchible center, has held that where a dealer fails to pay tax at the correct rate because he claimed not to know the revision in the rate, the dealer remains liable to pay interest at a higher rate, the penal rate u/s 8(1) from the date when the tax became due and payable. In such a case, the dealer cannot claim that he is liable only from the date of the assessment order fixing the correct rate of tax.

Similarly, in a case where the dealer has taken a chance and it has been held that the tax is payable under the Act, the same becomes payable from the date when it was due.

In the light of above well-settled legal position, the charging of the interest is mandatory. When it is so, then there is no merit in the revisions filed by the Narcotic Department for the wavier of the interest. So, by upholding the impugned orders passed by the Tribunal, all the revisions in question are hereby dismissed.

III. Trade Tax Revision Nos. 98, 99, 100, 101, 102, 103, 104, 105 and 106 of 1996 have been filed by the Department against the impugned orders passed by the Tribunal. The learned Tribunal observed in their judgments that the tax is not leviable on the opium grown by the farmers, on behalf of Narcotic Department.

After hearing both the parties, it may be mentioned that the honourable apex court in the case of Union of India v. Sales Tax Officer, Ghazipur (Civil Appeal No. 4354 of 2000 decided on September 28, 2005) observed that the opium is taxable item under the U.P. Trade Tax Act. Therefore, the impugned orders passed by the Tribunal are hereby set aside and the orders passed by the assessing officer are hereby restored in the revisions in the question. Thus, the revisions filed by the Department are allowed. In the result, the revisions filed by the assessee are dismissed and the revisions filed by the Department are allowed.