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Judgment
G. S. SINGHVI, J. :
Whether the Chandigarh Industrial and Tourism Development Corporation Ltd. can deduct Income Tax at source under s. 206C of the IT Act, 1961 (for short, the Act) from the petitioners is the main issue which arises for adjudication in these petitions.
For the purposes of this order, it will be appropriate to set out some facts from each of the twelve petitions.
CWP No. 11706 of 1994
The petitioner was given L-14 licence for the year 1994-95 by the Excise and Taxation Department, Chandigarh. It has been purchasing liquor from L-13 licencee, i.e., Chandigarh Industrial & Tourism Development Corporation Ltd. (hereinafter referred to as CITCO) which is a public sector undertaking. In terms of the licence granted to it under the Punjab Liquor Licences Rules, 1956 as they are applicable to the Union Territory, Chandigarh, CITCO purchases liquor from the distilleries/bottling plants and sells it to L-14 licencees. The petitioner is under an obligation to purchase liquor from CITCO in terms of cl. 25 of the Auction Conditions notified by the Chandigarh Administration for grant of licence during the year 1994-95. The price of the liquor purchased by CITCO is fixed by the State Government and the price of the liquor sold by CITCO is fixed by the Excise Department of Chandigarh Administration. In the year 1994, CITCO started deducting tax at source from the petitioner on the basis of the instructions issued by the IT Department. The petitioner has moved this Court by contending that no tax is payable by it under s. 206C of the Act r/w clarification given by the CBDT vide Circular No. 660, dt. 15th September, 1993 [(1993) 114 CTR 33].
In the reply filed by it, the respondent No. 1 has admitted the facts narrated in the writ petition. However, it has justified the deduction of tax at source on the strength of s. 206C of the Act by contending that CITCO falls within the ambit of the term seller under s. 206C. The respondent No. 1 has also pleaded that CITCO cannot be treated as buyer for the purposes of s. 206C and, therefore, the petitioner who holds L-14 licence becomes first buyer in terms of s. 206C when it purchases liquor from CITCO. The respondent No. 1 has contested the petitioners plea regarding the applicability of the circular dt. 15th September, 1993 by contending that the sale of liquor by CITCO to the petitioner does not fall within the scope of the expression subsequent sale. It has pleaded that collection of tax at source by CITCO from the petitioner does not contravene s. 206C or the Circular No. 660, dt. 15th September, 1993 (supra).
CWP No. 11919 of 1994
The facts of this case are almost identical to the facts of CWP No. 11706 of 1994. It is, therefore, not necessary to detail out those facts. Suffice it to say that the petitioner was granted L-14 licence for the year 1994-95 by the Excise Department of Chandigarh Administration. It used to purchase liquor from CITCO which holds L-13 licence issued to it on payment of fixed price of Rs. 5,000. The petitioner has challenged the collection of tax at source by CITCO on the ground that CITCO has no authority to do so under s. 206C of the Act r/w Circular No. 660, dt. 15th September, 1993 (supra) issued by the CBDT.
CWP No. 8415 of 1995
The petitioner was granted L-14 licence for the year 1995-96 by the Excise and Taxation Department, Chandigarh. It used to purchase liquor from CITCO which holds L-13 licence. Other facts incorporated in the writ petition and the grounds raised therein are identical to the facts and grounds incorporated in CWP No. 11706 of 1994. The grievance of the petitioner is against the collection of tax at source by CITCO at the instance of IT Department.
Separate replies to this petition have been filed on behalf of the respondents No. 1, 2 and 3. The reply filed by the respondent No. 1 is identical to the reply filed by it to CWP No. 11706 of 1994. It is, therefore, not necessary to set out detailed facts incorporated in that reply. It is sufficient to mention that the respondent No. 1 has justified the collection of tax at source from the petitioner by contending that the sale of liquor to the petitioner by CITCO is not covered by the expression subsequent sale and that CITCO falls within the ambit of the term seller used in s. 206C of the Act.
In its reply, the respondent No. 2 has pleaded that L-13 licence has been given to CITCO on a fixed licence fee of Rs. 15,000.
In its reply, the respondent No. 3 (CITCO) has pleaded that as a L-13 licencee, it is the first purchaser of country liquor from the distilleries and as per the provisions of the Act it is exempted from payment of Income Tax at source. It has also been pleaded by the respondent No. 3 that it cannot deduct Income Tax at source upon the second sale made to L-14 licencees but it is compelled to do so due to coercive method adopted by the IT Department. Thus, the respondent No. 3 has supported the case set up by the petitioner.
CWP Nos. 9280 to 9285 of 1996
The petitioners in the above noted six petitions hold L-14 and L-2 licences valid for the period from 1st June, 1996 to 31st March, 1997. They have been purchasing liquor from CITCO which holds L-13 licence. In its turn, CITCO has been purchasing liquor from the distilleries/bottling plants/manufacturers. The case set up by the petitioners is that CITCO purchases country liquor at fixed price and the same is sold by CITCO at the price fixed by the Excise Department in terms of cl. 25 of the Auction Conditions and the Punjab Liquor Licences Rules, 1956. The grievance of the petitioners is against the deduction of tax at source by CITCO on the basis of directive given by the IT Department. The grounds raised and the prayers made in these petitions are similar to those contained in CWP No. 11706 of 1994 and, therefore, there is no need to repeat the same.
The replies filed by the respondents No. 1 and 2 are identical to the replies filed in other writ petitions. It is, therefore, not necessary to give details of the stand taken by the respondent No. 1. Suffice it to say that the respondent No. 1 has justified the collection of the tax at source on the ground that the sale of liquor by CITCO does not fall within the ambit of expression subsequent sale.
CWP Nos. 10118, 10119 and 11779 of 1996
The petitioners in these writ petitions are L-14 licencees for the year 1996-97. They have also challenged the collection of tax at source by CITCO on the liquor sold to them. The facts incorporated in these petitions and the grounds of challenge as well as the replies filed by the respondent No. 1 are identical to that of CWP No. 11706 of 1994. We, therefore, do not consider it necessary to make a detailed reference to the same.
Some other facts :
In the year 1988, the distilleries of Punjab, Haryana and Chandigarh started collecting tax at source from the liquor licencees. This led to the filing of a number of writ petitions in which the collection of tax at source was challenged on the ground that under ss. 44AC and 206C of the Act such collection was impermissible. In K.K. Mittal and Co. Vs. Union of India (UOI) and Others, 22 a Division Bench of this Court held :
"An examination of the fundamental provisions governing the grant of L-13 licences clearly showed that the provisions of ss. 44AC and 206C of the IT Act, 1961, were unduly harsh, arbitrary in their application to cases where the transaction was strictly to be carried on in accordance with specific provisions. It was this mischief which was intended to be eliminated by the new amendment which added the proviso to s. 44AC(1)(a). Otherwise, they were to pay tax much more than the expected returns which could not be considered to be the object of legislation as it originally stood. L-13 licencees appeared to be a class which, in view of the existing system of the transaction of sale of country liquor, could not be considered to be a class evading payment of tax and thus falling under the category of others for whom ss. 44AC and 206C were brought into the statute book. Hence, persons holding L-13 licences were not liable to pay tax at the stage of purchase of the country liquor, in view of the proviso to cl. (a) of sub-s. (1) of s. 44AC."
The Division Bench further held :
"Since the Government of India had taken a decision exempting the Uttar Pradesh contractors from payment of tax on the excise duty, discrimination in the matter could not be made in the case of petitioners holding L-14 licences. In a democratic set up, the rule of law prevails and the Constitution of India provides equal rights to all the citizens of the country. Once the Government have extended a positive relief in a particular State, the same cannot be denied in other States similarly situated. The Government of India should have taken a uniform decision and the petitioners should not have been discriminated against in the matter. Hence, the petitioners holding L-14 licences were also entitled to the same relief, which was being given to their counterparts in Uttar Pradesh on the basis of the Government circular dt. 26th June, 1989. The respondents were not to deduct Income Tax on excise duty payable by petitioners holding L-14 liquor licences."
By Finance Act, 1992, s. 44AC was deleted from the Act. However, deduction of Income Tax at source was again resorted to under s. 206C of the Act. This was sought to be justified on the basis of the amendment made in s. 206C by the Finance Act, 1992. The deduction of Income Tax at source was again challenged in K.K. Mittal and Co. Vs. Union of India (UOI) and Others, . A Division Bench analysed the amended s. 206C and held :
"A perusal of the aforesaid amendment of s. 206C shows that there was no significant change from the provision as it existed in ss. 44AC and 206C before its amendment. Sec. 44AC stands repealed but its substantive portion has been included in s. 206C. That being the position, the ratio of the decision in K.K. Mittal and Co. Vs. Union of India (UOI) and Others, decided by this Court, would apply to the present case. The collection of Income Tax from L-13 licence holders would be arbitrary if 16.8 per cent is collected from the petitioners at the time of making purchase of the liquor, otherwise Income Tax is payable on the income and, in the case of L-13 licensees, this income would be marginally nominal profit, i.e., difference between the purchase price and the selling price, as stated above."
Against the decision of this Court dt. 8th September, 1992 [ K.K. Mittal and Co. Vs. Union of India (UOI) and Others, ], the Union of India filed petitions for Special Leave to Appeal before the apex Court. At one stage, the apex Court issued interim directions but after hearing the parties the apex Court dismissed the petition for Special Leave to Appeal No. 2325 of 1993 by an order dt. 25th July, 1994. Other petitions for Special Leave to Appeal were also dismissed by the Supreme Court.
In view of the dismissal of the petitions for Special Leave to Appeal filed against the judgment of this Court, it must be held that the law laid down by the two Division Benches in K. K. Mittals case (supra) has acquired finality.
In order to determine whether s. 206C is available to the respondents for deducting tax at source from the petitioners, it will be useful to take notice of relevant statutory provisions. Sec. 206C(1) as amended by Finance Act, 1992 reads as under :
"206C (1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage specified in the corresponding entry in column (3) of the said Table, of such amount as Income Tax :
TABLE
Sl. No.
Nature of goods
Percentage
1
2
3
(i)
Alcoholic liquor for human consumption (other than Indian-made foreign liquor)
Fifteen per cent.
(ii)
Timber obtained under a forest lease
Fifteen per cent
(iii)
Timber obtained by any mode other than under a forest lease
Five per cent
(iv)
Any other forest produce not being timber
Fifteen per cent.
Provided that, where the AO, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force .....
Explanation - For the purpose of this section :
(a) buyer means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-s. (1) or the right to receive any such goods but does not include :
(i) a public sector company;
(ii) a buyer in the further sale of such goods obtained in pursuance of such sale, or
(iii) a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act;
(b) seller means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society."
Rule 38(15)(e) and (g) of the Punjab Liquor Licences Rules, 1956 is also reproduced below for ready reference :
38(15) - A license in Form L-13 for the wholesale vend of country spirit :
(a) xx xx xx (aa) xx xx xx (b) xx xx xx (c) xx xx xx (d) xx xx xx
(e) The licensee shall sell country liquor of the kinds authorised by the Excise Commissioner only to a person holding a license in Form L-13, L-14 or L-14A or L-14B in the district of Punjab.
(f) xx xx xx
(g) The licensee shall sell country spirit at such rates as may from time to time be fixed by the Excise Commissioner, Punjab and endorsed on the license.
(h) xx xx xx (I) xx xx xx
Clause 25 of the Auction Conditions and the relevant extract of Circular No. 660, dt. 15th September, 1993 (supra) issued by the CBDT are also quoted below for reference purposes :
"25. Retail vendors in Union Territory, Chandigarh will obtain their requirement of country liquor 50 degree and Rum, Gin and Whisky of 60 degree from wholesale vend of CITCO only. The L-13 licensee shall be granted permit by the Asstt. Excise & Taxation Commissioner holding charge of the District to transport country liquor of 50 degree/Rum, Gin and Whisky of 60 degree. CITCO will function as stockist for retail vendors, who will charge from the latter, fixed price of country liquor/Rum, Gin and Whisky 60 degree as given above plus still-head duty paid by him and 0.50 paise per proof litre as handling charges. The L-13 licensee will be allowed breakage allowance upto 1/2 per cent of the quota lifted from the distilleries/bottling plants.
(ii) The stock of country liquor left unsold at the end of the financial year 1994-95 shall be surrendered to the Asstt. Excise and Taxation Commissioner of the District and shall be disposed off according to the provisions of the Punjab Liquor License Rules, 1956.
(iii) Retail vendors will obtain their supplies from wholesale vend of CITCO only and not from any other source."
"Circular No. 660, dt. 15th September, 1993 [(1993) 114 CTR 33].
Subject : Collection of Income Tax at source under s. 206C of the IT Act, 1961 in respect of profits and gains from the business of trading of alcoholic liquor, forest produce, etc. - Financial year 1993-94 - Instructions regarding.
Attention is invited to the Boards Circular No. 634 (F. No. 275A/1/92-IT(B), dt. 20th August, 1992 regarding collection of Income Tax at source under s. 206C of the IT Act, 1961, in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc., during the financial year 1992-93.
xx
xx
xx
It may be noted that the provisions of sub-s. (1) of s. 206C in relation to a buyer will not apply to a public sector company and to any other buyer who obtains the said goods at a second or subsequent sale of such goods. Thus, these provisions will apply only at the point of the first sale of such goods.
xx
xx
xx
In the first decision of K. K. Mittals case (supra), the Division Bench held that L-13 licencee was not liable to pay tax at the time of purchase of liquor in view of the proviso to cl. (a) of s. 44AC(1) of the Act. It also held that the benefit of exemption granted to the liquor contractors of Uttar Pradesh from payment of tax on the excise duty should have been extended to similarly situated contractors elsewhere in the country and the petitioners who hold L-14 licences were entitled to similar relief. The Division Bench held that the respondents were not entitled to deduct Income Tax at source on the excise duty payable by L-14 licencees. In the second decision rendered in K. K. Mittals case (supra), another Division Bench reiterated the view taken in the previous decision and held that the amendment made in s. 206C of the Act did not empower the deduction of tax at source qua L-14 licencees. These decisions have been upheld by the Supreme Court.
While deciding the writ petitions this Court had taken cognizance of specific assertion made by L-13 licencees that they were purchasing liquor from distilleries and manufacturers at the price fixed by the State Government and were selling the same to L-14 licencees at the price fixed by the Administration. We, therefore, do not find any ground to accept the plea raised by the respondent No. 1 that L-13 licencee does not purchase liquor.
Rule 38(15)(g) of the Rules of 1956 imposes a restriction on the sale of country spirit by L-13 licencees at the rates other than those fixed by the Excise Commissioner. In terms of the conditions of auction, L-14 licencees are bound to purchase liquor from L-13 licencee. In these cases, the petitioners do not have freedom to obtain their supply from any other source other than the wholesale vend of CITCO. Thus, the sale of liquor by CITCO to L-14 licencees like the petitioners has to be treated as a subsequent sale. Vide Circular dt. 15th September, 1993, CBDT has clarified that s. 206C(1) of the Act in relation to the buyer will not apply to the public sector undertakings/companies and to any other buyer who obtains goods at a subsequent sale of such goods and the provisions of s. 206C will apply only at the time of first sale. Admittedly, CITCO is a public sector undertaking and, therefore, the provisions of s. 206C are not attracted in its case. If this position of CITCO is taken into consideration in the light of our finding that the sale of liquor by CITCO to L-14 licencees falls within the expression subsequent sale as used in paragraph 5 of the circular issued by the CBDT, there can be no escape from the conclusion that the deduction of tax at source from the petitioners is illegal and without jurisdiction. As a logical corollary, it has to be held that the provisions of s. 206C as amended by Finance Act, 1992 are not available to the IT Department to compel CITCO to deduct Income Tax at source from the petitioners.
Consequently, the writ petitions are allowed. The impugned deductions are declared illegal and are quashed. If the respondent No. 1 or CITCO have already deducted Income Tax at source from the petitioners by resorting to the provisions of s. 206C of the Act, then the said amount shall be refunded to them within a period of two months from today. In case the amount is not refunded to the petitioner within this period, then they shall become entitled to interest at the rate of 15% per annum from the date of this order.