COMMISSIONER OF INCOME TAX AND ANR. versus M/S DISTILLERS CO. LTD.

Citation: [2007] 4 S.C.R. 960 · Decided: 05-04-2007 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Dismissed

Judgment (excerpt)

' 
-'.. 
A 
COMMISSIONER OF INCOME TAX AND ANR. 
v. 
. MIS DISTILLERS CO.LTD. 
APRIL 5, 2007 
B 
[S.B. SINHA AND MARKANDEY KA TJU, JJ.] 
-r 
Income Tax Act, I96I-s.43-B-Tax deduction-On the amount paid 
-
for non-compliance of a Circular specifying process of bottling of arrack-
c Assessing Authority denying the deduction holding that the amount was a 
penalty and the same was not permissible in terms of s.43-B-Appellate 
Authority, Tribunal and High Court held that the amount was neither a 
penalty, nor a fee nor excise duty (tax) and s.43-B was not applicable in this 
case-On appeal, held: The amount was not an excise duty as the same was 
not for manufacturing of arrack-Tax could not have been levied in terms of 
D executive circular-It was neither a penalty as the non-compliance was not 
of a statutory provisiim-s.43-B is not applicable in this case-Assessee 
..... 
entitled to tax deduction on the amount-Karnataka Excise Act, 1965-
Karnataka Excise (Manufacturing and Bottling of Arrack) Rules, I987-
Rule 14(3)-Constitution of India, I950-Article 265, Seventh Schedule List 
II Entry 8 and 5I. 
.. 
E 
Respondent-assessee was in the business of arrack bottling, 
manufacture of industrial alcohol and their marketing, under a licence in 
terms ofKarnataka Excise Act, 1965. Karnataka Excise (Manufacturing and 
Bottling of Arrack) Rules, 1987 stated that Arrack after blending would be 
F matured in the manner and for the period as would be specified by the 
Commissioner of Excise. The Commissioner, by a circular, specified a period 
"( 
of 15 days for the arrack to be matured. If the directives of the circular could 
not be carried out, due to circumstances beyond one's control, the unmatured 
arrack could be bottled with the prior permission of the Officer-in-charge of 
the bottling unit of paying cert:iin additional amount therefor. 
G 
When the respondent was not able to comply with the directives of the 
circular, it obtained permission of the appropriate authority for the said 
purpose on payment of certain additional amount. He also paid some amount 
...... 
v 
for non-fixation of labels on the bottles. Respondent in his income tax return· 
claimed deduction for the said amount from his gross income. Assessing 
H 
960 
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" 
COMMNR. OF INCOME TAX v. DISTILLERS CO. LTD. 
961 
Authority denied the deduction on the grounds that the amount was in the A 
nature of penalty; and that since the same had not been paid during the period 
relevant to the assessment year, it had to be disallowed in terms of Section 
. 43-B oflncome Tax Act, 1961. Appellate Authority allowed the claim of the 
assessee holding that the amount was neither excise duty nor a penalty and 
therefore Section 43-B would not be attracted. Tribunal held that the amount 
was in the nature of additional levy; and that section 43-B was not applicable. 
High Court held that the amount was not a penalty, neither a fee nor excise 
duty; payment made fqr non-fixation of labels was also not a penalty. Hence, 
the present appeal by Revenue. 
Dismissing the appeal, the Court 
B 
c 
HELD: 1. Penalty and Excise Duty vis-a-vis levies which are made on 
manufacture of an excisable article stand on different footings. Ordinarily, 
Excise Duty is a tax on manufacture. The same is in the Union List. An 
exception, however, is made only in respect of the potable alcohol by reason of 
Entry 51, List II of the Seventh Schedule of the Constitution of India. Thus, D 
levy of excise duty on alcohol must have a source in a statute legislated in 
terms of Entry 51, List II of the Seventh Schedule of the Constitution of India . 
. It must have a direct relationship with manufacture of Arrack. By reason of 
sub-rule (3) of Rule 14 of the Karnataka Excise (Manufacturing and Bottling 
of Arrack) Rules, 1987, no period of time has been specified. It has been so 
done under an executive order issued by the Commissioner of Excise. The E 
authority did not and in fact could not levy a tax on manufacture in terms of 
the said circular or otherwise. As no time limit has been specified by reason 
of a statute, the question of imposing any penalty for non-compliance of the 
statutory provisions does not arise. It contemplates an additional levy. Source 
for such additional levy having regard to the nature of the circular must be p 
found in the terms and conditions of the licence. Such terms and conditions 
of licence are fixed by the State by reason of the provisions of the Karnataka 
Exc

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