MC DOWELL & COMPANY LIMITED versus THE COMMERCIAL TAX OFFICER

Citation: [1985] 3 S.C.R. 791 · Decided: 17-04-1985 · Supreme Court of India · Bench: Y.V. CHANDRACHUD · Disposal: Dismissed

Cited by 4 judgment(s) · cites 4 · see the full citation network in Lexace

Judgment (excerpt)

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791 
Mc DOWELL & COMPANY LIMITED 
v. 
THE COMMERCIAL TAX OFFICER 
April 17, 1985 
[Y.V. CHANDRACHUD, C.J., D.A. DESAI, 0. CttiNNAPPA REDDY 
E..S. VENKATARAMIAH AND RANGANATH MISRA, JJ.J 
Concept! of Tax Evasio11 and Tax Avoidance, difference in-Tax Planning 
-Colourable device within the framework of law cannot be allowed to be a part of 
Tax Planning. 
New plea-Constitution of India, 1950-Appea/ by Special Leave under 
Article 136-Supreme Court cannot entertain a plea not taken in the High 
Court. 
Andhro Pradesh General Sales Tax Act, 1947-"Turn over", scope of-
Test for determining whether an excise duty is a part ofuturn over," under the 
Sales Tax Act-The Incidence of excise duty being directly relatable to manufac· 
ture, validity of the decision in McDowell's case reported in (1977} 1 SCR 914 
reconsidered: 
"Excise duty" as defined in section 2(10) or the A.P. Excise Act, 1968 
is l~viable on the manufacture of.liquor and the manufacturer cannot remove the 
same from the distillery unless the duty imposed under the Excise Act has been 
paid. Buyers of Indian liquor from the appellant's distillery obtain distillery 
passes for release of liquor after making payment of exci~e duty 8.nd present 
the" same at the distillery thereupon the bilJ of sale or invoice is prepared by 
, the distillery showing the price of liquor but excluding excise duty. The appeJ. 
lant's books or account also did not contain any reference to excise duty paid 
by the purchaser. The appellan~. tbereforo, paid sales tax under the Andhra 
Pradesh General Sales Tax Act, 1957 on tho basis of turnover which excluded 
.excise duty. This position w~s not accepted by the Sales Tax Authorities ~and 
the matter was contested right upto the Supreme Court. The Supreme 
Coor~ 
in Mc Dowell & Company Ltd. etc, v. Commercial Tax Officer Vllth Circle, 
Hyderabad, etc. reported in [1?77] 1 SCR 914 held that the Sales Tax Autho· 
rities were not competent to include fn the "turnover'' of the appellant, the 
excise dutr which was not char$ed by it b.ut was paid directly to the Excise 
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SUPRBME COURT REPORTS 
· (1985] 3 S.C.R. 
Authorities by the buyers of the liquor, inasmuch as the excise duty did not 
go into the common till of the appellant and did not become a part of the cir· 
culating capital. 
After the judgment of the Supreme Court Rules 76 and 79(1) of the A.P. 
Distillery Rules were suitably amended with effect from August 4, 1981. Amen-
ded Rule 76(a) provides that "No spirit of liquor" manufactured or stored shall 
be removed unless the excise duty specified in rule 6 has been paid by a holder 
of 0 .. 2 licence before such removal and the amended ruli' 79(1) provides that 
on payment of the excise duty by the bolder of D·2 licence a distillery pass for 
the removal of spirit fit for human compensation may be granted in favour of 
any of the named persons therein. 
The appellant, being a D-2 licerice holder was served with a·notice, on 
the basis of the amended provisions, by the respondent proposing to include a 
sum of Rs. 4,49,09,532.40 representing the excis~ duty paid. directly by buyers of 
appellants' liquor in the appellants, t~rnover for a part of the year 1982·83, 
Thereupon, the appellant again moved the High Court Tor quashing the said 
notice. The High Court considered the effect of the amended Rules and held 
that the prlmary liability to pay excise duty was indisputably of the holder of 
the D-2 licence. The High Court dismissed the writ p.:tition on the fin(lings 
(a) that the turnover related to liquor; and (b) that the excise duty which was 
payable by the appellant but had by amicable arrangement been paid by the 
buyer was actually a part of the turnover of the appellant and was, therefore, 
liable to be soJncluded for determining liability for sales tax. When leave was 
granted by a Division Bench of the Supreme Court to appeal against the judg-
ment of the High Court, the correctness of the decision in appellants' case 
reported in [1977) I SCR 914, was doubted and the matter was referred to 
a larger Bench. 
Dismissing the appeal, the Court, 
HELD: (Per Chinnappa Reddy, J. (concurring) 
I.I Much legal sophistry and Judicial exposition both in England and 
India have gone into the attempt to.differentiate the concepts of tax evasion 
and tax avoidance and to discover the invisible line ~apposed to exist :wliicb 
distinguishes one from the other. Tax avoidance, it seems

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