STATE OF KERALA AND ORS. versus MAHARASHTRA DISTILLERIES LTD. AND ORS

Citation: [2005] SUPP. 1 S.C.R. 91 · Decided: 06-05-2005 · Supreme Court of India · Bench: N. SANTOSH HEGDE · Disposal: Disposed off

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Judgment (excerpt)

STATE OF KERALA AND ORS. 
v. 
MAHARASHTRA DISTILLERIES LTD. AND ORS 
MAY 6, 2005 
[N. SANTOSH HEGDE, S.N. V ARIA VA, B.P. SINGH, H.K. SEMA 
AND S.B. SINHA, JJ.] 
Excise Laws: 
Kera/a Abkari Act-Section 17(a) to (g)-Kerala General Sales Tax 
Act, 1963-Sections 2(xxvii), 5(2C)-Foreign Liquor Rules, 1953-Rule 13(9)-
Kerala Abkari Shops (Disposal in Auction) Rules, 1974-Foreign Liquor 
(Storage in Bond) Rules, 1961-Kerala Distillery and Warehouse Rules, 1968: 
B 
c 
Monopoly created by Government of Kera/a in wholesale trade of lMFL D 
in favour of Government Company KSBC-Jn view of monopoly, distillers 
required to sell entire manufacture of lMFL to KSBC only-KSBC not required 
to pay excise duty to manufacturers of lMFL but pay it later when lMPD 
moved out of its warehouse~Sales Tax Authorities requiring manufacturers of 
IMFL to include amount of excise duty paid by KSBC in the turnover for the E 
purpose of turnover tax--Correctness of-Held: Levy of duty is under Section 
17(/) since the State intended to recover duty from KSBC on the issue of liquor 
from its warehouses in course of its monopoly wholesale trade-Duty so levied 
is not excise since taxing event envisaged in Section I 7(/) does hot relate to 
manufacture-Amount of excise duty paid by KSBC is actually not excise duty F 
in real sense but a privilege price and hence does not form part of turnover 
of manufacturer-However rules were amended in 1999 contemplating that 
KSBC to pay excise duty to manufacture at the time of purchase-Therefore, 
with effect from 1999 that amount of excise duty would form part of 
consideration to the manufacturer and included in their turnover for the purpose G 
of levy of Turnover tax. 
Liability to pay excise duty-Taxable event-Held: Use of words 'duty 
of excise' in Section 17 of the Kerela Abkari Act is not conclusive and it is 
91 
H 
92 
SUPREME COURT REPORTS [2005] SUPP. I S.C.R. 
A for the courts to examine in each case as to whether it is in fact a 'duty of 
excise '-Jn order that duty may be characterized as duty of excise, it must be 
shown that it is a duty on manufacture of goods-If it is unrelated to the 
manufacture of goods, it may be any other impost permitted by law, but would 
not qualify as duty of excise. 
B 
The respondent is engaged in the manufacture and sale of Indian 
Made Foreign Liquor (IMFL). Pursuant to the policy decision of the 
Government of Kerela to create a monopoly in wholesale trade of IMFL, 
a Government company was incorporated, namely Kerala State Beverages 
C Corporation Limited (KSBC). Necessary amendments to the Abkari Act 
and the relevant Rules were made with a view to effectuate this policy. In 
view of monopoly created, the respondents could not sell IMFL 
manufactured by them to anyone, and had to deliver the same to KSBC 
only for which purpose they had to submit tenders each year for the 
D various brands of IMFL manufactured by them. KSBC was granted 
licence in Forms BWl and FL9 under the Bond Rules. The IMFL supplied 
by the respondents/distillers was stored in bonded warehouses maintained 
by the KSBC in accordance with the Bond Rules. KSBC also executed an 
agreement in Form - A under which it was obliged to observe 'the 
E provisions of the Abkari Act and not to remove goods without payment 
of duty. The price paid by the KSBC to the respondents did not include 
the element of excise duty which was later paid by the KSBC when the 
liquor moved out of its warehouses. 
Accordingly assessments were made from time to time on the basis 
F that liability to pay sales tax and excise duty was on KSBC. The respondent 
paid turnover tax on the basis of price paid to it by KSBC. It, therefore, 
did not include the excise duty element while computing its total turnover. 
However, Sales Tax authorities on 19.7.1998 called upon the respondent 
to submit revised returns including element of excise duty paid by the 
G KSBC. The High Court, on a challenge being made by the respondents 
held that this excise duty which was in fact paid by KSBC would not be 
regarded as being part of turn over of respondents for the purpose of levy 
,of turn over tax and also declared that Section 2(xxvii) of the Kerala 
General Sales Tax Act authorizing the levy of turnover tax on the amounts 
H of excise duty paid by the KSBC on the distillers was unconstitutional and 
STA TE OF KERALA v. MAHARASHTRA DISTILLERIES LTD. 
93 
void. State filed appeal before this court. 
A 
Pending the appeals on 1.4.2001 

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