(1) These Tax revision petitions raise a simple but important question of the taxability of foreign liquor under the Madras General Sales-tax Act and consequently under the Central Sales-tax Act. The petitioner Phipson and Co. (P) Ltd. deals in foreign liquor. The turnovers in dispute are Rs. 28972.32 for 1957-58, Rs. 67607.94 for 1958-59 and Rs. 31047.80 for 1959-60. These turnovers related to inter-state sales and the sales were not supported by C forms as required by S. 8(4) of the Central Sales-tax Act. The department accordingly took the view that the confessional rate of tax in respect of inter-state sales provided under S. 8(1) of the Act would not be available. The sales became accordingly liable to tax under S. 8(2)(b) of the Central Sales-tax Act. Having regard to certain provisions of the Madras Prohibition Act, the department levied the tax at the rate of 50 per cent of the turnover. The petitioner carried an appeal to the Appellate Assistant Commissioner. One of the contentions advanced then was that that provision of the Madras Prohibition Act upon which the department relied in imposing the tax at 50 per cent was not a sales tax law and therefore the rate specified in the provisions of the Prohibition Act would not apply. This contention was rejected. A further appeal to the Appellate Tribunal also failed.
(2) In these petitions, the contention advanced on behalf of the petitioner is that on a proper interpretation of the relevant provision of the Madras General Sales Tax Act, the sales of foreign liquor stand exempted. That being so, the rate of tax on sales of foreign liquor is a 'nil' rate. If under the General Sales-tax Act at certain specified rates, and not the rate of 50 per cent sought to be imposed by the department. In order to appreciate the contentions of the petitioner, it is necessary to refer to the provisions of the Madras General Sales-tax Act, the Central Sales-tax Act and the Madras Prohibition Act.
(3) Initially, Mr. K. Srinivasan, learned counsel for the petitioner, referred to S. 8 of the Madras General Sales-tax act, which provides for exemption from tax. This section reads:
'Subject to such restrictions and conditions as may be prescribed a dealer who deals in the goods specified in the Third schedule shall not be liable to pay any tax under this act in respect of such goods'.
Item 3 in the Third schedule describes the goods so exempted as
'any goods on which duty is levied or leviable under the Madras Prohibition Act, 1937, Madras Act X of 1937, or the Opium Act, 1878, Central act I of 1878, on the entire quantity of such goods and not merely on any ingredient which forms part of such goods'.
If the goods are exempted by S. 8 of the Act, then in so far as the inter-state sales other than of declared goods are concerned, S. 8(2)(b) provides that the tax shall be calculated at the rate of 7 per cent or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher. This provision would thus enable a levy of seven per cent to be made on such sales. Sub-section (2-A) of S. 8 of the Central Sales-tax Act provides that notwithstanding anything contained in sub-section (1) or sub-section (2), if under the Sales-tax Law of the appropriate State the sale or the purchase of any goods by a dealer is exempt from tax generally, or is subject to tax at a rate which is lower than one percent, the tax payable under this Act on his turnover, in so far as the turnover or any part thereof relates to the sale of such goods, shall be 'nil', or as the case may be, shall be calculated at the lower rate. The explanation to this sub-section provides that the sale or purchase shall not be deemed to be exempt from tax generally under the Sales-tax law of the appropriate state, if under that law it is exempt only in specified circumstances or under specified conditions. At first sight it would therefore appear that since the exemption contemplated by the Third Schedule is of a general nature and not only in specified circumstances or under specified conditions, the inter-state sales of such goods should be taxed at the 'nil' rate.
But, Mr. G. Ramanujam, learned counsel appearing for the department, points out that under the Madras Prohibition Act, no duty is levied or is leviable in respect of foreign liquor. Entry 51 of List II of the VIIth Schedule to the Constitution enables the State Legislature to levy a duty of excise on alcoholic liquors for human consumption manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India. This entry does not obviously authorise the State legislature to impose a duty of excise on foreign liquor imported into the State across a customs frontier. 'Import' itself has been defined in the Madras Prohibition Act to mean 'bringing into the Sate of Madras otherwise than across a customs frontier as defined by the Central Government. Section 18-A which imposes the excise duty on liquor imported, exported etc., excludes foreign liquor from its scope. It is clear, therefore, that foreign liquor imported into India is not subject to any duty of excise. If that is so, then the relevant entry in the Third Schedule to the Madras General Sales-tax Act, which exempts liquor, does not cover foreign liquor upon which no duty is leviable. It follows that foreign liquor as such does not stand exempted by the Madras General Sales-tax Act. The initial contention advanced by the learned counsel for the petitioner accordingly falls.
(4) It is common ground that the tax in the present case is leviable under S. 8(2) of the Central Sales-tax Act. It is also conceded on behalf of the petitioner that the goods are not declared goods. Section 8(2)(b), in so far as it is relevant reads thus:
'The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to sale of goods in the case of inter-state trade or commerce not falling within sub-section (1)(b) in the case of goods other than declared goods shall be calculated at 7 per cent or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher.'
The wording of the section is plain and the result is that the tax in the case of these sales shall be at seven per cent or if the rate of tax under the Madras General Sales-tax Act is higher, that higher rate. In support of the Department's assessment at the rate of 50 per cent, reliance has been placed upon headed; 'Levy of sales-tax on sales of foreign liquor to permit holders.' The expression 'foreign liquor' has not been denied in the Act, but the explanation to this section states that it means wines, spirits and beer imported into India from foreign countries, that is to say, liquor for human consumption imported across a customs frontier in respect of which the State Legislature, has, as has been already pointed out, no power to levy a duty of excise. The section read thus:
'Every person or institution not being an institution holding a permit under S. 20 clause (b) which sells foreign liquor (11a) to any person holding a permit for the consumption of liquor under S. 20 clause (a) or (b) to any institution holding a permit for the supply of liquor to its members under S. 20 clause (b), shall collect from the purchaser and pay over to the Government at such intervals and in such manner as may be prescribed a sales-tax calculated at the rate of 8 annas in the rupee or at such other rate as may be notified by the Government from time to time on the price of the liquor so sold.'
Section 20(a) provides for the issue of permits authorising any person to consume or possess for personal consumption any liquor or intoxicating drug. Section 20(b) provides for the issue of licenses to any institution to possess liquor and issue it to such of its members as hold permits under clause (a). What S. 21-A provides is that a person other than a permit holder or a license holder as described in S. 20(a) and (b) can sell foreign liquor (1) to a person holding a permit and (2) to an institution holding a licence; and in the case of such sales, the seller is entitled to collect sales-tax at 50 per cent of the sale price and pay it over to the Government. Sales of liquor, other than foreign liquor are not subject to sales-tax at this rate. It is upon this provision that the department relies in maintaining its stand that the rate applicable to the sale or purchase of foreign liquor inside the Madras State is 50 per cent. The question is whether this interpretation is correct.
(5) Before dealing with that aspect of the matter, we may refer to he general charging provision in the Madras General Sales-tax Act. Section 3 imposes a liability upon every dealer to pay tax on his taxable turnover at the rate of two per cent. The Act provides for a single point levy in respect of goods specified in the First Schedule. There is a provision for exemption of certain classes of goods which has already been referred to. If the sale of foreign liquor is not exempted under Ss. 8, it is obvious that it is taxable under S. 8, it is obvious that it is taxable under the general charging section, S. 3. Our attention has not been drawn to any provision either in the Madras Prohibition Act or elsewhere which exempts sales of foreign liquor from tax under the Madras General Sales-tax Act. We have been informed by the learned counsel appearing for the department that for reasons which he is not able to state, the sales of foreign liquor have been taxed only under S. 21-A of the Act and have not been subjected to tax under the general charging section of the Madras General Sales-tax Act. As far as we can see, there is no warrant for excluding sales of foreign liquor from the operation of S. 3 of the Act.
(6) Mr. Ramanujam for the department contends that while it may be that sales of foreign liquor are taxable under S. 3 of that Act, there is another provision which imposes a higher rate of tax, namely, 50 per cent, that is, S. 21-A of the Madras Prohibition Act. If there are two rates of tax, he claims that since S. (2)(b) of the Central Sales-tax Act authorises the imposition of the tax in respect of inter-state sales at 7 per cent or at the rate applicable to the sale of purchase of such goods inside the appropriate State whichever is higher, the department is entitled to levy the tax at 50 per cent. It seems to us that here is a fundamental fallacy underlying this contention.
(7) Firstly, we may observe that the tax that is levied under S. 21-A of the Prohibition Act is undoubtedly a sales-tax. Not only is it so described in the section itself, but it is also a levy which is made on the occasion of a sale. It is a sales-tax. Virtually, therefore, this section forms part of the Sales-tax law. The result then is that we have to read S. 3, the general charging provision in the Madras General Sales-tax Act along with S. 21-A law in this regard. The position that we then reach is that while S. 3 of the General Sales-tax Act imposes a levy on the sales of foreign liquor at a rate which may be called a general rate, S. 21-A constitutes an exception and deals with the specific cases of sales of a dealer to permit holders or licence holders. A class of sales is taken out of the category of sales distinctly and differently dealt with. Would it be proper then to call that rate applicable to these special classes the rate applicable to these special classes the rate applicable to the sale or purchase of goods inside the appropriate State?
It seems to us that it would not be a proper method interpretation. We may refer to sub-section (2-A) of S. 8 of the General Sales-tax Act and the explanation thereto which in dealing with the sales-tax law of the appropriate State refer to exemption from 'tax generally' or subject to 'tax generally'. The underlying implication therefore is that while there is a general rate of charge imposed by the Sales-tax law in respect of sales certain special categories are taken out and dealt with separately. That being so, the rate applicable referred to in S. 8(2)(b) is the general rate presented by S. 3 and not the special rate imposed in certain special circumstances. It may be noticed that S. 21-A of the Prohibition Act does not deal with a sale by one dealer to another dealer or by a wholesaler to a retailer. In such cases the sale would be subject to the general charging section S. 3 of the Madras General Sales-tax Act and not S. 21-A the view that the rate applicable to the sale or purchase of these goods inside the Madras State is two per cent prescribed in S. 3.
(8) The levy of 50 per cent, relying upon S. 21-A o the Prohibition Act., made by the department and confirmed by the appellate Tribunal cannot therefore be supported.
(9) Section 8(2) itself was amended by Act XXXI of 1958 and came into force on the 1st October 1958. Prior to the amendment S. 8(2) provided that sales not falling within sub-sec (1) shall be taxable at the same rates and in the same manner as would have been done if the sale had in fact taken place inside the appropriate State. This amendment introduced a rate of 7 per cent in S. 8(2)(b). It would follow therefore that in so far as the sales upto the 1st October 1958 are concerned, the tax leviable can only be at two per cent. In respect of sales on and from 1-10-1958 the tax would be at 7 per cent.
(10) The petitions are accordingly allowed. The department will amend the assessments suitably. The petitioner will be entitled to its costs. Counsel's fee Rs. 50 in each petition.
(11) Petition allowed.