1. These two batches of application under Section 8 of the West Bengal Taxation Tribunal Act, 1987 which are in the nature of writ applications under Article 226 of the Constitution of India, were heard separately, but are being disposed of by this common judgment, because the question raised for decision in ail these applications is identical, namely : Whether expenditure tax collected by the applicants under the provisions of the Expenditure Tax Act, 1987 (in short, "E.T. Act"), is a part of turnover of applicants so that the amounts of expenditure tax so collected are exigible to sales tax under the Bengal Finance (Sales Tax) Act, 1941 (in short, "1941 Act"), and the West Bengal Sales Tax Act, 1994 (in short, "1994 Act").
2. In RN-51, 52 and 53 of 1999 the question has arisen in the context of notices issued by respondent No. 1 asking applicants to explain why the deemed assessments for the periods of four quarters each ending March 31, 1990, March 31, 1991 and March 31, 1992 respectively should not be re-opened in terms of Section 11E(2) of 1941 Act in view of the fact that expenditure tax collected by the applicants was not included in taxable turnover for the purpose of levy of sales tax. By order dated March 18, 1999 respondent No. 1 was directed to finally dispose of the proceedings by passing a reasoned order under Section 11E(2) of 1941 Act, according to law, within eight weeks. Applicants were given liberty to file supplementary affidavit, if it felt aggrieved by such orders. In terms of the order dated March 18, 1999, respondent No. 1 passed a combined order dated April 9, 1999 for the aforesaid three periods of four quarters each. In that order, respondent No, 1 held that the amount of expenditure tax should be a part of sale consideration and exigible to sales tax. He reopened the orders of deemed assessments under Section 11E(2) of 1941 Act and directed the assessing authority, namely, the Assistant Commissioner, Commercial Taxes, Corporate Division, to make orders of assessment under Section 11(1) of 1941 Act, because incorrect particulars of sales were furnished in the returns filed under Section 10 by not including the amount of expenditure tax therein and thereby reducing the amount of tax payable by the applicant. After the above order was passed, the applicants filed supplementary affidavit challenging it.
3. The case of the applicants is that various provisions of E.T. Act go to show that expenditure tax is levied on chargeable expenditure incurred in a hotel and the hotelier is under an obligation to collect the expenditure tax and to make it over to the Central Government every month within the period fixed. The hotelier does not incur the chargeable expenditure which is incurred by customers. The amount of expenditure tax thus collected does not form a part of the sale price within the meaning of 1941 Act. Since no incorrect particulars of sales or turnover were furnished in the returns, respondent No. 1 could not have reopened deemed assessments, and the assessing authority should not make order of assessment under Section 11(1). Collection of expenditure tax was mandatory under the provisions of E.T. Act. There was no choice on the part of the hotelier. The expenditure tax was collected in bills, after sales tax was charged on the sales. It was not possible for the hotelier to charge sales tax again after collection or addition of expenditure tax in the bills. It is also stated that the State Legislature has no competence to levy sales tax on the amount of expenditure tax levied under E.T. Act. Any such attempt to levy sales tax is violative of Articles 251 and 254 of the Constitution of India. The applicants further stated that collection of expenditure tax was according to a statutory obligation and not as a result of any agreement or contract between the hotelier and the customers.
4. In RN-239 to 242 of 1999 the concerned periods of assessments are four quarters each ending March, 1989, March, 1990, March, 1991 and March, 1992 under 1941 Act. There were deemed assessments for the aforesaid periods under Section 11E(1) of 1941 Act. In the returns for the aforesaid periods the amount of expenditure tax collected under E.T. Act was not included in the turnover, and accordingly sales tax was not paid on the amount of expenditure tax. After the aforesaid periods, there were regular assessments for the periods of four quarters ending March 31, 1993, March 31, 1994 and March 31, 1995. The assessing authorities accepted the proposition that amount of expenditure tax did not form a part of the applicant's turnover. For the first time, the respondents took the view in course of the assessment for the period of 4 quarters ending March 31, 1996 that the amount of expenditure tax constituted a part of sale price and turnover. An appeal was preferred before respondent No. 1 who rejected the same by order dated April 23, 1999. A revision has been preferred before the West Bengal Commercial Taxes Appellate and Revisional Board (in short, "the Board") which is pending. It is claimed that even though the amount of expenditure tax was not shown as a part of turnover and no sales tax was paid thereon, the applicant did not furnish any incorrect statement of turnover or incorrect particulars of sales in the returns so as to attract the mischief of Section 11E(2).
There was no valid reason to reopen the deemed assessments under Section 11E(2). On May 3, 1999 applicant received notice dated April 26, 1999 issued by respondent No. 1 under Section 11E(2) alleging that there was reduction of the amount of sales tax payable for the periods of four quarters each ending March 31, 1989 to March 31, 1992 on the ground that the amount of expenditure tax was not included in turnovers. It was said in the notices that it was necessary to reopen the deemed assessments. Objections were given by the applicant to the said notices. On July 8, 1999, however, applicant received the order dated June 21, 1999 by which the deemed assessments were reopened with a direction to the assessing authority to make assessments under Section 11(1) for the said periods. Respondent No. 1 held in course of the said order that expenditure tax was a component of sale price.
5. The case of the applicant is that having regard to the provisions of E.T, Act, the legal position is that expenditure tax is a tax on the expenditure incurred by the customers of a hotel. The tax is not on the applicant (hotelier) but on the customers. The applicant is under a statutory obligation to collect the tax from them and then to make it over to the Government. Applicant was acting as merely the collecting agent of the Government and functioned as a conduit pipe through which the collections passed from customers to the Government. Thus, expenditure tax does not form a part of the consideration for sale of goods and hence is not a part of applicant's turnover. Respondent No. 1 proceeded on a wrong assumption that expenditure tax was collected on sale of goods. He failed to appreciate that expenditure tax was, in fact, a liability of the customer, and the applicant simply collected the same on behalf of the Government. It was not an indirect tax. It was not a tax payable by the applicant with the liberty to shift the burden to the customers. The expenditure tax was directly on the customers who incurred the expenditure. The guests did not pay the amount of expenditure tax as consideration for providing food or drink.
The incidence of tax was not on the applicant but on the customers, and the applicant was unable to shift the incidence of tax to them.
Respondent failed to appreciate that a sale did not depend upon payment of consideration. In fact, when a hotel provides food to customers, the property passes to them immediately upon supply of food or drink, not depending upon payment of price. Price is paid always after supply of food or drink and after consumption thereof. Respondent No. 1 was of the opinion that had the expenditure tax been a post-sale collection, it was not to be included in the sale price or turnover. The applicant claims that collection of expenditure tax cannot be treated as a pre-sale activity.
6. In the affidavit-in-opposition filed in both the batches of the present applications the respondents have taken a similar stand.
According to them, the orders passed by respondent No. 1 were valid and lawful, because amounts of expenditure tax collected by the applicants really formed a part of sale price and turnover, but such amounts were left out of turnover in the returns filed. The gist of their case is that expenditure tax was collected as a part of and along with the price in the bills. Without payment of expenditure tax the supply of food or drink would not have been made. The agreement between the hotelier and the customer regarding supply of food and drink includes an agreement to pay expenditure tax. In other words, the case of the respondents is that without payment of expenditure tax the sales or supply of food, drink, etc., would not have taken place. According to respondents, sales tax is levied under entry 54 of List II of the Seventh Schedule to the Constitution of India and under that provision the State Legislature has the plenary power to impose sales tax on all sales and the element of expenditure tax being a part of the consideration for sale transactions, it was liable to be included in turnover and liable to sales tax. Respondents have further stated that incurring expenditure for supply of food, drink, etc., is not a post-sale activity, but a pre-sale one. The entire amount including expenditure tax payable in a bill for supply of food, drink, etc., is the consideration. Therefore, according to respondents, expenditure tax collected through the bills was a part of such consideration. Since part of sale price was not stated in the returns as a part of turnover, the orders passed by respondent No. 1 under Section 11E(2) were valid and correct.
7. Section 4 of 1941 Act and Section 9 of 1994 Act lay down that a dealer is liable to pay tax on "all sales" with certain exceptions.
Section 5 of 1941 Act and Section 17 of 1994 Act make it clear that the rate and quantum of tax depend upon "taxable turnover". So, the tax is on "sales" and in the ultimate analysis, "turnover" is the measure of levy of sales tax. The definition of "turnover" in Section 2(i) of 1941 Act and the definition of "turnover of sales" in Section 2(40) of 1994 Act are almost identical. According to those definitions, "turnover" means "aggregate of the sale prices". Similarly, the definition of "sale price" under Section 2(h) of 1941 Act and the definition of "sale price" in Section 2(31) of 1994 Act are almost identical. "Sale price" means the amount payable to a dealer as valuable consideration for the sale. The question, therefore, is whether the amount of expenditure tax is a part of "sale price" and consequently a part of "turnover" or "turnover of sales".
8. According to the Statement of Objects and Reasons, E.T. Act seeks to impose a tax on "expenditure incurred". Section 3 of E.T. Act declares that the Act applies in relation to "chargeable expenditure". According to Section 4, the expenditure tax is charged on the "chargeable expenditure". So, clearly, the taxing event is the incurrence of the chargeable expenditure. If no such expenditure, as defined in Section 5, is incurred, there is no levy of expenditure tax. E.T. Act does not define "incurred". According to Black's Law Dictionary, 5th edition, the meaning of "incur" is "to have liabilities cast upon one by act or operation of law, as distinguished from contract, where the party acts affirmatively. To become liable or subject to", Thus, even when cash payment is not made, there can be incurrence of expenditure. Section 7(1) lays down that either the person who carries on the business of a hotel, or the person who provides the specified services, is the person responsible for collecting the tax, According to Section 7(2), monthly collection of expenditure tax must be paid to the credit of the Central Government by the 10th day of the next month. In terms of Section 7(4) the person responsible for collecting the tax shall be liable to pay the tax, if he fails to collect. There is provision in Section 14 for payment of interest on delayed credit of expenditure tax to Central Government. There is also provision for levy of penalty in Section 15 for failure to collect expenditure tax or pay the already collected tax to the credit of the Central Government. There are other provisions for penalty in other circumstances. Section 19 lays down that no penalty shall be imposable, where it is proved that there was reasonable cause for the failure, A hotelier or a provider of services is called in E.T.Act as "the person responsible for collecting" the tax vide Section 2(8), Section 8(1), Section 15, etc.
9. On behalf of Aruna Estates (P) Ltd. Mr. A.K. Roychowdhury, counsel, argued on the following lines : Expenditure tax is levied on "chargeable expenditure" which is incurred by a customer after consumption of food and drinks, that is to say, after sale is complete. Sale takes place as soon as food and drinks are consumed. Though generally sale price is not paid before consumption, the sale is complete because there is a promise to pay the valuable consideration. At that stage, expenditure takes place.
Then the stage of collection of expenditure tax arrives, and that stage is the taxing event in relation to expenditure tax. Mr.
Roychowdhury distinguished expenditure tax from sales tax by submitting that sales tax is on sale of goods, namely, when transfer of property in goods takes place, but expenditure tax is not related to sale ; it is related to incurrence of expenditure. He contended that the amount of expenditure tax collected by a hotelier is not includible in sale price, because the hotelier is not liable to pay the tax. It is the customer who is liable. But the seller, i.e., the hotelier, is the person who is liable to pay sales tax, and who may or may not pass on the sales tax to the buyer. But the expenditure tax is to be mandatorily collected from the customer. Mr.
Roychowdhury relied on Delhi Cloth and General Mills Co. Ltd. v. Commissioner of Sales Tax [1971] 28 STC 331 (SC), Food Corporation of India, v. State of Kerala [1988] 68 STC 1 (SC), Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax [1980] 46 STC 477 (SC) ; AIR 1981 SC 440, Central Wines v. Special Commercial Tax Officer [1987] 65 STC 48 (SC) ; AIR 1987 SC 611, Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC) ; AIR 1978 SC 1496, McDowell & Company Ltd. v. Commercial Tax Officer [1985] 59 STC 277 (SC) ; AIR 1986 SC 649, McDowell & Company Ltd. v. Commercial Tax Officer [1977] 39 STC 151 (SC) ; AIR 1977 SC 1459, Joint Commercial Tax Officer v, Spencer & Co. [1975] 36 STC 188 (SC) ; AIR 1975 SC 1801, J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh [1961] 12 STC 429 (SC), L.V. Veeri Chettiar v. Sales Tax Officer [1970] 26 STC 579 (Mad.) and Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax 10. On behalf of India Hotels Co. Ltd., Mr. R.N. Bajoria, counsel, advanced the following arguments : Subsequent to the impugned periods, in the orders of assessment for the periods of four quarters each ending March 31, 1993, 1994 and 1995, amount of expenditure tax was not included in the turnover.
But in the order of assessment for the period of four quarters ending March 31, 1996, the assessing authority included the amount of expenditure tax in the turnover. That is now under challenge before the Board. The hotelier supplies food and drinks to customers and is a recipient ; he earns an income. The taxable event of expenditure tax is "expenditure", not "income". He referred to the preamble and Section 4 of E.T. Act. Mr. Bajoria contended that the hotelier does not pass on the expenditure tax element to the buyer ; he merely collects it. With reference to Section 2(1), which is the definition of "assessee" (i.e., the person responsible for collecting the expenditure tax), it was contended that a hotelier merely collects the tax, he is not liable to pay the tax himself, unlike in sales tax, where the liability to pay is on the selling dealer, who generally passes on the amount of sales tax to the buyer. Collection means collection from some person other than self.
There must be a second person from whom the first person who is responsible for collection, may collect. Reference was made to Section 2(8), the definition of "person responsible for collecting".
In Section 4, the tax is charged on "chargeable expenditure". Under Section 7, collection of the tax is mandatory, the words used being "shall collect". Under Section 7(4), if the hotelier does not collect the tax, he shall be liable to pay the tax amount to the Central Government. Under Sections 14 and 15, in default of collection and deposit with Central Government, the hotelier shall have to pay interest and penalty. Reference was made to Part II of form No. 3 (prescribed) where "collectible" and "collected" are the words used in connection with statement of expenditure tax. The contention was that amount of expenditure tax does not become a part of "consideration" for the "sale". It was a post-sale and a post-expenditure collection. Reliance was placed on [1987] 65 STC 48 (SC) (Central Wines v. Special Commercial Tax Officer) at page 51 where the distinguishing features of sales tax were noted for arriving at the decision that sales tax amount was includible in "turnover" of a dealer. Reliance was also placed on [1975] 36 STC 188 (SC) (Joint Commercial Tax Officer v. Spencer & Co.), [1980] 46 STC 477 (SC) (Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax), [1988] 68 STC 1 (SC) (Food Corporation of India v. State of Kerala), [1985] 59 STC 277 (SC) (McDowell & Company Limited v. Commercial Tax Officer) and(WBTT) (Hindustan Lever Limited v. Deputy Commissioner, Commercial Taxes), paragraphs 28, 35 and 36.
11. The contentions of Mr. K.K. Saha, learned advocate for respondents in both the batches of cases, were as under : By referring to definition of "sale price" in Section 2(h) of 1941 Act and definition of "sale" in Section 2(g) of that Act, it was argued that "sale price" means the amount payable to a dealer as valuable consideration for the sale "including any sum charged for anything done by the dealer in respect of or before delivery thereof. Mr. Saha contended that going by those definitions, amount of expenditure tax collected from customers should form a part of the hotelier's turnover. He submitted that E.T. Act was enacted by Parliament under entry 97 of List I of the Seventh Schedule to the Constitution of India (i.e., the residuary entry). Expenditure tax is a part of consideration under the main part of the definition of "sale price", because without payment of that tax the seller will not sell the goods or supply food or drinks. According to Mr. Saha, the liability to pay the tax is on the hotelier. There is no provision in E.T. Act imposing liability on the customer to pay the tax. Mr. Saha distinguished [1980] 46 STC 477 (SC) (Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax). He referred to [1989] 74 STC 102 (SC) (Federation of Hotel & Restaurant Association of India v. Union of India) and submitted that there are two aspects of the same transactions of supply of food or drinks in a hotel. "Sale price" is one aspect which is relevant to sales tax. "Chargeable expenditure" is the second aspect which is relevant to expenditure tax. According to Mr. Saha, "chargeable expenditure" is nothing but "sale price". By referring to Section 12(6) of E.T. Act, it was argued that the provision for refund of tax to "assessee", i.e., the hotelier, indicates that expenditure tax is a part of "sale price" or "turnover". By referring to [1961] 12 STC 476 (SC) [George Oakes (Private) Ltd. v. State of Madras], he contended that when tax is passed on, tax element is part of sale price or turnover. He relied on [1985] 59 STC 277 (SC) (McDowell & Company Limited v. Commercial Tax Officer),(SC) (Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax, West Bengal), [1987] 65 STC 48 (SC) (Central Wines v. Special Commercial Tax Officer), [1993] 89 STC 106 (Ker) [FB] (Hindustan Petroleum Corporation Ltd. v. State of Kerala) and [1996] 102 STC 547 (Ker) (Indian Oil Corporation Ltd. v. State of Kerala). He contended that Section 19 of E.T. Act lays down that no penalty is to be imposed for any failure in terms of Section 15, 16, 17 or 18, if the assessee proves that there was reasonable cause for such failure, and hence, collection of tax is not mandatory. It is a qualified obligation. Payment of expenditure tax, according to Mr. Saha, is condition precedent for sale. He justified action under Section 11E(2) of 1941 Act on the ground that applicants furnished incorrect particulars of turnover. According to him, if harmonious construction of provisions of E.T. Act is resorted to, it will be seen that there is no obligation on the customer to pay. No action is contemplated against the customer. The amount of expenditure tax collected remains in the hands of hoteliers even for a brief period. Hence that amount is a part of turnover.
12. In the ultimate analysis, the answer to the question raised in these applications depends upon the answer to the question whether the amount of expenditure tax is a part of "valuable consideration" for sale (i.e., supply) of food and drinks in a hotel.
13. In Food Corporation of India v. State of Kerala [1988] 68 STC 1 (SC) the question was whether in assessment of sales tax of F.C.I., amounts collected by F.C.I, from retailers as administrative surcharge and price equalisation charge could be included in its turnover. It was held that under the agreement between F.C.I, and Government of Kerala those charges were liabilities of retailers, and F.C.I, was merely a collecting agent or conduit pipe through which the charges passed from retailers to Government of Kerala, and hence those collections could not be included in F.C.I.'s turnover. In Anand Swarup Mahesh Kumar [1980] 46 STC 477 (SC) ; AIR 1981 SC 440, the question was whether market fees under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam (25 of 1964) paid on transactions of sales or purchases can be included in the turnover of purchases for the purpose of levy of tax under the U.P.Sales Tax Act, 1948. It was held that such fees did not form part of the consideration for the purpose of levy of sales tax. The court observed that where a dealer is authorised by law to pass on any tax payable by him on the transaction of sale to the purchaser, the tax does not form part of the consideration for purposes of levy of tax on sales or purchases, but where there is no statutory provision authorising the dealer to pass on the tax to the purchaser, such tax does form part of the consideration, when he includes it in price in the absence of a statutory provision authorising a dealer to recover the tax. In the same case of Anand Swarup Mahesh Kumar [1980] 46 STC 477 (SC) ; AIR 1981 SC 440, another question arose as to whether the commission (dami) payable by the purchaser to a commission agent operating within a market area established under the Adhiniyam would form a part of the turnover of purchases. It was held that the commission would form a part of the turnover of purchases for two reasons--(i) the commission is not a tax or fee payable to Government or statutory body which is not a party to the contract of sale, and (ii) the commission is actually the profit of the dealer (i.e., commission agent) and should, therefore, necessarily be considered as consideration for the sale of goods. In Joint Commercial Tax Officer v.Spencer & Co. [1975] 36 STC 188 (SC) ; AIR 1975 SC 1801, it was held that tax collected by dealer in foreign liquor from purchaser under Section 21-A of Madras Prohibition Act, 1937 could not form a part of his taxable turnover under the Tamil Nadu General Sales Tax Act, 1959.
The distinction between sales tax proper and the other tax was pointed out by the court by holding that under the Sales Tax Act the dealer had no statutory duty to collect from his customer the sales tax payable by him, and when the dealer passed on to the customer the amount of tax which the former was liable to pay, that amount did not cease to be the price for the goods. But the tax payable on the price of foreign liquor by the purchaser under Section 21-A of Madras Prohibition Act could not form part of the taxable turnover of the dealer, as the said tax had been collected under a statutory obligation. The relevant extract from Section 21-A of Madras Prohibition Act follows : 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 eight 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." In paragraph 3 of the judgment the court interpreted the aforesaid Section 21-A in the following words : "..................the sales tax which the section requires the seller of foreign liquor to collect from the purchaser is a tax on the purchaser and not on the seller..........................Section 21-A makes the seller a collector of tax for the Government, and the amount collected by him as tax under this section cannot therefore be a part of his turnover. Under the Madras General Sales Tax Act, 1959, the dealer has no statutory duty to collect the sales tax payable by him from his customer.................." 14. From the aforesaid decisions in [1988] 68 STC 1 (SC) (Food Corporation of India v. State of Kerala), [1980] 46 STC 477 (SC) ; AIR 1981 SC 440 (Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax) and [1975] 36 STC 188 (SC) ; AIR 1975 SC 1801 (Joint Commercial Tax Officer v. Spencer & Co.), the following position emerges. If any tax or any amount is collected, according to a statutory obligation, statutory authorisation or other obligations as in [1988] 68 STC 1 (SC) (Food Corporation of India v. State of Kerala), by the seller, such tax or amount does not form a part of the turnover of the seller for the purpose of assessment of his sales tax. Where the dealer is authorised by law to pass on any tax payable by him on the transaction of sale to the purchaser, the amount of tax does not form part of the consideration for the sale for the purpose of sales tax. Where, however, there is no statutory provision authorising the dealer to pass on the amount of tax to the purchaser, such amount of tax forms a part of the consideration, when he includes it in the price. An amount of sales tax which the dealer is liable to pay, and which he passes on to the buyer according to his volition, is included in turnover of the dealer, where there is no statutory provision casting a duty on the dealer to collect the amount of sales tax from the purchaser.McDowell & Co. v. Commercial Tax Officer [1977] 39 STC 151 (SC) ; AIR 1977 SC 1459 was overruled by the 5-Judge Bench in McDowell & Co. Ltd. v. Commercial Tax Officer [1985] 59.STC 277 (SC) ; AIR 1986 SC 649. In the first case, it was held that the excise duty or the countervailing duty paid directly to excise authorities by purchaser of Indian liquors before removal of the same from distilleries or bonded warehouses, was not included in the bills of sale as consideration for sale. Such duty had not been charged or received by the dealer, but had been charged by the excise authorities and paid directly to excise authorities. Accordingly, it was held that sales tax authorities were not competent to include these amounts in the dealer's turnover. That decision was overruled in [1985] 59 STC 277 (SC) ; AIR 1986 SC 649 (McDowell & Co. Ltd. v. Commercial Tax Officer).
It was held therein that excise duty, though paid by the purchaser to meet the liability of the manufacturer, is a part of the consideration for the sale and is includible in the turnover of the manufacturer. The purchaser had to pay the tax because the law (Excise Rules) asked him to pay it on behalf of the manufacturer. This is the judgment on which Mr. K.K. Saha, appearing for respondents, argued that the amount of expenditure tax collected by the dealer (hotelier) should form a part of his turnover for the purpose of assessment of his sales tax. This contention was opposed by learned advocates for the applicants. In any event, the ratio of McDowell's case in [1985] 59 STC 277 (SC) ; AIR 1986 SC 649 cannot be applied to the present cases, because, there, the liability to pay excise duty was really on the manufacturer or seller and the purchaser was not really liable to pay it. The liability of the manufacturer or the seller was shifted to the purchaser for the purpose of easy collection. We shall presently see that in the present cases the amount of expenditure tax was not the liability of the hotelier to pay. It was clearly a liability of the customer of the hotel to pay the tax. In the second McDowell case [1985] 59 STC 277 (SC) ; AIR 1986 SC 649, had the manufacturer himself paid the excise duty, he would in the normal course of trade, include it in the price and realise it as a part of sale price from the purchaser. Therefore, whether the excise duty was paid by him, or by the purchaser, the ultimate result was the same. It became a part of the sale price, and hence formed a part of turnover of the manufacturer for the purpose of assessment of his sales tax. In paragraph 35 (page 292 of STC) of the second McDowell case [1985] 59 STC 277 (SC) ; AIR 1986 SC 649, it was held that payment of excise duty was a legal liability of the manufacturer. According to normal commercial practice, excise duty should have been reflected in the bill as merged in price or being shown separately. As a matter of fact, in the hands of the buyer the cost of liquor is what is charged by the manufacturer in its bill together with excise duty which the buyer directly paid on seller's account. The consideration for sale is thus the total amount, and not what is merely reflected in the bill.
The court held : "We are, therefore, clearly of the opinion that excise duty though paid by the purchaser to meet the liability of the appellant, is a part of the consideration for the sale and is includible in the turnover of the appellant". Thus, the important question is : whose liability is it to pay the duty or tax in question.
It is worthwhile to note that the legal issues decided in [1988] 68 STC 1 (SC) (Food Corporation of India v. State of Kerala), [1980] 46 STC 477 (SC) ; AIR 1981 SC 440 (Anand Swamp Mahesh Kumar v. Commissioner of Sales Tax) and [1975] 36 STC 188 (SC) ; AIR 1975 SC 1801 (Joint Commercial Tax Officer v. Spencer & Co.) as discussed in paragraph 14 of this judgment, were not modified or disturbed in the second McDowell case [1985] 59 STC 277 (SC) ; AIR 1986 SC 649. On the other hand, in paragraph 36 (page 292 of 59 STC) of that judgment, Anand Swarup Mahesh Kumar's case [1980] 46 STC 477 (SC) ; AIR 1981 SC 440, was distinguished.
16. In the present cases, having regard to all the relevant provisions in E.T. Act, we are of the opinion that the liability to pay the expenditure tax on the chargeable expenditure incurred, is the liability of the customer. It is not a liability of the hotel or the hotelier. The E.T. Act, of course, does not, in so many words, expressly say that it is the liability of the customer to pay expenditure tax. But, as rightly argued by Mr. Bajoria, there must be a person who is liable to pay, when the statute has cast an obligation on the hotelier to collect expenditure tax. There can be no doubt that the person incurring expenditure must pay expenditure tax on the amount of chargeable expenditure, because the statute is very clear that the hotelier is obliged to collect the tax. When the hotelier collects the tax, he cannot collect from himself. He must collect from another person who is the customer and none else. The provisions in E.T. Act lay down that if expenditure tax is not collected, the hotelier shall still deposit it with the Central Government. If he collects but does not deposit, then also the hotelier shall have to deposit the amount with the Central Government, and in that case interest and penalty have to be paid by him. These are merely machinery provisions for enforcing the obligation imposed on the hotelier to collect expenditure tax and to credit it to the Central Government. In no way, do these provisions indicate that the liability of paying expenditure tax is on the hotelier. Accordingly, expenditure tax so collected by the hotelier under the statutory provision, cannot form a part of turnover of the hotelier for the purpose of assessment of sales tax. It is not a case where in the absence of a statutory provision for realisation of the tax from customer, the hotelier passes on his liability to the customer. Here, the situation is just the reverse. The statutory liability to pay expenditure tax is on the customer. For easy collection of tax, provision has been made in the statute to the effect that the hotelier shall collect it. In R.C. Jall Parsi v. Union of India AIR 1962 SC 1281, while dealing with excise duty which is on the production or manufacture of goods, the Supreme Court of India held: "The method of collection does not affect the essence of the duty but only relates to the machinery of collection for administrative convenience".In Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC) ; AIR 1978 SC 1496, the question was whether in the sale of cement by the producer, governed by Cement Control Order, the freight paid by the producer and then recovered from the purchaser under the scheme, would form a part of the sale price of cement. It was held that the amount of freight formed a part of the sale price, and consequently of the turnover of the producer for the purpose of Central sales tax, because when the producer paid the freight, he did so in view of the arrangement or scheme which made him liable to pay the freight as between him and the purchaser ; and then he recovered it as part of the price. In the instant cases before us, expenditure tax was recovered not as a part of sale price, but as an imposition on the chargeable expenditure already incurred. In Central Wines v. Special Commercial Tax Officer [1987] 65 STC 48 (SC), it was held that sales tax component included in sale price is includible in making aggregate for the purpose of turnover. In holding so, the court observed that a dealer who sells goods does not act as an agent for the State in collecting sales tax from purchasers. But in the instant cases, the provisions in E.T. Act clearly indicate that the hotelier is the person responsible for collecting tax on behalf of the Central Government and he must credit the tax so collected to the Central Government. A taxing statute is required to clearly and unambiguously convey the three components, namely, the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid (5-Judge Bench decision in Mathuram Agrawal v. State of Madhya Pradesh AIR 2000 SC 109). In L.V.Veeri Chettiar v. Sales Tax Officer [1970] 26 STC 579 (Mad.), the Division Bench of Madras High Court held that it is a common norm of fiscal law that if a person's transactions can be brought into the net of taxation, then the fiscal enactment should expressly provide for such action, and an assessment cannot be assumed or presumed by necessary implication. It was also held that the law is well-established that if there is a doubt whether a particular person is liable to tax at all under a tax law, then the benefit of such doubt should go to the proposed assessee. Mr. A.K. Roychowdhury, learned advocate for Aruna Estates (P) Ltd. referred to the case of L.V. Veeri Chettiar [1970] 26 STC 579 (Mad.) and submitted that the applicant hotel was not at all liable to pay expenditure tax under E.T. Act ; if any doubt appears as to whether the applicant is liable to pay the tax, in that event it should go to the benefit of the applicant, namely, it should be held that the applicant hotel is not liable to pay expenditure tax. In a 5-Judge Bench decision in J.K. Jute Mills Co.
Ltd. v. State of Uttar Pradesh [1961] 12 STC 429 (SC), it was held that it is not an essential characteristic of sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the Legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. It was also held, inter alia, that a sales tax is, according to accepted notions, to be passed on to the buyer. The distinction between the concept of sales tax and the concept of expenditure tax under E.T. Act is two-fold. The hotelier is not liable to pay expenditure tax. The customer is the person who is liable to pay it. The hotelier is statutorily bound to collect it, or else to face several consequences.
In case of sales tax, the seller is free to pass on the amount of sales tax to the buyer, or not do so. The sales tax statutes of West Bengal do not impose a mandatory obligation on the seller to collect sales tax from the buyer. It is optional for the seller.Delhi Cloth and General Mills Co. Ltd. v. Commissioner of Sales Tax, Indore [1971] 28 STC 331 (SC). There, the question was whether "sale price" under Madhya Pradesh General Sales Tax Act, 1958, included sales tax passed on by the dealer to the purchaser. It was held that so long as there was no law empowering the dealer to collect tax from his buyer or seller, there was no legal basis for saying that the dealer was entitled to collect the tax payable by him. Whatever collection might have been made by the dealer from his customers, could only be considered as valuable consideration for the goods sold. Reference was made to Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax [1980] 45 STC 197 (SC). It was held in that case that amount of freight, paid by purchasers, formed a part of sale price and includible in the assessee's taxable turnover.
19. Mr. K.K. Saha, learned advocate for respondents, referred to [1989] 74 STC 102 (SC) (Federation of Hotel & Restaurant Association of India v. Union of India). It was held in that case that E.T. Act was within the legislative competence of Parliament by virtue of entry 97 of List I of Seventh Schedule to the Constitution of India. It was held also that expenditure tax was on the "aspect" of expenditure and not on the "aspect" of luxury of the said transaction. Mr. Saha wanted to use the "aspect" doctrine in support of his argument that sale price is one "aspect" which relates to sales tax and chargeable expenditure is another "aspect" of the same transaction relating to expenditure tax.
The two aspects theory, if applied to the cases before us, do not come to the aid of the Revenue. Two aspects of the same transaction may attract two different taxes. But that does not mean that the taxing event is one and the same. Here, sale is the taxing event for levy of sales tax. But sale is not the taxing event for levy of expenditure tax. Incurrence of expenditure is the taxing event for levy of expenditure tax. In reality, even if sale and incurrence of expenditure are two aspects of the same transaction, the two aspects doctrine cannot be applied to the Revenue's advantage. "Sale" under Sales Tax Acts and "incurrence of expenditure" under E.T. Act are different concepts and different legal notions. Howsoever they may appear to converge, they are two different ideas in the eye of law. The event of "sale" does not attract expenditure tax. The event of "incurrence of expenditure" calls for ascertainment of "chargeable expenditure" which attracts expenditure tax. Therefore, in reality, sale price and chargeable expenditure are not two aspects of the same transaction.
Sale price is relevant up to the stage when sale becomes complete, and that is relatable to sales tax. A sale may be complete, even though the sale price is not paid, but only promised. The same transaction does not have two aspects of sale price and chargeable expenditure notionally either at the same stage or to the same extent. The concept of chargeable expenditure comes into play, when sale is complete and the expenditure is already incurred, irrespective of making of cash payment by way of expenditure. In other words, the concept of chargeable expenditure operates when the person making the expenditure becomes liable (vide Black's Law Dictionary, 5th Edition, already referred to). But "chargeable expenditure" has been defined in E.T.Act. Ascertainment of chargeable expenditure can be made only when expenditure has been incurred after sale is complete. Sale price consists of several components, some of which, like the amount of tax, are clearly excluded from chargeable expenditure in the definition in Section 5 of E.T. Act. Sales tax is decidedly a component of sale price. But under Section 5(1)(iv) of E.T. Act any expenditure by way of "any tax" is clearly excluded from chargeable expenditure. "Any tax" means really all kinds of tax including sales tax. The expression "any tax" has been used in very wide sense inasmuch as it includes also expenditure tax. Thus, though apparently "sale" and "incurrence of expenditure" may be said to be two aspects of the same transaction, they are truly two different aspects at different stages and also to different extents. Merely because they appear to be two aspects of a transaction, the Revenue cannot claim that expenditure tax is a part of sale price. It is a post sale levy.
20. Mr. Saha referred to Section 12(6) of E.T. Act and argued that the provision for refund of tax to the hotelier indicates that the expenditure tax is a part of sale price. We do not think so. Section 12(6) should not be interpreted to the effect that mere refund indicates liability to pay. Because, the hotelier is not really the person who is liable to pay expenditure tax. The customer of the hotel is the person who is liable to pay. In view of the nature of customers in hotels, Parliament thought that for the purpose of easy collection of tax the duty of collection should be placed on the hotelier, because it will not be practically feasible to get hold of or assess individual customers. Administrative convenience and proper enforcement of the taxing statute compelled the Parliament to make the hotelier the person responsible to collect the tax ; and, as such, he is the assessee.
Nothing more should be read into the provisions. The fact that there is Section 19 in E.T. Act under which no penalty is to be imposed, if the assessee proves that there was reasonable cause for failure, does not, in our opinion lead any prudent person to the conclusion that collection of tax by the hotelier is not a mandatory function. Mr. Saha called it to be a qualified obligation. We are unable to agree. In our view, it is a mandatory obligation. Nor can we agree with him that payment of expenditure tax is a condition precedent for sale. Sale takes place according to the law of sale. Expenditure tax comes into play when sale has been made, and expenditure tax has been incurred. It is true that E.T. Act does not provide for any punitive action against the customer of a hotel for non-payment of expenditure tax, but as already said, the Parliament could not enact such a provision, because it could not have been enforceable. Customers are numerous and generally a floating mass of people. Their identities are not normally verifiable during their brief stay in a hotel or during their consumption of food and drinks in a hotel. Therefore, what is possible and pragmatic, has been provided for in the E.T. Act.
21. We have not been able to agree with the contentions of Mr. Saha appearing for respondents. In our view, expenditure tax does not form a part of sale price or a part of turnover of the hotelier. Therefore, amounts of expenditure tax collected by hoteliers for sale or supply of food, drinks, etc., are not exigible to sales tax either under 1941 Act or under 1994 Act. That being the position, the orders passed and actions taken by respondents in respect of the applicants under Section 11E(2) of 1941 Act and consequential actions if taken, are all invalid and accordingly those are quashed.
22. The plea of want of legislative competence and the plea of violation of Articles 251 and 254 of the Constitution of India were not pressed.
23. The applications in RN-51, 52 and 53 of 1999 and also in RN-239, 240, 241 and 242 of 1999 are all allowed and finally disposed of. No order for cost. This judgment will govern all those seven applications.