Case: Great Galleon Limited and Ors. Vs The Union of India (UOI) and Anr.. High Court of Madhya Pradesh (India)
| Judges | Dipak Misra, K.K. Lahoti and Rajendra Menon, JJ. |
| Issue | Constitution Of India - Articles 136, 226, 227; Central Excise Act, 1944 - Section 35f; Industrial Disputes Act, 1947 - Section 25o |
| Citation | 2009 (3) JLJ 15, 2009 (3) MPHT 356 |
| Judgement Date | February 19, 2009 |
| Court | High Court of Madhya Pradesh (India) |
Order:
Dipak Misra, J., (At Jabalpur)
1. Questioning the defensibility and the legal substantiality of the order dated 15-11-2006 passed by the learned Single Judge in W.P. No. 4641/06, the present writ appeal was filed with a prayer to set aside the same. That apart, it was also mentioned in the memorandum of appeal that the writ appeal has been filed to refer the matter to a Larger Bench for consideration under Rule 12, Chapter I of the M.P. High Court Rules & Orders in respect of the following questions:
(1) Whether in view of the definition of 'manufacture' in Section 2 (14) of the M.P. Excise Act, 1950 and the license issued to manufacturer in Form CS-1 for supply of country liquor in sealed bottles is to be awarded only to the distilleries who are producers of rectified spirit under the provisions of M.P. Country Spirit Rules, 1995 and the distillers are given the license to manufacture country spirit by colouring and flavouring at the manufacturing warehouse and the manufacturing warehouse has been defined as a bonded liquor warehouse wherein rectified spirit for manufacturing of country liquor is received, stored, blended, reduced, bottled at issue strength, sealed and issued to retailers license or storage warehouse, the bottling activity is not a separate activity, but part of manufacturing activity and is not covered by "packaging activity" as defined in Section 65 (76 g) of the Finance Act, 2005 read with definition of "taxable service" in Section 65 (105) (zzzf) of the Service Tax Act.
(2) Whether the decision in the case of Som Distilleries (supra), in Para 11, that bottling is a part of manufacturing process. No liquor can be supplied without bottling and, therefore, it was held that in fact, bottling is a part of manufacturing process. 'Bottle' has been defined under Section 2 (2) of the Act of 1915, while another Division Bench in the case of Vindhyachal Distilleries (supra), has held that bottling and sealing charges are not included in manufacturing process and therefore, they arc covered by the definition of "packaging activity" in Finance Act, 2005. Which of the two decision is correct?
(3) Whether there is a service provider and service receiver are different persons, no service tax is leviable under Section 65 (105) (zzzf) of the Service Tax Act. Here in this case, it is the distiller who undertakes the activity of bottling and this activity is done under the control of distiller. There may be two different departments of distillation and bottling, but the person undertaking both activities is one, i.e., the distiller. In such circumstances, the decision in the case of Vindhyachal Distilleries Ltd. (supra), does not lay down correct law.
Be it noted, the appeal was presented on 23-8-07.
2. The appeal was listed for admission on 21-9-07 and it was admitted for hearing. On 22-11-07, a Division Bench of this Court, on the basis of an application filed forming the subject- matter of I. A. No. 13536/07, impleaded the appellant Nos. 2 and 3 in the writ appeal.
3. After such impleadment, the Division Bench proceeded to state as follows:
The question that has to be decided in this appeal is whether bottling of liquor amounts to manufacture or only amounts to packaging activity.
In a judgment delivered in Som Distilleries & Breweries Pvt. Ltd. v. State of M.P. and Anr. (1997) 1 JLJ 319, a Division Bench of this Court while upholding a notification issued by the State Government of Madhya Pradesh under the M.P. Excise Act, 1995, held that the State is competent to legislate because bottling is a part of manufacturing process.
But we also find that in M/s. Vindhyachal Distilleries Pvt. Ltd. v. State of M.P. and Ors. another Division Bench of this Court has delivered the judgment on 29-4-2006, holding that bottling of liquor is a packaging activity as defined in Section 65 (76-b) of the Finance Act, 2005, on which service tax is payable.
On a reading of judgment dated 29-4-06 of the Division Bench in Vindhyachal Distilleries Pvt. Ltd. v. State of M.P. and Ors. we find that the Division Bench has elaborately discussed the provisions of the Central Excise Act, 1944 and the provisions of the Finance Act, 2005, but has not discussed the entries. List I and List II of Seventh Schedule of the Constitution of India under which the excise duty and service tax are levied by the Union Legislature and the State Legislature.
Under Entry 84 of List I of Seventh Schedule of the Constitution, duties of excise can be levied by Parliament on goods manufactured or produced in India but not on alcoholic liquors for human consumption. This is because under Entry 51 of List II of Seventh Schedule of the Constitution, duties of excise on manufacture or production of alcoholic liquors for human consumption in the State can be levied only by the State Legislature of that State. There is no specific Entry in List I of Seventh Schedule providing for levy of service tax by the Parliament. But Entry 97 of List I of Seventh Schedule is clear that power of Parliament to levy tax extends the matters which are not mentioned either List II or List III and it is under this Entry that Parliament has power to levy service tax. Since the manufacture or production of alcohol for human consumption is a matter which has been mentioned in Entry 51 of List II of Seventh Schedule in respect of which the State Legislature has got power to levy excise, Parliament cannot levy service tax on manufacture or production of alcohol for human consumption.
Thus, if bottling of liquor is held to be manufacture of liquor, excise duty is payable on such bottling of liquor under the State Excise Act but if bottling of liquor is held to be not manufacture of liquor but only a packaging activity, then the service tax is payable under the Finance Act, 2005.
These aspects have not been considered by the Division Bench in the judgment delivered on 29-3-06 in M/s. Vindhyachal Distilleries Pvt. Ltd. v. State of M.P. and Ors. and, therefore, we direct that the matter be placed before the Chief Justice for referring the following question to a Larger Bench.
Whether bottling of liquor amounts to manufacture of liquor or only packaging so as to attract the service tax?
On the basis of the aforesaid order, the matter has been placed before us.
4. When the matter was taken up for hearing, Mr. Shekhar Sharma, learned Standing Counsel for the Union of India raised a preliminary objection that regard being had to the factual matrix, the Full Bench need not dwell upon the reference made by order dated 22-11-07. He has filed an objection with regard to the maintainability of the writ appeal and making the same as edifice and foundation propounded that the reference need not be answered as the writ appeal deserves to be dismissed.
5. Mr. A.M. Mathur, learned Senior Counsel, being assisted by Mr. Ashutosh Upadhyay and Mr. Sanjay Agrawal, learned Counsel for the appellants filed, a synopsis on behalf of the appellants to show that it is incumbent on the part of the Full Bench to answer the reference without adverting to the maintainability of the appeal inasmuch as that has to be dealt with by the Division Bench. The learned Counsel for the parties have commended us to a host of decisions in support of their respect rivalised contentions. Keeping in view the preliminary objection raised by Mr. Shekhar Sharma and the resistance put forth by Mr. A.M. Mathur, learned Senior Counsel, it was thought apposite to advert to the preliminary objection, the same being a vital one, in the first instance. Hence, we proceed to delineate on that aspect.
6. The present appellants, who are engaged in the manufacture and sale of different kinds of liquor, preferred W.P. No. 4641/06 under Articles 226 and 227 of the Constitution of India assailing the show-cause notices dated 23-2-06 issued by the Excise Commissioner, Motimahal Gwalior and the order dated 2- 9-05 passed by the Commissioner, Customs and Excise. The said notices and the orders were challenged as service tax was imposed pursuant to the provisions contained in the Finance Act, 2005.
7. The learned Single Judge took note of the fact that identical show-cause notices and the orders imposing service tax were issued to similarly situate persons in W.P. No. 2346/06 [M/s. Vindhyachal Distilleries Pvt. Ltd. v. State of M.P. and Ors.] and a Division Bench of this Court by order dated 29-4-2006 had expressed the opinion that the said service tax is recoverable from the service provider under Section 65 (76-b) the provisions of the Finance Act on the packaging activities as inserted by Finance Act, 2005 and further service provider can pass on the liability to the retail contractors and accordingly dismissed the writ petition in limine.
8. Being dissatisfied with the order passed in the writ petition, M/s. Associated Alcohols & Breweries Ltd., Indore and two others, filed W.A. No. 718/06. When the said appeal was pending, I.A. No. 3540/07 was filed seeking permission for withdrawal of the appellant No. 3, namely, Gwalior Distilleries Ltd., from this appeal. It is imperative and necessitous to reproduce the contents of the said application:
01. That, the...
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