SUPREME COURT OF INDIA
Peekay Re-Rolling Mills Privare Limited
Vs.
Assistant Commissioner & Anr.
(Ashok Bhan and Dalveer Bhandari,JJ.,)
20.03.2007
JUDGMENT
Ashok Bhan, J.,
1.Civil Appeal Nos. 2653 and 2654 of 2006 are directed against the impugned
final judgment dated April 7, 20061 of the Kerala High Court at Ernakulam in
Writ Appeal No. 434 of 2000 and Writ Appeal No. 433 of 2000 by which the
division Bench dismissed the writ appeals thereby upholding the order of the
single Judge, rejected the challenge to the two show cause notices issued to
the appellant. Civil Appeal No. 4406 is arising out of judgment dated July 7,
2006 of the Kerala High Court in Sales Tax Revision No. 9 of 2006 by which the
division Bench dismissed the revision relying upon the judgment of the division
Bench in Writ Appeal No. 434 of 2000 of the same High Court.
2. We propose to dispose of these appeals by a common order, as the point
involved in all these appeals is the same.
3. Facts are taken from Civil Appeal No. 2653 of 2006.
Facts:
4. The appellant is a company registered under the Companies Act, 1956 having
its registered office at Kozhikode. It is a registered dealer under the Kerala
General Sales Tax Act, 1963 (for short, "the State Act"). It
carried on the business of steel re-rolling mills at Nallalam, Kozhikode. The
raw material used by the appellant in the production of bars and rods, is steel
ingots, which the appellant either manufactures or purchases from other
manufacturers from within or outside the State. Purchase of steel ingots
effected by the appellant within the State are from manufacturing units, which
are exempt from the payment of sales tax on the sale of such ingots by virtue
of an exemption notification issued under section 10 of the State Act.
5. For the assessment year 1994-95, the appellant submitted a return of
turnover and was assessed to tax declaring the taxable turnover at nil, by an
order dated January 15, 1998 by the assessing officer. In respect of the
assessment year 1995-96 also, the appellant's assessment was completed
determining the taxable turnover at Rs. 21, 85, 550 vide order dated January
15, 1998, While this was so, the appellant received a show cause notice dated
January 11, 2000 for the assessment year 1994-95 and another notice dated
January 12, 2000 on the same date for the assessment years 1996-97 to
1999-2000. In the first show cause notice relating to the assessment year
1994-95, the assessing officer stated that the appellant had purchased ingots
from dealers within the State who were exempted from payment of tax and
consumed the same in the manufacture of bars and rods during the year 1994-95.
The notice further stated that the ingots purchased were goods liable to tax
under the State Act and since the supply of such ingots did not suffer any tax
at the time of sale due to the exemption notification under section 10(1) of
the State Act, purchase turnover of the ingots during the year and consumed in
the manufacture by the appellant attracted liability to tax under section 5A of
the State Act. The notice alleged that the purchase turnover of the ingots had
escaped assessment under section 5A of the State Act and accordingly proposed
to determine the turnover liable to tax and assess the same at four per cent.
It was stated that on the request of the appellant, a hearing would be given to
the appellant before completing the assessment as proposed.
6. Notice relating to 1996-97 to 1999-2000 was worded differently. The said
notice stated that the appellant had purchased ingots, scraps, mosrolls, etc.,
from units within the State claiming tax exemption and consumed the same in the
manufacture of bars and rods during this period. It was further stated that
since the goods had not suffered tax under section 5 of the State Act, they
were liable to pay purchase tax under section 5A and called upon the appellant
to remit tax with interest under section 22(3) within 10 days of the receipt of
notice failing which an action would be taken to recover the tax.
7. The appellant being aggrieved filed the two separate writ petitions
challenging the two show cause notices issued to him. Learned single Judge
dismissed the writ petitions in limine by observing that the case involved
disputed questions of fact which could not be decided in a writ petition under
article 226 of the Constitution Of India, 1950 and relegated the
petitioner to avail of the remedies provided under the State Act. It was held
that the writ petition was not the appropriate remedy and the appellant was
accordingly directed to avail of the remedies provided under the State Act.
Learned single Judge directed the appellant to file objections to the notices
before the assessing officer who shall consider the same while framing the
assessment. Assessing authority was directed to complete the assessment in
accordance with law after affording due opportunity to the appellant.
8. Aggrieved by the above order of the learned single Judge, the appellant
preferred two separate writ appeals. The division Bench dismissed the writ
appeals by a common order and held that the learned single Judge was in error
in directing the appellant to avail the remedies provided under the State Act.
The division Bench, however, rejected the main contention of the appellant that
in view of the provisions of article 286(3) of the Constitution Of India,
1950 read with section 15 of the Central Sales Tax Act, 1956 (for
short, "the Central Act"), it was impermissible to levy purchase tax
under section 5A of the State Act. In support of this contention, it was
submitted by the counsel for the appellant that the iron ingots being declared
goods could be subjected to tax under section 5 read with the Second Schedule
of the State Act in the hands of the seller only; that the declared goods like
the one involved in the present case could be subjected to levy only at one
point and that point had been specified by the statute as being "first
sale". That goods could not be subjected to purchase tax in the hands of
the purchaser under section 5A of the State Act. The division Bench of the High
Court relying upon a judgment of this court rejected these contentions and held
that the expression "levy" includes collection of tax as well and not
mere imposition. It was held that in the absence of collection of tax, there is
no levy and since, the goods were exempted from payment of sales tax, the goods
could be subjected to levy of purchase tax under section 5A of the State Act.
That the levy did not mean imposition only, the same included the collection of
tax as well. Where there is no collection, there is no levy and accordingly,
the goods which are not subjected to levy of tax at the point of sale could be
subjected to levy of purchase tax under section 5A.
9. Learned counsel for the appellant has contended before us that goods being
declared goods, under section 14 of the Central Act are subjected to limits
placed by section 15 of the Central Act, namely:
“(1) The tax payable on the sale or purchase of iron and steel under the law of
a State shall not exceed four per cent and
(2) Such tax shall not be levied at more than one stage.”
10. It follows that if, iron and steel are subjected to a single point levy of tax at the first point of sale, then there is no question of a second levy or charge at any subsequent point of sale or purchase.
11. According to him, iron and steel which are the goods in question were made
liable to sales tax at the stage of first sale at four per cent under section
5(1) read with the Second Schedule of the State Act. That in view of section
5(1) read with the Second Schedule of the State Act, the burden of tax could
not be shifted to the purchaser as the State Government had already notified
that the tax would be at the point of first sale and the rate of tax would be
four per cent. That the High Court erred in assuming that the word
"levied" in section 15(a) of the Central Act is used in the sense of
imposed and collection. According to him, the word levy could cover both imposition
and non-collection of tax imposed will not cease to be a levy of tax.
12. It was further contended that the High Court erred in distinguishing the
judgment of this court in Shanmuga Traders, v. State of Tamil Nadu1, and
that of the Constitution Bench judgment in Bhawani Cotton Mills Ltd. v.
State of Punjab2 ,
 . According to him, the reliance placed by the High Court in Town
Municipal Committee, Amravati v. Ramchandra Vasudeo Chimote3 is
unwarranted as in the said case this court was interpreting the expression
"continued to be levied" and "to be applied to the same
purposes" in article 277 of the Constitution of India.
13. A strong reliance was placed by him on the decisions of this court in
Assistant Collector of Central Excise, Calcutta Division v. National Tobacco
Co. of India Ltd.4 ,
Somaiya Organics (India) Ltd. v. State of Uttar Pradesh5 ,
Pine Chemicals Ltd. v. Assessing Authority6 ,
and Associated Cement Companies Ltd. v. State of Bihar 7 .
14. As against this, learned counsel appearing for the respondent contended
that section 5A was introduced in the State Act with effect from April 1, 1970
which is an independent charging as well as a remedial section. The main object
of section 5A of the State Act is to plug leakage and prevent evasion of tax.
According to him, it created a liability against the dealer on his purchase
turnover, with regard to goods, the sale or purchase of which though generally
liable to tax under the State Act has not due to circumstances of particular
sales, suffered tax and which after the purchase, have been dealt by him in any
of the modes indicated in clauses (a), (b) and (c). It was conceded that in the
case of declared goods, the conditions imposed by section 15 of the Central Act
have to be complied with and the levy could not be at more than one stage but
section 5A of the State Act operates by its own force in cases where taxable
goods did not suffer tax under section 5 and purchaser uses the goods in any of
the three modes specified in clauses "(a) to (c)". That the purchase
tax in the State of Kerala is capable of being levied only where no sales tax
is levied on the taxable goods, thus only a single point levy or one stage levy
takes place, i.e., either sales tax or purchase tax and not both. According to
him, in view of the provisions of the State Act, the expression levy would
include collection or payment as well and not mere authorisation of levy.
15. Counsel for the parties have been heard at length.
16. Section 5 and Second Schedule of section 5 of the State Act, as it stood at
the relevant time, read as under :
“"Section 5. Levy of tax on sale or purchase of goods.-(1) Every dealer
(other than a casual trader or agent of a non-resident dealer) whose total
turnover for a year is not less than (two lakh rupees) and every casual trader
or agent of a non-resident dealer, whatever be his total turnover for the year,
shall pay tax on his taxable turnover for that year, -
(i) In the case of goods specified in the First or Second Schedule, at the
rates and only at the points specified against such goods in the said Schedules
;
(ii) To (iv) . . ."
17. Second Schedule of section 5 of the State Act, as it stood at the relevant
time, reads as under :
"SECOND SCHEDULE
Declared goods in respect of which a single point tax only is leviable under
sub-section (1) or sub-section (2) of section 5 SI. No. Description of goods
Point of levy rate of tax per cent (1) (2) (3) (4)
1 Oil seeds as defined in section 14 of the Central Sales Tax Act, 1956 (Central
Act 74 of 1956), other than groundnut, coconut and copra At the point of first
sale in the State by a dealer who is liable to tax under section 5 4
2 (i) Coal including coke in all its forms but excluding charcoal -do- 4
(ii) Iron and steel that is to say -do- 4
18. Section 5 A of the State Act, as it stood at the relevant time, reads as
under :
"5A. Levy of purchase tax.-(1) Every dealer who, in the course of his
business, purchases from a registered dealer or from any other person any
goods, the sale or purchase of which is liable to tax under this Act, in
circumstances in which no tax is payable under sub-section (1), (3), (4) or (5)
of section 5 and either, -
(a) Consumes such goods in the manufacture of other goods for sale or otherwise
; or
(b) Uses or disposes of such goods in any manner other than by way of sale in
the State ; or
(c) dispatches them to any place outside the State except as a direct result of
sale or purchase in the course of inter-State trade or commerce ; shall,
whatever be the quantum of the turnover relating to such purchase for a year,
pay tax on the taxable turnover relating to such purchase for the year at the
rates mentioned in section 5."
19. Section 15 of the Central Act, as it stood at the relevant time, reads as
under :
"15. Restrictions and conditions in regard to tax on sale or purchase of
declared goods within a State.-Every sales tax law of a State shall, in so far
as it imposes or authorises the imposition of a tax on the sale or purchase of
declared goods, be subject to the following restrictions and conditions namely
:-
(a) The tax payable under that law in respect of any sale or purchase of such
goods inside the State shall not exceed four per cent of the sale or purchase price
thereof;
(b) . . .
(c) . .
(ca) . . .
(d) . . ."
(These provisions have been modified later on or have been done away with as of
now.)
DISCUSSION :
20. Article 286(3) of the Constitution of India places restrictions on the
power of every State to impose or authorise the imposition of tax on sale or
purchase of declared goods. Article 286 and section 14/15 of the Central Act
are solely concerned with the declared commodities. We are concerned with the
taxation of goods which under section 14 of the Central Act have been declared
to be of special importance in inter-State trade or commerce. In case turnover
of such goods is subjected to tax under the sales tax laws, section 15
prescribes the maximum rate at which such tax shall be levied and the same
could not be levied at more than one stage. The two conditions have been
imposed in order to ensure that inter-State trade or commerce in such goods is
not subjected to heavy taxation within the State occasioned by excessive rate
of tax or by multi-point taxation. If either of the two conditions is not
satisfied, the imposition of sales tax will not be valid.
21. Section 5 of the State Act provides that in the case of goods specified in
the First and Second Schedules, the tax could be at the rates and points
specified against such goods in the said Schedules which in the present case is
at the point of first sale in the State by a dealer. The liability to tax and
the rate of tax under section 5 is prescribed at four per cent. As far as this
section is concerned, the conditions specified under section 15 of the Central
Act are prima facie complied with. Further, under section 10 of the State Act
the State Government granted certain exemptions by way of S.R.O. No. 1729/93,
within the purview of which the goods in the present case fall.
22. The controversy in the instant case arises when a tax is sought to be
levied under section 5A of the State Act on the same goods that are taxable
under section 5, but exempted. The essential question that we are required to
adjudicate upon is whether the tax sought to be levied under section 5A on
these goods, would amount to tax at a second stage and therefore violate
section 15 of the Central Act.
23. It is clear that by virtue of section 15 of the Central Act, declared goods
once made liable to tax cannot be made to suffer an additional tax
liability. In the present case, the goods have already been made liable
to tax under section 5 of the State Act and exempted by a notification under
section 10 ; and the same goods are sought to be taxed under section 5A in the
hands of the purchaser.
24. What we are required to examine is the impact of this exemption to
ascertain whether the second levy made under section 5A of the State Act
violates section 15 of the Central Act. In other words, we need to find out
whether not collecting the tax amount pursuant to the exemption necessarily
implies that there was never any levy to begin with, as has been contended by
the respondent. For, if this is indeed the position, then there would be no
infirmity with the levy of tax made under section 5A of the State Act in
respect of the declared goods, since the exemption would negate the levy and the
consequent liability to pay tax. However, if the exemption does not affect the
liability to tax and operates subsequent to the levy, as the counsel for the
appellant has contended, then the tax under section 5A of the State Act would
fall foul of the conditions of section 15 of the Central Act.
25. It is an accepted position before us today that section 5 and section 5A of
the State Act are independent sections and this is acknowledged by both
parties, in the light of the observations made in State of Tamil Nadu v. M.
K. Kandaswami8. This case involved the interpretation and validity of section 7A
of the Madras General Sales Tax Act, 1959 which is in pari materia to section
5A of the Kerala General Sales Tax Act, 1963. Although this case did not deal
with declared goods under section 14 of the Central Act and the resulting
applicability of the condition of single-stage levy under section 15 of the
Central Act, it did make certain observations relevant to the present
discussion. The court observed that :
"In our opinion, the Kerala High Court has correctly construed section 5A
of the Kerala Act which is in pari materia with the impugned section 7A of the
Madras Act. 'Goods, the sale or purchase of which is liable to tax under this
Act' in section 7A(1) means 'taxable goods', that is, the kind of goods, the
sale of which by a particular person or dealer may not be taxable in the hands
of the seller but the purchase of the same by a dealer in the course of his
business may subsequently become taxable. We have pointed out and it needs to
be emphasised again that section 7A itself is a charging section. It creates a
liability against a dealer on his purchase turnover with regard to goods, the
sale or purchase of which though generally liable to tax under the Act has not,
due to the circumstances of particular sales, suffered tax . . . "
(emphasis supplied).
26. The court also analysed the section and indicated the conditions necessary
for the applicability of the section and reaffirmed its validity. It has been
contended that since these conditions an? fulfilled, the levy under section 5A
of the State Act is valid. However, while these observations are relevant for
the understanding of the section and its validity, this case has no real
bearing on the present one since it never involved a question of tax (SC). on
declared goods under section 14 of the Central Act and the conditions laid down
in this regard, specifically that of a single point levy. Satisfying the
conditions laid down in Kandadaswami's case therefore does not
validate the present levy, which is on declared goods under section 14 of the
Central Act.
27 The impugned judgment of the division Bench has distinguished the case of Shanmuga
Traders. The Shanmuga's case
Para 12
"... The goods with which we arc concerned being declared goods, they can
only be taxed at a single point; that is, only one sale in the State can be
subjected to tax. It is for the State to determine whether the single point
should be the point of first sale in the State or the last sale in the State or
any intermediate sale in the State. If the single point is fixed by the State
at, say, the point of first sale and the State exempts the first sale from
payment of tax, either by a general provision or a specific provision
applicable to a class of seller, a particular seller or the goods sold may not
be subjected to tax at either that point of first sale or any subsequent sale
in the State.
Para 13
The Second Schedule of the State Act specifies the single point; it is 'the point of first sale in the State'. The first sale in the State was the sale by the said Board to the appellants/petitioners. That sale was exempt from tax by reason of the notification dated December 1, 1982 aforementioned. The iron and steel sold by the said Board to the appellants/petitioners was, therefore, not liable to tax either at the point of first sale or any subsequent sale in the State.
Para 14
There is no warrant for the emphasis that would appear to have been placed by
the Madras High Court on the phrase 'taxable sale'. The State Act does not fix
the single point of the levy at the first taxable sale ; it fixes it at 'the
point of first sale'. The impugned circular cannot validly shift the point of
levy from the first sale to a subsequent sale and it is, therefore, bad in law.
[Emphasis1 supplied]
28. The division Bench however in the present impugned judgment distinguished
the Shanmuga's case by
observing :
"We find that the observations made by the Supreme Court in Shanmuga Traders'
case  0 ;  0, in paragraph 12, came to be made in the facts of
the case. The single point of levy was at the point of first sale and not at
the point of first taxable sale. The impugned circular, the court held, could
not validly shift the point of levy from the first sale to a subsequent
sale."
29. We are of the opinion that the division Bench erroneously distinguished the
Shanmuga's case  02 from the present circumstances. We find that there is
no substantial difference between Shanmuga's case
30. It might be pertinent to mention here that the decision taken by the
division Bench in the impugned judgment is in conformity with the minority
decision in the Bhawani Cotton Mills case. In his dissenting judgment,
Sikri J. observed as follows :
". . . . In my opinion the Punjab Act does in effect comply with the
requirements of section 15 of the Central Sales Tax Act because it is possible
to find out the stage at which purchase tax becomes leviable on goods mentioned
in Schedule C. This stage is the first purchase by a dealer, which is not
exempted from taxation or which is not deductible from the taxable turnover of
a dealer under section 5(2) of the Punjab Act . . ."
31 However, the majority decision took a different, much stricter view of the
matter, which is the law of the land today. The majority in Bhawani Cotton
Mills case was of the opinion that the Act in question did not identify
the specific stage for the levy on declared goods and that it was possible for
the goods to be taxed at more than one stage, which was contrary to the
condition in the Central Act. The court observed as follows :
"Pausing here for a minute, it may be stated that the attack regarding the
validity of some of the provisions of the Act, by the appellant, is rested on
section 15(a) of the Central Act, on the ground that such a levy of purchase
tax, regarding cotton, is neither definite nor ascertainable in the Act and
that, as the provisions now stand, there is a possibility of the tax being
levied at more than one stage . . . The essence of a one-stage taxation
consists of fixation of a single point or stage, either by the State Act or the
rules framed thereunder . . . Under those circumstances, there is always a
possibility, or even a certainty, of more persons than one having paid tax or
being made liable to pay tax in respect of the same goods at different stages. If
a person is not liable for payment of tax at all, at any time, the collection
of a tax from him, with a possible contingency of refund at a later stage, will
not make the original levy valid ; because, if particular sales or purchases
are exempt from taxation altogether, they can never be taken into account, at
any stage, for the purpose of calculating or arriving at the taxable turnover
and for levying tax."
32. Thus, the court finally concluded that the conditions of section 15 of the
Central Act had not been complied with.
33. The view taken in Shanmuga's case as well as the majority decision
in Bhawani Cotton Mills case is
reiterated in a number of other cases, which make it clear that exemption
operates after the levy and does not negate the liability to tax.
34. The arguments raised by the respondent before us have two aspects. They
contend that since the goods in question were exempt from tax at the first
sale, no liability to tax attached on the seller. Additionally, they also argue
that since there was no collection of tax, there could be no "levy"
of tax. In both cases, the obvious implication that the respondent seeks to
establish is that at the point of first sale, the seller was not liable to tax
and therefore if a subsequent tax were to be levied on these goods, as section
5A of the State Act seeks to do, there is no violation of section 15 of the
Central Act.
Impact of exemption on the liability to tax :
35. The first aspect of the argument of the respondent is with respect to the
impact of exemption upon the liability to tax. In our opinion, exemption can
only operate when there has been a valid levy, for if there was no levy at all,
there would be nothing to exempt.
36. In this regard two cases decided by this court are relevant. The first is
the Pine Chemicals case13,
which involved questions of sales tax and exemption under the Jammu and Kashmir
General Sales Tax Act, 1962. While examining certain exemption orders made by
the Government, the court observed as follows :
"Under section 4(1) of the Jammu and Kashmir General Sales Tax Act the
goods are taxable only once, that is, it could be taxed only at one point of
sale. We have already held that the Government Orders 159 and 414 are exemption
orders and exempt the sale by the appellants of their manufactured products.
The exemption would not arise unless the goods are taxable at the point of
their sale. Thus the effect of exempting their sale is that the said goods
manufactured by them could not be taxed at the second or subsequent sales also
as that would offend section 4(1) which provides for single point levy. In
cases where there are no exemption orders and the State fixed the second or
subsequent sale as point of taxation the first or prior or subsequent sales are
not exempted sales but are not taxable sales . . . "(emphasis supplied)
37. Thus the court was of the opinion that when certain goods were subjected to
the single-stage tax condition, and the stage identified for the levy was
exempted, subsequent sales could not be taxed by the authorities despite the
exemption.
38. This position has been reaffirmed in Associated Cement. In
Associated Cement
"Crucial question, therefore, is whether the appellant had any 'liability'
under the Act . . . The question of exemption arises only when there is a
liability. Exigibility to tax is not the same as liability to pay tax. The
former depends on charge created by the statute and the latter on computation
in accordance with the provisions of the statute and Rules framed thereunder if
any. It is to be noted that liability to pay tax chargeable under section 3 of
the Act is different from quantification of tax payable on assessment.
Liability to pay tax and actual payment of tax are conceptually different. But
for the exemption the dealer would be required to pay tax in terms of section
3. In other words, exemption presupposes a liability. Unless there is liability
question of exemption does not arise. Liability arises in terms of section 3
and tax become payable at the rate as provided in section 12. Section 11 deals
with the point of levy and rate and concessional rate. " (emphasis1
supplied)
39. A reading of the above judgments makes it amply clear that exemption does
not negate a levy of tax altogether. Despite an exemption, the liability to tax
remains unaffected, only the subsequent requirement of payment of tax to fulfil
the liability is done away with.
Distinction between levy and collection :
40. The second aspect of the argument is that an absence of collection means an
absence of levy or liability. This question has already been examined in
certain earlier cases, and this court has consistently maintained a distinction
between levy and collection.
41. In National Tobacco case , this court was faced with certain
questions relating to the refund of excise duty on the manufacture of
cigarettes. In this context, the court examined the scope of the term
"levy" and made the following observations :
"The term 'levy' appears to us to be wider in its import than the term
'assessment'. It may include both 'imposition' of a tax as well as assessment.
The term 'imposition' is generally used for the levy of a tax or duty by
legislative provisions indicating the subject-matter of the tax and the rates
at which it has to be taxed. The term 'assessment', on the other hand, is
generally used in this country for the actual procedure adopted in fixing the
liability to pay a tax on account of particular goods or property or whatever
may be the object of the tax in a particular case and determining its amount.
The division Bench appeared to equate 'levy7 with an 'assessment' as well as
with the collection of a tax when it held that 'when the payment of tax is
enforced, there is a levy. We think that, although the connotation of the term
'levy' seems wider than that of 'assessment', which it includes, yet, it does
not seem to us to extend to 'collection'. Article 265 of the Constitution makes
a distinction between 'levy' and 'collection'....." (emphasis' supplied)
42. The court made it very clear that levy and collection are not synonymous
and that collection of the tax is not a necessary facet of a "levy".
43. Referring to the above case, the court made similar observations in the
case of Somaiya Organics. It observed :
". . . The words used in article 265 are 'levy7 and 'collect'. In taxing
statute the words 'lev/ and 'collect' are not synonymous terms (refer to Assistant
Collector of Central Excise v. National Tobacco Co. of India ltd9) at
page 572, while 'levy7 would mean the assessment or charging or imposing tax,
'collect' in article 265 would mean the physical realisation of the tax which
is levied or imposed. Collection of tax is normally a stage subsequent to the
levy of the same ..."
44. The distinction between levy and collection has also been emphasised in Collector
of Central Excise, Hyderabad v. Vazir Sultan Tobacco Company Limited10 .
The crux of this case involved the levy of a special excise duty,
the liability for which did not exist on the date of manufacture and only on
the date of removal of goods. The excise duty however was normally collected on
the date of removal, and it was contended that since the liability to pay the
special duty existed on the date of collection of duty, the same must be paid
as well. Rejecting this argument, the court held that the stage of removal was
identified for collection of duty only for administrative convenience, and that
this did not affect the nature of the levy, which was on the manufacture of
goods. In this context, the court distinguished levy and collection. It
observed :
"... Once the levy is not there at the time when the goods are
manufactured or produced in India, it cannot be levied at the stage of removal
of the said goods. The idea of collection at the stage of removal is devised
for the sake of convenience. It is not as if the levy is at the stage of
removal ; it is only the collection that is done at the stage of removal.
Admittedly, the special excise duty is an independent duty of excise separate
and distinct from the duties of excise levied by the Central Excises and
Salt Act, 1944. This levy came into effect only on and from March 1, 1978 which
means that the goods produced prior to that date were not subject to such levy.
If that is so, the levy cannot attach nor can it be realised because such goods
are removed on or after March 1, 1978. The provisions of the Central
Excise Act, 1944and the Rules, in our opinion, do not say otherwise. he levy is
and remains upon the manufacture or production alone. Only the collection part
of it is shifted to the stage of removal.
Once this is so, the fact that the provisions of the Central Excise Act,
1944 are applied in the matter of levy and collection of special excise
duty cannot and does not mean that wherever the Central excise duty is payable,
the special excise duty is also payable automatically. That is so as an
ordinary rule. But insofar as the goods manufactured or produced prior to March
1, 1978 are concerned, the said rule cannot apply for the reason that there was
no levy of special excise duty on such goods at the stage and at the time of
their manufacture/ production. The removal of goods is not the taxable event.
Taxable event is the manufacture or production of goods." (emphasis
supplied)
45. In the light of the above two cases, it is evident that collection and levy
are distinct and that collection is not an essential facet of levy. It is true
that collection of a tax may sometimes be indicative of a lawful levy of tax,
but in our opinion it does not logically follow that absence of collection
means an absence of liability. We are also of the opinion that the
reliance on the Town Municipal Committee  by the division Bench which
involved an interpretation of "continued to be levied" and "to
be applied to the same purposes" in article 277 of the Constitution was
misplaced. While that case did hold that in the circumstances before them
"levy" was intended to include "collection", in our opinion
the logic or ratio of that case cannot be extended so far as to say that every
"levy" must include collection and without such collection no levy
can be said to have been made.
CONCLUSION :
46. Thus, after an examination of the relevant case law, we find that the
liability to tax or taxability under section 5 of the State Act remains
unaffected by an exemption under section 10 of the State Act. Consequently, the
respondent cannot validly shift the burden of tax to the purchaser under section
5A of the State Act for the same would violate the condition of single-stage
tax under section 15 of the Central Act.
47. For the reasons stated above, these appeals are allowed. There will be no
orders as to costs.
1(1998) 5 SCC 0349
2(1967) 3 SCR 0577
3(1964) 6 SCR 0947
4(1972) 2 SCC 0560
5(2001) 5 SCC 0519
6(1992) 2 SCC 0683
7 (2004) 7 SCC 0642
8(1975) 4 SCC 0745
9(1987) 66 STC 0358
10(1973) SCR 1 0822
11(1996) 3 SCC 0434.