JUDGMENT
P.C. Balakrishna Menon, J.
1. The only question for decision in this batch of tax revision cases is as to whether rubber cess collected from the assessees who are all manufacturers of different rubber products is liable to be included in their purchase turnover of rubber for the purpose of assessment under the Kerala General Sales Tax Act, 1963. The respective assessing authorities have held that the rubber cess paid by the assessees forms part of their purchase turnover. The purchase turnover of rubber is exigible to tax under entry 38 of Schedule I to the Kerala General Sales Tax Act at the last purchase point. The appellate authority took the view that the rubber cess paid by the respective manufacturers of rubber products is not liable to be included in their purchase turnover and hence directed a fresh assessment deleting the cess. This view of the appellate authority is confirmed by the Sales Tax Appellate Tribunal in appeals filed at the instance of the Revenue. The State has come up in revision under Section 41 of the Kerala General Sales Tax Act.
2. Rubber cess is” payable under Section 12 of the Rubber Act, 1947 (Central Act 24 of 1947). Section 12 as it originally stood is extracted below :
“Imposition of rubber cess. – (1) With effect from such date as may be notified by the Central Government in this behalf, there shall be levied and collected as a cess for the purposes of this Act a duty of excise on all rubber produced in India at such rate not exceeding one anna per pound of rubber so produced as the Central Government may, by the same or a like notification, from time to time fix.
(2) The said duty of excise shall be payable by the owner of the estate on which the rubber is produced, and shall be paid by him to the Board within one month from the date on which he receives a notice of demand therefor from the Board.
(3) The said duty of excise may be recovered as if it were an arrear of land revenue.
(4) For the purpose of enabling the Board to assess the amount of the duty of excise payable by the owner of an estate under this section,
(a) the Board shall, by notification in the Gazette of India, fix the period in respect of which assessments shall be made, and
(b) without prejudice to the provisions of Section 20, every owner of an estate shall furnish to the Board a return stating the total amount of rubber produced on the estate in each such period, not later than fifteen days after the expiry of the period to which the return relates:
Provided that in respect of an estate situated only partly in India, the owner shall in the said return show separately the amounts of rubber produced within and outside India.
(5) If any owner of an estate fails to furnish in due time the return referred to in Sub-section (4) or furnishes a return which the Board has reason to believe is incorrect or defective, the Board may assess the amount payable by that owner in such manner as may be prescribed.
(6) Any owner of an estate aggrieved by an assessment made under the section may within three months of the service of the notice under Sub-section (2) apply to the District Judge for the cancellation or modification of the assessment, and the District Judge shall, after giving the Board an opportunity of being heard, pass such order (which shall be final) as he thinks proper.
(7) The proceeds of the duty of excise collected by the Board and any of the fees levied under this Act (all of which shall form part of the Consolidated Fund of India) reduced by the cost of collection as determined by the Central Government, shall, if Parliament by appropriation made by law in this behalf so provides, be paid to the Board for being utilised for the purposes of this Act.”
Section 3(h) of the Rubber Act defines “rubber” to mean :
“(i) crude rubber, that is to say, rubber prepared from the leaves, bark or latex of any rubber plant;
(ii) the latex of any rubber plant, whether fluid or coagulated, in any stage of the treatment to which it is subjected during the process of conversion into rubber;
(iii) latex (dry rubber content) in any state of concentration, and includes scrap rubber, sheet rubber, rubber in powder and all forms and varieties of crepe rubber, but does not include rubber contained in any manufactured article.”
3. Section 12 was substituted by the Rubber (Amendment) Act, 1960 (21 of 1960), which came into force on 1st November, 1960. The section as substituted by the Amendment Act is extracted below :
“Imposition of new rubber cess. – (1) With effect from such date as the Central Government may, by notification in the Official Gazette, appoint, there shall be levied as a cess for the purposes of this Act, a duty of excise on all rubber produced in India at such rate, not exceeding fifty naye paise per kilogram of rubber so produced, as the Central Government may fix.
(2) The duty of excise levied under Sub-section (1) shall be collected by the Board in accordance with rules made in this behalf either from the owner of the estate on which the rubber is produced or from the manufacturer by whom such rubber is used.
(3) The owner or, as the case may be, the manufacturer shall pay to the Board the amount of the duty within one month from the date on which he receives a notice of demand therefor from the Board and, if he fails to do so, the duty may be recovered from the owner or the manufacturer, as the case may be, as an arrear of land revenue.
(4) For the purpose of enabling the Board to assess the amount of the duty of excise levied under this section –
(a) the Board shall, by notification in the Official Gazette, fix a period in respect of which assessments shall be made; and
(b) without prejudice to the provisions of Section 20, every owner and every manufacturer shall furnish to the Board a return not later than fifteen days after the expiry of the period to which the return relates, stating, –
(i) in the case of an owner, the total quantity of rubber produced on the estate in each such period :
Provided that in respect of an estate situated only partly in India, the owner shall in the said return show separately the quantity of rubber produced within and outside India;
(ii) in the case of a manufacturer, the total quantity of rubber used by him in such period out of the rubber produced in India.
(5) If any owner or manufacturer fails to furnish, within the time prescribed, the return referred to in Sub-section (4) or furnishes, a return which the Board has reason to believe is incorrect or defective, the Board may assess the amount of the duty of excise in such manner as may be prescribed.
(6) Any person aggrieved by an assessment made under this section may, within three months of the service of the notice under Sub-section (3), apply to the District 3udge for the cancellation or modification of the assessment, and the District Judge shall, after giving the Board an opportunity of being heard, pass such order (which shall be final) as he thinks proper.
(7) The proceeds of the duty of excise collected under this section reduced by the cost of collection as determined by the Central Government shall first be credited to the Consolidated Fund of India, and then be paid by the Central Government to the Board for being utilised for the purposes of this Act, if Parliament by appropriation made by law in this behalf so provides.”
The validity of Section 12 of the Rubber Act as amended in 1960 was upheld by the Supreme Court in the decision reported in 3ullundur Rubber Goods Manufacturers’ Association v. Union of India AIR 1970 SC 1589. The objects and reasons for the amendment are extracted in paragraph 11 of the judgment of the Supreme Court as follows :
“In the Statement of Objects and Reasons appended to Bill No. 32 of 1960 when amendments were made in Section 12 of the Act by the Rubber (Amendment) Act, 1960, it was stated inter alia :
‘This method of collection of the cess provided under the Act has led to considerable evasion of cess by the owners of the estates, either by evasion of registration or by failure to submit correct returns or any returns at all. There are about 26,000 estates under production in the country and most of them are small holdings. Many of them do not render returns of production to the Rubber Board and thus evade payment of duty. From October, 1947, to December, it was found that 20,608 tons of rubber escaped assessment and the Board suffered during the period a loss of Rs. 3,30,805. The Rubber Board estimates that under the present system there is no likelihood of more than 65 per cent of the potential revenue being realised each year.
With a view to improving the efficiency of collection, it is proposed to amend Section 12 of the Act so as to enable the cess to be collected either from the owners or the manufacturer who ultimately consumes the rubber produced in the estates.
There are at present 347 registered rubber manufacturers in the country. It is felt that it would be far more easy to collect the cess from a small number of manufacturers than from about 26,000 producers whose number will increase year by year. The proposed amendment of Section 12 in the amending Bill is an enabling measure for the administrative change in the method of collection being contemplated.”
The purpose of the amendment as is clear from its objects and referred to by the Supreme Court, is to facilitate easy collection of the rubber cess due under the Rubber Act.
4. Rubber cess is a duty of excise on the rubber produced within the country is clear from Section 12 itself. The incidence of taxation is on the production of rubber as defined in the Act and the amended provisions of Section 12 have made the recovery and collection of the cess easier.
5. That the excise duty is a duty on the production or manufacture of goods and the same can be levied at convenient stages so long as the character of the impost is not lost, is not open to doubt in view of the decisions in R.C. Jall v. Union of India AIR 1962 SC 1281, In re Sea Customs Act (1964) 3 SCR 787, Guruswamy & Co. v. State of Mysore (1967) 1 SCR 548, 3ullundur Rubber Goods Manufacturers’ Association v. Union of India AIR 1970 SC 1589, A.B. Abdul Kadir v. State of Kerala (1976) 2 SCR 690 (SC) and McDowell & Company Ltd. v. Commercial Tax Officer (1985) 59 STC 277 (SC). After considering the decision of the Federal Court in Province of Madras v. Boddu Paidanna & Sons (1942) 1 STC 104 and its own earlier decisions referred to above the Supreme Court in McDowell & Co. Ltd.’s case (1985) 59 STC 277 (SC) stated at page 289 :
“Thus, the incidence of excise duty is directly relatable to manufacture but its collection can be deferred to a later stage as a measure of convenience or expediency.”
6. The expression “turnover” is defined in Section 2(xxvii) of the Kerala General Sales Tax Act, as follows :
“turnover means the aggregate amount for which gods are either bought or sold, or supplied or distributed, by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce, grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover.”
Construing a similar definition in the Andhra Pradesh General Sales Tax Act, the Supreme Court in McDowell & Co. Ltd.’s case (1985) 5 ECC 259 (SC) : (1985) 59 STC 277 (SC) referred to above stated at page 290 :
“The definition clearly indicates that the total amount charged as the consideration for the sale is to be taken into account for determining the turnover.”
In support of the above provision the Supreme Court refers to the following observation in its earlier decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan (1979) 43 STC 13 (SC) :
“The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale….”
There can, therefore, be no doubt that the excise duty charged on the production of goods sold forms part of the sale consideration and should properly be included in the purchase turnover.
7. Shri Hyder Ali Khan, Shri Pathrose Mathai, Shri M.B. Kurup and Shri T.L. Viswanatha Iyer, Advocates, who argued the case on behalf of the respective assessees, place considerable reliance on the decision of the Supreme Court in McDowell & Co. Ltd. v. Commercial Tax Officer (1977) 39 STC 151 (SC) (hereinafter referred to as the first McDowell & Co. Ltd.’s case) in support of the proposition that the excise duty paid by the purchasers of the goods concerned does not form part of their purchase turnover. The question before the Supreme Court in that case was whether the excise duty paid by purchasers of Indian made foreign liquor before its removal from the distillery and the countervailing duty paid by purchasers directly to Government before removing liquor from bonded warehouses would form part of the turnover of the owners of the distillery and the bonded warehouses respectively, liable to tax under the Andhra Pradesh General Sales Tax Act. As per the Distillery Rules applicable at the relevant period of time, the purchaser had to pay the excise duty and apply to the Distillery Officer by producing the challan evidencing payment of excise duty for the issue of distillery passes. Such passes will be issued on satisfaction by the Distillery Officer that the excise duty due on the quantity of liquor to be sold had been paid by the purchaser and on production of the distillery passes, a bill of sale or invoice is prepared by the distillery showing the price of the goods sold. Since the excise duty had been pre-paid by the purchaser, the invoice does not take in the excise duty. Similar was the provision in regard to the countervailing duty to be paid by the purchaser before the delivery of liquor from the bonded warehouse. Considering the relevant rules and after referring to its earlier decision in George Oakes (Private) Ltd. v. State of Madras (1961) 12 STC 476 (SC) the Supreme Court stated at page 160 :
“In the instant cases, the excise and countervailing duties did not go into the common tills of the appellants and did not become a part of their circulating capital. We are, therefore, of the view that the sales tax authorities were not competent to include in the turnovers of the appellants the excise duty and the countervailing duty which was charged by them but was charged by and paid directly to the excise authorities by the buyers of the liquors as stated above.”
This decision of the Supreme Court was followed by a Division Bench of this Court in the decision reported in Deputy Commissioner of Sales Tax v. Burmah Shell Co. Ltd. (1981) 48 STC 37. The view expressed by the Supreme Court in the first McDowell & Co. Ltd.’s case (1977) 39 STC 151 (SC) was not approved in its later decision reported in McDowell & Co. Ltd. v. Commercial Tax Officer (1985) 59 STC 277 (SC) (hereinafter referred to as the second McDowell & Co. Ltd.’s case). The Second McDowell & Co. Ltd.’s case (1985) 59 STC 277 (SC) also related to the question whether the excise duty paid by the purchasers directly to the Government is liable to be included in the turnover of the assessee, the owner of the distillery where the liquor is manufactured. At the relevant time, however, the Andhra Pradesh Distillery Rules had been amended, as per which the liability to pay excise duty was made exclusively that of the manufacturer. However, by private arrangement the purchasers of liquor were paying excise duty directly to Government and the bills or invoices issued by the assessee-manufacturer did not include the excise duty in the price paid for the sale of liquor. The decision of the Supreme Court, however, is not entirely based on the change effected in the Distillery Rules as per which the liability for excise duty was exclusively on the manufacturer. The Supreme Court observes at page 290 :
“On an examination of the provisions of the Excise Act, the Rules framed thereunder and the pronouncements referred to above, we are of the view that the conclusion of this Court at page 921 of the Reports [at page 158 of (1977) 39 STC 151 (SC)] that intending purchasers of the Indian liquors who seek to obtain distillery passes are also legally responsible for payment of the excise duty is too broadly stated. The ‘duty’ was primarily a burden which the manufacturer had to bear and even if the purchasers paid the same under the Distillery Rules, the provisions were merely enabling and did not give rise to any legal responsibility or obligation for meeting the burden.”
Rejecting the contention on behalf of the assessee that the excise duty paid directly by the purchasers had at no time come into the hands of the assessee and hence could not be included in the turnover of the assessee as a circulating capital as referred to by Hidayatullah, 3., as he then was in George Oakes (Private) Ltd. v. State of Madras (1962) 13 STC 98 (SC) the Supreme Court observed at page 293 :
“According to Mr. Sorabji the excise duty had never come into the hands of the appellant and the company had no occasion or opportunity to turn it over in its hands, and, therefore, the same could never be considered as a part of its turnover. The observations made by this Court were in a very different setting and what was being considered was whether the additional tax levied under the Madras Act formed a part of the turnover. If we accept the observations of Hidayatullah, J., as laying down the test for general application, it would be very prejudicial to the revenue as between the seller and the buyer, by special arrangement, a part of what ordinarily would constitute consideration proper could even be kept out and the turnover could be reduced and tax liability avoided. We are of the view that the conclusion reached in the appellant’s case in (1977) 1 SCR 914 (McDowell & Co. Ltd. v. Commercial Tax Officer (1977) 39 STC 151 (SC) on the second aspect of the matter, namely, when the excise duty does not go into the common till of the assessee and it does not become a part of the circulating capital, it does not constitute turnover, is not the decisive test for determining whether such duty would constitute turnover.”
8. We have already noticed that the rubber cess under Section 12 of the Rubber Act is a duty of excise on all rubber produced in India and the taxable event is the production of rubber as defined in the Act. It is such rubber that the assessees had purchased. It is true, as per the amended provisions of Section 12 the purchasers who are manufacturers of rubber products are also made liable for payment of rubber cess. But as noticed by the Supreme Court in the decision in Jullundur Rubber Goods Manufacturers’ Association’s case AIR 1970 SC 1589 the amendment was only for the purpose of facilitating easy collection of the rubber cess due on the production of rubber. The assessees have no case that the rubber purchased by them have not passed the stage of production before their purchase which alone is the taxable event in the matter of levy of rubber cess under Section 12 of the Rubber Act. Since the incidence of duty is directly relating to production of rubber, a deferred payment after the purchase by the manufacturer does not alter the character of the levy as one on the production of goods, and the duty paid should, therefore, be deemed to form part of the price that the purchaser had paid for the goods purchased. Neither a provision for deferred payment, nor the liability cast on the manufacturer of rubber goods for payment of the duty to facilitate easy collection would alter the nature of the levy as one on the production of rubber and such duty, even though paid later, will be a part of the price of the goods purchased and would, therefore, form part of the purchase turnover of the respective assessees.
9. Shri Hyder Ali Khan,. appearing for some of the assessees, relies also on the decision of the Madras High Court reported in E.I.D. Parry (India) Ltd. v. State of Tamil Nadu (1979) 44 STC 352 where the question for decision was as to whether the gallonage fee collected by the assessee who carries on distillery business is liable to be included in his turnover. Considering the relevant rules relating to the gallonage fee the Madras High Court held that the liability to pay gallonage fee is on the purchaser and the distillery is only an agent for collection of the same on behalf of the Government. It was accordingly held that the gallonage fee collected from the purchaser for payment to the Government does not form part of the turnover of the assessee. This decision has no relevance to the present case where the liability for rubber cess as a duty of excise is on the production of rubber and is principally that of the producer, in spite of the provision in the amended Act for deferred payment by the purchaser.
10. Counsel relies also on the decision of the Andhra Pradesh High Court reported in Vinayak Beer & Wine Stores v. Commercial Tax Officer (1984) 56 STC 18. There the question was whether the excise duty paid by the purchaser before the quantity of liquor purchased was released from the bonded warehouse of the assessee was part of the turnover of the assessee. The Distillery Rules as amended cast the liability for excise duty exclusively on the owner of the bonded warehouse. It was accordingly held that the decision of the Supreme Court in the first McDowell & Co. Ltd.’s case (1977) 39 STC 151 (SC) has no application to the case where as per the rules the liability is that of the assessee and hence the excise duty, even though paid by the purchaser, should be deemed to be payment on behalf of the assessee liable to be included in its turnover for the purpose of assessment to sales tax. We do not see how this decision will help the contention of the assessee that the rubber cess paid does not form part of his purchase turnover. We have already noticed that the decision in the first McDowell & Co. Ltd.’s case (1977) 39 STC 151 (SC) itself was held as not laying down the correct law in regard to this aspect of the matter in the second McDowell & Co. Ltd.’s case (1985) 59 STC 277 (SC).
11. Shri Pathrose Mathai, counsel for some of the assessees, strongly relies on Rule 33D of the Rules framed under the Rubber Act as per which a notice of demand for rubber cess is to be issued only to the manufacturer of rubber goods and not to the producer of rubber. Strong reliance is placed also on the following observation of the Supreme Court on the effect of Rule 33D in Jullunder Rubber Goods Manufacturers’ Association’s case AIR 1970 SC 1589 at page 1596 :
” 13. Now the above rule seems to contemplate the filing of return both by the owners of rubber estates and manufacturers. But under Rule 33D the demand notice can be sent only to a manufacturer on receipt of which he must make payment to the Board of the amounts specified therein. On his failure to make such payment the Board can take steps for recovery of the amounts due as arrears of land revenue by reporting to the Central Government or the State Government as the case may be. There is no such procedure prescribed with regard to owners of estates. It would follow that under the rules the demand notice is to be sent only to the manufacturers and the amounts of duty are to be realised from them alone. The substantive provisions of Sub-sections (4), (5) and (6) of Section 12 also contemplate assessment being made with regard to the returns to be furnished by owners and manufacturers. Any person aggrieved by an assessment has been given the right of appeal to the District Judge. But as pointed out before, there is no provision either in the state or in the rules for a demand to be made and a corrective process to be employed in the event of failure to make the payment. That is done by Rule 33D alone from which it would be reasonable to conclude that under the rules it is only the manufacturers who are liable to pay the amount of duty. The rules can, therefore, be said to make a definite provision with regard to the category of persons from whom the collection of the duty is to be made, namely, the manufacturers.”
12. Shri Abdul Hassan, learned Government Pleader, points out Sub-section (3) of Section 12 as per which “the owner or, as the case may be, the manufacturer” is required to pay to the Board the amount of the duty within one month from the date on which he receives a notice of demand and if he fails to make the payment, the duty is liable to be recovered from the owner or the manufacturer, as the case may be, as an arrear of land revenue. We have already adverted to the provisions of Section 12 as per which the incidence of the duty is at the point of production of rubber and both the owner and the manufacturer are made liable to pay the same. We have also noticed that in spite of a provision for deferred payment and/or for payment by the purchaser, there is no alteration of the essential character of the levy and it remains as a duty of excise on the production of the goods. We have further noticed that the substitution of Section 12, of amendment in 1960, was for the purpose of facilitating easy recovery of the rubber cess. Rule 33D for the issue of a notice of demand to the manufacturer and for the recovery of the duty from him can only be considered as relating to a process of recovery and collection of the duty of excise due on the production of goods.
13. For the aforesaid reasons we hold that the rubber cess paid by the assessees forms part of their purchase turnover of rubber exigible to sales tax under entry 38 of Schedule I to the Kerala General Sales Tax Act, 1963. We therefore allow these tax revision cases, set aside the order of the Tribunal and the appellate authority and restore the orders of the assessing authority in all these cases. There will, however, be no order as to costs.
Counsel for the respondents in T.R.C. Nos. 62 of 1982, 7 of 1983, 14 of 1983, 72 of 1984, 4 of 1985 and 22 of 1985 pray for leave to appeal to the Supreme Court. We do not see that those cases involve any substantial question of general importance that in our opinion needs to be decided by the Supreme Court. The prayer for leave is accordingly rejected.