The Excise Commissioner, Karnataka vs. Mysore Sales International Ltd. [July 08, 2024]
Citation: (2024) 466 ITR 205 (SC); 2024 SCC OnLine SC 484
Court: Supreme Court of India
Bench: Not specified in search results
Date: July 8, 2024
Background and Facts
Mysore Sales International Ltd. (MSIL), a Karnataka government undertaking, was engaged in the manufacture and sale of arrack (a spirituous liquor) under the regulatory framework of the Karnataka Excise Act, 1965.
The State of Karnataka conducted auctions to grant exclusive rights to retail vendors (contractors) to sell arrack in specified areas. Successful bidders would procure arrack from MSIL and sell it within their allotted zones.
The Income Tax Department, through the Deputy Commissioner of Income Tax (TDS), issued orders in January 2001 holding that MSIL was a "seller" and the liquor vendors were "buyers" under Section 206C of the Income Tax Act, 1961, thus obliging MSIL to collect income tax at source (TCS) from the vendors for several assessment years.
MSIL’s challenge to these orders was dismissed by the Single Judge and Division Bench of the Karnataka High Court, leading to the present appeal before the Supreme Court.
Issues
Whether Section 206C of the Income Tax Act, 1961, which mandates collection of tax at source from buyers, applied to MSIL and the liquor vendors in this context.
Whether the liquor vendors could be classified as "buyers" under the Explanation to Section 206C.
Whether the orders of the assessing officer and the High Court were justified.
Arguments
Appellant (Excise Commissioner, Karnataka):
Contended that MSIL, being a government company, was not selling arrack in the commercial sense to the vendors; rather, the transaction was regulated by the State and prices were fixed by the government.
Asserted that the relationship between MSIL and the vendors was not that of a typical seller and buyer as envisaged under Section 206C.
Respondent (Income Tax Department):
Argued that the liquor contractors, having obtained vending rights through auction and procured arrack from MSIL, clearly fell within the definition of "buyer" under Section 206C.
Maintained that MSIL was obliged to collect TCS from the vendors and remit it to the government.
Supreme Court’s Decision and Reasoning
The Supreme Court held that Section 206C of the Income Tax Act was not applicable to MSIL in these circumstances.
The Court reasoned that the liquor vendors, who acquired vending rights through public auction, did not qualify as "buyers" within the meaning of Explanation (a) to Section 206C, especially since their purchase was strictly regulated and for the exclusive purpose of retail vending under state control.
The Court emphasized that for Section 206C to apply, there must be a sale to a "buyer" as defined under the Act, which was not the case here. The vendors did not have the freedom to deal with the goods as absolute owners; their rights were circumscribed by the terms of the auction and the excise laws.
The Court also highlighted the importance of natural justice, stating that even if the statute is silent, the requirement of notice and hearing before passing a prejudicial order must be read into the provision.
The Supreme Court set aside the orders of the High Court and the assessing officer, allowing the appeal filed by MSIL and others.
Key Principles and Significance
Section 206C TCS Not Attracted: The transaction between MSIL and the liquor vendors, conducted under a statutory regime and public auction, does not amount to a sale to a "buyer" in the commercial sense required for TCS under Section 206C.
Natural Justice: Even in the absence of express statutory provision, principles of natural justice—notice and hearing—must be observed before passing adverse orders.
Regulated Transactions: Transactions under statutory control, especially those involving government undertakings and regulated commodities, may not always fall within the ambit of general tax collection provisions.
Conclusion
The Supreme Court’s decision clarifies that government undertakings like MSIL, operating under a strict statutory regime, are not required to collect TCS under Section 206C of the Income Tax Act from liquor vendors who acquire vending rights through auction. The judgment underscores the need to interpret tax collection provisions in light of the regulatory context and upholds the importance of natural justice in administrative proceedings.
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