THE EXCISE COMMISSIONER, KARNATAKA vs. MYSORE SALES INTERNATIONAL LTD AND ORS. ETC

C.A. No.-002168-002168 - 2007Supreme Court2024 INSC 48408 July 2024Bench: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE UJJAL BHUYANAuthor: HON'BLE MR. JUSTICE UJJAL BHUYAN46 pages
For Petitioner: V. N. RAGHUPATHYFor Respondent: NANDA KISHORE
AI SummaryAllowed

What were the facts?

The appellant, Mysore Sales International Ltd. (a Karnataka Government undertaking), was directed by the Deputy Commissioner of Income Tax (TDS) to pay tax collectible at source under Section 206C(6) of the Income Tax Act for assessment years 1995-96 to 2000-01. The revenue contended that Mysore Sales, as a seller of arrack, was obligated to collect TDS from liquor vendors who purchased vending rights through auction. The appellant argued that the liquor vendors were not 'buyers' as defined in Section 206C(1)(a)(iii) because the sale price of arrack was fixed by the State government and the transaction was in the nature of a works contract. The assessing officer passed orders demanding the uncollected TDS and levied interest, which were upheld by the Single Judge and the Division Bench of the Karnataka High Court. The appeal is against the High Court's judgment.

What did the Supreme Court hold?

The Supreme Court held that Section 206C of the Income Tax Act is not applicable to Mysore Sales International Ltd. in respect of arrack sales to liquor vendors. The Court found that the liquor vendors were not 'buyers' as defined under Explanation (a) to Section 206C. Specifically, the Court determined that the conditions under Explanation (a)(iii) were satisfied. Firstly, the arrack was sold by the appellant on behalf of the State Government, and the property in the arrack vested with the State. Secondly, the sale price was fixed statutorily under Rule 4 of the 1967 Rules, even though it was within a price range. Therefore, the liquor vendors were excluded from the definition of 'buyer'. The Court also noted that while Section 206C(6) does not expressly mandate notice and hearing, orders passed thereunder have adverse civil consequences, requiring adherence to principles of natural justice. Although a show cause notice was issued, it was deemed inadequate. Consequently, the Supreme Court set aside the orders of the assessing officer, the Single Judge, and the Division Bench of the High Court.

What were the issues?

1. Whether Section 206C of the Income Tax Act is applicable to the appellant, Mysore Sales International Ltd., in respect of arrack sales to liquor vendors. 2. Whether the liquor vendors (contractors) who bought vending rights from the appellant on auction can be termed as 'buyers' within the meaning of Explanation (a) to Section 206C of the Income Tax Act, or if they are excluded by clause (iii) of Explanation (a). Assessee's Contentions: The appellant contended that the liquor vendors were not 'buyers' under Section 206C(1)(a)(iii) because the sale price of arrack was fixed by the Excise Commissioner and the transaction was akin to a works contract, not a sale. They relied on a circular from the Excise Commissioner of Karnataka dated 16.06.1998 which clarified that TDS was not to be recovered from liquor vendors as the selling price was fixed. The appellant also argued that the orders passed under Section 206C(6) entailed adverse civil consequences, necessitating adherence to principles of natural justice, including adequate notice and hearing. Revenue's Contentions: The revenue argued that the appellant was a 'seller' and the liquor vendors were 'buyers' under Section 206C, making the appellant liable to collect TDS. The revenue's arguments are not explicitly detailed beyond this assertion in the provided text.

Which sections of the Income-tax Act were involved?

Section 206C,Section 206C(6),Section 156

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
2024 INSC 484 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2168 OF 2007 THE EXCISE COMMISSIONER KARNATAKA & ANR. APPELLANT(S) VERSUS MYSORE SALES INTERNATIONAL LTD. & ORS. RESPONDENT(S)

J U D G M E N T

UJJAL BHUYAN, J.

Heard learned counsel for the parties.

2.

This appeal has been preferred against the judgment and order dated 13.03.2006 passed by the Division Bench of the High Court of Karnataka at Bengaluru (briefly “the High Court” hereinafter) in Writ Appeal No. 7926/2003. By the aforesaid 2

judgment and order, the Division Bench had dismissed the writ appeal filed by the appellant as well as other writ appeals filed by Mysore Sales International, State of Karnataka and Mysore Sugar Company Limited assailing the common judgment and order dated 27.10.2003 passed by the learned Single Judge of the High Court, dismissing Writ Petition Nos. 6869-6874 of 2001 filed by the appellant and other writ petitions filed by the above parties against the orders dated 17

The order continues below.

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