Supreme Court of IndiaState Of Kerala vs M/S Madras Rubber Factory Ltd. Etc. Etc on 19 December, 1997Equivalent citations: AIR 1998 SUPREME COURT 723, 1998 (1) SCC 616, 1998 AIR SCW 421, (1997) 10 JT 298 (SC), 1997 (7) SCALE 804, 1997 (10) JT 298, 1998 (1) UPTC 399, 1998 KERLJ(TAX) 277, 1998 ( ) STI 29, 1998 UPTC 1 399, (1998) 1 KER LT 201, (1998) 1 SCJ 90, (1998) 108 STC 583, (1998) 1 SUPREME 74, (1997) 7 SCALE 804, 1998 (1) KLT SN 81 (SC)Bench:S.C. Agrawal,B.N. Kirpal,D.P. WadhwaPETITIONER:
STATE OF KERALA

	Vs.

RESPONDENT:
M/S MADRAS RUBBER FACTORY LTD. ETC. ETC.

DATE OF JUDGMENT:	19/12/1997

BENCH:
S.C. AGRAWAL, B.N. KIRPAL, D.P. WADHWA




ACT:



HEADNOTE:



JUDGMENT:THE 9TH DAY OF DECEMBER, 1997
Present:Hon'ble Mr. Justice S.C.Agrawal
	      Hon'ble Mr. Justice B.N. Kirpal
	      Hon'ble Mr. Justice D.P. Wadhwa
K.N. Bhat, Additional Solicitor General;, A.S.Nambiar,
John Mathew, Harish n. Salve, R.F.Nariman,
Joseph Vellapally, Sr. Advs., G.Prakash, Dhruv Agarwal,
Ms. Suman Khaitan, Gouri Rasgotra, K.R. Nambiar,
Ravinder Narain, Ashok Sagar, Amit Bansal, Sonu Bhatnagar,
Vineet Kumar, Yakesh Anand Sanjeev Anand, B.V. Desai,
Shashi Soharu, P.J. Mehta, P.N. Ramalingam, K.K.Bhaduri,
M.P.Vinod, Advs. with them for the appearing parties.J U D G M E N T
     The following Judgment of the court was delivered:CIVIL  APPEAL	NOS.  3435-36/21,   69/92,  659/93,  657/93,
4983/91, 5656-57/94,  5594-95/95, 5759/95, 5760-61/95, 5762,
5763-64, 5765,	5766, 5767,  5768-72,6226,8014,9182,OF 1995,
4869/91, 7230/93,  5296/93, 2193/93, 9183/93, 4742/91, 3442-
43/91,	10386-89/96,  2253/93,	2254/93,  2355/93,  2356/93,
11027, 11769, 11626, 11029-30, 11028, 9518 OF 1996, 4300/93,
1699-1704/88, 4593/89,	and Civil  appeal Nos  8874-8875  of
1997 arising our of S.L.P. (C) Nos. 9649-50 of 1997
KIRPAL, L.
     Special leave  granted in	SLP (Civil)  Nos. 9649-50 of
1997.The only  question which  arises for  consideration  in
this batch  of cases  is whether  the cess payable under the
provisions of  theRubber  Act, 1947will form	 part of the
purchase  turnover  of	the  respondents  under	 the  kerala
General Sales Tax, 1963.M/s M.R.F.	 Ltd., Ceat  Tyers of India Ltd., Bata India
Ltd., Goods Year India Ltd. etc., hereinafter referred to as
the dealers,  are  the	respondents  in	 these	cases.	They
purchased rubber in Kerala. This rubber was purchased either
from the  producer  or	from  the  dealers.  The  rubber  so
purchased was  either used  in the  manufacture	 within	 the
State of  kerala or  was sent  out  or	the  State  for	 use
elsewhere.Under the provisions ofSection 5of the Kerala General
Sales Tax  Act, 1963  (hereinafter referred to as `theSales
Tax Act') the tax on rubber is a single point tax. According
to the	said section  read with the schedule thereto the tax
is leviable on the last producer of rubber within the State.
The liability  to pay tax on the purchases so made under theSales Tax  Actis not in dispute but what has been contended
by the	dealers is  that in  computing the turnover on which
the tax is to be paid, the quantum of cess payable under the
provisions of  theRubber Act, 1947(hereinafter referred to
as the	"Rubber Act")  could not be included in the purchase
turnover. The contention of the dealers before the Sales Tax
Authority, was	that the  said cess  was not  a part  of the
purchase  price	 and  therefore,  not  includible  in  their
turnover.  The	 assessing  authority	did  not  agree	 and
following the  decision of the kerala High Court in the case
ofDeputy  Commissioner of  Sales Tax (Law) Board of Revenue
(Taxes) Vs. Bata India Ltd. and Ors.([1986] 62 STC 436), it
Included the  cess in  the purchase turnover of the dealers.This  order   was  confirmed   in  appeal   by	the   Deputy
Commissioner and thereafter by the appellate Tribunal.The revision  petition filed by the dealers came up for
hearing before	the Kerala  High Court.	 A Division Bench of
that Court  was of  the	 opinion  that	there  was  conflict
between two decisions of that High Court and, therefore, the
case was referred to a Full Bench.By judgment  dated 29th  march, 1989 the Full Bench, by
majority, allowed  by revision	petition  holding  that	 the
earlier decision  InBata's case (supra) was wrongly decided
and the	 cess payable  and paid under the rubber Act and the
Rules could  not form part of the dealers' purchase. In view
of the	importance of  the point  in issue  the	 High  Court
granted certificate for leave to appeal this Court. Hence
these appeals.In	 order	to  examine  the  rival	 contentions  it  is
necessary to  refer to	the relevant provisions of the salesTax Act	 and the Rubber Actand the rules framed thereunder.
In respect of MRF the assessment years in question are 1972-
73, 1976-77 and 1977-78. At that time under Schedule I Entry
71 of  theSales  Tax Actrubber was taxable at the point of
last purchase  in the  State, by a dealer, who was liable to
pay underSection 5of Act. The relevant provisions of the
said Act and the Rules are as follows:"Section 2 (xxvii):"TURNOVER" means the aggregate
	  amount  for  which  goods  are
	  either   bought    or	   sold,
	  supplied or  distributed by  a
	  dealer,  either   directly  or
	  through another,  on	his  own
	  account  or	on  account   of
	  other, whether for cash or for
	  deferred  payment   for  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,	   unsufructuary
	  mortgagee,	  tenant      or
	  otherwise, shall  be	excluded
	  from his turnover.Section 2 (xxv):"TAXABLE TURNOVER"  means  the
	  turnover  on	which  a  dealer
	  shall be  liable to pay tax as
	  determined after  making  such
	  deductions  from   his   total
	  turnover and in such manner as
	  may be  prescribed, but  shall
	  not include  the  turnover  of
	  purchase of sale in the course
	  of   inter-state    trade   or
	  commerce or  in the  course of
	  export of the goods out of the
	  territory of	India or  in the
	  course of  import of the goods
	  into territory of India.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  one 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.Schedule I
	  ENTRY 71
	  "Rubber" At  the point of last
	  purchase in  the  State  by  a
	  dealer who  is liable	 to  tax
	  underSection 5."Rules	 8  :  Determination  of
	  total turnover  : (1)	 Save as
	  provided in "sub-rules (2) and
	  (3) the  total turnover  of  a
	  dealer  for	the  purpose  of
	  these	 Rules	 shall	be   the
	  amount for which the goods are
	  sold by the dealer.(2)  In   the	 case  of  goods
	  mentioned  below   the   total
	  turnover of  a dealer	 for the
	  purposes of  these rules shall
	  be the  amount for  which  the
	  goods are bought by the dealer
	  :-(a) (i) grabled pepper(ii) Ungrabled pepper(b) green and dried ginger(c) xxxxxxxxx(d) xxxxxxxxx(e) xxxxxxxxx
	 xxxxxxxxx(n) rubber"The controversy  being with  regard to the Inclusion of
the cess  payable under theRubber Act, 1947on the purchase
turnover of  the dealers,  it is appropriate to refer to the
relevant provision,  namely,section  12of  the Rubber	 Act
1947 and  Rule 33  D framed under the said Act, which are as
follows :"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 :(2) The  said duty	 of excise shall
     be payable by the owner of the case
     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 lend 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  ********	 to  the
     provisions	 ofSection  20,  every
     owner of an estate shall furnish to
     the Board	a  return  stating  ****
     amount of	rubber produced	 on  the
     estate  in	 each  over  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  party   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 this section may within three
     months of the service of the notice
     under sub-section	(2) apply to the
     District Judge  for the cancelation
     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 from 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 12of the	 Rubber Act,  after its amendment by
Act 21 of 1960, is extracted herein below:"Imposition of  new  rubber  cess:-(1) With  effect from  such data 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 naya
     paice 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  the	 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	   *****    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	 ofsection  20,  every
     owner and	every manufacturer shall
     furnish to	 the Board  a return not
     later then	 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 are	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	quentity of  rubber user
     by him  in such  period out  of the
     rubber produced in India.(5) If any owner of or manufacturer
     fails to  furnish within	the time
     prescribed the  return referred  to
     in sub-section  (4) of  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 this 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  or  a  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,  if
     parliament by appropriation made by
     law in this behalf so provides."Rule  33-D	 of  the  Rubber  Rules,
     reads thus:-"(1) Every	 manufacturer  shall  by
     demand    notice	 sent	 through
     registered post  or in  such  other
     manner as	the Board  may direct be
     intimated of the amount assessed on
     the  quantity  of	rubber	acquired
     during  the  periods  specified  in
     rule 33  (c). On  receipt	of  such
     notice, the  manufacturer shall pay
     to the  Board the	amount specified
     therein  either   in  cash	 at  the
     Board's office  at kottayam  or  by
     money order  or by	 bank  draft  or
     cheque duly  crossed and payable at
     kottayam to  the  Board  within  30
     days from	the date  of receipt  of
     the said notice.(2) On such demand being made, if a
     manufacturer  fails   to  pay   the
     amount within  the	 due  date,  the
     Board may	take step  to report the
     fact to  the Central  Government or
     the State	Government concerned for
     recovery of  the outstanding amount
     as an arrear of land revenue."On behalf of the appellant it was submitted by Mr. K.N.
Bhat,  learned	Additional  Solicitor  General,	 that  underSection 12  (1)what  is levied	 is a  cess which is duty of
excise on all rubber produced in India. Before the amendment
in 1960	 this duty  was payable	 by the owner of the estate.
After its amendment the Rubber Board is empowered to collect
the duty  of excise  levied underSection 12either from the
owner of  the estate  of from  the manufacturer	 by whom the
rubber is  used in  accordance with the rules. The incidence
of duty	 of excise was relatable to the production of rubber
and this position did not alter after the amendment in 1960.
The incidence  of the  cess, being  in the nature of duty of
excise, it  was submitted,  continued to  be related  to the
production of  rubber only  and	 it  was  for  the  sake  of
convenience that  it was  thought expedient  that this cess,
instead of being collected from the innumerable producers of
rubber	could	most  conveniently  be	collected  from	 the
ultimate user  thereof, namely,	 the  manufacturer.  It	 was
submitted that	the definition	of  turnover  inSection  2
(xxvii)of  the Sales Tax Act was wide enough to include the
liability to  pay cess under theRubber Actas being part of
the purchase turnover.The learned  counsel appearing on behalf of the dealers
submitted that	on the	correct interpretation	ofSection 2
(xxvii)of  the Sales  Tax Act,	 the aggregate of the sum by
the buyer  to the  seller "including  payment  made  on	 his
behalf" would constitute a part of the turnover of the buyer
for levy  of sales  tax. The cess which was to be paid under
theRubber   Actwas	not  required  to  be  paid  by	 the
manufacturer on	 behalf of  the seller	because according toSection 12  (2)read with Rule 33-D, though the incidence of
the duty  was on the production of rubber but it was not the
liability of the producer. After the amendment ofSection 12in 1960	 and with  the promulgation  of Rule  33-D,  neither
producer nor  the dealer  was required to pay the cess underSection 12at any  point of  time. Inasmuch as there was no
statutory liability  on either the producer or the dealer to
pay the	 cess, therefore, the quantum of cess payable on the
goods purchased by the dealer could not be regarded as being
part of the purchase price or turnover. the liability to pay
tax was	 only of the manufacturer and it arose not by reason
of the purchase of rubber but it arose when the manufacturer
used the same.That the cess which is collected is a duty of excise on
all the	 rubber	 produced  in  India  is  evident  from	 the
provisions ofSection 12 (1)of the Rubber Act. The rate of
cess is	 prescribed inSection 12(1)itself. The excise duty
referred  to   inSection  12(1)is  not  determined	with
reference to  any  price  but  the  duty  is  determined  by
applying a  fixed rate to the weight of the rubber produced.
This sub-section  was not  amended in  1960. The main change
brought about  relates only  to the  manner of collection of
duty. After  the amendment  of sub-section (2) ofSection 12the duty  is to be collected by the Board in accordance with
the rules  made in  this behalf either from the owner of the
estate	on   which  the	 rubber	 is  produced  of  from	 the
manufacturer by	 whom such rubber is used. What is important
to note,  however, is  that the	 opening words	of the	sub-
section (2)  refers to "the duty of excise levied under sub-
section (1)  [emphasis added].	These words  clearly provide
that the  levy of  excise duty	is not under sub-section (2)
but is	under sub-section  (1) ofSection 12. It is the duty
which is  statutorily levied  under sub-section	 (1) on	 the
rubber produced	 which is to be collected, under sub-section
(2), in the manner provided by the rules.By reason ofSection 12 (1)of the Rubber Act a cess at
the rate  prescribed is	 statutorily levied on the rubber so
produced and  the liability  to pay  the said amount of cess
gets attached to the rubber so produced. If the rules do not
provide for  the excise duty to be paid by the producer then
whoever purchases  the said rubber would be purchasing goods
to which  is attached  the liability  of payment of duty. In
other words, the duty element would be inherent in the price
which is  paid for  the purchase of the said goods. The duty
of  excise  is	one  which  is	directly  relatable  to	 the
production or manufacture of goods but can be collected at a
latter stage  is now  no longer	 open to  doubt in  view  of
several decisions  of this Court some of which areR.C. Jall
Vs. Union of India(AIR 1962 Sc 1281), Guruswamy and Co. Vs.
State of  Mysore[(1967) 1 SCR 548 ], Jullundur Rubber Goods
Manufacturers' Association   Vs. Union of India(AIR 1970 SC
1589, A.B.  Abdul Kadir	 Vs. State  of Kerala  [(1976) 2 SCR
690] and  McDowell  and	 companyLtd.	Vs.  Commercial	 Tax
Officer{91985) 59 STC 277 SC].In an  effort to show that theRubber Actand the Rules
framed thereunder provide that the liability to pay the cess
arises only  when the  manufacturer uses the rubber and that
the liability  was not	of the producer and, therefore, cess
could not  from part  of the purchase turnover, reliance was
placed on  the decision	 of this  Court inJullundur Rubber
Goods Manufacturers'  Association Vs. Union of India[(1970)
2 S.C.R.  68], wherein after referring to Rules 33 (e), 33A,
33B and	 33D (1),  this Court  had observed  at page  79  as
follows:-"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  the 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 rules  (4),  (5)
     and  (6)	ofSection   12also
     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 earlier,
     there is no provision either in the
     statute  or  in  the  rules  for  a
     demand to	the made  and a coercive
     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 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."From the  above the learned counsel contended that this
Court had  clearly held	 that the  statutory  liability	 for
payment of  cess was  on the manufacturer alone who would be
paying the  same directly  to the Central Government  and/or
the Rubber  Board. It  was submitted  that no  part of	this
amount which  is directly  paid by  the	 manufacturer  to  a
person other  than the grower of rubber in fulfilment of its
own statutory  liability could	form part  of the sale price
which a manufacturer has to pay.In our  opinion the aforesaid decision does not lead to
the inference  which the  dealers are  seeking to derive.In
Jullundur  Rubber   Goods  manufacturers'Associationcase
(supra) the  challenge was  to the amended provisions of theRubber Act,  1947wherebySection 12(2)was amended giving
the discretion	to the	Rubber Board  to frame rules for the
purpose of  providing whether  to collect  the cess from the
consumer or  the manufacturer.	three contentions  had	been
raised before the Court and they were as follows:-" The  contentions which  have been
     raised are:  (1) the duty sought to
     be imposed	 unders.12as	 amended
     being outside the ambit of Entry 84
     of List  I in  the Seventh Schedule
     to the  Constitution is  beyond the
     legislative   competence	of   the
     Parliament;   (2)Section   12(2)suffers from  the vice of excessive
     delegation. It confers uncontrolled
     and  unrestricted	discretion  upon
     the Rubber	 Board to levey upon and
     collect duty  of excise from either
     the owners	 of the rubber producing
     estates  or  the  users  so  called
     manufacturers (of	rubber)	 without
     specifying the  circumstances under
     which it should be imposed upon the
     one  or   the  other  nor	has  any
     guiding policy  of	 principle  beenlaid down	inthe	Act for making a
     choice. (3)  In any case, the Rules
     which  have   been	 framed	 do  not
     satisfy the  provisions ofs. 12(2)of the Act and do not indicate with
     sufficient clarity and precision on
     whom the  levy is	to be  made  and
     from  whom	  the  duty   is  to  be
     collected as  between the owners of
     the estates and the manufacturers."While dealing  with the	 said three  contentions this  Court
upheld the  validity ofSection 12  (2)and  in support  of
contention (1) it has been argued that once the incidence of
tax was shifted to the user by reason ofSection 12 (2), the
tax would  cease to  be one which will fall within entry 84.
This contention	 was repelled  with the	 Court observing  at
page 73 as follows:The above	statement of  law in  no
     way support  the argument	that the
     excise  duty  cannot  be  collected
     from  persons   who   are	 neither
     producers	nor  manufacturers.  Its
     incidence certainly  falls directly
     on the production of manufacture of
     goods but	the method of collection
     will not  affect the essence of the
     duty. In  our  opinion  sub-section
     (2) ofs.12provided for the method
     of collection  as the  excise  duty
     can be  collected either  from  the
     producers or from the manufacturers
     as defined	 by the	 Act which would
     include members  of  the  appellant
     association who  use rubber  in the
     manufacture of chappals."Having categorically  come to  the conclusion  that the
Incidence of  cess  falls  directly  on	 the  production  or
manufacture of	the  goods  while  dealing  with  the  third
contention relating  to the  interpretation of the rules the
Court observed	that the rules did make a definite provision
with regard  to	 the  category	of  persons  from  whom	 the
collection of  duty was to be made. When this Court observed
that under  the rules  it is  only the manufacturers who are
liable to  pay the  amount of duty, it was referring only to
the persons  or the  stage at which the duty which is levied
underSection 12(1), is to be collected. In other words, the
rules state as to who was to discharge the liability of cess
imposed underSection 12  (1)by  payment of  the amount of
duty.It was  also contended  by mr.  Harish N.Salve, learned
senior counsel appearing for the dealers, that the manner in
which the  consideration has  been made	 and the  components
thereof do  not matter	and any	 payment  made	directly  or
indirectly by  the buyer  to the  seller, including  any sum
paid by	 the buyer for and on behalf of the seller, would be
includible in  the turnover as long as the same is paid as a
term of	 the contract  of sale.	 It is	the aggregate of the
sums paid by the buyer to the seller "including payment made
on his	behalf",  which	 would	constitute  a  part  of	 the
turnover of  the buyer	for levy  of purchase  tax.  It	 was
further submitted  that the  right of  the seller to recover
the said amount must flow from a contract to sell the goods.
If, however,  the seller  has any statutory right to pass on
any burden  of any  charge or levy to the buyer, then such a
sum is	not a  part of	his  turnover.In  this  connection
reliance was  placed onAnand Swarup  Mahesh Kumar  Vs. The
Commissioner of	 Sales Tax([1981) 1  S.C.R. 707).  In this
question arose whether payment of this fee could be included
in the	turnover of  producers for  assessment of  sales tax
under the  Act.Anand  Swarup's case  (supra) was considered
and distinguished  by a	 Constitution Bench of this Court inMcDowell &  Company Ltd.  Vs. Commercial Tax Officer([1985]
59 STC 277).The decision inMcDowell's case (supra) clearly
supports the  submissions urged	 on behalf of the appellant.InMcDowell's case excise duty on sale of liquor was payable
by the	appellant -  manufacturer. The	appellant  sold	 the
liquor	to  buyers  who	 themselves  paid  the	excise	duty
directly but  the department  sought to	 Include the  amount
representing the  excise duty paid by the buyer as a part of
the appellant's	 turnover for  the purpose  of levy of sales
tax. Referring	to the	earlier decisions  of this Court, it
was observed that "the Incidence of excise duty was directly
relatable to manufacturer but its collection can be deferred
to a  latter stage  as a  measure   of convenience."  It was
accordingly held  that the  excise duty	 paid by  the  buyer
would be  regarded as part of the consideration for the sale
and includible	in  the	 taxable  turnover.  Anand  Swarup's
decision was  distinguished by	this Court  in the following
words:"Mr. Sorabji  in the  course of his
     submission	 relied	 on  a	Division
     Bench decision  of	 this  Court  inAnand  Swarup   Mahesh   Kumar   V.
     Commissioner of Sales Tax(1980) 46
     STC 477  (SC); 1981 1 SCR 707. This
     Court was considering the liability
     for    sales    tax    under    the
     corresponding U.P.	 Act in	 respect
     of a dealer carrying on business at
     Mandi  Anandganj,	 Baraut	 in  the
     District of  Meerut. The  sales tax
     authorities  had  included	 in  the
     dealer's purchase	turnover "market
     fee" and  the commission payable to
     the  commission   agent   operation
     within  the  market  area	for  the
     purpose of computing sales tax. The
     decision turned  on the  definition
     of "turnover  of purchase"	 in  the
     U.P. Act  and the	provision of the
     Adhiniyam	and   the   Rules   made
     thereunder	  .   Market   fee   and
     commission payable	 to an agent are
     very different from excise duty and
     a very  different position	 emerges
     in	 law   in  regard  to  them.  No
     support  is   available  from  that
     occasion for  the appellants  case.
     We would like to point out that the
     relevant	consideration	is   not
     whether   the   law   permits   the
     incidence of  the duty  to the duty
     to be  passed on  to the  purchaser
     but whether  there is a prohibition
     against the passing of it. If there
     is no  bar, the  incidence would be
     passed  on	  to  the  purchaser  in
     accordance with  normal  commercial
     practice.On behalf	of the	dealers it  was also  contended that
thoughSection	12 (2)postulates  that  the  cess  can  be
collected  either   from  the	owner  of   the	 estate	  of
manufacturer, it can, in no circumstances, be collected from
the dealer  from whom the manufacturers purchase raw rubber.
Therefore, it  was submitted,  that the	 sale price  to	 the
licensed dealer	 is wholly  independent of  the cess paid by
the  manufacturer   on	his   own  account  to	the  Central
Government. In	our opinion, there is an inherent fallacy in
this contention.  As we	 have already  noted,  and  this  is
apparent from  the reading  ofSection	12(1)and  (2),	 the
incidence of  the duty	arises	the  moment  the  rubber  is
produced. On the rubber so produced duty at a specified rate
becomes payable.  When the producer sells the said rubber to
a licensed  dealer it  would be	 legitimate to infer that in
determining the	 amount of  price payable  they incidence of
the cess  would be  taken into account. What is purchased by
the licensed dealers is rubber to which is attached a charge
of cess	 payable at  the prescribed  rate. Even	 though	 the
rubber	Act   and  the	 Rules	framed	 thereunder  do	 not
contemplate that  the licensed	dealer has  to pay the cess,
nevertheless because  the goods	 are not  to be	 used by the
licensed dealer	 but have  ultimately  to  be  used  by	 the
manufacturer, therefore,  the transfer	of the	goods by the
dealer to the manufacturer would occasion the realisation of
the cess  by the  department from the manufacturer. The cess
which will  be so realised is the one which stood imposed by
the provisions of the statute itself,  viz.,Section 12 (1),
at the	time when  the rubber was produced and before it was
purchased by the dealers or manufacturers.It is  no doubt  true thatSection  12  (1)does	 not
specifically state  that the taxable person is a producer or
the grower  of the  rubber. It	is, however, not possible to
accept the  contention that the rules alone are to be looked
at in order to fix the liability of payment of cess.Section
12 (1)and12(2)have to be read together. Excise duty being
a levy	on the	manufacture or	production  of	goods  could
ordinarily have	 been collected	 at the	 stage itself.	This
was, in fact, the position prior to the amendment ofSection
12 (2)in 1960.Section 12 (2)after amendment makes it very
clear that the levy of cess is under sub-section (1)Section
12and	not under sub-section (2). It is only with regard to
the collection	of the	cess that  an  option  is  given  to
collect	 the   same  either   from  the	  producer  or	 the
manufacturer. A charge under a taxing statute can only under
the Act	 and not under the Rules. The rules normally provide
for the	 procedure to be followed for the realisation of the
statutory dues.	 It is	in this context that sub-section (2)
enables the framing of the rules whereby the duty instead of
being realised	from the  producer is  realised at  a latter
stage, namely,	from the manufacturer. Once the liability of
payment	 of  cess  has	got  attached  to  the	rubber	when
manufactured and  that duty  is ultimately  paid by  the end
user, namely,  the manufacturer,  it would  be implicit that
the element  of the cess payable would be one of the factors
in determining the price payable in respect thereof.The aforesaid  analysis is	 also supported	 by a recent
decision of this Court in the case of Mohan Breweries aDistilleries Ltd.  Vs. Commissioner  Tax Officer, Madras and
Ors. [JT1997 (8) 36]. In that case liquor was manufactured
by the	appellant. According  of Section  18 B	of the Tamil
Nadu prohibition  Act, 1937  excise duty at a specified rate
was leviable  on all  excisable items manufactured under any
licence granted	 under the  Act. Section  18 C provided that
the excise  duty under	Section 18B  could be paid in one or
more of	 the ways provided under Section 18C. Rule 22 of the
TNIMFL Rules,  1981 provided  that the	excise duty shall be
paid by the person who removes the goods from a manufactory.
Sub-rule (2)  of Rule 22 further provided that a vend fee of
rupees two  per bulk  litre shall be paid by the licensee on
all stocks  of Indian-made  Foreign Spirit  issued from	 the
manufacturer. Rule  15 (1)  of the  Tamil  Nadu	 Indian-made
Foreign Spirits	 (supply by  wholesale) Rules, 1981 required
the licensee,  namely, the wholesaler to pay the excise duty
on removal  of the  stock by  him. The	contention which was
raised	by   the  manufacturer	was  that  in  view  of	 the
provisions of  the Act	and the said Rules, the liability to
pay the	 excise duty  lay not upon the manufacturer but upon
the wholesaler, who was the licensee who was required to pay
under the  aforesaid Rule  15 (1)  of the Tamil Nadu Indian-
made Foreign  Spirits (supply  by wholesale) Rules, 1981. In
this connection	 it  was  submitted  that  the	manufacturer
neither collected  the excise  duty from the wholesaler	 nor
had they  statutory or	contractual authority to realise the
same from  it and,  therefore, the  manufacturers  were	 not
liable to pay sales tax on the excise duty which was neither
part of	 the sale  price nor  a consideration  for the	sale
Repelling this	contention it  was held that excise duty was
levied upon  the goods	manufactured, though  its collection
may be deferred to such latter stage as was administratively
or otherwise  most convenient.After referring to as case inUnion of  India Vs.  Bombay Tyre International Ltd. and Ors.[1984 (1)  SCC 467],  it was  observed that  the  method  of
collection did	not affect  the essence	 of  duty  but	only
related to  the machinery  of collection  for administrative
convenience. Dealing  with Rule	 22 and	 its effect,  it was
observed that  "as we look at it, the primary obligations to
pay excise  duty on the IMFL is of the manufacturer thereof.
Rule 22	 only provides	for  a	convenient  method  for	 its
collection. When  the excise  duty is collected from a party
removing the  IMFL from the factory its producer, other than
the manufacturer, the payment of excise duty is in discharge
of the	obligation of the manufacturer. That party does not,
as it  would ordinarily	 do, pay  the excise  duty component
along with  the sale price of the IMFL it purchases from the
manufacturer; it pays the sale price to the manufacturer and
it pays	 the excise duty into the Treasury for and on behalf
of the	manufacturer. In  effect, therefore,  the element of
excise duty does enter into the turnover of the manufacturer
just as	 much as  it would  ordinarily do. The definition of
"turnover" inSection 2 (r)of the Sales Tax Act, referring
as it  does to	"the aggregate	amount for  which  goods  ar
bought of  sold" and  "whether for case or ...other valuable
consideration", is  wide enough	 to cover  such excise duty.That  the   excise  duty   does	 not  physically  enter	 the
manufacturer's till  is, as  held in  the second  Mc  Dowell
case, not  the decisive	 test for determining whether or not
it would be a part of the manufacturer's turnover."In	 our  opinion  the  aforesaid  decision	 is  clearly
applicable to  the present  case. Like	the Mohan  Brewerles
case the  excise duty  underSection 12 (1)is levied on the
production or  manufacture of  rubber at  the rate specified
thereunder. it	is only by Rule 33 (1) similar to Rule 22 of
TNIMFL that the cess had to be paid at a stage subsequent to
the production.	 Merely because	 for the sake of convenience
the excise  duty, which	 would essentially be payable at the
time of	 production of	rubber is realised at a latter point
of time	 it cannot mean that the excise duty, in the form of
cess, was not part of the sales turnover of the producer and
correspondingly, be  the purchase  turnover of the purchaser
of rubber.In our  opinion, therefore,  the incidence	 of duty  is
directly  relatable   to  the	production  of	rubber.	 The
character of  levy is not altered merely because the payment
of duty	 is deferred  till the purchase of the rubber by the
manufacturer, The  character of levy is on the production of
the rubber and the duty paid should, therefore, be deemed to
be part	 of the	 price that  the producer  had paid  for the
goods purchased.  Neither a  provision for  deferred payment
nor the	 liability case	 on the manufacturer of rubber goods
for payment  of the  duty to facilitate easy collection, can
alter the  duty as  being one on the production of rubber as
provided bySection 12	 (1)of the Rubber Act and such duty
even though paid later, will be a part of the price of goods
purchased and  would, therefore,  form part of the producers
turnover.For the aforesaid reasons these appeals are allowed and
the judgment  under appeal  is set aside and the decision of
the Sales  Tax Authorities  restored. There will be on order
as to costs.