USL liable to pay entry tax under Madhya Pradesh local area rule, holds Supreme Court

The Supreme Court on Monday held that United Spirits ( USL) is liable to pay entry tax under the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam 1976, which levied such tax on the entry of goods into a local area for use, consumption or sale.

Upholding the Madhya Pradesh High Court’s decision which favoured the state, the bench of Justices J B Pardiwala and K V Vishwanathan said that “…it is clear that the appellants (USL) by the sale to the warehouse caused to be affected the entry of goods and the entry was occasioned on the account of the sale into the local area for consumption, use or sale therein.”

It is also not disputed that USL is a dealer as defined under the Madhya Pradesh Value Added Tax Act, 2002, the SC said, adding that the company’s only contention that the State warehouse was also a dealer “makes no difference” since it cannot be disputed that the company certainly occasioned the entry of goods and the levy of entry tax on them, which could always be passed on, was perfectly justifiable in law.

According to the judges, we have no manner of doubt that there were two independent transactions, one between USL (manufacturers) and the State Warehouse and the other between the State warehouse and the retailers. “Hence, it will be difficult to accept the contention of the State that the role of the State is only supervisory and the warehouses didn’t purchase beer and IMFL from the manufacturer,” they said.

However, the top court said that this does not resolve the issue in favour of USL as under Section 3 of the M.P. Entry Tax Act 1976, the incidence of taxation is on the entry in the course of business of a dealer of goods specified in Schedule II, into each local area for consumption, use or sale therein. The further requirement is that such tax was to be paid by every dealer liable to tax under the VAT Act who hasd effected entry of such goods.

USL had contended that no direct sales could be made by the manufacturer to the retailers and there was "no privity of contract" between them and the retailers and it was the state government warehouse which sold the goods to the retailers. It is the warehouse which caused the movement of the goods into the local area, it argued.

However, the State government contended that it neither purchased nor sold liquor. The HC had correctly found that the warehouses neither purchased or sold liquor and that the department only supervised the sale made by the manufacturer to the retail contractors.