Supreme Court of India
M/S UNITED SPIRITS LTD.versusTHE STATE OF MADHYA PRADESH & ORS.
- Citation
- 2025 INSC 833
- Decided
- 14 July 2025
- Disposal
- Dismissed
- Bench
- B PARDIWALA
Holding
The manufacturers, by selling to the State Government warehouse, caused the entry of goods into the local area and are liable to pay entry tax; the lack of a s.3B notification does not bar the levy, and the transactions constitute two independent sales, not an inseverable link.
Summary
United Spirits Ltd., a manufacturer of beer and Indian Made Foreign Liquor, challenged the levy of entry tax by the State of Madhya Pradesh for the period April 2007 to March 2008, arguing that the State Government warehouses, not the manufacturers, caused the entry of goods into the local area and that no notification under Section 3B of the M.P. Entry Tax Act was issued. The State contended that the manufacturers, by selling to the warehouses, caused the entry of goods and were therefore liable as dealers under the Act. The Supreme Court examined the statutory definitions of "entry of goods", "cause to be effected" and the concept of an inseverable link in canalising transactions, applying precedents on import‑sale nexus. It held that the manufacturers’ sale to the warehouse occasioned the entry of goods and that Section 3B is merely a machinery provision, not a bar to levy under Section 14. Consequently, the Court affirmed the High Court’s order, finding the manufacturers liable for entry tax and dismissed the appeals.
Issues considered
- Whether the manufacturers caused the entry of goods into the local area under s.3(1)(a) r/w ss.2(1)(aa), 2(1)(b) and 2(3) of the M.P. Entry Tax Act, 1976, making them liable for entry tax.
- Whether the absence of a notification under s.3B of the M.P. Entry Tax Act precludes the levy of entry tax.
- Whether there exists an inseverable link between the manufacturers and the ultimate retailers in the canalising arrangement.
Legislation cited
- Central Sales Tax Act, 1956s. 5(2), s. 5(3)
- Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976s. 14, s. 2(1)(aa), s. 2(1)(b), s. 2(3), s. 3(1)(a), s. 3B
- Madhya Pradesh VAT Act, 2002s. 2(i), s. 2(u)
- M.P. Entry Tax (Amendment) Act No. 9 of 2007
- M.P. Foreign Liquor Rules, 1996
Headnote
Issue for Consideration Did the appellants-manufacturers cause to effect the entry of goods into the local area as required u/s.3(1)(a) r/w ss.2(1)(aa), 2(1)(b) and 2(3), M.P. Entry Tax Act, 1976, rendering them liable for entry tax for the period 01.04.2007 to 31.03.2008; is there an the manufacturers and the ultimate retailers. Headnotes† M.P. Entry Tax Act, 1976 – s.3(1)(a) r/w ss.2(1)(aa), 2(1)(b) and 2(3) – Incidence of taxation – “entry of goods into a local area”; “entry tax”; “caused to be effected the entry of
Subjects
Entry taxEntry of goodsCause to be effectedCanalising agencyInseverable linkDealer definitionMadhya Pradesh Entry Tax ActSection 3BSection 14VAT ActCentral Sales Tax Act
Judgment
[2025] 8 S.C.R. 11 : 2025 INSC 833
M/s United Spirits Ltd.
v.
The State of Madhya Pradesh & Ors.
(Civil Appeal No. 5113 of 2025)
14 July 2025
[J.B. Pardiwala and K.V. Viswanathan,* JJ.]
Issue for Consideration
Did the appellants-manufacturers cause to effect the entry of
goods into the local area as required u/s.3(1)(a) r/w ss.2(1)(aa),
2(1)(b) and 2(3), M.P. Entry Tax Act, 1976, rendering them liable
for entry tax for the period 01.04.2007 to 31.03.2008; is there
an inseverable link between the manufacturers and the ultimate
retailers.
Headnotes†
M.P. Entry Tax Act, 1976 – s.3(1)(a) r/w ss.2(1)(aa), 2(1)(b)
and 2(3) – Incidence of taxation – “entry of goods into a
local area”; “entry tax”; “caused to be effected the entry of
goods” – Appellants, manufacturers and suppliers of beer
and Indian Made Foreign Liquor (IMFL), if caused to effect
the entry of goods into the local area as required u/s.3(1)
(a) r/w s.2(1)(aa), 2(1)(b) and 2(3) rendering them liable for
entry tax – Plea of the appellants that sales are made by the
State Government warehouse in charge to the authorized
retailers, who are also license holders for retail sale of
IMFL and beer and there is no privity of contract between
the appellants and the retailers and; it is only the State
Government warehouse which cause to effect the entry of
the goods – High Court upheld the levy of entry tax on the
appellants – Challenge to:
Held: Impugned order not interfered with – s.3(1) r/w s.2(1)(aa)
and 2(1)(b) and 2(3), makes it clear that the appellants by the
sale to the warehouse caused to be effected 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 – Also, it
is not disputed that the appellant is a dealer as defined under
* Author
12 [2025] 8 S.C.R.
Supreme Court Reports
the Madhya Pradesh VAT Act 2002, as it stood then – The only
contention of the appellants is that the State warehouse is also
a dealer – That makes no difference since it cannot be disputed
that the appellants occasioned the entry of goods and the levy of
entry tax on them, which could always be passed on, is justifiable
in law. [Paras 31-33, 36]
M.P. Entry Tax Act, 1976 – ss.3B, 14 – Appellants contended
that as notification u/s.3B was not issued, no entry tax could
be levied:
Held: Contention rejected – High Court rightly held that s.3B
is only a machinery provision and in the teeth of s.14, it is not
correct to say that there cannot be any assessment or collection
of Entry Tax merely because there is no notification u/s.3B – s.3B
is an enabling provision – Further, the ‘non-obstante’ in s.3B will
not foreclose the operation of s.14, since s.3B will override only if
there is a contrary provision – In the absence of any notification
u/s.3B, there is nothing contrary in s.14 for the non-obstante in
s.3B to be invoked to override s.14. [Paras 32, 33]
M.P. Entry Tax Act, 1976 – State canalising the supply of beer
and Indian made foreign liquor (IMFL) into the local area – If
there is an inseverable link between the manufacturers and
the ultimate retailers:
Held: In case a canalising agency or intermediary agency is
involved, unless their role is merely that of a name lender, the sale
will not be treated as an inseparable or an inseverable sale – If an
independent canalising agency enters into back-to-back contracts
and there is no direct linkage or causal connection between the
export by foreign exporter and the receipt of the imported goods
in India by local users, then the integrity of the entire transaction
would be disrupted and would be substituted by two independent
transactions – Applying the tests to the present canalising
transaction, there is no doubt that there are two independent
transactions, one between the appellant-manufacturers and the
State Warehouse and the other between the State warehouse
and the retailers – Contention of the State that its role is only
supervisory and the warehouses didn’t purchase beer and IMFL
from the manufacturer, not accepted. [Paras 25, 27]
Words and Phrases – “caused to be effected the entry of
goods”; “Cause” – M.P. Entry Tax Act, 1976. [Paras 29, 31]
[2025] 8 S.C.R. 13
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
Case Law Cited
Hyderabad Industries Ltd. v. Union of India & Ors. [1999] 3
SCR 471 : (2000) 1 SCC 718; Coffee Board, Bangalore v. Joint
Commercial Tax Officer, Madras & Anr. [1970] 3 SCR 147 : (1969)
3 SCC 349; State of Karnataka v. Azad Coach Builders Private
Ltd. & Anr. [2010] 12 SCR 895 : (2010) 9 SCC 524 – followed.
M/s Bhagatram Rajeevkumar vs. Commissioner of Sales Tax,
M.P. and Others [1994] Supp. 6 SCR 91 : (1995) Supp. 1 SCC
673 – held inapplicable.
K. Gopinathan Nair & Ors. v. State of Kerala [1997] 3 SCR 226 :
(1997) 10 SCC 1; Kerala State Warehousing Corpn. v. State of
Kerala (2005) 10 SCC 142 – relied on.
A.G. Varadarajulu & Anr. v. State of T.N. & Ors. [1998] 2 SCR
390 : (1998) 4 SCC 231; Union of India and Anr. v. G.M. Kokil &
Ors. [1984] 3 SCR 292 : (1984) Supp. SCC 196 – referred to.
Books and Periodicals Cited
Oxford Dictionary, 8th Edition.
List of Acts
Central Sales Tax Act, 1956; Madhya Pradesh Sthaniya Kshetra Me
Mal Ke Pravesh Par Kar Adhiniyam, 1976; Madhya Pradesh VAT
Act, 2002; M.P. Entry Tax Act, 1976; M.P. Entry Tax (Amendment)
Act No. 9 of 2007; The Madhya Pradesh Sthaniya Kshetra Me Mal
Ke Pravesh Par Kar (Sanshodhan) Adhiniyam, 2007; M.P. Foreign
Liquor Rules, 1996.
List of Keywords
Entry tax; Payment of entry tax; Entry of goods; “Entry of goods
into the local area”; “Caused to be effected the entry of goods”;
Movement of the goods into the local area; Incidence for the levy;
Beer; Indian Made Foreign Liquor (IMFL); State Government
warehouses; Retailers; Manufacturer; License to manufacture and
supply; Manufacturer, supplier of beer and IMFL; License holders
for retail sale of IMFL and beer; Sales made by the warehouse;
Sale into the local area for consumption; Canalising the supply of
beer and Indian made foreign liquor into the local area; Canalising
agency; Intermediary agency; No privity of contract; Dealer;
Independent transactions; Transportation expenses; FL-9 license;
FL-9A license; FL-10 license; FL-1 license.
14 [2025] 8 S.C.R.
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Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5113 of 2025
From the Judgment and Order dated 19.08.2010 and 20.08.2010
of the High Court of Madhya Pradesh Principal Seat at Jabalpur
in WP No. 9678 of 2007
With
Civil Appeal No. 5114 of 2025
Appearances for Parties
Advs. for the Appellant:
Rohan Shah, Sumit Nema, Sr. Advs., Akshat Shrivastava, Satvic
Mathur, Ms. Manjeet Kirpal, Akshat Shrivastava, Satvic Mathur,
Mrs Pooja Shrivastava.
Advs. for the Respondents:
Nachiketa Joshi, Sr. A.A.G., Pashupathi Nath Razdan, Sidhartha
Sinha.
Judgment / Order of the Supreme Court
Judgment
K.V. Viswanathan, J.
1. A short and interesting question falls for consideration in these
appeals. The issue is whether the appellants are liable for the payment
of entry tax under Section 3 of the Madhya Pradesh Sthaniya Kshetra
Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 [hereinafter referred
to as the ‘M.P. Entry Tax Act, 1976’]. The High Court has repelled
the challenge of the appellants. Aggrieved, they are in appeal(s)
before us.
BRIEF FACTS: -
CASE OF THE APPELLANTS: -
2. In the writ petition filed by the appellants, their case was that they are
involved in bottling and supplying of Beer and Indian Made Foreign
Liquor (for short ‘IMFL’). The appellants hold license under the M.P.
Excise Act, 1944 to manufacture and supply beer and IMFL. They
[2025] 8 S.C.R. 15
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
supply the said goods after obtaining a No Objection Certificate [NOC]
from the officer-in-charge posted at the factory. It was contended
that the goods are transported to the State Government warehouse
and the transportation pass is issued in the name of the concerned
warehouse. According to the appellants, the sales are made by the
warehouse in charge to the authorized retailers, who are also license
holders for retail sale of IMFL and beer.
3. The appellants averred that under the M.P. Excise Act, FL-9 license
is to manufacture IMFL products and FL-9A license is to produce
franchisee products. FL-9 and FL-9A licensees can sell to FL-10
licensees only. According to the appellants, the FL-10 licensee in
M.P. is the Excise Department, which runs the State Government
warehouse. The retailers hold the FL-1 license and they purchase
from FL-10 licensee after issuance of NOC by the respective District
Excise Officers. According to the appellants, the sale is made by the
Government warehouses to the retailers through the sale bill issued
in the name of the retailers; that the Government warehouses deposit
the amount payable to the appellants in their bank accounts and send
intimation in respect of the goods sold in respect of the appellants to
the Commissioner, who in turn transfers the amount from the bank
of the Department to the appellants’ bank account. The appellants
submit that the retailers pay license fee in equal installments and at
that point were paying 6% ‘Parivahan Shulk’ (transportation expenses)
by depositing the same with the Treasury. The appellants contend
that the transaction is between the Government warehouses and
the retailers.
CASE OF THE RESPONDENT- STATE: -
4. In the return filed by the State, they contended that the State
Government neither purchases nor sells the liquor. The State referred
to three documents that had a crucial bearing on the disposal of the
present case.
i) First is the communication issued by the Additional Secretary,
(Finance Department), Government of M.P. to the Excise
Commissioner under the subject “Collection of Indian Made
Foreign Liquor and provision of its supply to its retail licensees”.
The communication states that the Manufacturing Units are
allowed to store liquor in the departmental godowns. The
16 [2025] 8 S.C.R.
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Manufacturing units declare the Ex-godown price of their
liquor in due course and supply of liquor is effected to retail
contractors by adding 5% additional fee on this cost. Retail
contractors would deposit the amount with the specified bank
and the bank would deposit the amount through the treasury in
the government account. The Deputy Commissioners would be
sent the statement of the amount deposited twice every month.
Out of the amount collected during the previous month, payment
of amount due to the manufacturing unit would be made by the
Excise Commissioner and the expenditure would be debited
from the expenditure account pertaining to the Commercial
Tax Department.
ii) The second communication also dealt with the same issue as
above with certain minor changes which are not material. There
was a clarification that the 5% amount would be transferred
to the departmental head, and the remaining amount to the
concerned manufacturing unit.
iii) The third and the most important document annexed to the
counter affidavit is the “Guidelines for the Officers-in-charge
of Foreign liquor warehouse” issued on 27.3.2002. Under
the guidelines, it is mentioned that Foreign liquor warehouse
be established at the Divisional Headquarters of the State.
Manufacturing Units would store foreign liquor and that supply
of collected liquor would be effected to the retail contractors at
the rates reckoned after adding 5% amount to the rates declared
by the manufacturing units. All arrangements of storage was to
remain under the control of the Deputy Commissioners posted
at the Divisional Headquarters; and the Divisional Deputy
Commissioners would issue directions to the Officer-in-charge
for issuance of No Objection Certificates to the manufacturing
units after assessing the local demand. Retail sale licensee
would make arrangement of loading on their own for effecting
supply of foreign liquor stored in the warehouse. Collection
Counter of Punjab National Bank is established in each and
every store. Retail contractor would deposit the necessary
amount in the account of the concerned manufacturing unit at
the counter of this bank. Under Supply process, the following
guidelines are mentioned:-
[2025] 8 S.C.R. 17
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
a) Demand note of each and every shop would be submitted
individually in the prescribed form for taking supply of
foreign liquor and beer by the licensee of retail sale from
the store. Brand-wise/label-wise/size-wise and quantity
of the manufacturing units would be clearly recorded in
this demand note.
b) Warehouse officer would scrutinize the submitted demand
letter. In case a few labels of liquor/beer mentioned in
the submitted demand letter are not available, then the
necessary amendment would be made in the demand letter.
c) Warehouse officer would give demand letter to the
licensee after recording the note “liquor may be supplied
according to the demand letter” for further submission in
the computer room.
d) Computer room would prepare a delivery challan in the
prescribed form and the manufacturing unit would make
available the information about the amount to be deposited,
to the retail contractor who is/are going to receive the
supply.
e) In case liquor/beer is supplied to the licensee of retail
sale without depositing the amount on the responsibility of
the manufacturing unit on the basis of the authority letter
issued by any manufacturing unit with the prior permission
of the Excise Commissioner, the same would have to be
mentioned categorically in the prescribed form.
f) In case any quantity of liquor/beer is supplied without
depositing the prescribed amount on the responsibility
of the manufacturing unit with the prior permission
from the Excise Commissioner, then in each and every
situation, supply of liquor/beer could be effected only after
depositing the 5% amount reckoned at rates declared by
the manufacturing unit.
g) Retail sale licensee would deposit the amount at the
bank counter established in the warehouse itself and
would tender the deposit receipt issued by the bank in
the computer room.
18 [2025] 8 S.C.R.
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h) After loading the information about the amount deposited
in the computer room, Accounts-in-charge would submit
the delivery challan to the Officer-in-charge for issuing
the delivery order.
i) After issuance of the supply order by the Officer-in-charge/
liquor officer (whosoever would be in charge of the store)
would take out liquor/beer for the purpose of effecting the
supply. Batch number of the liquor/beer would be recorded
in the delivery challan. Final information of the batches
under supply along with vehicle number would be given
in the computer branch and the Officer-in-charge so that
transportation permit may be issued from the computer
room. Permits would be issued through the computer only
except in the cases of defects in which situation the work
will be completed manually.
j) Officer-in-charge would ensure that necessary particulars
of the liquor/beer, date and time of leaving vehicle, amount
of duty, challan number and period given to take liquor to
the place of destination are recorded on the permit.
k) Only after ensuring compliance of the above-said process,
the Officer-in-charge would give permission to vehicle
loaded with liquor/beer to move from the store.
l) At the end of each and every working day, stock verification
would be carried out. The complete accounts statement of
wine/liquor supplied up to 25th of each and every month
would be prepared. All the accounts of the amount lying
deposited in the collection account of the manufacturing
units would be tallied. Officer-in-charge would submit the
said accounts before the concerned Deputy Commissioners
and Deputy Commissioners would direct the bank as to
how much amount is to be transferred by them in their
accounts out of the collection accounts of each and every
manufacturing unit and how much amount would be
deposited in the government treasury. Thereafter, Deputy
Commissioners would issue directions to the bank to
first of all deposit that much amount in the government
treasury and the remaining amount would be credited to
the accounts of the manufacturing unit. The available stock
was to be insured.
[2025] 8 S.C.R. 19
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
5. An additional return was filed wherein it was averred that the
appellants are under liability to pay VAT tax and the list of the dealers
who are liable to pay VAT tax was annexed.
RELEVANT STATUTORY PROVISIONS: -
6. Till 31.03.2007, no entry tax was levied in the State of Madhya
Pradesh on beer and IMFL. On 01.04.2007, the M.P. Entry Tax Act
was amended by the M.P. Entry Tax (Amendment) Act No. 9 of 2007
i.e. The Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par
Kar (Sanshodhan) Adhiniyam, 2007 (hereinafter referred to as ‘the
Amendment Act of 2007’)
7. The original Act in Section 3 provided that an entry tax shall be
levied 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.
8. Section 3 reads as follows:-
“3- Incidence of taxation
(1) There shall be levied an entry tax,-
(a) 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; and
(b) on the entry in the course of business of a dealer of
goods specified in Schedule-III into each local area
for consumption or use of such goods but not for
sale therein; and such tax shall be paid by every
dealer liable to tax under the [M.P.VAT Act, 2002]
who has effected entry of such goods:..”
(Emphasis supplied)
9. By the Amendment Act of 2007, an entry was added to Schedule-II
which reads as follows:-
“Indian made foreign liquor and beer.”
The rate of tax prescribed was @ 2%.
10. The Amending Act of 2007 introduced Section 3B which reads as
follows:-
20 [2025] 8 S.C.R.
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““ 3-B. Special provisions for collection of entry tax
on foreign liquor; -
Notwithstanding anything contained in this Act, the State
Government may, by notification, specify the manner
and appoint the competent authority, to collect entry tax
in respect of India made foreign liquor and beer on such
terms and conditions as may be specified therein.”
4A. Provision for entry tax at enhanced rate. –
(ii) for sub-section (1), the following sub-section shall be
substituted, namely: -
(1) Notwithstanding anything to the contrary contained
in this Act, the State Government may, by notification,
specify the manner and appoint the competent authority to
collect entry tax in respect of India made foreign liquor and
Beer on such terms and conditions as may be specified
therein, the entry tax payable by a dealer under this Act
shall be charged on the value of such goods at a rate not
exceeding thirty per centum as may be specified in such
notification.. ”
11. The other relevant sections from the Entry Tax Act are Section 2(1)
(aa), 2(1) (b), 2(1)(l), 2(1)(m), 2(2), 2(3) and Section 14 which read
as follows:-
“2(1)(aa) “entry of goods into a local area” with all its
grammatical variations and cognate expressions means
entry of goods into that local area from any place outside
thereof including a place outside the State for consumption,
use or sale therein;”
2(1)(b) “Entry tax” means a tax on entry of goods into a
local area for consumption, use or sale therein levied and
payable in accordance with the provisions of this Act and
includes composition money payable under Section 7-A”
2(1)(l) “Value of goods” in relation to a dealer or any
person who has effected entry of goods into a local area
shall mean the purchase price of such goods as defined
in clause (s) of Section 2 of the Madhya Pradesh VAT Act,
2002 (No. 20 of 2002) and shall include excise duty and/
[2025] 8 S.C.R. 21
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
or additional excise duty and/or customs duty, if levied
under the Central Excise and Salt Act, 1944 (No. 1 of
1944), the Additional Duties of Excise (Goods of Special
Importance) Act, 1957 (No. 58 of 1957) or the Customs
Act, 1962 (No. 52 of 1962), as the case may be or the
market value of such goods if they have been acquired
or obtained otherwise than by way of purchase;
2(1)(m) “VAT Act” means the Madhya Pradesh VAT Act,
2002 (No. 20 of 2002).
2(2) All those expressions, other than expression “goods”
and “sale” which are used but are not defined in this Act
and are defined in the Madhya Pradesh VAT Act, 2002
(No. 20 of 2002) shall have the meanings assigned to
them in that Act.
2(3) Any reference in this Act to the expression “has
effected entry of goods” with its grammatical variations
and cognate expressions, whether used in isolation
or in conjunction with any other words shall, wherever
necessary, be construed as including a reference to
“has caused to be effected entry of goods”
(Emphasis supplied)
“14. Assessment, collection etc. of entry tax.- Subject
to the provisions of this Act and the rules made thereunder,
the administration of this Act in so far as it relates to levy,
assessment and collection of entry tax from dealers shall
vest in the authorities specified in Section 3 of the Madhya
Pradesh VAT Act, 2002 (No. 20 of 2002), and accordingly
the authorities for the time being empowered to assess,
re-assess, collect and enforce payment of any tax under
the Madhya Pradesh VAT Act, 2002 (No. 20 of 2002) shall
assess, re-assess, collect and enforce the payment of entry
tax including any penalty payable by a dealer under this
Act as if the tax or penalty payable by such dealer under
this Act or under the provisions of the Madhya Pradesh
VAT Act, 2002 (No 20 of 2002) as made applicable under
Section 13 to dealers in relation to tax levied under this
Act is a tax or penalty payable under that Act and for
22 [2025] 8 S.C.R.
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this purpose they may exercise all or any of the powers
conferred upon them by or under that Act.”
12. “Dealer” as defined under Section 2(i) of the Madhya Pradesh VAT
Act, 2002 reads as under:-
“2(i) - Dealer” means any person, who carries on the
business of buying, selling, supplying or distributing goods,
directly or otherwise, whether for cash, or for deferred
payment or for commission, remuneration or other valuable
consideration and includes –
(i) a local authority, a company, an undivided Hindu family
or any society (including a cooperative society), club, firm
or association which carries on such business;
(ii) a society (including a co-operative society), club, firm
or association which buys goods from, or sells, supplies
or distributes goods to its;
(iii) a commission agent, broker, a del-credere agent, an
auctioneer or any other mercantile agent, by whatever
name called, who carries on the business of buying, selling,
supplying or distributing goods on behalf of the principal;
(iv) any person who transfers the right to use any goods
including leasing thereof for any purpose, (whether or not
for a specified period) in the course of business to any
other person;”
Explanation I - Every person who acts as an agent of a
non- resident dealer, that is as an agent on behalf of a
dealer residing outside the State and buys, sells, supplies
or distributes goods in the State or acts on behalf of such
dealer as - (i) a mercantile agent as defined in the Sale of
Goods Act, 1930 (III of 1930); or (ii) an agent for handling
goods or documents of title relating to goods; or (iii) an
agent for the collection or the payment of the sale price
of goods or as a guarantor for such collection or payment,
and every local branch of a firm or company situated
outside the State, shall be deemed to be a dealer for the
purpose of this Act.
Explanation II - The Central or a State Government
or any of their departments or offices which, whether
[2025] 8 S.C.R. 23
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
or not in the course of business, buy, sell, supply or
distribute goods, directly or otherwise, for cash or for
deferred payment, or for commission, remuneration
or for other valuable consideration, shall be deemed
to be a dealer for the purpose of this Act.
Explanation III - Any non-trading, commercial or financial
establishment including a bank, an insurance company,
a transport company and the like which whether or not in
the course of business buys, sells, supplies or distributes
goods, directly or otherwise, for cash or for deferred
payment, commission, remuneration or for other valuable
consideration, shall be deemed to be a dealer for the
purposes of this Act:
(Emphasis supplied)
13. “Goods” as defined in Section 2(m) reads as under:-
“2(m) “Goods” means all kinds of movable property
including computer software but excluding actionable
claims, newspapers, stocks, shares, securities or
Government stamps and includes all materials, articles and
commodities, whether or not to be used in the construction,
fitting out, improvement or repair of movable or immovable
property, and also includes all growing crops, grass, trees,
plants and things attached to, or forming part of the land
which are agreed to be severed before the sale or under
the contract of sale;”
14. “Sale” as defined in the M.P. VAT Act reads as under:-
“2(u) “Sale” with all its grammatical variations and
cognate expressions means any transfer of property in
goods for cash or deferred payment or for other valuable
consideration and includes –
(i) a transfer, otherwise than in pursuance of a contract,
of property in any goods for cash, deferred payment or
other valuable consideration;
(ii) a transfer of property in goods whether as goods or
in some other form, involved in the execution of works
contract;
24 [2025] 8 S.C.R.
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(iii) a delivery of goods on hire purchase or any system
of payment by installments;
(iv) a supply of goods by any unincorporated association
or body of persons to a member thereof for cash, deferred
payment or other valuable consideration;
(v) a supply, by way of or as part of any service or in any
other manner whatsoever, of goods being food or any other
article for human consumption or any drink (whether or
not intoxicating) where such supply or service is for cash,
deferred payment or other valuable consideration;
(vi) a transfer of the right to use any goods including leasing
thereof for any purpose (whether or not for a specified
period) for cash, deferred payment or other valuable
consideration, and such transfer, delivery or supply of
any goods shall be deemed to be a sale of those goods
by the person making the transfer, delivery or supply and
purchase of those goods by the person to whom such
transfer, delivery or supply is made, but does not include
a mortgage, hypothecation, charge or pledge;”
CONTENTIONS OF PARTIES: -
15. We have heard Mr. Rohan Shah, learned Senior Advocate and
Mr. Sumit Nema, learned Senior Advocate for the appellants and
Mr. Nachiketa Joshi, learned Additional Advocate General for the
respondent-State.
16. Learned counsels for the appellants reiterated the modus operandi
of the transaction as set out hereinabove. They contended that
depending upon the estimation of the retailers’ requirement, each
State Government warehouse would issue an indent on different
manufacturers of different brands of IMFL to supply goods to the
State Government warehouse.
17. Learned counsels contended that only after complying with the
formalities of receipt of NOC from the State Government warehouse,
the State Excise Officer would allow removal of exact quantity of the
relevant brand by issuing a Transit Pass under Rule 14(1) of the
M.P. Foreign Liquor Rules, 1996 to enable transportation for storage
in the State Government Warehouse. They contend that an invoice
[2025] 8 S.C.R. 25
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
specifying the brand and quantities of IMFL was to be issued by
the manufacturer, in the name of the State Government warehouse.
They contend that there was no privity between the retailers and
the manufacturers. Learned Counsels contend that from the price
paid by the retailer, the State Excise Duty, VAT, and transportation
Fees/commission are all deducted and only then the amount is
transferred to the manufacturer by the Government warehouse.
Learned Counsels contend that no direct sales can be made by the
manufacturer to the retailers.
18. According to the learned Counsels for the appellants, it is the
Government warehouse which causes the movement of goods into
the local area, which is the incidence for the levy as defined under
Section 3(1)(a) read with Section 2(1)(aa), 2(1)(b) and 2(3) of the
M.P. Entry Tax Act. According to the learned Counsels, since the
State Government warehouses not only sells but, in any event,
undisputably distributes the goods they would be “dealer” as per
Explanation II to Section 2(i) of M.P. VAT Act, 2002. According to the
learned counsels, levy cannot be mulcted on the manufacturers as
they do not effect the entry of goods or cause to effect the entry of
goods and it is only the State Government warehouse which cause to
effect the entry of the goods. That even otherwise, the manufacturers
cannot be mulcted with the liability as the value of the goods would
be clear only at the hands of the State Government warehouse which
effects the sale to the retailer and for this reason, without notification
being issued under Section 3B of the Entry Tax Act, no levy can be
effected. Further, they contend that since the State Government
warehouse causes to effect the entry of the goods, it is they who
will ultimately pass it on to the retailers after the levy is made. They
further contend that with effect from 01.04.2008 when the entry tax on
IMFL and beer was withdrawn, an increase in 2% of the transportation
fee was brought in and it was made to 8% from the originally fixed
6% chargeable by the warehouse on the retailers. So praying, they
contend that the writ petitions ought to have been allowed, and the
communication dated 13.06.2007 issued by respondent no. 2 and
the communication 21.06.2007 issued by respondent no. 3 directing
the manufacturers to pay entry tax ought to have been quashed. To
buttress the submission, they further referred to the communication
dated 02.06.2007 issued by Commissioner, Commercial Tax to the
Excise Commissioner directing that the entry tax ought to be paid
by the warehouse of the excise department.
26 [2025] 8 S.C.R.
Supreme Court Reports
19. Mr. Nachiketa Joshi, learned Additional Advocate General, submitted
that the judgment of the High Court upholding the levy on the
manufacturers called for no interference. Learned Senior Advocate
contends that the High Court has correctly found that the warehouses
neither purchase liquor nor sell liquor and that the Department only
supervises the sale made by the manufacturer to the retail contractors.
Learned Senior Advocate contends that the High Court has rightly
found that Section 3B was only an enabling provision which was in
the nature of a machinery provision and even without a notification
under Section 3B of the Act, Section 14 could enable the levy of
entry tax on the manufacturers. Learned Senior Advocate contends
that the non-obstante part of Section 3B will not override Section 14
as there is no conflict between the two provisions and the two can
be harmoniously interpreted. Learned Senior Advocate for the State
also drew our attention to the communication of the Commissioner,
Commercial Tax dated 04.10.2008 to the Excise Commissioner
correcting the communication of 02.06.2007 and clarifying the position
that it is only the manufacturing units which were liable to pay the
entry tax. Learned Senior Advocate contended that the High Court
has correctly relied on the judgment of this Court in M/s Bhagatram
Rajeevkumar vs. Commissioner of Sales Tax, M.P. and Others,
1995 Supp. (1) SCC 673 to sustain the levy on the manufacturers.
QUESTION FOR CONSIDERATION:-
20. The question that arises for consideration is: -
Did the appellants cause to effect the entry of goods into the local
area as required under Section 3(1)(a) read with Section 2(1)(aa),
2(1)(b) and 2(3) of the M.P. Entry Tax Act, 1976, rendering them
liable for entry tax for the period 01.04.2007 to 31.03.2008?
ANALYSIS AND REASONS: -
21. The principal argument of the learned Counsels for the appellants is
that there is no privity of contract between them and the retailers and
that it is the State Government warehouse which sells the goods to
the retailers. According to the learned Counsels for the appellants,
it is the warehouse which causes the movement of the goods into
the local area. Alternatively, it is contended that undisputedly the
State Government warehouse distributes the goods and whether as
a seller or as a distributor they acquire the status of a dealer under
[2025] 8 S.C.R. 27
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
the Act, which makes them liable for the payment of the Entry Tax.
The stand of the State Government is that the warehouse neither
purchases nor sells the liquor and the work undertaken is only to
supervise the sale made by the manufacturer to the retailer. This
contention of the State found favour with the High Court.
22. The model adopted by the State, as set out in the Paragraphs
hereinabove for the transaction, clearly points to the State canalising
the supply of beer and Indian made foreign liquor into the local area.
The question that would then arise is: - is there an inseverable link
between the manufacturers like the appellants and the ultimate
retailers? While the manufacturers contend that the sale by them is
made to the State warehouse and thereafter the State warehouse
makes the sale to the retailers, the State contends that there is an
inseverable link and it is the manufacturers who causes the sale to
the retailers and the State is discharging only a supervisory role.
23. Under the modus operandi adopted, as set out in hereinabove, it will
be clear that demand note for each and every shop is submitted to
the warehouse by the retailer. After assessing the local demand, the
Divisional Commissioner issues directions to the Officer in charge
for issuance of a No Objection Certificate to the manufacturing units.
The manufacturing units were allowed to store beer and IMFL in
departmental godowns. The manufacturing units declare the Ex-
godown price and supply of liquor is effected by the warehouse after
levying 5 per cent additional fee. The retail buyer deposits the amount
with the warehouse and the transfer of money to the manufacturer
is made by the warehouse and thereafter, delivery is taken by the
retailer from the warehouse.
24. The issue of when can a sale which involves a canalizing agent/
intermediary be said to be inseverable has arisen in the context of
exemption sought by assessees under the Central Sales Tax Act
before this Court in several cases. In K. Gopinathan Nair & Ors. v.
State of Kerala, (1997) 10 SCC 1, this Court, after analyzing the
precedents applicable to the issue, summarised the law in Para 14
and 15 as under: -
“14. In the light of the aforesaid settled legal position
emerging from the Constitution Bench decisions of this
Court the following propositions clearly get projected for
deciding whether the concerned sale or purchase of goods
28 [2025] 8 S.C.R.
Supreme Court Reports
can be deemed to take place in the course of import as
laid down by Section 5(2) of the Central Sales Tax Act:
(1) The sale or the purchase, as the case may be, must
actually take place.
(2) Such sale or purchase in India must itself occasion
such import, and not vice versa i.e. import should not
occasion such sale.
(3) The goods must have entered the import stream when
they are subjected to sale or purchase.
(4) The import of the goods concerned must be effected
as a direct result of the sale or purchase transaction
concerned.
(5) The course of import can be taken to have continued
till the imported goods reach the local users only if
the import has commenced through the agreement
between foreign exporter and an intermediary who
does not act on his own in the transaction with the
foreign exporter and who in his turn does not sell as
principal the imported goods to the local users.
(6) There must be either a single sale which itself
causes the import or is in the progress or process
of import or though there may appear to be two sale
transactions they are so integrally interconnected
that they almost resemble one transaction so that the
movement of goods from a foreign country to India
can be ascribed to such a composite well-integrated
transaction consisting of two transactions dovetailing
into each other.
(7) A sale or purchase can be treated to be in the course
of import if there is a direct privity of contract between
the Indian importer and the foreign exporter and the
intermediary through which such import is effected merely
acts as an agent or a contractor for and on behalf of the
Indian importer.
(8) The transaction in substance must be such that the
canalising agency or the intermediary agency through
[2025] 8 S.C.R. 29
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
which the imports are effected into India so as to reach
the ultimate local users appears only as a mere name
lender through whom it is the local importer-cum-local
user who masquerades.
15. If the aforesaid conditions are satisfied then obviously
the transaction of sale or purchase would be in the realm
of sale or purchase in the course of import entitling it to
earn exemption under Section 5(2) of the Central Sales
Tax Act. But if on the contrary the transactions between
the foreign exporter and the local users in India get
transmitted through an independent canalising import
agency which enters into back-to-back contracts and
there is no direct linkage or causal connection between
the export by foreign exporter and the receipt of the
imported goods in India by the local users, the integrity
of the entire transaction would get disrupted and would
be substituted by two independent transactions, one
between the canalising agency and the foreign exporter
which would make the canalising agency the owner of
the goods imported and the other between the import
canalising agency and the local users for whose benefit
the goods were imported by the wholesale importer
being the canalising agency. In such a case the sale
by the canalising agency to the local users would not
be a sale in the course of import but would be a sale
because of or by import which would not be covered
by the exemption provision of Section 5 sub-section
(2) of the Central Sales Tax Act.”
(Emphasis supplied)
25. From the summary of principles set out hereinabove, it will be
clear that in case a canalising agency or intermediary agency is
involved, unless their role is merely that of a name lender, the sale
will not be treated as an inseparable or an inseverable sale. It will
also be clear that if an independent canalising agency enters into
back-to-back contracts and there is no direct linkage or causal
connection between the export by foreign exporter and the receipt
of the imported goods in India by local users, then the integrity of
the entire transaction would be disrupted and would be substituted
30 [2025] 8 S.C.R.
Supreme Court Reports
by two independent transactions. In K. Gopinathan Nair (supra) it
was held that transactions were not integral and were two separate
transactions.
26. Similar view has been expressed by this Court in Hyderabad
Industries Ltd. v. Union of India & Ors., (2000) 1 SCC 718, Kerala
State Warehousing Corpn. v. State of Kerala, (2005) 10 SCC
142 and State of Karnataka v. Azad Coach Builders Private Ltd.
& Anr., (2010) 9 SCC 524. It will be observed that while the tests
applied have been common, factually differing conclusions have
been arrived at by this Court depending upon the facts operating in
the respective cases.
27. Applying the tests to the present canalising transaction, we have no
manner of doubt that there were two independent transactions, one
between the appellant – 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.
28. This, however, does not resolve the issue in favour of the appellants.
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 has effected
entry of such goods. Entry Tax is defined as a tax on entry of goods
into a local area for use, consumption or sale therein levied and
payable in accordance with the provisions of the M.P. Entry Tax Act.
Section 2(3) of the M.P. Entry Tax Act states that any reference to
the expression “has effected entry of goods” shall be construed as
including a reference to “has caused to be effected entry of goods.”
29. The other crucial question that arises is whether the appellant
manufacturers have “caused to be effected the entry of goods.” In the
pocket Oxford Dictionary, 8th Edition, “Cause” is defined as follows:
“person or thing that occasions or produces something”
In the context of construing Section 5(3) of the Central Sales Tax
Act, 1956 which used the phrase “occasioning the export”, this Court
in Azad Coach Builders (supra) held as follows: -
[2025] 8 S.C.R. 31
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
“27. The phrase “sale in the course of export” comprises
in itself three essentials: (i) that there must be a sale; (ii)
that goods must actually be exported; and (iii) that the
sale must be a part and parcel of the export. The word
“occasion” is used as a verb and means “to cause” or
“to be the immediate cause of”. Therefore, the words
“occasioning the export” mean the factors, which
were the immediate cause of export. The words “to
comply with the agreement or order” mean all transactions
which are inextricably linked with the agreement or order
occasioning that export. The expression “in relation to”
are words of comprehensiveness, which might both have
a direct significance as well as an indirect significance,
depending on the context in which it is used and they
are not words of restrictive content and ought not be so
construed. Therefore, the test to be applied is, whether
there is an inseverable link between the local sale or
purchase and export and if it is clear that the local sale
or purchase between the parties is inextricably linked with
the export of the goods, then a claim under Section 5(3)
for exemption from State sales tax is justified, in which
case, the same goods theory has no application.”
30. In Coffee Board, Bangalore v. Joint Commercial Tax Officer,
Madras & Anr., (1969) 3 SCC 349, Chief Justice Hidayatullah,
speaking for the Court, held as follows:
“28. ……… The word “occasion” is used as a verb and
means “to cause” or “to be the immediate cause of”. Read
in this way the sale which is to be regarded as exempt
is a sale which causes the export to take place or is the
immediate cause of the export……..”
31. Reverting back to Sections 3(1) read with 2(1)(aa) and 2(1)(b) and
2(3), it is clear that the appellants by the sale to the warehouse caused
to be effected 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 the appellant is a dealer as
defined under the Madhya Pradesh VAT Act 2002, as it stood then.
The only contention of the appellants is this that the State warehouse
is also a dealer. That makes no difference since it cannot be disputed
32 [2025] 8 S.C.R.
Supreme Court Reports
that the appellants certainly occasioned the entry of goods and the
levy of entry tax on them, which could always be passed on, is
perfectly justifiable in law.
32. The further contention that no notification having been issued under
Section 3B of the M.P. Entry Tax Act 1976, there could be no levy
of entry tax has only to be stated to be rejected. The High Court
has rightly held that Section 3B is only a machinery provision and in
the teeth of Section 14 of the M.P. Entry Tax Act, it is not correct to
say that there cannot be any assessment or collection of Entry Tax
merely because there is no notification under Section 3B.
33. Section 3B of the M.P. Entry Tax is an enabling provision. Further,
the ‘non-obstante’ in Section 3B will not foreclose the operation of
Section 14, since Section 3B will override only if there is a contrary
provision. In the absence of any notification under Section 3B, there
is nothing contrary in Section 14 for the non-obstante in Section 3B
to be invoked to override Section 14. (See A.G. Varadarajulu &
Anr. v. State of T.N. & Ors., (1998) 4 SCC 231 and Union of India
and Anr. v. G.M. Kokil & Ors., 1984 Supp SCC 196).
34. On this score, The High Court in the impugned order has found
rightly as follows:
“13. In our opinion as Section 14 deals with the assessment
and collection of entry tax and State has chosen not to
issue notification under Section 3B by enacting special
procedure for collection of entry tax on foreign liquor, it
is open to the State to recover as per general procedure
prescribed in Section 14. We do not find any legal
impediment for applicability of the provision of Section
14 as under Section 3B no notification to the contrary
or otherwise has been issued by the State Government
so as to override the procedure provided in Section 14.
When something is required to be done so as to bring
the non-obstante clause into play till that thing has been
done, non-obstante clause would not come into play. Thus
in the instant case, we are of the considered opinion that
charging section is Section 3(1) and in the absence of
the notification under Section 3B which is a machinery
provision, State can recover the entry tax as per general
machinery provided under Section 14.”
[2025] 8 S.C.R. 33
M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors.
35. In Bhagatram (supra) cited by the State the question was whether
entry tax on goods such as sugar on which no sales tax is leviable,
was justified. This Court answered the question in favor of the State.
For the reasons that we have stated above, we find no relevance of
Bhagatram (supra) for the present controversy.
36. For the reasons aforestated, we find no grounds to interfere with the
impugned order. Civil Appeals are dismissed. No order as to costs.
Result of the case: Appeals dismissed.
†
Headnotes prepared by: Divya Pandey
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