The Supreme Court has held that the levy of entry tax under the M.P. Entry Tax Act on United Spirits Limited, which holds a license to manufacture and supply beer and IMFL, is perfectly justifiable in law.

The issue before the Apex Court was whether the appellants were liable for the payment of entry tax under Section 3 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 [M.P. Entry Tax Act].

The Division Bench of Justice J. B. Pardiwala and Justice K. V. Viswanathan held, “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 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.”

AOR Manjeet Kirpal represented the Appellant while Senior A.A.G. Nachiketa Joshi represented the Respondent.

Arguments

The case as set up by the Appellant was that they are involved in bottling and supplying of Beer and Indian Made Foreign Liquor (IMFL). The appellants hold license under the M.P. Excise Act, 1944, to manufacture and supply beer and IMFL. According to the appellants, the FL-10 licensee in M.P. is the Excise Department, which runs the State Government warehouse. The appellants submitted that the retailers pay a license fee in equal instalments by depositing the same with the Treasury. The appellants contended that the transaction is between the Government warehouses and the retailers, and the communication directing the manufacturers to pay entry tax should be quashed.

On the other hand, it was the case of the respondents that the appellants are liable to pay VAT tax.

Reasoning

The Bench noted that till March 31, 2007, no entry tax was levied in the State of Madhya Pradesh on beer and IMFL. In 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 (Amendment Act of 2007). On a perusal of the facts of the case, the Bench noted that the State was canalising the supply of beer and Indian made foreign liquor into the local area.

It was explained by the Bench 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. If an independent canalising agency enters into back-to-back contracts and there is no direct linkage or causal connection between the export by a 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, the Bench noted 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”, it said.

Referring to Sections 3(1) read with 2(1)(aa) and 2(1)(b) and 2(3), the Bench noticed 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 was held by the Bench that the appellants occasioned the entry of goods and the levy of entry tax on them, which could always be passed on, was perfectly justifiable in law.“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”, it further added.

Thus, finding no ground to interfere with the impugned order, the Bench dismissed the appeal.

Cause Title: M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors. ( Neutral Citation: 2025 INSC 833)

Appearance

Appellant: AOR Manjeet Kirpal, AOR Akshat Shrivastava, AOR Mr. Pooja Shrivastava, Adv. Mr. Palash Pareek, Adv. Mr. Vibhor Jain, Adv

Respondent: Sr. A.A.G. Nachiketa Joshi, AOR Pashupathi Nath Razdan, Advocate Sidhartha Sinha

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Justice JB PardiwalaJustice KV Viswanathan

Tulip Kanth

Assistant Editor

Tulip Kanth is an Assistant Editor at Verdictum having over 5 years of experience in the field of legal journalism and editing. She extensively covers judgments of the Supreme Court, High Courts as well as Tribunals. She has previously worked with a legal publishing website where she oversaw the work of other editors and has also created updates on notifications of different Government Ministries. She holds an English Honours Degree from SGTB Khalsa College, Delhi University and has completed her LLB course with specialisation in Corporate Law from Amity University.