Manufacturers Liable For Entry Tax On IMFL And Beer; Supreme Court Upholds Levy And Dismisses Appeals

A bench of Justices J. B. Pardiwala and K. V. Viswanathan heard appeals by M/s United Spirits Ltd. challenging the imposition of entry tax under Section 3 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 on Indian Made Foreign Liquor (IMFL) and beer for the period 01.04.2007 to 31.03.2008. The company contested orders of the High Court which had rejected its writ petitions; the principal contest concerned whether the manufacturer “caused to be effected” entry into local areas and whether a notification under Section 3B was required before levy.

The Court dismissed the appeals and upheld the High Court’s conclusion that the appellants were liable to pay entry tax. The Court held that the manufacturers’ sale to state-controlled warehouses “caused to be effected the entry of goods” into local areas and therefore satisfied the statutory incidence in Section 3(1)(a) read with Sections 2(1)(aa), 2(1)(b) and 2(3). The Court rejected the contention that absence of a notification under Section 3B precluded levy, treating Section 3B as an enabling/machinery provision which did not override the general assessment and collection machinery under Section 14. The Court, in its reasoning, observed: “31. 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 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.” The Court further reproduced the High Court’s observation 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.”

Background The dispute arose from the Madhya Pradesh Government’s canalised system for supply of IMFL and beer in which manufacturers stored goods in departmental godowns and supplies to retail contractors were effected through state warehouses after the retailers submitted demand notes and deposited price/dues at bank counters established in the stores. The M.P. Entry Tax Act was amended in 2007 to add “Indian made foreign liquor and beer” to Schedule II (at 2% initially) and to introduce Section 3B vesting power in the State to specify manner and authority for collection by notification. United Spirits submitted that manufacturers held FL-9/FL-9A licences and issued invoices in the name of State warehouses, with sales effectively taking place between warehouses (FL-10) and FL-1 retail licencees; it argued the warehouses caused movement into local areas and therefore any entry tax liability fell on the warehouses, not on manufacturers, and further that no Section 3B notification had been issued. The State countered that warehouses neither purchased nor sold liquor and merely supervised manufacturer-to-retailer supply; it relied on executive guidelines governing warehouse operations and on Section 14’s vesting of assessment and collection powers. The High Court found two transactions existed but nevertheless upheld levy on manufacturers and treated Section 3B as machinery; this Court agreed. The Court applied established tests for when intermediary or canalising arrangements produce an inseverable transaction but concluded that, even accepting two-step transactions, the manufacturers “occasioned” the entry and were therefore liable. Civil appeals were dismissed with no costs.

Case Details: Case No.: Civil Appeal Nos. 5113 & 5114 of 2025 Case Title: M/s United Spirits Ltd. v. The State of Madhya Pradesh & Ors. Appearances: For the Petitioner(s): Mr. Rohan Shah, Senior Advocate; Mr. Sumit Nema, Senior Advocate For the Respondent(s): Mr. Nachiketa Joshi, Additional Advocate General