Supreme Court Clarifies Entry Tax Liability on Liquor Manufacturers: Who is the “Dealer” for Purposes of the Madhya Pradesh Entry Tax Act?

On 14 July 2025, the Supreme Court delivered a judgment in M/S United Spirits Ltd. Vs. State of Madhya Pradesh & Ors. which settled a fundamental question on the application of entry tax to liquor manufacturers operating under the Madhya Pradesh Excise Act and the Madhya Pradesh Entry Tax Act, 1976, as amended in 2007. The decision revolved around whether manufacturers like United Spirits Ltd, who supply liquor to state warehouses, are liable to pay entry tax or whether such liability transfers to the retailers or the State.

Facts

In this case, United Spirits Ltd (and related appellants) are licensed manufacturers and suppliers of Beer and Indian Made Foreign Liquor (IMFL) in Madhya Pradesh. These operations are tightly regulated under the Madhya Pradesh Excise Act, 1944, wherein:

• Manufacturers (holding FL-9 and FL-9A licenses) bottle and deliver IMFL to government warehouses (run by the Excise Department, which holds an FL-10 license).
• Retailers (holding FL-1 licenses) then purchase from these warehouses for sale to the consuming public, after obtaining a No Objection Certificate (NOC) and paying certain dues (including a 6% ‘Parivahan Shulk’ for transportation).
• The transactions are highly structured like government warehouses are the crucial intermediary, collecting funds from retailers, depositing these with banks and after administrative processes, remitting the net amounts to manufacturers.

Historically, neither beer nor IMFL was liable to entry tax in Madhya Pradesh until 2007, when an amendment to the Entry Tax Act imposed a 2% tax on “entry in the course of business of a dealer of goods” (including liquor), later enhanced by government notification powers up to 30%. The statutory definition of “dealer” under the VAT Act was incorporated into the Entry Tax Act.

The manufacturers contended that since government warehouses (the Excise Department) purchase from them and then sell to retailers, it is the government that is the dealer responsible for the tax, not the manufacturers.

Arguments

Appellants:

• Asserted that entry tax liability should fall on the government warehouses (Excise Department) and not on the manufacturers.
• They acted strictly per the Excise Act and with requisite NOCs. The sales to government warehouses ended their responsibility for what happened afterward, including payment of entry tax.
• Cited statutory schemes and the system of funds flow, emphasizing that the government, not the manufacturers, ultimately sold to retailers.

Respondents (State):

• Maintained that the State does not purchase or sell liquor. Instead, the warehouses are a storage/custodial facility.
• The flow of funds and statutory guidelines indicate that manufacturers cause the entry of goods and are thus the “dealers” for entry tax liability.
• Detailed administrative circulars and departmental guidelines demonstrated that manufacturers retained control through the “supply process” until the goods reached the retailer and the financial arrangements showed payment flows followed this model.

Judgment

After considering the detailed statutory framework, administrative orders and factual matrix, the Supreme Court upheld the High Court’s view and stated that the manufacturer remains liable for entry tax under Section 3 of the M.P. Entry Tax Act, 1976, as amended.

Key Reasoning:

• Definition of Entry and Dealer: The Act’s definition of “entry” includes causing the entry of goods. Manufacturers, by moving goods to government warehouses for storage and onward supply, “cause entry” of those goods for business purposes (i.e., sale).
• Role of Government Warehouses: These warehouses do not “purchase” for themselves instead they act as storage and logistical intermediaries facilitating the flow from manufacturer to retailer. The government essentially acts as a conduit, not a trader.
• Control and Financial Flow: The payment process, where retailers deposit funds which are later remitted to the manufacturer demonstrates manufacturer’s continuing involvement in the transaction up to the point of sale to the retailer.
• Financial and Control Flow: The payment mechanism, wherein retailers pay money which is subsequently paid to the manufacturer, illustrates manufacturer’s ongoing engagement in the transaction up to the retailer’s point of sale.
• Practice Administration: Regulatory notices, NOCs, and warehousing instructions always indicate the manufacturer’s responsibility to monitor the process and pay duties and taxes accurately before allowing goods for release.

Analysis

This judgment clarifies, perhaps for the first time at the Supreme Court level, the interpretation of who is a “dealer” responsible for entry tax under such tightly regulated commodity regimes. The Court rejected attempts to use the technical or literal structure of the sales path to evade tax liability. Instead, it looked at the commercial and administrative realities: Even though the government appears at first glance as the “buyer,” it is merely an enabler in the chain and not the end user or seller in any commercial sense. The manufacturer, whose goods are being introduced into the local area for business (consumption, use, or sale), remains responsible for the tax event.

This decision will have broad implications not only for the liquor industry but for all sectors where State intervention structures the flow of goods but does not genuinely alter ownership or liability chains.

Explanation of Key Term

Entry Tax: A form of indirect tax charged on the movement or entry of goods into a local area for commercial purposes, to level the competitive field between locally produced and imported (from outside the area) goods.

Conclusion

The Supreme Court reaffirmed that for the sake of entry tax under Madhya Pradesh Entry Tax Act, the burden lies with those who actually bring goods into a local market in their trade which are the producers of beer and IMFL, even when government warehouses act as intermediaries. This decision will make taxation clarified, will avoid defeat through technicalities and facilitate easier administration of both entry and excise regimes in states having identical regulatory

Coram

Justice K.V. Viswanathan

Justice J. B. Pardiwala