JUDGMENT

BHARUCHA, J.- Leave granted.

2. These are appeals filed by the State of Uttar Pradesh against judgments and orders of the Allahabad High Court dated 9-3-1979 and 11-10-1979, and orders that followed the same. The High Court allowed writ petitions filed by the respondents, who are manufacturers of Indian-made foreign liquor, and quashed the orders impugned demanding excise duty from them.

3. The High Court in the judgment dated 11-10-1979, categorised the demands into four groups. In Group A the demands for excise duty were on the wastage of Indian-made foreign liquor (IMFL) which was exported outside the State of Uttar Pradesh. Group B related to demands made for excise duty on wastage, during transportation in containers, of high strength spirit, of 80 to 85%, from distillery to warehouse. Group C related to the demand of excise duty on obscuration. Group D related to excise duty sought to be levied on pipeline wastage. The judgment of the High Court dated 9-3-1979, related only to duty on obscuration (i.e., Group C).

4. It is convenient to state immediately that the issue relating to Group A, that is, the demands for excise duty on the wastage of IMFL exported outside the State, is now covered in its favour by the judgment of this Court in State of U.P. v. Delhi Cloth Mills{(1991) 1 SCC 454} and this is not disputed by the manufacturers.

5. In regard to Groups B, C and D, the High Court took the view that the stage at which the State could levy excise duty had not been reached.

6. Mr Sehgal, learned counsel for the State, submitted that the State was competent to levy excise duty on liquor for human consumption. It was the content of liquor in the IMFL which was exigible. Therefore, wastage of liquor from the time the process of manufacture of IMFL began was exigible to excise duty. In the alternative, Mr Sehgal submitted that if it was the IMFL, the ultimate beverage, which alone was exigible, the process of determining wastage and levying excise duty thereon was only regulatory and, therefore, permissible. Learned counsel for the manufacturers supported the view taken by the High Court.

7. Entry 51 of List II of the Seventh Schedule to the Constitution empowers the State to levy excise duty on "alcoholic liquors for human consumption". Section 3(22-a) was introduced into the U.P. Excise Act, 1910, in 1950, that is, with the coming into force of the Constitution, and it states that "excisable article" means:

"(a) any alcoholic liquor for human consumption; or

(b) any intoxicating drug."

8. Sub-sections 8, 9 and 11 of Section 3 and Section 28 of the said Act read thus:

"3. (8) spirit means any liquor containing alcohol obtained by distillation, whether it is denatured or not;

(9) denatured means rendered unfit for human consumption in such manner as may be prescribed by the State Government by notification in this behalf. When it is proved that any spirit contains any quantity of any substance prescribed by the State Government for the purpose of denaturation the court may presume that such spirit is or contains or has been derived from denatured spirit;

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(11) liquor means intoxicating liquor and includes spirits of wine, spirit, wine, tari, pachwai, beer and all liquid consisting of or containing alcohol, also any substance which the State Government may by notification declare to be liquor for the purposes of this Act;

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28. Duty on excisable articles.- (1) An excise duty or a countervailing duty, as the case may be, at such rate or rates as the State Government shall direct, may be imposed, either generally or for any specified local area, on any excisable article-

(a) imported in accordance with the provisions of Section 12(1); or

(b) exported in accordance with the provisions of Section 13; or

(c) transported; or

(d) manufactured, cultivated or collected under any licence granted under Section 17; or

(e) manufactured in any distillery established, or any distillery or brewery licensed, under Section 18:

Provided as follows