1. Excise duty demand on wastage of spirit generated during manufacturing of Indian Made Foreign Liquor — Spirit found unfit for human consumption. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 )
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2022 Supreme(SC) 176
SUPREME COURT OF INDIA
(From the High Court of Orissa, Cuttack)
L. NAGESWARA RAO, B.R. GAVAI, JJ.
STATE OF ORISSA & ORS. - Appellant
VERSUS
M/S UTKAL DISTILLERIES LTD. - Respondent
CIVIL APPEAL NOS. 5666-5668 OF 2009
Decided On : 03-03-2022A
Important Points
IMPORTANT POINT
State is only empowered to levy excise duty on alcoholic liquor for human consumption – State has no power to levy excise duty on wastage of liquor after distillation.
State is only empowered to levy excise duty on alcoholic liquor for human consumption – State has no power to levy excise duty on wastage of liquor after distillation.
Subject
Taxation Law - Excise Duty
Act Referred
Headnote
Excise and Customs – Bihar and Orissa Excise Act, 1915 – Section 27(1) read with Section 2(6) – Power of State to impose excise duty – State was only empowered to levy excise duty on alcoholic liquor for human consumption – State has no power to levy excise duty on wastage of liquor after distillation – State’s power to impose duty on import, export, transport and manufacture is only in respect of any excisable articles imported, exported, transported and manufactured – ‘Excisable article’ has been defined to be any alcoholic liquor for human consumption or any intoxicating drug – Even under relevant statute, State has power to levy excise duty only in respect of alcoholic liquor for human consumption – Impugned judgment and order upheld. (Paras 19, 20, 21 and 22 )
Facts of the case:
Present appeals challenge the common judgment and order passed by the High Court of Orissa, Cuttack, dated 5th December, 2008, in O.J.C. No.9369 of 1998, W.P.(C) No. 3097 of 2003 and W.P.(C) No. 7108 of 2005, thereby allowing said writ petitions filed by the respondent-Company
And setting aside the demand notices issued by the appellants.
Findings of Court:
No reason to interfere with the impugned judgment and order. The appeals, therefore, are found to be without merit and as such, dismissed. There shall be no order as to costs. All pending applications, if any, shall stand disposed of.
Result : Appeals dismissed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) :Sibo Sankar Mishra, Advocate
For the Respondent(s):Aftab Ali Khan, Advocate
For the Appellant(s) :Sibo Sankar Mishra, Advocate
For the Respondent(s):Aftab Ali Khan, Advocate
Table of Contents
2. State contends duty is payable on wastage exceeding recommended limits — Respondent argues State lacks authority to tax alcohol unfit for human consumption. (Para 12 , 13 )
3. Chemical analysis confirmed spirit was non-potable — Constitutional distribution of taxing powers distinguishes between alcoholic liquors for human consumption and others. (Para 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 )
4. State governments cannot levy excise duty on industrial alcohol or spirit unfit for human consumption; such authority is vested exclusively with the Central Government. (Para 16 , 17 , 18 , 19 )
5. Appeals dismissed — High Court order setting aside demand notices upheld. (Para 22 )
6. Can a State Government levy excise duty on alcohol not fit for human consumption?
No. Under the Constitution, State legislatures can only levy excise duty on alcoholic liquors for human consumption under Entry 51, List II. Alcoholic liquors other than for human consumption fall under the Central legislature's authority under Entry 84, List I. (Para 16 , 17 )
7. Is wastage of liquor generated during the distillation process taxable by the State?
No. Wastage of liquor after distillation, but before dilution, is considered raw material or input in the process of being rendered fit for consumption, and the State is not empowered to levy excise duty on such inputs. (Para 18 , 19 )
8. How does the definition of excisable article under the Bihar and Orissa Excise Act, 1915, limit taxing power?
The Act defines excisable article as alcoholic liquor for human consumption or any intoxicating drug. Consequently, the State's power to impose duty under the Act is limited strictly to articles meeting these definitions. (Para 20 , 21 )
JUDGMENT :
B.R. GAVAI, J.
1. The present appeals challenge the common judgment and order passed by the High Court of Orissa, Cuttack, dated 5th December, 2008, in O.J.C. No.9369 of 1998, W.P.(C) No. 3097 of 2003 and W.P.(C) No. 7108 of 2005, thereby allowing the said writ petitions filed by the respondent-Company and setting aside the demand notices issued by the appellants.
2. The facts, in brief, giving rise to the present appeals are as under:
3. The appellant No. 2–Commissioner of Excise, Orissa, vide order dated 12th September, 1990, granted licence in favour of the respondent-Company for manufacturing, bottling, blending and reduction of Indian Made Foreign Liquor (hereinafter referred to as ‘IMFL’) from rectified spirit. The license was granted with the condition that the respondent-Company shall install one rectification column to rectify/purify the rectified spirit to be used in manufacturing of IMFL.
4. It is not in dispute that as per the condition in the license, the respondent-Company installed Extra Natural Alcohol Column (hereinafter referred to ‘ENA Column’). It is the case of the respondent-Company that the said ENA Column installed by it was the first of its kind in the State of Orissa. It was the case of the respondent-Company that the manufacturing process resulted in generation of certain weak spirit, which was not potable, and since the rules did not provide for allowing such a waste product, a representation was made by the respondent-Company to the appellant No.2 on 19th August, 1992. Accordingly, the appellants constituted a Technical Committee (hereinafter referred to as “the Committee”) on 21st November, 1992, to examine the following issues:
“i) to examine the details of E.N.A. columns including stock of spirit inside the same.
(ii) Loss during trial run along with the limit of wastage during the E.N.A. process adopted by M/s Utkal Distillery Pvt. Ltd. at Brahmapura Khurda in the district of Puri.”
5. The Committee submitted its report on 17th June 1993. The Committee found that though there were provisions in the Boards’ Excise Rules, 1965 for loss of spirit during transit, during storage, and during bottling, there was no provision for loss of spirit during redistillation. The Committee found that the loss of spirit during the process of redistillation was allowed in different States. In Maharashtra, a loss of 2%; in Bihar, a loss of 1.5%; in Andhra Pradesh, a loss of 2%; and in Karnataka, a loss of 3% spirit was allowed during redistillation. Accordingly, the Committee recommended allowing 2% loss of spirit during the process of redistillation in the State of Orissa.
6. Since the appellant No.1State of Orissa, had not taken any decision on the report of the Committee, a writ petition being O.J.C. No.8635 of 1994, came to be filed by the respondent-Company, for a direction to the appellant No.1 to take a decision on the report of the Committee. The said writ petition came to be disposed of by the High Court of Orissa vide order dated 10th January, 1995, with a direction to the appellant No.1 to take a decision on the report of the Committee. The appellant No.1 was further directed to communicate the decision to the concerned parties within a period of three months from the date of the decision. The appellant No.1, vide communication dated 11th January, 1995, informed the respondent-Company that the Government has decided to allow 2% process loss while re5 distilling the rectified spirit. However, demand notice dated 26th September, 1997, was issued to the respondent-Company, calling upon it to pay excise duty on the weak spirit, which was more than 2% allowable wastage.
7. After receipt of the demand notice, the respondent-Company made a representation to the appellants, stating therein that the wastage generated during rectification process was an impure spirit/weak spirit, which was not fit for human consumption. It was, therefore, contended that the State Government has no authority to impose excise dut
