2010 (8) TMI 1065 - HC - Central Excise

Issues Involved:
1. Legality of the penalty imposed for non-payment of excise duties on the loss in transit of Extra Neutral Alcohol (ENA).
2. Applicability of excise duty on ENA under the Bihar Excise Act, 1915, and the relevant Rules.
3. Jurisdiction of the State to levy excise duty on industrial alcohol not fit for human consumption.

Detailed Analysis:

Issue 1: Legality of the penalty imposed for non-payment of excise duties on the loss in transit of Extra Neutral Alcohol (ENA)

The petitioner, a Public Limited Company, challenged the order dated 05.09.1994, passed by the Excise Commissioner, which affirmed a demand notice requiring the petitioner to pay a penalty of Rs. 29,961.00 for non-payment of excise duties on the loss of ENA in transit beyond the permissible limit. The petitioner argued that no excise duty is payable on ENA as it is not fit for human consumption. The authorities, however, contended that the penalty was imposed for not paying the prescribed duties on the excess wastage of ENA during transit.

Issue 2: Applicability of excise duty on ENA under the Bihar Excise Act, 1915, and the relevant Rules

The court examined Rule 33 of the Rules, which permits admissible wastage of 0.5%. The petitioner transported 1,85,476.00 LPL of ENA, with 1,83,801.90 LPL stored at the destination, resulting in a wastage of 1674.10 LPL. The permissible wastage was 1,008.30 LPL, leading to an excess wastage of 665.80 LPL. The authorities imposed a penal duty of Rs. 29,961.00 for this excess wastage. The court referred to previous judgments, including New Swadeshi Sugar Mills Ltd. v. State of Bihar, which held that Rule 33 does not create a right to levy duty but merely protects the State against claims of unlimited losses due to leakage or evaporation.

Issue 3: Jurisdiction of the State to levy excise duty on industrial alcohol not fit for human consumption

The court reiterated that excise duty under the Act can only be levied on products fit for human consumption. ENA, being an industrial product not fit for human consumption, cannot be subjected to excise duty. This position was upheld by the Supreme Court in several cases, including State of Bihar v. New Swadeshi Sugar Mills Ltd., which confirmed that no duty can be levied on rectified spirit or industrial alcohol under the Constitution. The court emphasized that ENA can be used for diverse commercial purposes and becomes fit for human consumption only after further processing.

Conclusion:

The court concluded that duties of excise under the Act and Rules are not leviable on ENA as it is unfit for human consumption. Consequently, no duty can be imposed on the losses of the product in transit, and the penalty imposed was beyond the scope of the Act and Rules. The court set aside the impugned order dated 05.09.1994 and directed the refund of the amount with 18% interest from the date of deposit till the date of refund. Additionally, the court imposed costs of Rs. 25,000/- to be deposited with the High Court Legal Services Committee, Patna, within four weeks.

The judgment underscores the necessity for authorities to promptly implement court pronouncements to avoid unnecessary litigation and harassment of parties. The writ petition was allowed with costs, and the impugned order was set aside.

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