2011 (9) TMI 769 - HC - VAT and Sales Tax

Demand - Rule 14A of the Consolidated Rules - Mr. Khaitan, the learned Senior Advocate appearing on behalf of the writ- petitioner, has, at the first instance, contended before us that the Rule impugned is ultra vires the Constitution of India in view of legislative incompetency of the State Legislature - learned Advocate appearing on behalf of the State, has, on the other hand, opposed the aforesaid contention of Mr. Khaitan and by placing strong reliance upon the decision of the Supreme Court in the case of Bihar Distillery and Anr. vs. Union of India and Ors.,1997 (1) TMI 519 - SUPREME COURT OF INDIA, has contended that the rectified spirit is the source of manufacture of all types of potable intoxicants and thus, the State has full authority to take regulatory measure for wastage of such article - it is clear that the legislature has not given authority to the State Government to levy any duty for violation of any of the measures provided in the Rules in exercise of power conferred under clauses (1), (2) and (9) of Section 86 of the Act except imposition of fine not exceeding ₹ 5000 - Held that clause 12 has nothing to do with the regulatory power of the State to prevent misuse of materials in the process of distillation the learned Senior Advocate appearing on behalf of the writ-petitioners, did not dispute the existence of the police power of the State to impose restriction for prevention of the wastage of the materials leading to the ultimate manufacture of the potable intoxicants - Held that sub-rule (4) of Rule 14A framed in exercise of the police power of the State conferred under clauses (1), (2) and (9) Section 86 of the Act authorizing imposition of duty on wastage in the process of distillation at par with the highest rate of duty payable on IMFL is ultra vires the said Statute itself and thus, is liable to be struck down on that ground alone - Decided in favor of the petitioner

Summary

Issues Involved:
1. The validity of Rule 14A of the Consolidated Rules framed under Section 86 of the Bengal Excise Act, 1909.
2. The legislative competence of the State to impose fees or duty on industrial alcohol.
3. The authority of the State to levy duty on wastage in the process of distillation.

Detailed Analysis:

1. The Validity of Rule 14A:
The writ-petitioners challenged Rule 14A of the Consolidated Rules framed under Section 86 of the Bengal Excise Act, 1909, particularly the provision relating to the payment of duty on unutilized cut spirit obtained after second re-distillation. They argued that this rule was ultra vires the Act and sought the cancellation of a demand notice imposing Rs. 1,74,63,538/- towards payment on unutilized cut spirit.

2. Legislative Competence of the State:
The petitioners contended that the State Legislature lacked the competence to impose fees or adopt regulatory measures on industrial alcohol, which is not covered under Entry No. 51 of List II of the Seventh Schedule of the Constitution. They argued that rectified spirit, being industrial alcohol, is not a potable intoxicant, and thus the imposition of duty was not permissible. The State, however, argued that rectified spirit, being the source of all types of potable intoxicants, falls under the regulatory power of the State.

3. Authority to Levy Duty on Wastage:
The court examined whether the imposition of duty for preventing wastage in the distillation process was within the legislative competence of the State and whether such imposition was authorized under the Bengal Excise Act, 1909. The court noted that while the State has the power to regulate the manufacture and sale of intoxicants, the imposition of duty on wastage as per Rule 14A (4) was not authorized by the Act. The Act only permitted the imposition of a penalty not exceeding Rs. 5000 for violations, as per Section 54A.

Judgment:
The court held that Rule 14A (4), which authorized the imposition of duty on wastage at the highest rate of duty payable on IMFL, was ultra vires the Bengal Excise Act, 1909. It was noted that the rule was intended as a regulatory measure to prevent wastage, but the Act did not authorize the imposition of such a duty. The court declared the rule invalid and directed that the regulatory measures could be enforced under Section 54A of the Act, which provides for penalties for violations.

The writ-application was allowed, and the court declared Rule 14A (4) invalid, with no order as to costs.