1996 (8) TMI 559 - SC - Central Excise

Summary

Issues Involved:
1. Whether Rule 9 of the Bihar & Orissa Excise Rules, 1919 is ultra vires the provisions of the Bihar Excise Act, 1915.
2. Whether Rule 9 applies to distilleries manufacturing not only denatured spirit and spirit for industrial use but also potable liquor for human consumption.

Detailed Analysis:

Issue 1: Whether Rule 9 of the Rules is ultra vires the provisions of the Act

The appellants contended that Rule 9 of the Bihar & Orissa Excise Rules, 1919, was beyond the scope of the Bihar Excise Act, 1915, and had no statutory provision to sustain it. The Supreme Court examined the relevant sections of the Act, including Sections 13, 15, 22, 27, 38, and 90, and concluded that the Act provides sufficient statutory coverage for Rule 9. Section 38(1)(a)(ii) allows the Board of Revenue to impose restrictions and conditions on licensees, and Section 90 empowers the Board to make rules for regulating the manufacture, supply, or storage of any intoxicant. The Court noted that the first part of Rule 9, which allows the Commissioner to appoint officers and establishment to supervise distilleries, and the second part, which imposes establishment costs on distilleries, are within the regulatory powers of the Board. The Court held that Rule 9 is not ultra vires the provisions of the Act and is justified to prevent illegal activities such as the conversion of denatured spirit into potable liquor, which could have severe public health consequences. Therefore, the challenge to the validity of Rule 9 was rejected.

Issue 2: Whether Rule 9 applies to distilleries manufacturing not only denatured spirit and spirit for industrial use but also potable liquor for human consumption

The appellants argued that their distilleries, which have licenses to manufacture both denatured spirit and potable liquor, should not be subject to the establishment costs imposed by Rule 9. The Supreme Court analyzed the express language of Rule 9, which states that the establishment costs apply to distilleries licensed "solely for the purpose of the manufacture of denatured spirit or any other commercial spirit." The Court emphasized that the term "solely" indicates that the rule applies only to distilleries exclusively manufacturing denatured spirit or other commercial spirits unfit for human consumption. Since the appellants' distilleries have multiple licenses, including those for manufacturing potable liquor, they do not fall within the scope of Rule 9's second part. The Court rejected the respondents' argument that the term "any other commercial spirit" includes potable liquor and clarified that the rule applies only to spirits used for industrial purposes or other non-consumable purposes. Consequently, the second part of Rule 9 does not apply to the appellants' distilleries, and the establishment costs cannot be imposed on them. The Court directed that the first part of Rule 9, which allows for the appointment of officers and establishment for supervision, can be applied at the cost of the State exchequer.

Conclusion:

The appeals were partly allowed. The Supreme Court held that Rule 9 is intra vires the Act, but the second part of Rule 9 does not apply to the appellants' distilleries. The respondents were directed to refund the amounts collected from the appellants with 12% interest. The writ petitions filed by the appellants in the High Court were allowed in part, and the impugned demands were quashed. There was no order as to costs.