1995 (8) TMI 300 - SC - Central Excise

Demands for excise duty on the wastage of Indian made foreign liquor (IMFL) which was exported outside the State of Uttar Pradesh. Demands made for excise duty on wastage, during transportation in containers, of high strength spirit, of 80 to 85%, from distillery to warehouse. Demand of excise duty on obscuration Excise duty sought to be levied on pipeline wastage Held that - The appeals are allowed only insofar as they relate to the levy of excise duty upon the wastage of Indian made foreign liquor exported outside the State of Uttar Pradesh. The judgments and orders of the High Court in so far as they hold that the State has no power to levy excise duty upon such wastage are set aside. For the rest, the appeals are dismissed and the judgments and orders under appeal upheld.

Issues Involved:
1. Excise duty on wastage of Indian Made Foreign Liquor (IMFL) exported outside the State of Uttar Pradesh.
2. Excise duty on wastage during transportation of high-strength spirit.
3. Excise duty on obscuration.
4. Excise duty on pipeline wastage.

Detailed Analysis:

1. Excise Duty on Wastage of IMFL Exported Outside the State of Uttar Pradesh:
The High Court's judgment quashing the demand for excise duty on the wastage of IMFL exported outside Uttar Pradesh was challenged. The Supreme Court referenced the case of State of U.P. and ors. vs. Delhi Cloth Mills and anr., 1991-1 S.C.C. 454, which upheld the State's power to levy such duty. Consequently, the appeals were allowed in favor of the State for this specific issue, setting aside the High Court's decision.

2. Excise Duty on Wastage During Transportation of High-Strength Spirit:
The High Court ruled that the stage for levying excise duty had not been reached for the wastage occurring during the transportation of high-strength spirit (80-85%) from the distillery to the warehouse. The Supreme Court upheld this view, emphasizing that the State could only levy excise duty on alcoholic liquors for human consumption. The spirit in question was not yet fit for human consumption, and thus, excise duty could not be levied at this stage.

3. Excise Duty on Obscuration:
The High Court's judgment dated 9th March 1979, related to the duty on obscuration, was examined. Obscuration occurs when caramel is added to plain spirit during the manufacture of rum, causing an apparent loss of proof gallons. The Supreme Court noted that at this stage, the spirit was not ready for human consumption. Consequently, the levy of excise duty on obscuration was beyond the State's power, as it did not pertain to alcoholic liquor for human consumption. This position was supported by the unchallenged averment in the writ petition and the lack of denial from the State.

4. Excise Duty on Pipeline Wastage:
Similar to the transportation wastage, the pipeline wastage during the manufacturing process was not considered fit for human consumption. The Supreme Court reiterated that the State could not levy excise duty on raw materials or inputs still in the process of being rendered fit for human consumption. The excise duty could only be levied on the final product, which is consumable by humans.

Regulatory Measures vs. Demand for Excise Duty:
The State's argument that the process of determining wastage and levying excise duty was regulatory and permissible was rejected. The Supreme Court clarified that the demand for excise duty is not a regulatory measure and the power to levy such duty is strictly limited to alcoholic liquor for human consumption. Regulatory powers cannot expand the State's power to levy excise duty beyond the constitutional and statutory limits.

Conclusion:
The appeals were allowed only in relation to the levy of excise duty on the wastage of IMFL exported outside Uttar Pradesh, with the High Court's judgments and orders being set aside on this issue. For the other issues (transportation wastage, obscuration, and pipeline wastage), the appeals were dismissed, and the High Court's judgments were upheld. There was no order as to costs.

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