2019 (2) TMI 1015 - HC - VAT and Sales Tax

Validity of Higher Rate of tax on Rectified Spirit - authority to collect the tax amount at 20% on rectified spirit - the rectified spirit and ethyl alcohol are one and the same - Held that - Rectified spirit is ultimately used in alcoholic beverages for human consumption. Therefore, this commodity is mentioned in Entry 12(ii) of Part S of the II Schedule and attracts tax at the rate of 20%. Therefore, it is contended that when rectified spirit is ultimately used to create two different commodities which is fit for human consumption therefore 20% tax is levied - On the other hand, ethyl alcohol is used as an intermediate material in the manufacture of other commodities and therefore attracts a lower rate of tax at 10%. This we find to be acceptable. It cannot be said that the differential rate of tax made by the State is perverse. Specific reasons have been assigned as to why the tax on rectified spirit is at much higher rate than that of ethyl alcohol. The reasons have been substantiated through their affidavit. The reasons assigned for the different rate of tax is completely justified by the respondent-State - Appeal dismissed - decided against appellant.

Summary

Issues:
1. Whether ethyl alcohol and rectified spirit are the same commodity for tax purposes?
2. Whether differential tax rates for ethyl alcohol and rectified spirit are justified?

Analysis:

Issue 1:
The petitioner contended that ethyl alcohol and rectified spirit are one and the same composition, seeking a refund of excess tax paid at 20% on ethyl alcohol purchases. The petitioner argued that both are identical and should be taxed at 10%. The State, however, argued that ethyl alcohol and rectified spirit serve different purposes, leading to distinct tax rates. The Single Judge, while doubting the petitioner's locus standi, upheld the State's imposition of different tax rates. The appeals were filed challenging this decision.

Issue 2:
The appellant's counsel argued that ethyl alcohol and rectified spirit are identical, citing a Supreme Court judgment. The Court, after examining the arguments, disagreed with the appellant's contention. It was noted that rectified spirit, used in alcoholic beverages, attracts a higher tax rate of 20% due to its consumable nature. In contrast, ethyl alcohol, used in manufacturing other products, is taxed at 10%. The Court found the State's rationale for the differential tax rates justifiable, as explained in their affidavit. Consequently, the Court dismissed the appeals, upholding the State's decision on tax rates.

In conclusion, the Court ruled that ethyl alcohol and rectified spirit are not the same for tax purposes, justifying the differential tax rates imposed by the State. The judgment emphasized the distinct uses of these commodities, leading to varied tax treatments.