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2019 (7) TMI 316 - SC - Indian LawsLegislative competence of State to levy tax/fee on the import of rectified spirit, as it is a non-potable liquor i.e. alcohol not fit for human consumption - powers u/s 90 of the Jharkhand Excise Act, 1915 - effect of Notification dated 6th November, 2010 as published on 10th November, 2012 - doctrine of quid pro quo - whether notification is in the nature of legislation by the State on the subject of industrial alcohol? HELD THAT - Alcohol can generally be classified into the following categories Isopropyl alcohol (or IPA or isopropanol), Methyl Alcohol (or Methanol) and Ethyl alcohol, (also known as Ethanol) - the first two categories are poisonous, toxic and fatal for human consumption, rendering its use only for industrial purposes. It is stated that Isopropanol and methanol, because of their inherent chemical properties, cannot be purified and used for the production of intoxicating liquor or potable liquor by adopting physical means like decantation, filtration, redistillation, fractional distillation etc. The third category namely, Ethyl Alcohol or Ethanol (in India is usually produced from molasses derived from sugarcane) in its concentrated form and it is also known as Rectified Spirit and its strength measured in LPL signifies the strength of alcohol by volume, 13 parts of which weigh exactly equal to 12 parts of water at 51 degrees Fahrenheit. The substance of the provision is to levy charges on the product IMFL produced or manufactured by use of imported rectified spirit. In that sense, the levy is not on the input (imported rectified spirit) of the final product as such but is on the manufactured or produced product being potable alcohol palatable to human consumption. For the purposes of computing the levy, the yardstick of ₹ 6 per LPL on the total quantity of imported rectified spirit utilized for production of IMFL is reckoned. Thus, the impost is not on the imported rectified spirit as such but only on the produced foreign liquor before it is bottled for sale in the wholesale or retail market, as the case may be. If so understood, the whole edifice of the argument of respondents regarding the interpretation of the impugned rule must collapse. If it is a case of legislation in respect of potable alcohol, as has been noted by us hitherto, the State would be competent to legislate in that regard and levy charges be it for regulating the same or impost for parting with its rights regarding manufacture, storage, export, sale and possession thereof. Whether the levy is in the nature of tax or excise duty? - HELD THAT - The impost is neither in the nature of a tax nor excise duty but it is towards the charges by whatever name, for regulating the production of potable liquor to preserve public health and morality including for parting with its rights or privileges regarding manufacture, supply or sale of potable liquor or intoxicating liquor and to regulate the use of imported rectified spirit for production and sale of potable liquor. In such a case, the State need bear no quid pro quo to the services rendered to the licencee for production of foreign liquor (IMFA) - he fact that the manufacturer-respondent has already obtained requisite licences for import of rectified spirit and production of foreign liquor (IMFA) on payment of fixed rates does not mean that the State has surrendered all facets of its rights in respect of every form of activity in relation to potable liquor its manufacture, storage, export, import, sale and possession. The amended provision is an enabling provision authorising the State to levy charges or impost for ceding its one or more of the activity in respect of foreign liquor (IMFL) produced by use of imported rectified spirit. Such impost can be in addition to the general power of the State to issue licence on payment of fees for production and sale of potable liquor. However, having opined that the purport of the impugned Rule 106(Tha), is to permit impost on the final processed product being foreign liquor IMFL , before bottling as fit for human consumption, the State has jurisdiction to legislate on that subject and need bear no quid pro quo to the services rendered to the licencee of manufacturer of foreign liquor (IMFL). Appeal allowed.
Issues Involved:
1. Legislative Competence to Levy Tax/Fee on Import of Rectified Spirit 2. Justification of Levy Based on Quid Pro Quo 3. Impact on Inter-State Trade and Commerce 4. Nature of Levy: Tax, Excise Duty, or Regulatory Fee Detailed Analysis: 1. Legislative Competence to Levy Tax/Fee on Import of Rectified Spirit: The High Court ruled that the State lacked legislative competence to levy a tax/fee on the import of rectified spirit as it is non-potable liquor, not fit for human consumption. The State's power under Entry 8 of List II of the Seventh Schedule of the Constitution is limited to intoxicating liquor fit for human consumption. The Supreme Court, however, interpreted the notification to clarify that the levy was not on the imported rectified spirit per se but on the final product, IMFL (Indian Made Foreign Liquor), which is fit for human consumption. Thus, the State has the competence to legislate and levy charges on the final processed product. 2. Justification of Levy Based on Quid Pro Quo: The High Court found that the State failed to justify the levy on rectified spirit based on services provided in lieu thereof, or as quid pro quo. The respondent already held various licenses and paid respective fees for them. The Supreme Court noted that the levy is not on the imported rectified spirit but on the final product, IMFL. As such, the State need not establish a direct quid pro quo for the levy, as it is a regulatory fee for supervision and control of production of potable liquor to protect public health and morality. 3. Impact on Inter-State Trade and Commerce: The High Court opined that the levy impeded inter-State trade and commerce, violating Article 301 of the Constitution. The Supreme Court, however, clarified that the levy is on the final product, IMFL, and not on the imported rectified spirit, thus not affecting inter-State trade and commerce. The State is competent to regulate and levy charges on the final product. 4. Nature of Levy: Tax, Excise Duty, or Regulatory Fee: The High Court viewed the levy as an excise duty on non-potable liquor, which the State cannot impose. The Supreme Court clarified that the levy is neither a tax nor an excise duty but a regulatory fee for the production of potable liquor. The levy is on the final product, IMFL, and is within the State's rights to regulate and control intoxicants. Conclusion: The Supreme Court allowed the appeal, quashing the High Court's judgment. The levy under the impugned rule is on the final product, IMFL, and not on the imported rectified spirit. The State has the legislative competence to impose such a levy, and it need not establish a direct quid pro quo for the regulatory fee. The levy does not impede inter-State trade and commerce and is within the State's rights to regulate the production of intoxicants.
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