2025 (1) TMI 625 - HC - VAT / Sales Tax

Constitutional validity of sub-clause (B) of Clause 14 Excise Duty-Civil of Excise Policy 2019-20 (Excise Policy 2019-20) to the extent it provides for the levy of excise duty at the rate of Rs. 10 per litre in respect of rectified spirit/alcohol and denatured spirit used in medicinal and toiletry preparations, other than in manufacture of liquor - legislative competence of Jammu and Kashmir to impose a levy of excise duty on the rectified spirit etc. for use in medicinal and toiletry preparations and also that the raw material procured by the petitioners i.e rectified spirit etc. - imposition of excise duty on these substances amounts to double taxation or not. Legislative competence of Jammu and Kashmir to impose a levy of excise duty on the rectified spirit etc. for use in medicinal and toiletry preparations and also that the raw material procured by the petitioners i.e rectified spirit etc. - HELD THAT - The State Excise Act was indisputably within the legislative competence of the State when it was enacted and continues to remain so even as on date. Otherwise also, there is no challenge to the vires of the State Excise Act. The impugned clause in the policy has been framed by the Government of Jammu and Kashmir in the exercise of powers vested in it under Section 16, read with Section 5, of the State Excise Act. So long as we do not find any fault with the State Excise Act, and in particular, with Sections 5 and 16 thereof, the impugned clause in the Excise Policy cannot be declared bad and unconstitutional for being beyond the legislative competence of the State Legislature. There are substance in the submission of the learned counsel appearing for the petitioners who are not using in their units rectified spirit/alcohol and denatured spirit etc. for medicinal and toiletry preparations. This so because the impugned clause itself makes it clear beyond any doubt that what is sought to be levied as the duty of excise at the rate of 10 per litre is only on the rectified spirit/alcohol/denatured spirit imported in the State of Jammu and Kashmir for its use in medicinal and toiletry preparations. The expression other than in manufacture of liquor is redundant appendix and needs to be ignored. As a matter of fact, the import of rectified spirit/alcohol/denatured spirit in the State of Jammu and Kashmir for its use in the manufacture of liquor or any other preparations, excluding the medicinal and toiletry preparations, is not leviable under the impugned clause with the duty of excise at the rate of 10 per litre. Whether the imposition of excise duty on these substances amounts to double taxation, given the applicability of the Goods and Services Tax (GST)? - HELD THAT - May be it is true that rectified spirit, alcohol, or denatured spirit supplied in the State of Jammu and Kashmir (now UT of J K) from other State/States is exigible to tax under Section 7 of IGST Act, 2017, except when used for the manufacture of liquor fit for human consumption. However, that does not take away the power of the State to levy a duty of excise under Section 16 of the State Excise Act when such goods are imported by a unit for use in medicinal and toilet preparations. The IGST is charged by the Center on inter-State supply of goods and services, as per nature of such goods or services, as the case may be. The duty of excise impugned is on the quantity of goods imported for a particular use. The two levies, being legally distinct, can be levied simultaneously, and such a levy is not hit by the double taxation, as urged by learned counsel appearing for the petitioners. Conclusion - i) The legislative competence of the State of Jammu and Kashmir to impose excise duty on rectified spirit/alcohol/denatured spirit used in medicinal and toiletry preparations was upheld. ii) The excise duty and GST are distinct levies and can coexist without constituting double taxation.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment addresses the following core legal questions:

• Whether the State of Jammu and Kashmir had the legislative competence to impose an excise duty on rectified spirit/alcohol/denatured spirit used in medicinal and toiletry preparations.
• Whether the imposition of excise duty on these substances amounts to double taxation, given the applicability of the Goods and Services Tax (GST).

2. ISSUE-WISE DETAILED ANALYSIS

Legislative Competence:

• Relevant legal framework and precedents: The State Excise Act of Jammu and Kashmir, enacted in 1955, provides the framework for imposing excise duties on liquor and intoxicating drugs. Section 16 of the Act empowers the government to levy such duties. The Constitution (One Hundred and First Amendment) Act, 2016, and the J&K Reorganization Act, 2019, also play a role in determining legislative competence.
• Court's interpretation and reasoning: The court reasoned that the State Excise Act was within the legislative competence of the State of Jammu and Kashmir when enacted. The Act was not challenged as ultra vires, and thus, the impugned clause in the Excise Policy 2019-20 was validly framed under this Act.
• Key evidence and findings: The court found that the State had the power to levy excise duty on the import of rectified spirit/alcohol/denatured spirit for medicinal and toiletry preparations, as this power was derived from the State's residuary legislative powers.
• Application of law to facts: The court applied the provisions of the State Excise Act and found that the impugned clause was within the legislative competence of the State, as it was framed under the powers conferred by Sections 5 and 16 of the Act.
• Treatment of competing arguments: The petitioners argued that the State lacked legislative competence due to the changes brought by the Constitution (One Hundred and First Amendment) Act, 2016. The court rejected this argument, emphasizing that the State's legislative powers were intact before the abrogation of Article 370.
• Conclusions: The court concluded that the State of Jammu and Kashmir had the legislative competence to impose the excise duty in question, and the petitions challenging this competence were dismissed.

Double Taxation:

• Relevant legal framework and precedents: The CGST Act, 2017, and the IGST Act, 2017, provide the framework for taxation under the GST regime. The concept of double taxation is addressed by distinguishing between different types of taxes and duties.
• Court's interpretation and reasoning: The court reasoned that excise duty and GST are legally distinct levies, addressing separate stages of economic activity. Excise duty is imposed on the manufacture or import of goods, while GST is a tax on the supply of goods and services.
• Key evidence and findings: The court found that the excise duty under the State Excise Act and the GST under the CGST and IGST Acts are distinct and can be imposed simultaneously without constituting double taxation.
• Application of law to facts: The court applied the legal distinction between excise duty and GST to the facts, determining that the imposition of excise duty on the import of rectified spirit/alcohol/denatured spirit did not amount to double taxation.
• Treatment of competing arguments: The petitioners argued that the excise duty amounted to double taxation, as the substances were also subject to GST. The court rejected this argument, emphasizing the legal distinction between the two levies.
• Conclusions: The court concluded that the imposition of excise duty did not constitute double taxation, and the petitions challenging this aspect were dismissed.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The tax under the CGST Act, 2017 and the IGST ACT, 2017, and the duty of excise under the State Excise Act are legally distinct and address separate stages of economic activity."
• Core principles established: The legislative competence of the State of Jammu and Kashmir to impose excise duty on rectified spirit/alcohol/denatured spirit used in medicinal and toiletry preparations was upheld. The court also established that excise duty and GST are distinct levies and can coexist without constituting double taxation.
• Final determinations on each issue: The court dismissed the petitions challenging the legislative competence of the State and the claim of double taxation. However, it allowed petitions where the substances were used for purposes other than medicinal and toiletry preparations, exempting them from excise duty.