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TMI Blog2013 (8) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ied as import fees on import of rectified spirit imported firstly for manufacture of Extra Neutral Alcohol (ENA) through re-distillation process and then for manufacture of Indian made foreign liquor ( IMFL). The petitioner has also prayed for quashing of the demand notice dated 24thNovember 2012 (Annexure-4) by which it has been directed to deposit import fees amounting to Rs. 8,29,911.60 on rectified spirit import and stored at distillery prior to 10thNovember 2012. Consequential prayer has also been made for refund of the import fees as also restraining the respondents from taking any action for realization of the import fees @ Rs. 6.00 per LP Litre on rectified spirit imported for the purposes of manufacture of ENA for its further conversion and manufacture of foreign liquor. 2. According to the petitioner, it is a company incorporated under the provisions of Companies Act, 1956 and it is engaged in the manufacture of Extra Neutral Alcohol (ENA) through re-distillation process and denatured spirit from rectified spirit and Indian made foreign liquor (hereinafter to be referred as 'IMFL) from ENA under a licence granted by Excise Department, Government of Jharkhand in Form- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is unfit for human consumption and IMFL which is potable liquor. 3. Learned counsel appearing on behalf of the petitioner, has submitted that the Act of 1915 is a pre-Constitution Act enacted in the province of Bihar & Orissa relating to import, export, transport, manufacture, possession and sale of certain kinds of liquor and intoxicating drugs. The Act of 1915 has also been adopted by the State of Jharkhand after bifurcation of the parent State of Bihar. Section 2(6a) provides for excisable article which means (a) alcoholic liquor for human consumption or (b) for intoxicating drugs. Sub-section 6(a) of section 2 provides for excise duty and countervailing duty which means any such excise duty or countervailing duty, as the case may be, as is mentioned in Entry 51 of List II in the Seventh Schedule of the Constitution. In order to advance his submission, learned counsel for the petitioner has referred to the definitions of excisable article under section 2(6), excise duty and countervailing duty under section 2(6a), excise revenue under section 2(9), definition of import, intoxicant liquor, spirit, manufacture as defined under different sub-section of section-2. For better appre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or fixing the strength, price or quantity in excess of or below which an intoxicant shall not be supplied or sold; for regulating the deposit of any intoxicant in a warehouse established, authorized or continued under this Act and the removal of any intoxicant from any such warehouse or from any distillery or brewery; for prescribing the scale of fees or the manner of fixing the fees payable in respect of any exclusive privilege granted under section 22 or any licence, permit or pass granted under this Act. It also provides for making rules for the purposes of licence for storing of any intoxicant and for prescribing the restrictions under which or the conditions on which any licence, permit or pass may be granted. These rules were framed earlier on 29thApril 1919 by the Board of Revenue and are known as 'Rules framed by the Board of Revenue under section 90'. 5. According to the petitioner, spirit is defined under section 2(19), liquor under section 2(14) and intoxicant under section 2(12a). These definitions cover any liquid consisting of or containing alcohol obtained by distillation and even covers denatured spirit. Rectified spirit or ENA which are spirits obtained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign liquor. The instant rule 106 (Thha) has been challenged by the writ petition on the following grounds. (A) that the impugned rule is ultra vires the Constitution of India as well as power conferred on the Board of Revenue under section 90 of the Jharkhand Excise Act. According to the petitioner, the said levy is beyond the legislative competence of the State as well as the Board of Revenue. (B) that the impugned levy is a colourable excise of power on the part of the Board of Revenue as the same is not permissible under the relevant Entries 8 of List-II of Seventh Schedule of the Constitution of India. In sum and substance, the levy on import of rectified spirit is a levy on the manufacture of ENA through re-distillation process of such rectified spirit which is within the legislative field of Union under Entry 52 and 84 of List-I of Seventh Schedule of the Constitution of India. The word 'intoxicant' referred to in Entry-8 of List-II of Seventh Schedule of the Constitution has been held to be potable liquor fit for human consumption. It cannot be levied on alcoholic liquor unfit for human consumption i.e. non-potable liquor having over proof strength of 66% to 70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment charges for the posting of Excise Officials at the premises of the petitioner and therefore, the impugned levy cannot be justified on that account. Learned counsel for the petitioner has also relied upon the judgment of the Hon'ble Supreme Court in the case of Welfare Association, A.R.P. Maharashtra and Another versus Ranjit P. Gohil and Others reported in (2003) 9 SCC 358. Relying upon para-42 of the aforesaid judgment, it is submitted that the impugned levy is disguised and covert attempt to exercise powers over a field on which the State Legislature is not having any competence. Therefore, such disguised use of power would amount to colourable exercise of power. To test the true nature and character of the legislation, investigation by the Court should be directed towards examining (I) the effect of legislation and (ii) its object, purpose or design. However, while doing so, the Court cannot enter into investigating the motive which induced the legislature to exercise its power. In the wake of such submission advanced on behalf of the petitioner, learned counsel submits that simply, levying the impugned fee on the import of rectified spirit imported firstly fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces are being possessed by the petitioner to manufacture potable foreign liquor and to trade in IMFL. Nowhere the petitioner is having any licence which is being used for any other industrial purpose. Therefore, the sole object of the petitioner to import rectified spirit is to manufacture foreign liquor and trade into it. It is well within the ambit of the State Government to charge any regulatory fee for protection of public health and morality so that citizens of the State are protected from harmful and dangerous character of the liquor. The word 'fees' is not used in the technical sense of expression in Excise Acts or Rules made thereunder. Therefore, the element of quid pro quo is not applicable in the case of charging any kind of fee on potable liquor. Learned counsel further submits that in such circumstances, the impugned rule does not impede inter-State trade as fee is being charged on potable liquor and is not hit by Article 301 of the Constitution. Learned counsel for the State has tried to submit that the judgment in the case of Synthetic & Chemicals Ltd (Supra) has been referred to the larger Bench. However, learned counsel fairly submits that the same has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of his aforesaid contention. 10. We have heard learned counsel for the parties at length and gone through the impugned notification as well as relevant materials on record, as also the judgment relied upon by the rival parties. 11. In order to appreciate the present issue, it is important to first refer to the relevant Entries of Seventh Schedule of the Constitution of India which provide the legislative fields to the respective Union and State Legislature to enact laws in respect of them. For the aforesaid purpose, Entries-52, 84 and 97 of List-I and Entries 8, 51 and 66 of the List-II of Seventh Schedule of the Constitution of India are worth consideration and are quoted hereunder: Seventh Schedule List I - Union List "52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest. 84. Duties of excise on tobacco and other goods manufactured or produced in India except- (a) alcoholic liquors for human consumption. (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. 97. Any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was further observed at p. 163 of thereport as follows : (SCC p. 732, para 12) "It is constitutionally impermissible for anyState Government to collect any amount which isnot strictly of the nature of a fee in the guise of a fee. If in the guise of a fee the legislation imposesa tax it is for the court on scrutiny of the scheme of the levy to determine its real character. If on atrue analysis of the provisions levying the amount, the court comes to the conclusion that it is, in fact, in the nature of a tax and not a fee, itsvalidity can be justified only by bringing it underany one of the entries in List II of the Seventh Schedule to the Constitution under which the State can levy a tax." 74. It has to be borne in mind that by commonstandards ethyl alcohol (which has 95 per cent) is an industrial alcohol and is not fit for humanconsumption. The petitioners and the appellantswere manufacturing ethyl alcohol (95 per cent)(also known as rectified spirit) which is anindustrial alcohol. ISI specification has dividedethyl alcohol (as known in the trade) into severalkinds of alcohol. Beverage and industrial alcoholsare clearly and differently treated. Rectified spiritfor industrial p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auctions for granting theright or privilege to sell liquor and thattraditionally intoxicating liquors were the subjectmatters of State monopoly and that there was nofundamental right in a citizen to carry on trade orbusiness in liquor. All the authorities fromCooverji Barucha case to Har Shankar case dealtwith the problems or disputes arising inconnection with the sale, auction, licensing or useof potable liquor." 13. The State under List-II is empowered to levy fee under Entry 66 in respect of any of the matters in the list but not including fees taken in any Court. Entry 66 read with entry 8 of List II therefore provides competence to the State to levy fee in respect of intoxicating liquor i.e. alcoholic liquor fit for human consumption i.e. to say on the production, manufacture, possession, transport, purchase and sale of intoxicating liquor. The present levy seeks to levy fee on the import of rectified spirit to be utilized for the purpose of, firstly for manufacture of ENA through re-distillation process and then for manufacture of IMFL. Rectified spirit is not fit for human consumption and it therefore does not come within the meaning of intoxicating liquor as contained in E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... human consumption by applying the rule of pith and substance, cannot come within the legislative competence of the State Legislature. The impugned levy therefore is beyond the legislative competence of the State Legislature and consequentially also beyond the rule making power of the Board of Revenue. 14. In this context, it is also useful to quote opinion of the Hon'ble Supreme Court as contained in para-33 of the Constitution Bench Judgment in the case of State of W.B. Versus Kesoram Industries Ltd.(Supra). 33. We now proceed to enter a deeper dimensionin the field of tax legislation by considering theproblem of devising the measure of taxation. Thisaspect has been dealt with in detail in Union ofIndia v. Bombay Tyre International Ltd. Tracingthe principles from the leading authority of AReference under the Govt. of Ireland Act, 1920and Section 3 of the Finance Act (NorthernIreland), 1934, Re passing through Ralla Ram v.Province of East Punjab and treading through thelaw as it has developed through judicial pronouncements one after the other, this Courthas made subtle observations therein. It has been long recognised that the measure employed forassessing a tax must not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll find later. But forthe time being we may note that both theseelements are distinct from the incidence oftaxation. For example, the tax may be imposedon goods on the event of their manufacture,sales, import, etc. The law imposing the tax mayalso prescribe the incidence or the manner inwhich the burden of the tax would fall on anyperson and would take within itself the amountand measure of tax. The importance of thisdistinction lies in the fact that in India, the firsttwo have been given a constitutional status,whereas the incidence of tax would be a matterof statutory detail. The incidence of tax would berelevant in construing whether a tax is a direct oran indirect one. But it would be irrelevant indetermining the subject-matter of the tax. (SeeChhotabhai Jethabhai Patel & Co. v. Union ofIndia.) 16. The respondent State sought to justify the levy as a regulatory measure for supervision and control of potable liquor to protect public health and morality. However, there are no materials brought on record by the respondent State to justify that any services in lieu thereof are provided in the nature of quid pro quo to justify the imposition of such a levy. The petitioner is alread ..... X X X X Extracts X X X X X X X X Extracts X X X X
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