STATE OF ORISSA & ORS. -VERSUS- M/S UTKAL DISTILLERIES LTD.

INTRODUCTION 

The Supreme Court with a Division Bench of Two Judges has given that the State Is Not Authorized to levy Excise Duty on Alcohol Wastage Following Distillation. In this case the State of Orissa appealed a High Court ruling that had upheld the demand notices sent by the Orissan Commissioner of Excise and granted the writs filed by M/S Utkal Distilleries. An Appeal against a High Court ruling that overturned a demand notice for the payment of excise duty on the weak spirit, which exceeded the permitted 2% waste amount. Dismissed the waste produced has been determined to be unsafe and unfit for potable purpose. Only alcoholic liquor intended for human consumption is subject to excise taxes by the State.

SYNOPSIS OF FACTS 

A license was acquired by M/S Utkal (Respondent) in order to produce, bottle, blend, and reduce IMFL. Utkal had set up one ENA column as required by the license in order to rectify the rectified spirit that would be utilized in the production of IMFL. The manufacturing process resulted in a potable weak spirit, which was not allowed under the Boards’ Excise Rules, 1965. The State decided to allow 2% process loss, but a demand notice was issued. After receipt of the demand notice. The respondent company claimed that the wastage from the rectification process was an impure spirit, not fit for human consumption. The State Government argued it had no authority to impose excise duty on the weak spirit. The company filed a writ petition, which was stayed by the High Court. The sample was later found unsafe for human consumption. Two more demand notices were issued, which the High Court decided in 2008, allowing the writ petitions. The current appeals are filed due to outrage.

ISSUES FOR CONSIDERATION

1. Whether to scrutinize the specifics of E.N.A. columns, including the spirit stock contained therein.
2. Whether the Losses incurred during the experimental phase as well as the maximum amount of waste allowed by M/s Utkal Distillery Pvt. Ltd. at Brahmapura Khurda in the Puri district during the E.N.A. procedure.

CONTENTION BY APPELLANT

The counsel for the appellant submits that the Committee was set up depending upon the respondent-Company’s representation. He argued that it was improper for the respondent company to argue that the demand for an excise duty on weak spirit, which was greater than 2%, was untenable once the Committee had recommended allowing wastage only to the extent of 2%. He argued that by granting the writ petitions, the High Court erred.

CONTENTION BY RESPONDENT 

The counsel for respondent companies contended that the constitutional bench of the Apex Court had held in the SCC case that the State was not authorized to impose a duty on industrial alcohol that was unfit for human consumption and that the Centre alone was authorized to do so. Utkal argued that the waste produced during the rectification process was a weak spirit, or impure spirit, and that the state government lacked the right to charge an excise duty on it because it was unfit for human consumption. He also claims that res integra is no longer the cause of the issue.

JUDGEMENT RENDERED

The Apex Court accepted this argument and noted that it was evident that the drafters of the Constitution divided the word “alcoholic beverage” into two categories:

1. alcohol for human consumption and 
2. alcohol not for human consumption. 

Alcoholic beverages that have been added to List 2 (State List), Entry 51, allowing the State legislature to impose taxes on them. However, because alcohol that is unfit for human consumption is listed under entry 84, the supreme court is able to charge duty on it. It was noted that the State has expressly been given authority to tax things that are specifically excluded under Entry 84. 

The Constitution Bench ruled explicitly that the State Legislature lacked the authority to impose any kind of duty or tax on alcohol, since the Supreme Court alone was qualified to do so. Therefore, the top court upheld the High Court’s decision to revoke the demand notices, citing the legal position established by this Court’s Constitution Bench in the cases of Synthetics and Chemicals Ltd. and Modi Distillery. Consequently, the appeal was dismissed and the HC’s order was upheld in light of the previously mentioned observations. 

RELATED CASE LAWS 

1. The Supreme Court reiterated on Thursday, relying on a three-judge bench decision in State of U.P. and others vs. Modi Distillery and others, that the state is only authorized to levy excise duty on alcoholic liquor intended for human consumption. As a result, the state is not authorized to levy excise duty on liquor that has been wasted after it has been distilled. 

2. In the case Synthetics and Chemicals Ltd. and others vs. State of U.P. and others, the court ruled that the State Legislature lacked the authority to impose any tax or duty on industrial alcohol, which is unfit for human consumption, and that the 1 (1990) 1 SCC 109 Center was the only body with the authority to do so. Thus, he argues that there is no justification for meddling with the contested decision and decree.

ANALYSIS

In addition, the Court cited section 27 of the Bihar and Orissa Excise Act, 1915, noting that the contested Act explicitly stated that the State’s authority to import, export, manufacture, and transport is limited to excisable articles, which include any intoxicating drug or alcoholic liquor that is fit for human consumption. As a result, it was noted that even with this Statute, the State could only impose taxes on alcohol that was fit for human consumption. 

Entry 84 in List I read:  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 any substance mentioned in this entry 96 subparagraph (b) or alcohol.

Entry 51 in List II reads: Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar Products made or produced in India include: (a) alcoholic beverages for human consumption; (b) opium, Indian hemp, and other narcotic drugs and narcotics; however, products such as toilet preparations and medicinal products that contain alcohol or any substance listed in this entry’s subparagraph (b) are not included.

CONCLUSION 

The State of Orissa challenged a High Court order that allowed writs filed by M/S Utkal Distilleries and set aside demand notices issued by the Commissioner of Excise, Orissa. The Supreme Court ruled that the State is only authorized to impose excise taxes on alcoholic liquor meant for human consumption. It has been referred to as any alcoholic liquor intended for human consumption or any drug intended to induce intoxication as an excisable article.  The state lacks the authority to impose excise duties on wasted liquor following distillation. High Court. The Court ruled that alcohol intended solely for human consumption is subject to excise taxes levied by the State government.

REFERENCES

1. https://indiankanoon.org/
2. https://www.lawyersclubindia.com/
3. https://www.livelaw.in/

“THIS ARTICLE IS WRITTEN BY R.S.KANIMOZHI STUDENT OF SATHYABAMA INSTITUTE OF SCIENCE AND TECHNOLOGY – SCHOOL OF LAW, CHENNAI; INTERN AT LEGAL VIDHIYA.”

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.

Admin