Case: THE STATE OF JHARKHAND AND ORS Vs. M/S AJANTA BOTTLERS AND BLENDERS PVT LTD

2. This appeal takes exception to the impugned judgment and order of the High Court of Jharkhand at Ranchi in Writ Petition (T) No.7499 of 2012 dated 25 th July, 2013, whereby the writ petition filed by the respondent to assail the notification dated 6 th November, 2012, as published in the official gazette on 10 th November, 2012, issued by the Board of Revenue, Jharkhand in exercise of powers conferred under Section 90 of the Jharkhand Excise Act, 1915 came to be allowed on the ground that the State had no legislative competence 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. Additionally, the High Court opined that the appellant-State had failed to justify the impugned levy on rectified spirit on the basis of services provided by the State in lieu thereof or being in the nature of quid pro quo. The original notification is in Hindi, the same reads thus:ANNEXURE-3 Free translation thereof has been filed by the appellant as annexure P-2. However, during the hearing as some doubt was raised about the accuracy of annexure P-2, we thought it appropriate to get the document (original in Hindi) translated from the official translator of this Court. That translated version, readsAs aforesaid, the High Court accepted the challenge to the above-mentioned notification for the reasons noted hitherto. The relevant discussion in the impugned judgment in that behalf, readsThe 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 Entry 8 of List II. Levy on the import of rectified spirit is not a fee on intoxicating liquor i.e. fit for human consumption. By the impugned notification, the Board of Revenue in exercise of power conferred under section 90 of the Excise Act, 1915 has chosen to levy fee on the import of rectified spirit which is used for manufacture of ENA through re-distillation process and then for the purpose of manufacture of IMFL at the time before bottling @ Rs. 6.00 per LP Litre. Industrial alcohol/non-potable spirit i.e. rectified spirit being not alcoholic liquor fit for human consumption, cannot be the subject matter of any regulation or control by the State under Entry 8, 51 and 66 of List II of Seventh Schedule of the Constitution. The State has the power to levy fees under the garb of grant of privilege from those who deal in liquor or alcohol fit for human consumption i.e. potable liquor as distinct from non-potable liquor or alcoholic liquor unfit for human consumption.Under Entry 51 of List-II, State has been empowered to levy excise duty on alcoholic liquor fit for human consumption manufactured or produced in the State and countervailing duty at the same rate or lower rates on similar goods manufactured or produced elsewhere in India. Even under the instant Entry, the rectified spirit which is non potable liquor, does not come within the meaning of alcoholic liquor fit for human consumption on which the State can levy excise duty under Entry 51 of List-II. The levy of import fees on rectified spirit therefore by the State Legislature before bottling of IMFL by shifting the event of taxation, cannot be held to be justified as in pith and substance, the levy is on import of rectified spirit i.e. non-potable liquor i.e. alcohol not fit for human consumption. Levy of fee on non-potable liquor i.e. unfit for human consumption or industrial alcohol is permissible under Entry 52 of List-I of Seventh Schedule of the Constitution. Under Entry 84 of List-I, excise duty on tobacco and other goods manufactured or produced in India can be levied except on alcoholic liquor for human consumption; opium, Indian hemp and other narcotic drugs and narcotics. In the wake of such clear demarcation of legislative fields between Union and State Legislature, the impugned notification levying import fees on rectified spirit i.e. non potable liquor or alcoholic liquor unfit for human consumption by applying the rule of pith and substance, 18 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 of6. 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 already having various licences granted by the Excise Department, Government of Jharkhand in Form- 19, 19(B), 20, 25 and 28(A) prescribed by the Board of Revenue and is paying the licence fee for grant of such licences. Under Form-19 a licence for compounding and blending of foreign liquor is given. In Form-19(B), petitioner has been granted licence for the manufacture of foreign liquor / beer as also for the sale of foreign liquor / beer through licencee distributors as also to import or transport the same under bond. The petitioner has a licence for bottling of potable foreign liquor under Form-20 for which it pays fees in advance of Rs. 50,000/- for the year. In Form-25 it has been granted licence to manufacture denatured spirit at its distillery / warehouse. The petitioner also has a licence under Form-28(A) to manufacture spirit in distillery not used in the manufacture of potable liquor for which it also pays a licence fees. It is the contention of the petitioner that it is paying establishment charges on the posting of excise official at its premises. Therefore, the respondent State have not been able to justify the impugned levy on rectified spirit on the basis of services provided in lieu thereof. Besides this, the petitioner has been paying licence fee for issuance of licence under different forms in the nature of a regulatory fee. The impugned levy therefore, is not justifiable on this account as well.17. In these circumstances, levy of import fee on rectified spirit which is impermissible for the State Legislature, also has the effect of impeding the inter- State trade and commerce as guaranteed under Article 301 of the Constitution of India. At the same time, it is within the exclusive legislative competence of Parliament to levy any duty or tax on rectified spirit i.e. industrial alcohol. Such action therefore, is in teeth of the Article 301 of the Constitution of India.18. In view of the aforesaid reasons and discussions and in view of the settled law laid down by the judgments of the Honble Supreme Court referred to herein above, the notification dated 10th November 2012 issued by the Board of Revenue, Jharkhand in exercise of powers conferred under section 90 of the Jharkhand Excise Act, 1915, cannot be sustained in law and it is accordingly quashed. Consequentially, the demand raised vide notice dated 24th November 2012 (Annexure-4) for deposit of import fees on rectified spirit, is also quashed. Petitioner shall be entitled to refund of any such import fees deposited under the impugned notification. Writ petition is accordinglyhe correctness of the view so taken by the High Court is the subject matter of challenge in this appeal, at the instance of the State. In defending the notification before the High Court, the appellant-State had asserted that the rule inserted by the subject notification being Rule 106 (Tha), is an impost and is merely described as an import fee. Because, it is reckoned on the basis of quantity of pure alcohol content of rectified spirit (which is known as ?London Proof Liter?), imported for the purposes of manufacture of potable Foreign Liquor after the process of compounding, blending and reduction of strength of spirit from over proof strength to under proof strength is complete. Further, the unit for charging import fee is London Proof Liter (for short, ?LPL?) because, it does not change even after the spirit has undergone through the process of compounding, blending & reduction of strength. Indisputably, nothing can be nor will be charged in advance, so long as the imported rectified spirit is non-potable and till it is in the form of raw material. In other words, nothing is charged on industrial alcohol. Thus, it is neither a violation of provisions of the Constitution nor is it an arbitrary use of power under Section 90(7) by the Board of Revenue who was competent to issue the same towards levy of any kind of fee on potable liquor. In substance, the stand of the appellant-State is that the stated import fee is not on rectified spirit in its raw form as such, but on pure alcoholic liter ?LPL? in the form of potable liquor. Further, it is a regulatory fee only for supervision and control of production of potable liquor to protect public health and morality. It was further asserted that no right inheres in any person for doing business in intoxicants. That right exclusively belongs to the State. Resultantly, it is open to the State to part with those rights for a consideration on conditions as may be deemed appropriate. There is no need for the State to establish commensurate services rendered by it to apply the doctrine of quid pro quo, in respect of impost of any kind of fee on potable liquors.4. The High Court, however, was not impressed by the stand taken by the State and proceeded to answer the matters in issue against the State for reasons afore-quoted, in the extracted portion of the impugned judgment.

Reasoning:
10. We have adverted to the above-mentioned process, noted in the written submissions filed by the appellant, so as to give proper interpretation to the impugned notification and the subject rules, in particular Rule 106(Tha). English version of the said rule noted in the notification (as translated by the official translator of this Court reproduced in paragraph 2 above), in our opinion, makes it amply clear that the levy or impost fructifies only upon completion of distillation process (in two stages- first from rectified spirit to ENA and then from ENA to IMFL) and in particular converting into a final product ?IMFL?. The collection of impost is, however, deferred until the bottling of that product. In other words, the levy is not at the stage of import of rectified spirit within the State; nor at the stage of initial distillation thereof to Extra Neutral Alcohol (ENA) and not until the product IMFL is ready for bottling as such. Thus, the levy under the impugned rule ripens or fructifies only after the original raw material (imported rectified spirit) has undergone distillation process at two different stages and transmute and mutate into an intoxicant or potable alcohol palatable to human consumption, but its (impost) collection is effected just before bottling it in that form (potable liquor). Indeed, the levy predicated in this rule is on the total quantity of imported rectified spirit utilised for mutating it in the form of IMFL, a new produce. The last part of the rule stipulates the quantum of charges to be levied on such utilized imported rectified spirit for production of the foreign liquor. For that limited purpose, the quantity of imported rectified spirit utilized in the production of potable liquor, is reckoned.11. Reading the impugned provision as a whole and line by line or word by word in this perspective, it must follow that 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 Rs.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. For, the challenge to the impugned rule is on the assumption that it permits the competent authority to levy charges on the imported rectified spirit and not fit for human consumption but which has the potency of being used for producing intoxicants or potable liquor though exclusively meant for industrial purposes. Once that assumption is discounted or disregarded, nothing more survives for consideration. We say so because, it is well established that the State may pass any legislation in the nature of prohibition of potable liquor referable to Entry 6 and 8 of List II and may also laydown regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. Had it been the case of levy on non- potable alcohol (imported rectified spirit) per se, only then the question about the competency of the State Legislature or the justness of the levy on the doctrine of quid pro quo may become relevant. However, 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 possessionit is a case of excise duty on potable liquor produced by use of imported rectified spirit, the State has jurisdiction to legislate in respect of duty on the production or manufacture of such goods produced or manufactured within the State. In the present case, we find merits in the submissions of the appellant State 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). 15 (1995) 5 SCC 753  15. The 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. As observed in Har Shankar (supra), in paragraph No.56, the State need bear no quid pro quo to the services rendered to the licensees of producer of foreign liquor.16. The respondent, however, placed heavy reliance on the decision in State of U.P. & Ors. Vs. Vam Organic Chemicals Ltd. and Ors. 16 , to contend that the State is obliged to justify the impost based on quid pro quo. We are afraid, this decision is of no avail to the respondent. In that case, the Court was dealing with 16 (2004) 1 SCC 225 challenge to Rule 3(a) therein on the ground that the State Legislature did not have legislative competence to legislate on ?denatured spirit? which is unfit for human consumption. In that context, this Court relied on the decision in Synthetics and Chemicals Ltd. and Ors. Vs. State of U.P. and Ors. 17 and answered the issue. If the case under consideration was to be regarding legislation on imported rectified spirit as such, this decision would have come handy. 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).