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2013 (8) TMI 16 - HC - VAT and Sales TaxRules made under section 90 of the Jharkhand Excise Act, 1915 to be held as ultra vires being beyond the rule making power of the Board of Revenue under Articles 265 of the Constitution of India read with Entry-8 and Entry 51 of List-II in the Seventh Schedule of the Constitution of India - By the said rule, it has been directed that a sum of ₹ 6.00 per LP Litre shall be levied 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) Held that - 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 - 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 @ ₹ 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 Held that - 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, 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. As per the Apex court judgment in the case of Godfrey Phillips India Ltd. and Another versus State of U.P. and others reported in (2005 (1) TMI 391 - SUPREME COURT OF INDIA), following observation has been made A scrutiny of Lists I and II of the SeventhSchedule would show that there is no overlappinganywhere in the taxing power and theConstitution gives independent sources oftaxation to the Union and the States. Followingthe scheme of the Government of India Act,1935, the Constitution has made the taxingpower of the Union and of the States mutuallyexclusive and thus avoided the difficulties whichhave arisen in some other Federal Constitutionsfrom overlapping powers of taxation. Thus, in our Constitution, a conflict of the taxing power of the Union and of the States cannot arise. 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 ₹ 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 - The notification dated 10thNovember 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 Decided in favor of Assessee.
Issues Involved:
1. Constitutionality of Rule 106 (tha) of the Rules framed by the Board of Revenue. 2. Legislative competence of the State and the Board of Revenue. 3. Nature of the levy as a fee or tax. 4. Impact on inter-State trade and commerce under Article 301 of the Constitution of India. Analysis: 1. Constitutionality of Rule 106 (tha): The petitioner challenged Rule 106 (tha) of the Rules framed by the Board of Revenue, which levies an import fee of Rs. 6.00 per LP Litre on rectified spirit imported for the manufacture of Extra Neutral Alcohol (ENA) and Indian Made Foreign Liquor (IMFL). The petitioner argued that this rule is ultra vires the Constitution of India and beyond the rule-making power of the Board of Revenue under Articles 265 and relevant entries in the Seventh Schedule of the Constitution. 2. Legislative Competence: The petitioner contended that the levy is beyond the legislative competence of the State and the Board of Revenue. The State Legislature is empowered to make laws regarding intoxicating liquors fit for human consumption under Entry 8 of List-II of the Seventh Schedule. However, rectified spirit, which is not fit for human consumption, falls under the Union List (Entry 52 and 84 of List-I). The court referred to the judgment in Synthetics and Chemicals Ltd. vs. State of U.P., where it was held that the State cannot levy duty or tax on alcohol not fit for human consumption. 3. Nature of the Levy: The petitioner argued that the levy is essentially a tax disguised as a fee, as there is no quid pro quo (no services provided in return for the fee). The court noted that the petitioner already pays various fees for licenses and establishment charges for excise officials. The State could not justify the levy as a regulatory fee for supervision and control of potable liquor. 4. Impact on Inter-State Trade and Commerce: The petitioner claimed that the levy violates Article 301 of the Constitution, which guarantees freedom of trade and commerce across State borders. The court agreed, stating that the levy impedes inter-State trade and commerce and is beyond the legislative competence of the State Legislature. Conclusion: The court quashed the notification dated 10th November 2012 issued by the Board of Revenue, Jharkhand, and the consequential demand notice dated 24th November 2012 for the deposit of import fees on rectified spirit. The petitioner was entitled to a refund of any import fees deposited under the impugned notification. The writ petition was allowed.
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