TMI Blog2011 (9) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... on of fine not exceeding ₹ 5000 - Held that: clause 12 has nothing to do with the regulatory power of the State to prevent misuse of materials in the process of distillation the learned Senior Advocate appearing on behalf of the writ-petitioners, did not dispute the existence of the police power of the State to impose restriction for prevention of the wastage of the materials leading to the ultimate manufacture of the potable intoxicants - Held that: sub-rule (4) of Rule 14A framed in exercise of the police power of the State conferred under clauses (1), (2) and (9) Section 86 of the Act authorizing imposition of duty on wastage in the process of distillation at par with the highest rate of duty payable on IMFL is ultra vires the said Statute itself and thus, is liable to be struck down on that ground alone - Decided in favor of the petitioner - W.P.T.T. No. 17 of 2011 - - - Dated:- 9-9-2011 - Bhaskar Bhattacharya, Sambuddha Chakrabarti, JJ. J.P. Khaitan, Nirmalya Biswas and Anirban Dutta, Advs. for the Appellant/Petitioner/Plaintiff Pranab Dutta and Joytosh Majumder, Advs. for the Respondent/Defendant JUDGEMENT Bhaskar Bhattacharya, J:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said request furnished by the said Super Spirit Warehouse, the writ-petitioner had made communication with the Respondent through letter dated 13th July, 2001, inter alia, seeking approval for the above purposes to meet such request of M/S Super Spirit Warehouse. f) The petitioner No.1 subsequently received a demand notice dated 31st July, 2001 purportedly imposing an amount of ₹ 1,25,38,799/- allegedly on unutilized cut spirit which was obtained after re- distillation in exercise of the power conferred under Sub-Rule (4) of Rule 14A of the Consolidated Rules. g) In response to the said demand notice, the writ-petitioner by a letter dated 7th August, 2001 made representation to the District Magistrate and Collector seeking permission to allow them a period of 90 days to verify the records pertaining to the period against which the alleged wastage on re-distillation was made. h) By a letter dated 18th October, 2001, the Superintendent of Excise through a letter had acceded to the said request and deferred the purported demand for three months. i) By a letter dated 22nd October, 2001, the writ-petitioner sent a representation to the Excise Authorities pray ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenged Rule 14A of the Consolidated Rules framed under Section 86 of the Bengal Excise Act. p) According to the writ-petitioner, after hearing the learned Counsel for the parties, the Tribunal verbally opined that due to existence of alternative remedy it was of the view that the writ-petitioner should be granted liberty to approach Excise Commissioner and pray for condonation of excess wastage by showing satisfactory and reasonable cause and consequently, the learned Advocate for the petitioner also did not seriously oppose such view expressed by the Tribunal. Thereafter on 22nd April, 2010, the Tribunal after a period of two years delivered the judgment and on perusal of the same, it came to the notice of the writ-petitioner that the Tribunal instead of restricting its view on the preliminary points decided the matter fully on merit and was pleased to reject the contention of the petitioner in so far as the challenge was made on the vires of Rule 14A. q) The Tribunal, however, stayed the operation of the impugned demand notice dated 23rd August, 2004 and granted liberty to the writ-petitioner to submit appropriate application before the Commissioner within 15th June, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rectified spirit in this case was exclusively meant for manufacturing potable liquor should be under the exclusive regulatory control of the State from the moment it is cleared and removed from the distillery. As indicated earlier, the learned Tribunal below by the order impugned herein held that the Rule 14A (4) is quite in conformity with the provisions of the Act and the State has full power to impose regulatory fee to prevent the loss of ultimate revenue. Being dissatisfied, the writ-petitioner has come up with the present application. Mr. Khaitan, the learned Senior Advocate appearing on behalf of the writ- petitioner, has, at the first instance, contended before us that the Rule impugned is ultra vires the Constitution of India in view of legislative incompetency of the State Legislature. According to Mr. Khaitan, the rectified spirit, the wastage of which has been alleged, giving rise to the monetary demand by taking aid of the impugned Rule, is industrial alcohol over which the State has no legislative competence to impose any amount of fee or even adopt any regulatory measure as the rectified spirit is not an item within the meaning of entry No. 51 of List ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all types of potable intoxicants and thus, the State has full authority to take regulatory measure for wastage of such article. Mr. Dutt contends that for the purpose of measuring the wastage, the State is required to employ huge number of competent officers and in the process, fixation of fees cannot be said to be excessive so as to strike down the said provision as ultra vires Act. Mr. Dutt further contends that the decision of the Supreme Court in the case of Bihar Distillery and Anr. (Supra) has been subsequently approved by other decisions of the Supreme Court. In support of his contention, Mr. Dutt relies upon the following decisions: 1) Synthetics and Chemicals Ltd. and Ors. vs. State of U.P. and Ors., reported in (1990) 1 SCC 109; 2) State of A.P. and Ors. vs. Mcdowell and Co. and Ors., reported in (1996) 3 SCC 709; 3) State of Bihar and Ors. vs. Shree Baidyanath Ayurved Bhawan (P) Ltd. and Ors., reported in (2005) 2 SCC 762; Even on merit Mr. Dutt contends that the writ-petitioners have alternative remedy available before the Commissioner against the decision and without availing themselves of that remedy, there was no scope of moving the Tribunal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) the State Government may grant to any person, on such conditions and for such period as it may think fit, the exclusive privilege:- (a) of manufacturing, or supplying by wholesale, or (b) of manufacturing, and supplying by wholesale, or (c) of selling, by wholesale or retail, or (d) of manufacturing and supplying by wholesale and selling retail, and country liquor or intoxicating drug within any specified local area:- Provided that public notice shall be given of the intention to grant any such exclusive privilege, and that any objections made by any person residing within the area affected shall be considered before an exclusive privilege is granted. (2) No grantee of ay privilege under sub-section (1) shall exercise the same unless or until he has received a license in that behalf from the Collector or the Excise Commissioner. 27. Power to impose duty on import, export, transport and manufacture:- (1) An excise duty or a countervailing duty, as the case may be, at such rate or rates as the State Government may direct, may be imposed, either generally, or for any specified local area, on:- (a) any excisable article imported, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y other law for the time being in force relating to the excise-revenue. (2) In particular, and, without prejudice to the generality of the foregoing provisions, the State Government may make rules:- (a) for prescribing the powers and duties of officers of the Excise Department; (b) for regulating the delegation of any powers *** the Commissioner of a Division, the Excise Commissioner or Collectors under section 7, sub-section (2), clause (g); (c) for declaring in what cases or classes of cases and to what authorities appeals shall lie from orders whether original or appellate, passed under this Act or under any rule made hereunder, and for prescribing the time and manner for presenting, and the procedure for dealing with, such appeals, (d) for regulating the import, export, transport, sale, purchase, possession or consumption of any intoxicant; (e) for regulating the periods for which licenses for the wholesale or retail vend of any intoxicant may be granted, and the number of such licenses which may be granted for any local area; (f) for prohibiting the grant of licenses for the retail sale of any intoxicant at any place or within any local area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, implements and apparatus therein; (b) the bottling of liquor for purposes of sale; (c) the cultivation of the hemp plant (Cannabis sativa); (d) the collection of portions of the hemp plant (Cannabis sativa) from which intoxicating drugs can be manufactured or produced, and the manufacture or production of intoxicating drugs therefrom; (e) the tapping of tari-producing trees and the drawing of tari from trees; (f) the tapping of tari-producing trees in areas notified in this behalf by the State Government, and the maintenance of such marks; (2) for fixing the strength, price or quantity in excess of or below which any intoxicant shall not be supplied or sold, and the quantity in excess of which denatured spirit shall not be possessed, and for prescribing a standard of quality for any intoxicant; (3) for declaring how spirit manufactured in India shall be denatured; (4) for causing spirit so manufactured to be denatured through the agency or under the supervision of servants of the Government; (5) for ascertaining whether any spirit so manufactured has been denatured; (6) for regulating the deposit of any intoxicant in a warehouse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this section at different rates for different classes of exclusive privileges, licenses, permits, passes or storage, and for different areas. Explanation II:- The price of an intoxicant as fixed by rules made under clause (2) of this section, shall be deemed to have always been exclusive of any tax, surcharge, additional surcharge or any other impost on the sale or purchase of such intoxicant levied under any law for the time being in force. 88. Publication and effect of rules and notifications:- All rules made, and notifications issued, under this Act shall be published in the Official Gazette, and on such publication shall have effect as if enacted in this Act. Rule 14A:- (1) Apart from simple rectification of weaker spirit produced in a pot still, re-distillation of spirit may undertake by a distiller:- (i) for the purpose of manufacture of 'silent' spirit or spirit of special quality required for manufacture of foreign liquor with the permission of the Collector of the district; (ia) for the purpose of manufacture of spirit for potable purposes from (i) above or from head-cut spirit obtained from primary distillation with the permission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner may, on an application made by the distiller, examine, any case of re-distillation wastage and may, if he is satisfied that the wastage occurred beyond control of the distiller and that no part of the wastage due to unauthorized removal of spirit from the system, condone the wastage and exempt the distiller from payment of duty of the same. On issue of such order by the Commissioner, duty already realized, if any on the chargeable wastage shall be refunded to the distiller by way of adjustment of the Personal Ledger Account of duty or otherwise, if necessary. (Emphasis supplied by us). After hearing the learned Counsel for the parties and going through the above materials on record, we find that there is no dispute that Rectified Spirit which contains 95% of Ethyl Alcohol is really called Industrial Alcohol and the same is not meant for human consumption in that form; but there is also no difference of opinion that all types of potable intoxicants meant for human consumption are made from Ethyl Alcohol itself and in any potable intoxicant for human consumption, the percentage of Ethyl Alcohol varies between 8% and 43% by volume. For instance, Beer, Wine etc. contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious regulatory measures with the object of preventing wastage of residue in the process of manufacturing Potable intoxicant for human consumption. The language used in Rule 14A itself indicates that it is imposed to prevent wastage in the process of second re-distillation of head cut spirit or silent spirit leading to the manufacture of final product and although in sub-rule (4), the imposition has been described as duty , it is in essence, imposition of penalty for exceeding the limit of wastage by violating the norms fixed in exercise of power conferred under Section 86 of the Act. The said provision of the Rules is really intended in exercise of Police Power of the State and not in exercise of Taxing power of the State . However, for exercising such a police power, there are some conditions to be fulfilled by the State. We now propose to consider whether those conditions precedent have been satisfied in this case. At this juncture, it will not be out of place to refer to a three-judge-bench decision of the Supreme Court in the case of Calcutta Municipal Corporation and others vs. M/s. Shrey Mercantile Pvt. Ltd. and others, reported in AIR 2005 SC 1879 where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch levy can be justified which can be treated as part of the regulatory measures. In the case before us, clauses (1), (2) and (9) of Section 86 of the Bengal Excise Act give power to the State Government to make Rules relating to prevention of wastage in the process of distillation by imposing various restrictions but in the process, no power has been given in that section or any other section of the Act to levy any amount for payment upon the manufacturer for enforcing those regulatory measures preventing wastage except the provisions of penalty contained in Section 54A nor is there any power conferred by the Act to impose any levy or any fee or duty for enforcing the preventive measures of wastage, whereas for enforcing the measures prescribed in clause (7) of Section 86 which fall within the taxing power of the State, the legislature has given explicit power to impose fees at different rates as appearing in Explanation-1 to the said Section. Such power is conspicuously absent in case of enforcement of the measures provided in clauses (1), (2) and (9) of that Section; on the other hand, Section 54A of the Act gives specific power of imposition of fine not exceeding ₹ 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise of taxing power of the State as would appear from the opening sentence of Section 28 of the Act which describes the ways of levying the duty in exercise of taxing power subject to such clause 12. Therefore, clause 12 has nothing to do with the regulatory power of the State to prevent misuse of materials in the process of distillation. Although the learned counsel for the parties argued in details on the question whether the State legislature has power to impose any duty or fees or tax on the Rectified Spirits within the taxing power of the State, in view of our finding that the power conferred under the Act for wastage of the materials in the process of manufacture of potable intoxicant was really regulatory in nature, we do not intend to deal with those decisions. Even Mr. Khaitan, the learned Senior Advocate appearing on behalf of the writ-petitioners, did not dispute the existence of the police power of the State to impose restriction for prevention of the wastage of the materials leading to the ultimate manufacture of the potable intoxicants. In the decision of the Five-Judge-Bench of the Supreme Court in the case of Synthetics and Chemicals Limited vs. State of U.P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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