TMI Blog2005 (4) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate order or direction to declare Sections 4 and 24 of the U.P. Excise Act 1910 as ultra vires the Constitution so far as they provide that rectified spirit is foreign liquor. b) to issue an appropriate order or direction to declare the rule 12 of U. P. Excise Rules beyond the rule making power of the State Government under the provisions of U.P. Excise Act, 1910. c) to issue an appropriate order or direction to declare that Notification No. 6121-The assessee-XIII-275-5-58 dated Decembers 3, 1960 and Notification No. 1275-The assessee-XIII-508-62 dated March 30. 1962 issued by the State Government under sub-section (2) of Section 4 and Section 28 and 29 of the U.P. Excise act, 1920 as unconstitutional illegal and beyond the power and jurisdiction of the State Government. d) to issue an appropriate writ, order or direction in the nature of certiorari to quash the order No. 860 Nau-94 95/Aa.Ni.Keraia 20 May 1995 issued by the Excise Commissioner, opposite party No. 2, U.P. and the order No.:32-Su.Aa/95.96 dated 30.5.1995 issued by the opposite party No. 6 as contained in Annexure No. 21 and 22 respectively. e) to issue an appropriate writ, order or directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f export to other States in the country the intending importer obtains import permit from that State to which rectified spirit is to be exported from the State of U.P. and after obtaining the import permit, the intending importer approaches the State Government for issue of permit for exporting the rectified spirit to his State. One M/s Indian Sugar and General Industries Export. Import Corporation Ltd., respondent no.7, obtained permits from the Excise Department of the State of Kerala for importing rectified spirit to that State. By means of import permit dated 20.7.1993 M/s T.K. Balon and P.L. James Contractors of A.S. Group No.I/93-94 were allowed to import 6,720 BL (bulk litres) of rectified spirit. Under the import permits dated 14.10 .1993 and 16/18. 10.1993 issued by the Excise Department of the State of Kerala, M/s P.B. Suresh Babu and M/s K.N. Askan were allowed to import 6,720. BL and 16,000 BL rectified spirit from the petitioner company through M/s India Sugar and General Industries Export and Import Corporation Ltd. Against the import permit dated 20.7.1993, the Excise Commissioner of U.P. issued two order No. 7140/Nau-92-93/Alcohol Niryat/Kerala dated 26.8.1993 permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner an application was handed over to the District Excise Officer, Bijnor requesting him to depute Excise Inspector for inspection of the damaged tanker and the site of the accident for assessing the loss of rectified spirit that had leaked out due to accident. As directed, the Deputy Excise and Taxation Commissioner, Gurgaon, Haryana was contacted on 11.11.1993 for extending necessary help land completing necessary formalities in the matter. Alongwith the letter dated 10.11.1993 the petitioner company also handed over a letter from the District Excise Officer, Bijnor to the Deputy Excise and Taxation Commissioner, Gurgaon, Haryana stating that he should supervise the transfer of rectified spirit from the accidented tanker to another tanker He deputed an Excise Inspector of his State to Supervise the transfer of rectified spirit from the accidented tanker to another tanker No. HR 26 A 0972. 'The Excise Inspector of Haryana State got all the five seals opened of the tanker No. HR 26 A 2972 in his presence and after getting the rectified spirit transferred to another tanker No. HR 26 A 0972 and sealed it. As rectified spirit had leaked out from the tanker after the accident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U.P., Allahabad, dated 29.1.1981 in which it has been stated that the rectified spirit was not an excisable item under the U.P. Excise Act, 1910. 4. In the counter affidavit filed by Sri Harish Chandra Dwivedi, Assistant Excise Commissioner, Allahabad on behalf of the respondents, a case has been set up that the rectified spirit is itself potable liquor and it becomes industrial alcohol only when it is denatured or earmarked for industrial purposes. According to the respondents, this alcohol is potable irrespective of its strength and alcohol liquor of any strength if consumed indiscriminately, it is injurious to health. According to the respondents, due to pungent taste of alcohol it is sold for human consumption on strength not beyond 42.8 V/V but it is absolutely wrong that the spirit of 94.6 V/V cannot be consumed. It has been stated that the State Government has absolute power to legislate in respect of rectified spirit which is per se potable. According to the respondents, apart from charging export pass fee, the State Government allows transportation of spirit under general and special bond by which the exporter undertakes to transport the spirit to its destination in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) 5 SCC 753; (ii) State of U.P. and Ors. v. Vam Organic Chemicals Ltd. and Ors. (2004) 1 SCC 225; and (iii) Deccan Sugar and Abkari Co. Ltd. v. Commissioner of Excise, A.P. (2004) 1 SCC 243. 8. He submitted that in the case of Deccan Sugar and Abkari Co. Ltd. (supra) the Apex Court has held that the State legislature has no jurisdiction to levy any excise duty on rectified spirit and, therefore, the order levying the duty on wastage of rectified spirit was set aside. 9. The learned Additional Advocate General submitted that the rectified spirit manufactured and sold by the petitioner is capable of being converted into potable liquor and, in fact, it was being sent to the State of Kerala under the permit for being used as Arrack (country liquor_. He, thus, submitted that under the regulatory powers vested with the State of U.P., the demand of duty on wastage/transit loss is fully justified. He placed heavy reliance on the decisions of the Apex Court is the case of Bihar Distillery and Anr. v. Union of India and Ors. (1997) 2 SCC 727. He further submitted that the decision of Bihar Distillery supra still holds the field and has not been expressly overruled for wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Mica case. 87. On an analysis of the various Abkari Acts and Excise Acts, it appears that various provinces/State reserve to themselves in their respective States the right to transfer exclusive or other privileges only in respect of manufacture and sale of alcohol and not in respect of possession and use. Not all but some of the States have provided such reservation in their favour. The price charges as a consideration for the grant of exclusive and other privileges was generally regarded as an excise duty. In other words, excise duty and price for privileges were regarded as one and the same thing. So-called privilege was reserved by the State mostly in respect of country liquor and not foreign liquor which included denatured spirit. 88. On an analysis of the aforesaid decisions and practice, we are clearly of the opinion that in respect of industrial alcohol the States are not authorised to impose the impost they have purported to do. In that view of the matter, the contentions of the petitioners must succeed and such impositions and imposts must go as being invalid in law so far as industrial alcohol is concerned. We make it clear that this will not affect any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tood as they were, not what they were capable of or able to become. Entry 51 of List II was the counterpart of Entry 84 of List I. It authorised the State to impose duties of excise on alcoholic liquors for human consumption manufactured or produced in the State. It was clear that all duties of excise save and except the items specifically excepted in Entry 84 of List I were generally within the taxing power of the Central Legislature. The State Legislature had limited power to impose excise duties. That power was circumscribed under Entry 51 of List II. It had to be borne in kind that, by common standards, ethyl alcohol (which had 95 percent strength) was an industrial alcohol and was not fit for human consumption. The ISI specifications had divided ethyl alcohol (as known in the trade) into several kinds of alcohol. Beverages and industrial alcohols were clearly and differently treated. Rectified spirit for industrial purposes was defined as spirit purified by distillation having strength not less than 95 per cent by volume of ethyl alcohol. Dictionaries and technical books showed that rectified spirit (95 per cent) was an industrial alcohol and not potable as such. It appeared, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation herein and was mainly concerned with the industrial alcohol, i.e., denatured rectified spirit, It has held that-- (3) So far as the industries engaged in the manufacture of rectified spirit, both for the purposes of (a) supplying it to industries (other than industries engaged in obtaining or manufacturing potable liquors/intoxicating liquors) and (b) for obtaining or manufacturing or supplying it to Governments/persons for obtaining or manufacturing potable liquors are concerned, the following is the position: The power to permit the establishment and regulation of the functioning of the distillery is concerned, it shall be the exclusive domain of the Union. But so far as the levy of excise duties is concerned, the duties on rectified spirit removed/cleared for supply to industries (other than industries engaged in obtaining or manufacturing potable liquors), shall be levied by the Union while the duties of excise or rectified spirit cleared/removed for the purposes of obtaining or manufacturing potable liquors shall be levied by the State Government concerned. The disposal, i.e., clearance and removal of rectified spirit in the case of such an industry shall be under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Judges in Modi Distillery. Modi Distillery applies on all fours to the facts of the present case and we are bound thereby. Even otherwise, it appears that the question as to whether any excise duty can be levied by the State upon the industrial alcohol or rectified spirit useable for industrial purposes is concluded by a decision of this Court in State of Bihar v. New Swadeshi Sugar Mills Ltd. which arose out of a judgment of the Patna High Court in New Swadeshi Sugar Mills Ltd. v. State of Bihar wherein it was held: (Pat LJR pp. 108-09, paras 8-9) 8. The contention of the learned counsel for the State, apart from what is stated in the notice (Annexure 2), was that the petitioner Company is liable to pay duty on the spirit because rectified spirit by subsequent dilution becomes potable and thus fit for human consumption and, therefore, duty could be recovered from the petitioner Company, which is thus liable to compensate the loss caused to the Government due to non-delivery by application of Rule 33 of the Rules made by the Board of Revenue under the notification dated 29.4.1919 (hereinafter referred to as 'the Rules'). 9. It is, therefore, essential to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislative competence as examined by the Constitution Bench of this Court as well as in three Judges' decision of this Court in Modi Distilleries (supra) and the appeals were accordingly referred to a larger Bench for reconsideration of the judgment in Bihar Distillery (supra). The larger Bench followed Synthetics and Chemicals Ltd. and Modi Distilleries (supra) without expressly overruling the decision in Bihar Distillery (supra). The Apex Court, therefore, in the Vam second case proceeded on the basis that the decision in Synthetics and Chemicals Ltd. (supra) continues to exclude the State from levying tax on industrial alcohol whether or not it has the potential to be used as alcoholic liquor. 20. In the case of Deccan Sugar and Abkari Co. Ltd. (supra) which is a decision by three learned Judges of the Apex Court, it has been held that the State legislature has no jurisdiction to levy any excise duty on loss of rectified spirit as no duty can be levied by the State on the rectified spirit. While holding so it has followed its decision in the case of Synthetics and Chemicals Ltd. and Modi Distilleries (supra). 21. Thus, it is well settled that the State has no powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of A.R. Antulay v. R.S. Nayak, 1988 (2) SCC 602. It is also well settled that where there is a divergent opinion expressed by the Apex Court in Bench decisions comprising of two learned Judges and three learned Judges, the opinion on the law laid down by the Bench decision of three Judges is to be followed in preference to the Bench decision of the two learned Judges. 27. We are of the opinion that the law laid down in the aforesaid two cases more specifically in Deccan Sugar and Abkari Co. Ltd. (supra) wherein it has been held that no duty on wastage of rectified spirit can be levied by the State Government, is a law declared by the Apex Court and is binding upon us under Article 141 of the Constitution. 28. Thus, we find ourselves unable to accept the plea of the learned Additional Advocate General that the State is competent to levy duty on loss in transit on rectified spirit. 29. In view of the foregoing discussion, the writ petition succeeds and is allowed with costs, which we assess at ₹ 10,000/-. The demand notices 20.5.1995 and 30.5.1995 (Annexures 21 and 22 respectively to the writ petition) are hereby quashed. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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