STATE OF ORISSA vs. M/S UTKAL DISTILLERIES LTD.

1 NON­REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION  CIVIL APPEAL NOS.5666­5668 OF 2009 STATE OF ORISSA & ORS.   ...APPELLANT(S) VERSUS M/S UTKAL DISTILLERIES LTD.       .... RESPONDENT(S) J U D G M E N T   B.R. GAVAI, J. 1. The present appeals challenge the common judgment and order passed by the High Court of Orissa, Cuttack, dated th 5  December, 2008, in O.J.C. No.9369 of 1998, W.P.(C) No. 3097 of 2003 and W.P.(C) No. 7108 of 2005, thereby allowing the said writ petitions filed by the respondent­Company and setting aside the demand notices issued by the appellants.    2. The facts, in brief, giving rise to the present appeals are as under: 2 3. The appellant No. 2–Commissioner of Excise, Orissa, th vide  order dated 12   September, 1990,  granted  licence in favour   of   the   respondent­Company   for   manufacturing, bottling,   blending   and   reduction   of   Indian   Made   Foreign Liquor (hereinafter referred to as ‘IMFL’) from rectified spirit. The   license   was   granted   with   the   condition   that   the respondent­Company shall install one rectification column to rectify/purify the rectified spirit to be used in manufacturing of IMFL.  It is not in dispute that as per the condition in the 4. license,   the   respondent­Company   installed   Extra   Natural Alcohol Column (hereinafter referred to ‘ENA Column’).  It is the   case   of   the   respondent­Company   that   the   said   ENA Column installed by it was the first of its kind in the State of Orissa.  It was the case of the respondent­Company that the manufacturing process resulted in generation of certain weak spirit, which was not potable, and since the rules did not provide for allowing such a waste product, a representation 3 was made by the respondent­Company to the appellant No.2 th on   19   August,   1992.    Accordingly, the   appellants   constituted a Technical Committee (hereinafter referred to as st “the  Committee”) on 21   November, 1992,  to  examine the following issues: “i) to   examine   the   details   of   E.N.A. columns   including   stock   of   spirit inside the same. ii) Loss during trial run along with the limit of wastage during the E.N.A. process   adopted   by   M/s   Utkal Distillery Pvt. Ltd. at Brahmapura Khurda in the district of Puri.” th 5. The   Committee   submitted   its   report   on   17   June 1993.     The   Committee   found   that   though   there   were provisions in the Boards’ Excise Rules, 1965 for loss of spirit during transit, during storage, and during bottling, there was no provision for loss of spirit during re­distillation.     The Committee found that the loss of spirit during the process of re­distillation   was   allowed   in   different   States.     In Maharashtra,   a   loss   of   2%;   in   Bihar,   a   loss   of   1.5%;   in 4 Andhra Pradesh, a loss of 2%; and in Karnataka, a loss of 3% spirit   was   allowed   during   re­distillation.     Accordingly,   the Committee recommended allowing 2% loss of spirit during the process of re­distillation in the State of Orissa.  Since   the   appellant   No.1­State   of   Orissa,   had   not 6. taken any decision on the report of the Committee, a writ petition being O.J.C. No.8635 of 1994, came to be filed by the respondent­Company, for a direction to the appellant No.1 to take a decision on the report of the Committee.  The said writ petition came to be disposed of by the High Court of Orissa th vide order dated 10  January, 1995, with a direction to the appellant   No.1   to   take   a   decision   on   the   report   of   the Committee.     The   appellant   No.1   was   further   directed   to communicate the decision to the concerned parties within a period of three months from the date of the decision.   The th appellant   No.1,   vide   communication   dated   11   January, 1995,   informed   the   respondent­Company   that   the Government has decided to allow 2% process loss while re­ 5 distilling the rectified spirit.  However, demand notice dated th 26   September,   1997,   was   issued   to   the   respondent­ Company, calling upon it to pay excise duty on the weak spirit, which was more than 2% allowable wastage.    7. After receipt of the demand notice, the respondent­ Company made a representation to the appellants, stating therein   that   the   wastage   generated   during   rectification process was an impure spirit/weak spirit, which was not fit for human consumption.   It was, therefore, contended that the State Government has no authority to impose excise duty on   the   weak   spirit.       The   said   representation   was   not th responded to and another demand notice was issued on 8 July, 1998.  The respondent­Company, therefore, filed a writ petition being O.J.C. No.9369 of 1998.  By an interim order, the High Court stayed the demand notices.  It appears that in the meantime, the sample of the 8. weak   spirit   was   sent   for   chemical   examination   to   the Chemical Examiner to the Government of Orissa and Deputy 6 Drugs Controller.   In the report of the Chemical Examiner th dated 12   August, 1999, the sample was found unfit and unsafe for human consumption.    th Two more demand notices dated 12   March, 2003 9. th and 20  May, 2005, were issued to the respondent­Company, which were challenged by it before the High Court of Orissa by way of Writ Petitions being Writ Petition (Civil) No.3097 of 2003 and Writ Petition (Civil) No.7108 of 2005 respectively.   10. All   the   three   writ   petitions   were   finally   decided th together by the High Court on 5   December, 2008, thereby allowing   the   said   writ   petitions,   as   aforesaid.     Being aggrieved, the present appeals are filed.  11. We   have   heard   Shri   M.N.   Rao,   learned   Senior Counsel   appearing   on   behalf   of   the   appellants   and   Shri Soumyajit Pani, learned counsel appearing on behalf of the respondent.  12. Shri M.N. Rao, learned Senior Counsel appearing on behalf   of   the   appellants   submits   that   the   Committee   was 7 constituted   on   the   basis   of   the   representation   of   the respondent­Company.     He   submitted   that   once   the Committee had recommended allowing of wastage only to the extent   of   2%,   it   was   not   permissible   for   the   respondent­ Company to submit that the demand of excise duty on weak spirit,   which   was   more   than   2%,   is   not   tenable.     He submitted that the High Court has erred in allowing the writ petitions.   13. Shri Soumyajit Pani, learned counsel appearing on behalf of the respondent, on the contrary, submits that the issue is no more  res integra .  The Constitution Bench of this Court, consisting of seven Judges, in the case of  Synthetics and   Chemicals   Ltd.   and   others   vs.   State   of   U.P.   and 1 has held that the State Legislature had no authority others   to levy duty or tax on industrial alcohol, which is not fit for human   consumption   as   that   could   only   be   levied   by   the 1 (1990) 1 SCC 109 8 Centre.   He,   therefore,   submits   that   there   is   no   reason   to interfere with the impugned judgment and order.   14. It   is   not   in   dispute   that   the   license,   which   was granted to the respondent­Company, is for the purpose of manufacturing, bottling, blending and reduction of IMFL.  It is also not in dispute that as required under the license, the respondent­Company has installed one ENA column to rectify the rectified spirit to be used in the manufacturing of IMFL. It is also not in dispute that the sample of wastage generated in the manufacturing process was sent for examination to the State Drugs Testing and Research Laboratory, Orissa.   The th Chemical   Examiners   also   submitted   their   report   on   12 August, 1999.  It will be relevant to reproduce the opinion of the Chemical Examiners, which is as under: “The   subject   sample   of   Weak   Spirit   has been tested for limit tests and Ethyl Alcohol content­ 54.8 O.P. and found not to have passed   limit   tests   for   Acidity,   Aldehydes, Fusel Oil and Furfural as per I.S.­323­1959 for rectified Spirit and hence considered to be unfit and unsafe for potable purpose.” 9 15. It is thus clear that the wastage generated has been found to be unfit and unsafe for potable purpose.    16. The Constitution Bench of this Court in the case of (supra) was considering the Synthetics and Chemicals Ltd.  issue, as to whether the States are entitled to levy excise duty in respect of industrial alcohol.  Different legislations in the different   States   dealing   with   such   a   power   of   the   State Government   came   up   for   consideration   before   the Constitution   Bench   of   this   Court   in   the   said   case.     The Constitution Bench observed thus: “ 95.  It was also contended that the State ultimately falls back on the consideration for parting with the privilege to sell alco­ holic liquors which has been the basis of series of decisions of this Court based on English and American decisions but ac­ cording to the learned counsel for the pe­ titioners   this   doctrine   of   privilege   and consideration   for   sale   of   privilege   also could be available to the State only in re­ spect of alcohol or alcoholic liquors which are for human consumption. According to the learned counsel by merely widening the definition of intoxicating liquors in re­ 10

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12 session, transport, purchase and sale of intoxicating liquors.” This   entry   talks   of   intoxicating   liquors and further on refers to production, man­ ufacture, possession, transport, purchase and sale of these liquors. It appears that the State has levied some kind of duties in various names at each of these stages used   in  this   entry,   that   is,   production, manufacture, possession, transport, pur­ chase and sale. But from the scheme of entries in the three lists it is clear that taxing entries have been specifically en­ acted   conferring   powers   of   taxation whereas other entries pertain to the au­ thority of the legislature to enact laws for purposes of regulation. If we compare En­ try 8 in List II with Entry 51 it is clear that when Entry 51 authorises the State legislature to levy tax and duties on alco­ holic liquors falling in Entry 51, Entry 8 confers authority on the State legislature to enact laws for regulation. Similarly are entries in List I. As regards regulation or regulatory fees it was contended that En­ try 52 in List I empowers the Parliament to declare the industries which the Union proposes to control in public interest un­ der Industries Development and Regula­ tion Act. 99.  Entry 52 List I reads as under: 13

17. It could thus be seen that the Constitution Bench has held that the Constitution makers distributed the term ‘alcohol   liquor’   into   two   heads,   viz.,   ( )   for   human a consumption; and ( b ) other than for human consumption.  It has been held that the alcoholic liquors, which are for human 14 consumption, are put in Entry 51 List II authorizing the State Legislature  to levy  tax on  them,  whereas  alcoholic  liquors other   than   for   human   consumption   have   been   left  to  the Central Legislature under Entry 84 for levy of duty of excise. It has been held that what has been excluded in Entry 84 has specifically  been  put  within  the  authority   of   the   State for purposes of taxation.   The Constitution Bench clearly held that the State Legislature had no authority to levy duty or tax on   alcohol,   which   is   not   for   human   consumption   as   that could be levied only by the Centre. A three Judge Bench of this Court in the case of 18. 2 State of U.P. and others vs. Modi Distillery and others was considering the power of the State Government to levy   excise duty on wastage of liquor after distillation.  Following the judgment of the Constitution Bench of this Court in the case of  Synthetics and Chemicals Ltd.  (supra) , this Court observed thus: 2 (1995) 5 SCC 753 15 “ 10.  What the State seeks to levy excise duty upon in the Group ‘B’ cases is the wastage of liquor after distillation, but be­ fore dilution; and, in the Group ‘D’ cases, the   pipeline   loss   of   liquor   during   the process of manufacture, before dilution. It is clear, therefore, that what the State seeks to levy excise duty upon is not alco­ holic liquor for human consumption but the raw material or input still in process of being rendered fit for consumption by human beings. The State is not empow­ ered to levy excise duty on the raw mate­ rial or input that is in the process of be­ ing made into alcoholic liquor for human consumption.” 19. It could thus be seen that this Court held that the State was only empowered to levy excise duty on alcoholic liquor for human consumption.   This Court held that the State has no power to levy excise duty on wastage of liquor after distillation.  Even the perusal of Section 27(1) read with Section 20. 2(6)   of   the   erstwhile   Bihar   and   Orissa   Excise   Act,   1915, (hereinafter referred to as ‘the said Act’), which governed the 16 field at the relevant time, would clarify the position.  They are reproduced hereunder: “ Section 2(6) 2. ­ In this Act, unless there is Definitions anything   repugnant   in   the   subject   or context; (6) “ ” means­ excisable article (a) any alcoholic liquor for human consumption; or (b) Any intoxicating drug;    Section 27  (1) 27 .   Power   to   impose   duty   on   import, (1) An excise transport and manufacture ­  duty   or   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  (b) any excisable article exported; or  (c) any   excisable   article   transported; or  (d) any   excisable   article   (other   than tari)   manufactured   under   any licence granted in respect of Clause (a) of Section 13; or  17 (e) any hemp plant cultivated, or any portion   of   such   plant   collected, under   any   licence   granted   in respect of Clause (b) or Clause (c) of Section 13; or  (f) any excisable article manufactured in   any   distillery   or   brewery licensed, established, authorised or continued under this Act.  Explanation  ­ Duty may be imposed on   any   article   under   this   sub­ section at different rates according to the places to which such article is to be removed for consumption, or according   to   the   varying   strengths and quality of such article.” 21. Perusal of Section 27(1) of the said Act would reveal that   the   State’s   power   to   impose   duty   on   import,   export, transport and manufacture is only in respect of any excisable articles imported, exported, transported and manufactured. ‘Excisable article’ has been defined to be any alcoholic liquor for human consumption or any intoxicating drug.  It is thus clear   that   even   under   the   relevant   statute,   the   State   has 18 power  to  levy  excise   duty   only  in  respect of   the   alcoholic liquor for human consumption.    22. In   view   of   the   legal   position   as   settled   by   the Constitution Bench of this Court in the case of   Synthetics and Chemicals Ltd.   (supra)   and the three Judge Bench in the   case   of   Modi   Distillery   (supra)  and   the   statutory provisions contained in the said Act, we see no reason to interfere   with   the   impugned   judgment   and   order.     The appeals,   therefore,   are   found   to   be   without   merit   and   as such, dismissed.      There shall be no order as to costs.   All pending applications, if any, shall stand disposed of.  …............................J.                              [L. NAGESWARA RAO] …............................J.                                                   [B.R. GAVAI] NEW DELHI; MARCH 03, 2022