Full Judgment Text
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CASE NO.:
Appeal (civil) 5341 of 1996
PETITIONER:
MAHARASHTRA DISTILLERIES
Vs.
RESPONDENT:
M&UNAINCRI.PAL CORPORATION OF AURANGABAD
DATE OF JUDGMENT: 17/04/2002
BENCH:
CJI, N. Santosh Hegde & Shivaraj V. Patil
JUDGMENT:
SHIVARAJ V. PATIL J.
The appellant is a company engaged in the
manufacture of various kinds of IMFL/potable liquor.
For manufacture of its products, it requires raw
materials such as Rectified Spirit, Compound Alcoholic
preparation, Cane Juice Spirit, Grape Spirit, Malt
Spirit Barley Malt, Molasses, Coal etc. It imports
these raw materials into the octroi limits of
Aurangabad Municipal Corporation, the respondent
herein. The controversy raised in this appeal is
confined to the rate of octroi duty levied on the
Rectified Spirit imported by the appellant.
On the Rectified Spirit imported by the appellant,
the local authorities had been charging octroi duty @
1.5% falling under Entry 37 of Class III of the
Schedule "O" annexed to the Aurangabad City Municipal
Corporation Octroi Rules (for short the ‘Rules’) even
before the establishment of the respondent-Corporation
which came into force on 1.3.1984. Thereafter also, it
continued to collect octroi duty at the same rate.
Surprisingly, the appellant received a letter dated
5th August, 1986 from the respondent stating that the
Rectified Spirit which the appellant had been importing
was chargeable to octroi duty @ 5% falling under Entry
7 of Class I of the Schedule "O" and consequently the
appellant was directed to pay balance of octroi duty @
3.5%.
In reply to the said letter, it was brought to the
notice of the respondent that the Entry 7 in Class I of
the Schedule relates to articles of food and drinks
consumed by men and animals; Rectified Spirit was not
potable and could not be directly consumed by human-
beings so as to be covered by it. This contention was
rejected. The appellant received a letter on 16.10.1986
along with the bill of demand to the tune of
Rs.8.87,538.95 from the Octroi Superintendent of the
respondent. The appellant by its letter dated 20th
October, 1986 tried to convince the Administrator of
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the Corporation but failed.
Hence, the appellant filed writ petition No.
1080/86 which was dismissed by the High Court taking a
view that Rectified Spirit is fit for human consumption
which clearly fell under Entry 7 of Class I of the
Schedule. Hence, this appeal by special leave.
The relevant entries in the Schedule "O" therein
showing the goods liable to octroi and the rates
leviable read as under:-
Item Description Rates fixed by the
Corporation, Aurangabad
No. Of goods Ad-valorem Per 10 kgs. unless
Otherwise.
-------------------------------------------------------
Class I-Articles used for food or drink by men or
animals and drugs
1. .........................
7. Wine and spirits and beer
ganja, bhang, opium, charas. 5.00%
Class III Articles used for fuel, lighting, washing &
industrial use.
37. Methylated and denatured
spirits and industrial
alcohols 1.50%
Class IX - Miscellaneous
86. Goods not included in any
of the above items and not
specifically exempted in
Schedule II. 2.00%
From 1983, the Rectified Spirit was being declared
and accepted under Entry 37 collecting octroi duty @
1.5%. The respondent by the letter dated 16.10.1986
retrospectively revised octroi duty stating that the
goods were liable to octroi under Entry 7 in Class 1 of
the Schedule.
It was contended on behalf of the appellant that
what was imported was Rectified Spirit within the
octroi limits of the Corporation for its use in
manufacture of IMFL in its factory. The octroi duty
was not leviable on its import into the octroi limits
of the Corporation under Entry 7 in Class I as at that
stage it was not fit for human consumption. The issue
that the Rectified Spirit is not fit for human
consumption is concluded by the decisions of this Court
in Synthetic and Chemicals Ltd. & Ors. Vs. State of
U.P. & Ors. [(1990) 1 SCC 109] and in the State of
U.P.& Ors. Vs. Modi Distillery & Ors. [(1995) 5 SCC
753]. Class heading of Class 1 coves articles used for
food and drink by men or animals and drugs. Entry 7
covers wines and spirits and beer, ganja, bhang, opium,
charas. It cannot be said that the Rectified Spirit
falls under this Entry plainly because it cannot be
used for food or drink. According to the appellant,
the High Court committed a manifest error in holding
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that the Rectified Spirit fell under Entry 7 of Class I
to attract octroi duty @ 5%.
In opposition, on behalf of the respondent, it was
submitted that the Spirit in Entry 7 includes Rectified
Spirit. Alternatively, at best it could fall under
residuary Entry 86 of Class IX of the Schedule but not
under Entry 37 as it is not specifically included.
In order to appreciate these rival contentions, we
may now refer to few more facts. From 1983, the goods
imported were being declared and accepted under Entry
37 including Rectified Spirit (Ethyl Alcohol) of
strength of 95% v/v and octroi duty was paid @ 1.5%. A
notice was issued on 16.10.1986 by respondent claiming
octroi duty @ 5% and demanding the difference of octroi
duty @ 3.5% retrospectively. In an octroi statute, the
incidence of tax can only be on goods actually brought
into the local area for use directly i.e. if wine
spirit, beer were brought in, the rate of tax would be
5% but if industrial alcohol was brought in, the rate
of tax would be otherwise irrespective of the fact that
such industrial alcohol was later converted by
processing into potable liquor. In the case on hand,
the Rectified Spirit brought into local area was not
potable liquor and could not be used for food or drink
directly. Further on every consignment brought in the
local area, all the facts were disclosed to the
authorities showing that the Rectified Spirit of the
strength of 95% v/v had been brought in and the octroi
duty had been paid and accepted @ 1.5% accordingly.
The appellant, as stated, manufactures Indian Made
Foreign Liquor (IMFL), i.e. potable liquor which is fit
for human consumption. For the purpose of manufacture
of such liquor, it inter alia imports Rectified Spirit
within the local area of the respondent. In the
decisions of this Court aforementioned, it is clearly
held that the Rectified Spirit cannot be treated as
potable liquor as it is not fit for human consumption.
In the light of facts stated above, there cannot
be any doubt that the Rectified Spirit imported by the
appellant into octroi limits of the respondent was not
fit for human consumption as it was directly at the
point. It was only raw material at that stage. No
doubt, it is subsequently used in the manufacture of
potable liquor but the octroi duty is leviable on the
material imported into octroi limits at that stage
only, which aspect is not correctly appreciated by the
High Court. The Rectified Spirit undergoes numerous
processes in the distillery of the appellant after
importing it on payment of octroi duty before being
converted into potable liquor. Class I of the Schedule
speaks of "articles used for food or drink by men
...........". It would only mean that the articles
which were used directly on the import within the local
area of the respondent and not articles coming into
being after further processing because the octroi duty
is leviable on goods actually brought into the local
area at that point for use directly. The High Court
was also not right in saying that the Rectified Spirit
is purified or refined liquor as it has to undergo
certain processes including treatment with chemicals
and redistillation to remove impurities before it can
be treated as pure spirit. It may be stated that even
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the pure spirit has strength of about 90% v/v and in
this form also it is not fit for human consumption.
Class I of the Schedule speaks of articles used for
food or drink by men or animals and drugs. Sprits
included in Entry 7 of the said Class are included in
the company of wine and beer which can be used for
drink by men. This being the position, contextually
spirits in the said Entry 7 cannot be read or
understood as including Rectified Spirit. The
Rectified Spirit does not fit in Entry 7 and does not
match with Class heading of Class I. In these
circumstances, we are of the view that Rectified Spirit
does not fall in Entry 7 of Class I of the Schedule.
It is not possible to accept the contention of the
appellant that the Rectified Spirit falls under Entry
37 of Class III. Rectified Spirit is an input in the
industrial use of making potable alcohol. As the
phraseology of the Entry shows ("fuel, lighting,
washing"), it is inapplicable to inputs. We are,
therefore, of the opinion that the Rectified Spirit
falls under residuary Entry 86 of Class IX of the
Schedule attracting octroi duty @ 2%.
Given the facts and reasons stated above, we allow
this appeal, set aside the impugned judgment and order
and hold that the appellant was liable to pay octroi
duty @ 2% on the Rectified Spirit imported. The
respondent is entitled to recover the difference of
octroi duty. No costs.
.....................CJI.
......................J.
[ N. SANTOSH HEGDE ]
.......................J.
[ SHIVARAJ V. PATIL ]
April 17, 2002