# M/s Jain Distillery Pvt. Ltd., Bijnor v. State of U.P. & Ors. 744 INDIAN LAW REPORTS ALLAHABAD SERIES

- **Citation:** (2021) 10 ILRA 743
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2019-09-06
- **Case number:** Writ Tax No. 378 of 2021
- **Bench:** Naheed Ara Moonis, Saumitra Dayal Singh
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-jain-distillery-pvt-ltd-bijnor-v-state-of-u-p-ors-744-indian-law-reports-46410
- **Pages:** 30

## Headnote

A. Tax Law - Uttar Pradesh Value Added
Tax Act, 2008 - Sections 28, 4(4), 74 &
4(1)(c) read with Schedule IV, 7(c) -
UPVAT Act and Central Sales Tax Act,1956
- Section 29 - Central Sales Tax Act, 1956
- Section 2 (d) & 9(2) - United Provinces
Sales of Motor Spirit - Diesel Oil and
Alcohol Taxation Act, 1939.

ENA continues to fall outside the phrase
"alcoholic liquor for human consumption",
as it appears under Entry 54 of List II of
the Seventh Schedule, to the Constitution
of India. (Para 55)

Industrial alcohol is broadly categorised
into three categories. Having categorized the
three types of industrial alcohols, the Supreme
Court has observed that the first two categories
i.e., Isopropyl and Methyl Alcohol are poisonous,
toxic, and fatal for human consumption.
Therefore, they are capable of industrial use
only. Further, owing to their inherent chemical
properties, those two categories of alcohol
cannot be purified or used to produce any
"intoxicating liquor" or ''potable liquor", for
human consumption. Only the third category of
industrial alcohol namely, Ethyl Alcohol or
Ethanol is capable of use to manufacture
"intoxicating liquor" or potable liquor. Ethanol or
Rectified Spirit upon redistillation, fractional
distillation
etc.,
whereby
impurities
are
removed, is rendered purer in content. It then
comes to be described as ENA (Extra Neutral
Alcohol). (Para 49, 50, 51)

IMFL (Indian Made Foreign Liquor) or
country liquor or any other liquor that
may qualify as "alcoholic liquor for human
consumption",
uses
ENA
as
a
raw
material. (Para 52)

In any case, for a commodity to be
described as an "alcoholic liquor for
human consumption", it must be capable
or ready to be consumed, in that state
itself-as a beverage. An alcoholic liquor
having 90%-95% content of Ethanol is certainly
not that commodity. Such alcohol is not, and it
cannot be marketed for human consumption. If
consumed, it would be unbearably toxic and,
therefore, never fit for human consumption.
(Para 53)

B. Indisputably, tax on all goods and
services, except supply of "alcoholic liquor
for human consumption" would fall under
the GST regime. It is that change to the
Constitutional scheme that has been given
effect - by substituting the pre-existing Entry 54
of List II of the Seventh Schedule, to the
Constitution of India. (Para 57)

Under
that
pre-existing
entry,
the
State
legislatures were competent to enact laws to tax
sale and purchase of all goods, other than the
newspapers (

## Text

_Characters 0–39,793 of 103,812. This is a partial read: ask again with offset=39793 for what follows._

10 All. M/s Jain Distillery Pvt. Ltd., Bijnor Vs. State of U.P. & Ors.
743
is the exact amount ''quantified' while
issuing the subsequent show-cause-notice
dated 06.09.2019. While that notice may
never
be
read
as
evidence
of
the
'quantification' made earlier since that
show-cause-notice was issued after the cutoff date 30.06.2019, at the same time, the
said document does indicate - other than
the aforesaid ''Panchnama' and admission
made by the petitioner there was no other
material with the revenue authorities to
create any other or further demand.

21. Therefore, we unhesitatingly
reach the conclusions - (i) the 'tax dues' of
the petitioner stood 'quantified' for the
purpose
of
Section
121(r),
123(c),
124(1)(d) and 125(1)(d) before the cut-off
date 30.06.2019 at Rs. 45,38,231 and (ii)
even if it may have been otherwise
permissible to interpret those provisions in
a manner that in the case of a pending
enquiry,
investigation
or
audit,
no
declaration may be filed unless the revenue
authority had first communicated in writing
the ''quantified' amount of ''tax dues'/duty
demand proposed under the Act, yet, that
interpretation would stand blocked, at the
instance of the revenue authorities, by
virtue of the binding interpretation of the
law offered by the CBIC, under section 133
of the Scheme.

22. We also note, the Scheme is a piece
of reform legislation. It commends a
purposive construction. That view we have
expressed in Writ Tax No. 220 of 2020 (M/s
Fashion Dezire And Another Vs. Union of
India Through Principal Secretary, Ministry
of Finance, Department of Revenue & 3
Ors.). We see no good ground to form any
different opinion in this regard as the object
of the Scheme is only to resolve all legacy
disputes and focus all energies of the revenue
authorities as also the assessees at the (then)
imminent enforcement of the new G.S.T
regime.

23. Thus, the reasoning given by the
Designated Committee in the impugned order
runs contrary to law. The Designated
Committee was obligated to deal with the
declaration filed by the petitioner, on merits.
No discretion was vested in the Designated
Committee to take a different view. Even
though the Circular has not been referred to
or dealt by the Designated Committee, by
virtue of the clear language of Section 133 of
the Scheme, it was further obligated to
necessarily act in accordance with that law.

24. Consequently, the impugned order
dated 05.05.2020 is set aside. In absence of
any other dispute or objection, the matter is
remitted to the Designated Committee to
issue the necessary SVLDRS-3 in line with
the observations made above, within a period
of thirty days from today. Petitioner shall
have thirty days therefrom to deposit that
amount and obtain a Discharge Certificate, in
accordance with law.

25. Accordingly, the present petition
is allowed. No orders as to costs.
----------
(2021)10ILR A743
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 28.09.2021

BEFORE

THE HON'BLE NAHEED ARA MOONIS, J.
THE HON'BLE SAUMITRA DAYAL SINGH, J.

Writ Tax No. 378 of 2021
with other cases

M/s Jain Distillery Pvt. Ltd., Bijnor
 ...Petitioner
Versus
State of U.P. & Ors. ...Respondents
744 INDIAN LAW REPORTS ALLAHABAD SERIES
Counsel for the Petitioner:
Sri Nishant Mishra, Sri Tanmay Sadh, Sri
Navin Sinha

Counsel for the Respondents:
C.S.C., A.S.G.I., Sri Dhananjay Awasthi, Sri
Satendra Kumar Upadhyay

A. Tax Law - Uttar Pradesh Value Added
Tax Act, 2008 - Sections 28, 4(4), 74 &
4(1)(c) read with Schedule IV, 7(c) -
UPVAT Act and Central Sales Tax Act,1956
- Section 29 - Central Sales Tax Act, 1956
- Section 2 (d) & 9(2) - United Provinces
Sales of Motor Spirit - Diesel Oil and
Alcohol Taxation Act, 1939.

ENA continues to fall outside the phrase
"alcoholic liquor for human consumption",
as it appears under Entry 54 of List II of
the Seventh Schedule, to the Constitution
of India. (Para 55)

Industrial alcohol is broadly categorised
into three categories. Having categorized the
three types of industrial alcohols, the Supreme
Court has observed that the first two categories
i.e., Isopropyl and Methyl Alcohol are poisonous,
toxic, and fatal for human consumption.
Therefore, they are capable of industrial use
only. Further, owing to their inherent chemical
properties, those two categories of alcohol
cannot be purified or used to produce any
"intoxicating liquor" or ''potable liquor", for
human consumption. Only the third category of
industrial alcohol namely, Ethyl Alcohol or
Ethanol is capable of use to manufacture
"intoxicating liquor" or potable liquor. Ethanol or
Rectified Spirit upon redistillation, fractional
distillation
etc.,
whereby
impurities
are
removed, is rendered purer in content. It then
comes to be described as ENA (Extra Neutral
Alcohol). (Para 49, 50, 51)

IMFL (Indian Made Foreign Liquor) or
country liquor or any other liquor that
may qualify as "alcoholic liquor for human
consumption",
uses
ENA
as
a
raw
material. (Para 52)

In any case, for a commodity to be
described as an "alcoholic liquor for
human consumption", it must be capable
or ready to be consumed, in that state
itself-as a beverage. An alcoholic liquor
having 90%-95% content of Ethanol is certainly
not that commodity. Such alcohol is not, and it
cannot be marketed for human consumption. If
consumed, it would be unbearably toxic and,
therefore, never fit for human consumption.
(Para 53)

B. Indisputably, tax on all goods and
services, except supply of "alcoholic liquor
for human consumption" would fall under
the GST regime. It is that change to the
Constitutional scheme that has been given
effect - by substituting the pre-existing Entry 54
of List II of the Seventh Schedule, to the
Constitution of India. (Para 57)

Under
that
pre-existing
entry,
the
State
legislatures were competent to enact laws to tax
sale and purchase of all goods, other than the
newspapers (subject to Entry 92A of List I).
Upon enactment of the 101st Constitution
Amendment, that power is heavily curtailed
(under the substituted Entry 54 of List II of the
Seventh Schedule, to the Constitution of India),
to certain items specified therein namely,
petroleum crude, high speed diesel, motorspirit/petrol, natural gas, aviation turbine fuel
and "alcoholic liquor for human consumption". A
corresponding change was made by the
Parliament to the definition of the term 'goods',
under Section 2(d) of the Central Sales Tax Act,
1956. It was also substituted, to limit the same
to the exact six items, finding mention in the
substituted Entry 54 of List II of the Seventh
Schedule, to the Constitution of India. (Para 57)

Both
the
Parliament
and
the
State
legislatures, sacrificed their pre-existing,
respective legislative competence to -
enact laws to impose duties of excise and
to tax sales of 'alcoholic liquors not-for
human consumption', at the high altar of
the
101st
Constitution
Amendment,
enacted to consecrate the GST laws. The
express intent of that Constitutional change
appears to be one - to tax all alcohols except
"alcoholic liquor for human consumption", under
the GST regime, only. Thus, alcoholic liquor not
for human consumption or industrial alcohol or
10 All. M/s Jain Distillery Pvt. Ltd., Bijnor Vs. State of U.P. & Ors.
745
non-potable alcohol, is subject to GST laws,
only. (Para 60)

That Constitutional intent was unequivocally
recognized by the State legislature. It resonates
in perfect harmony, through the instrument of
incorporation of Section 174(1)(i) to the UPGST
Act 2017. (Para 60)

C. 1) Impugned Notification seeks to
overreach the Constitutional scheme, as
amended
by
the
101st
Constitution
Amendment. By that Constitution Amendment,
the only surviving legislative field to impose
taxes
(saved
exclusively
with
the
State
legislatures), finds mention in Entry 54 (as
substituted). It is only with respect to
"alcoholic liquor for human consumption".
Since ENA is not that, the State legislature
cannot
circumvent
the
Constitutional
scheme by introducing a tax on its sale, by
describing it as 'non-GST alcohol'. (Para 62)

Describing ENA as 'non-GST alcohol' is
impermissible. By virtue of Article 366(12-A)
of the Constitution of India, 'non-GST alcohol'
may only be "alcohol for human consumption".
By virtue of the clear dictum of the Supreme
Court, ENA is not fit for human consumption.
Hence, for reasons noted above, it would
remain a 'GST-alcohol', if such a thing exists.
(Para 63)

2) For a tax to be levied on sale of a
commodity, its identity in presenti alone is
relevant. The intended use to which a
commodity may be put, and the character or
identity
of
the
commodity
manufactured
therefrom, would never be relevant to impose a
differential rate of tax on sale of that
commodity, depending upon different uses, it
may be put to. (Para 63)

Alcoholic or "intoxicant liquor" must be
understood as these are, i.e., in the
presenti, and not what these may become
or be capable of or able to become upon
application
of
certain
processes
etc.
Applying that law, even today, as a commodity,
ENA remains an alcohol or alcoholic liquor not
for human consumption, under Entry 54 of List
II of the Seventh Schedule, to the Constitution
of India. (Para 54)
As a fact, there exists only one type of ENA. It
may
be
put
to
different
uses
i.e.,
to
manufacture either potable alcohol or chemicals
or other commodities or all or any of them. By
looking at any quantity of ENA, its use may
never be predicted or pre-determined. To
subject it to differential rates of tax under the
UPVAT Act, depending solely on the intent of
the purchaser (to use it a specified way), may
never qualify as a tax on the sale of the goods.
It may transform into another kind of tax. (Para
63)

3) In any case, the use to which ENA may
be put may be relevant to the legislature
to determine the measure or the rate of
tax to be suffered by it, but not to the
identity of the taxable commodity. That
may be established based on its form, shape,
and commercial identity, by the people who deal
in it. Since ENA is not a 'non-GST' alcohol, the
question of measure or rate of tax thereon
(based on its use), is extraneous to the issue at
hand. (Para 63)

D. Issue for consideration is whether the
State may ever be able to defend a
taxation law or whether the State may
ever be able to enact a taxation law,
referable to Entry 8 of List II of the
Seventh Schedule, to the Constitution of
India, to impose tax on sale. (Para 64)

The UPVAT Act, 2017 was not a law enacted with
reference to Entry 8 of List II of the Seventh
Schedule,-to the Constitution of India rather, it
was a law referable only to Entry 54 of List II of
the Seventh Schedule, to the Constitution of India,
as it then existed. (Para 64)

That Entry only creates a field of legislation
by State legislature to enact any law on
intoxicating liquors. The words 'that is to say',
restrict and confine the scope and ambit of those
laws - w.r.t. production, manufacture, possession,
transport, purchase, and sale and matters
incidental or ancillary thereto. It does not grant
any legislative competence to the State
legislature to impose a tax on intoxicating
liquors. (Para 68)

E. Words and Phrases - "that is to say" -
The phrase "that is to say" appearing in
746 INDIAN LAW REPORTS ALLAHABAD SERIES
Entry 8 of List II of the Seventh Schedule,
to the Constitution of India may never be
read to bestow legislative competence on
the State legislatures to enact a law to tax
"intoxicating liquors". That competence must
remain confined to the matters specified after
that phrase, appearing under that Entry or
matters ancillary or incidental thereto, such as
regulatory measures. (Para 68)

It is declared, the State lost its legislative
competence to enact laws, to impose tax
on sales of ENA, upon the enactment of
the
101st
Constitution
Amendment.
Consequently, and upon considering Section
174(1)(i) of UPGST Act, 2017, the impugned
Notification dated 17.12.2019, insofar as it
seeks to impose UPVAT on ENA, Rectified Spirit
and SDS, is ultra vires, both on account of lack
of (i) legislative competence and (ii) valid
delegation. (Para 70, 73)

Writ petitions allowed. (E-4)

Precedent followed:

1. Synthetics and Chemicals Ltd. & ors. Vs St. of
U.P. & ors., (1990) 1 SCC 109 (Para 23)

2. St. of U.P. & ors. Vs Modi Distillery & ors.,
(1995) 5 SCC 753 (Para 24)

3. Bihar Distillery & anr. Vs U.O.I. & ors. (1997)
2 SCC 727 (Para 25)

4. Deccan Sugar & Abkari Co. Ltd. Vs
Commissioner of Excise, A.P., (1998) 3 SCC 272
(Para 26)

5. Deccan Sugar & Abkari Co. Ltd. Vs
Commissioner of Excise, A.P. & concerned
matters, (2004) 1 SCC 243 (Para 26)

6. St. of U.P. & ors. Vs VAM Organics Chemicals
Ltd. & ors. (2004) 1 SCC 225 (Para 27)

7. St. of Jharkhand & ors. Vs Ajanta Bottlers and
Blenders Pvt. Ltd., (2019) 7 SCC 545 (Para 29)

8. M.P.V. Sundararamier & Co. Vs State of A.P.
& ors., AIR 1958 SC 468 (Para 30)

9. State of Mysore & ors. Vs D. Cawasji and
Company & ors., (1970) 3 SCC 710 (Para 30)

10. Hoechst Pharmaceuticals Ltd. & ors. Vs St.
of Bihar & ors., (1983) 4 SCC 45 (Para 40)

11. Southern Pharmaceuticals and Chemicals,
Trichur & ors., Vs St. of Kerala & ors., (1981) 4
SCC 391 (Para 40)

12. St. of Bihar & ors. Vs Shree Baidyanath
Ayurved Bhawan (P) Ltd. & ors., (2005) 2 SCC
762 (Para 42)

13. VAM Organics Chemicals Ltd. & anr. Vs
State of U.P. & ors. (1997) 2 SCC 715 (Para 45)

14. Navnit Lal C Javeri Vs K.K. Sen, Appellate
Assistant
Commissioner
of
Income
Tax,
Bombay, AIR 1965 SC 1375 (Para 47)

15. Delhi Cloth and General Mills Co. Ltd. Vs
Excise Commissioner, U.P., Allahabad, 1973 All
LJ 629 (Para 67)

16. State of T.N. Vs Pyare Lal Malhotra, (1976)
1 SCC 834 (Para 68)

(Delivered by Hon'ble Naheed Ara
Moonis, J.
&
Hon'ble Saumitra Dayal Singh, J.)

1. Heard Shri Navin Sinha, learned
Senior Advocate, assisted by Shri Nishant
Mishra, learned counsel for the petitioner in
Writ Tax Nos. 378 of 2021 and 383 of
2021; Shri Nishant Mishra in Writ Tax
Nos. 369 of 2021, 370 of 2021, 371 of
2021 and 385 of 2021; Shri Rahul Agarwal,
learned counsel for the petitioner in Writ
Tax No. 355 of 2020; Shri Pawan Shri
Agarwal, learned counsel for the petitioner
in Writ Tax Nos. 364 of 2021 and 451 of
2021;
Shri
Manish
Goel,
learned
Additional Advocate General assisted by
Shri Apurva Hajela and Shri A.C. Tripathi,
learned Standing Counsel, for the State.
10 All. M/s Jain Distillery Pvt. Ltd., Bijnor Vs. State of U.P. & Ors.
747

2. In Writ Tax No. 378 of 2021, the
petitioner has sought relief in the nature of a
declaration that the State legislature (of
Uttar
Pradesh)
lost
its
legislative
competence to impose or levy tax on sale of
Extra Neutral Alcohol (in short, 'ENA'),
after enactment of the 101st Constitution
Amendment, with effect from 01.07.2017 -
as a direct consequence of the enactment of
Article 246A read with Article 366 (12-A)
of the Constitution of India, read with the
substituted Entry 54 of List II of the Seventh
Schedule, to the Constitution of India.
Further relief has been sought, to seek
quashing of the Notification No. KA.NI-21793 dated 17 December 2019, issued under
Section 74 read with Section 4(4) of the
Uttar Pradesh Value Added Tax Act, 2008
(in short, UPVAT Act), whereby Schedule
entry 1-A was added to the pre-existing
Schedule IV (below entry 1), of the UPVAT
Act, to impose tax on sale of ENA, at the
rate 5 percent, at the point of Manufacturer
or Importer, w.e.f. 09.12.2019. Challenge
has also been raised to the Circular/letters
dated 10.06.2021 and 11.06.2021 issued by
the
Additional
Commissioner
Grade-I,
Commercial Tax, directing the subordinate
authority to charge and collect UPVAT on
ENA used in the manufacture of "alcoholic
liquor for human consumption". Next,
purely alternatively, adjustment of the GST
levied and paid on ENA and Special
Denatured Spirit (in short, 'SDS'), has been
sought,
against
the
UPVAT
liability
imposed by the State, on the above
described commodities. By way of an
amendment (allowed), challenge has also
been raised to the assessment order dated
30.06.2021, for the A.Y. 2017-18 (U.P. &
Central)
(01.07.2017
to
31.03.2018),
whereby UPVAT & Central Sales Tax has
been assessed on ENA, treating that
commodity to be covered under entry 1 of
Schedule IV of the UPVAT Act.

3. In Writ Tax No. 369 of 2021,
besides
the
challenge
raised
to
the
legislative competence and the Notification
dated 17.12.2019 (as above), challenge has
also been raised to the assessment notice
dated 08.06.2021, issued against that
petitioner, for A.Y. 2019-20, as also
Circular/letters
dated
10.06.2021
and
11.06.2021 (as above).

4. Similarly, in Writ Tax No 370 of
2021, besides the challenge raised to the
legislative
competence
(as
above),
challenge has been raised to the assessment
notice dated 15.06.2021 issued to that
petitioner, for A.Y. 2017-18 (01.07.2017 to
31.03.2018); the assessment order dated
30.06.2021 passed under Section 29 of the
UPVAT Act, for A.Y. 2017-18 (01.07.2017
to 31.03.2018) and; the Circular/letters
dated 10.06.2021 and 11.06.2021 (as
above).

5. In Writ Tax No. 383 of 2021,
besides
the
challenge
raised
to
the
legislative competence (as above) and the
Notification dated 17.12.2019, challenge
has also been raised to the assessment
notice dated 21.06.2021 issued under
Section 28 of UPVAT Act, for A.Y. 201819 (U.P.) and, the Circular/letters dated
10.06.2021 and 11.06.2021 (as above).

6. In Writ Tax No. 371 of 2021,
besides
the
challenge
raised
to
the
legislative competence and Notification
dated 17.12.2019 (as above), challenge has
also been raised to the assessment notice
dated 08.06.2021 issued under Section 28
of the UPVAT Act, for A.Y. 2019-20 and
the Circular/letters dated 10.06.2021 and
11.06.2021 (as above).

7. In Writ Tax No. 364 of 2021,
besides the challenge to the legislative
748 INDIAN LAW REPORTS ALLAHABAD SERIES
competence (as above), challenge has also
been raised to two assessment notices, both
dated 11.06.2021, issued under Section 29
of the UPVAT Act and the Central Sales
Tax Act, seeking to impose tax under the
UPVAT Act as also the Central Sales Tax
Act, for A.Y. 2017-18 (01.07.2017 to
31.03.2018) (UP & Central).

8. In Writ Tax No. 451 of 2021,
besides the challenge to the legislative
competence and the Notification dated
17.12.2019 (as above), challenge has also
been raised to two assessment notices, both
dated 07.07.2021, one issued under Section
28 of the UPVAT Act and the other under
Section 9 (2) Central Sales Tax Act, for
A.Y. 2019-2020.

9. Writ Tax No. 355 of 2020 has been
filed by the U.P. Sugar Mills Association
seeking
to
challenge
the
legislative
competence of the State to levy UPVAT on
sales of ENA and Rectified Spirit, used to
manufacture "alcoholic liquor for human
consumption". A further challenge has been
raised to the Notification dated 17.12.2019
(as above).

10. In Writ Tax No. 385 of 2021,
besides
the
challenge
raised
to
the
legislative competence and Notification
dated 17.12.2019 (as above), challenge has
also been raised to the assessment notice
dated 21.06.2021 issued under Section 28
of the UPVAT Act, for A.Y. 2018-19 as
also Circular/letters dated 10.06.2021 and
11.06.2021 (as above).

11. Since identical facts are involved
in all the above writ petitions and challenge
raised is also identical, we have heard these
petitions together. Basic/essential facts,
common to all the writ petitions, are
extracted below.

12. According to the petitioners ENA,
both denatured and un-denatured as also
SDS fall under the heading 2207 of the
First Schedule to the Customs Tariff Act,
1975. ENA, is concentrated Ethyl Alcohol
(Ethanol) having alcohol content about 95
percent. Similarly, SDS is spirit or neutral
alcohol used for industrial purposes only.
According
to
the
petitioners,
they
manufacture and sell ENA, both to
distilleries that manufacture "alcoholic
liquor for human consumption" and to
chemical and other industries. Owing to
high alcohol content (above 95 percent),
both ENA and SDS are unfit for human
consumption.
Prior
to
the
101st
Constitution amendment and, in light of
Article 246 of the Constitution read with
Entry 54 of List II (as those provisions then
existed), the State legislature had the
legislative competence to enact laws to
impose tax on sale or purchase of any
goods other than newspapers, subject
however, to the provisions of Entry 92A of
List I. Also, in view of Article 246 of the
Constitution read with Entry 51 of List II of
the
Seventh
Schedule,
the
State
Government had the legislative competence
to enact laws to impose duties of excise on
goods manufactured or produced in the
State, being (i) alcoholic liquors for human
consumption and (ii) opium, Indian hemp
etc.

13. On the other hand, in view of
Article 246 read with Entry 92, the
Parliament had the legislative competence
to enact laws, to impose tax on sale or
purchase
of
newspapers
and
on
advertisements
published
therein.
Similarly, by virtue of Article 246 read
with Entry 84 of List I of the Seventh
Schedule, the Parliament had the legislative
competence to enact laws to impose duties
of excise on tobacco and other goods
10 All. M/s Jain Distillery Pvt. Ltd., Bijnor Vs. State of U.P. & Ors.
749
manufactured or produced in India, except
(i)
alcoholic
liquors
for
human
consumption and (ii) opium, Indian hemp
etc.

14. It is an admitted case between the
parties, prior to the introduction of 101st
Constitution Amendment, various State
legislatures had made laws to impose tax
on sale and to levy duties of excise on
"alcoholic liquors for human consumption".
Insofar as the Parliament is concerned,
prior to the aforesaid amendment, it had
enacted laws imposing duties of excise on
manufacture of alcohol - not for human
consumption, including ENA and SDS.

15. In the State of Uttar Pradesh, there
pre-existed, the United Provinces Sales of
Motor Spirit, Diesel Oil and Alcohol
Taxation Act, 1939 (hereinafter referred to
as the 'United Provinces Act'). Under
Section 2 (aaaa) of that Act, the term
'alcohol' was defined as Ethyl Alcohol not
being
"alcoholic
liquor
for
human
consumption". It included, Rectified Spirit,
Denatured Spirit and Absolute Alcohol.
Under Section 3(c) of the said Act, there
existed a provision to levy tax, at the point
of first purchase of 'alcohol', at the
prescribed rate.

16. With time, under Section 4(1)(c)
read with Schedule IV to the UPVAT Act,
tax became payable on the sale of goods
specified in the said Schedule, (including
'alcohol' as defined under the United
Provinces Act), at the rate 32.5 percent. For
ready reference, Entry No.1 of Schedule IV
to the UPVAT Act, is quoted below:

Sl No
Name and description
of goods
Point
of
Tax
Rate
of
Tax %
1.
Spirits and Spirituous M or I
32.5%
Liquors of all kinds
including Alcohol, as
defined
under
the
United Provinces Sales
of Motor Spirit, Diesel
Oil
and
Alcohol
Taxation Act, 1939, but
excluding
country
liquors

Also, under Section 7(c) of the
UPVAT Act, the State Government was
delegated a power, to not levy UPVAT on
such sale or purchase or, sale or purchase
of such goods by such class of dealers, as
may be specified in the Notification issued
by it, in that regard. In exercise of that
power, the State Government issued
Notification No. KA.NI-2-14/XI dated
10.01.2008. It reads:

"WHEREAS
the
State
Government is satisfied that it is expedient
so to do in public interest.

Now, Therefore, in exercise of the
powers under clause (c) of Section 7 read
with Section 74 of the Uttar Pradesh Value
Added
Tax
Ordinance,
2007
[U.P.
Ordinance no. 37 of 2007], the Governor is
pleased to direct, that no tax shall be
payable under the said Ordinance with
effect from January 01, 2008, on the sale or
purchase of country liquor and spirit and
spirituous liquors of all kinds including
methyl alcohol in Uttar Pradesh by
manufacturer or importer dealer subject to
the condition that a certificate prescribed
by the Commissioner of Commercial Taxes,
Uttar
Pradesh
is
submitted
by
the
concerned dealer with the return of the tax
period before the assessing authority to the
effect that consideration fee or excise duty
payable under the United Provinces Excise
Act, 1910 or the United Provinces Sales of
Motor Spirit, Diesel Oil and Alcohol
Taxation Act, 1939, as the case may be, has
been paid."
750 INDIAN LAW REPORTS ALLAHABAD SERIES

17. Thus, UPVAT did not apply to the
goods specified in Entry No.1 to Schedule
IV of the UPVAT Act, if the Manufacturer
or the Importer dealer had paid excise duty
under the United Provinces Act and, he had
been issued the prescribed certificate, by
the Commissioner of Commercial Tax,
Uttar
Pradesh,
in
that
regard.
That
Notification
was
later
amended
by
Notification No. KA.NI-2-879/XI dated
26.03.2008. Thereby, the words 'including
methyl alcohol' were substituted with the
words 'excluding methyl Alcohol'. Also,
the words 'manufacture or importer dealer'
were substituted with the word 'dealer'. The
words 'consideration fee or excise duty'
were replaced by- 'consideration fee, excise
duty, fees or purchase tax'.

18. It would be fruitful for our
discussion to extract the unamended and
amended taxation Entries of List I and List
II (as amended by the 101st Constitution
Amendment), as have also been extensively
referred to by the learned counsel for the
parties. A comparative chart showing
relevant Entries before and after that
amendment read as under:

List II, Seventh Schedule,
Constitution of India

Unamended Entries of List II (State
List)
Entries as Amended
8. Intoxicating liquors, that is to
say, the production, manufacture,
possession,
transport,
purchase
and sale of intoxicating liquors.
Same as before
51. Duties of excise on the
following goods manufactured or
produced
in
the
State
and
countervailing duties at the same
or lower rates on similar goods
manufactured
or
produced
elsewhere in India;-

(a) alcoholic liquors
for human consumption;

(b)
opium,
Indian
Same as before
hemp and other narcotic drugs and
narcotics,

but
not
including
medicinal and toilet preparations
containing
alcohol
or
any
substance
included
in
subparagraph (b) of this entry.
54. Taxes on the sale or purchase
of goods other than newspapers,
subject to the provisions of entry
92A of List I.
54. Taxes on the sale
of petroleum crude,
high
speed
diesel,
motor
spirit
(commonly known as
petrol), natural gas,
aviation turbine fuel
and alcoholic liquor
for
huma
consumption, but not
including sale in the
course of inter-State
trade or commerce or
sale in the course of
international trade or
commerce
of
such
goods.

List
I,
Seventh
Schedule,
Constitution of India

Unamended Entries of List I
(Union List)
Entries
as
Amended/Inserted
84. Duties of excise on tobacco and
other
goods
manufactured
or
produced in India except -
(a) alcoholic liquors for human
consumption;
(b) opium, Indian hemp and other
narcotic drugs and narcotics,
but including medicinal and toilet
preparations containing alcohol or
any substance included in subparagraph (b) of this entry.
84. Duties of excise
on
the
following
goods
manufactured
or produced in India,
namely: -
(a) petroleum crude;
(b) high speed diesel;
(c)
motor
spirit
(commonly known as
petrol);
(d) natural gas;
(e) aviation turbine
fuel; and
(f)
tobacco
and
tobacco products.
92. Taxes on the sale or purchase
of
newspapers
and
on
advertisements published therein.

Omitted
92A. Did not exist
92A. Taxes on the sale
or purchase of goods
other
than
newspapers,
where
such sale or purchase
takes place in the
course of inter-State
10 All. M/s Jain Distillery Pvt. Ltd., Bijnor Vs. State of U.P. & Ors.
751
trade or commerce.
(Inserted )

19. Also, by the 101st Constitution
amendment,
Article
246A
was
first
enacted, as below:

"246A.Special provision
with
respect to goods and services tax.- (1)
Notwithstanding anything contained in
articles 246 and 254, Parliament, and,
subject to clause(2), the Legislature every
State, have power to make laws with
respect to goods and services tax imposed
by the Union or by such State.

(2) Parliament has exclusive
power to make laws with respect to goods
and services tax where the supply of goods,
or of services, or both takes place in the
course of inter-State trade or commerce.

Explanation.- The provisions of
this article, shall, in respect of goods and
services tax refer to in clause(5) of Article
279-A,
take
effect
from
the
date
recommended by the Goods and Services
Tax Council. "

20. Further, Article 366 (12A)
introduced simultaneously, reads thus:

"366. Definitions - In this
Constitution, unless the context otherwise
requires, the following expressions have
the meanings hereby respectively assigned
to them, that is to say-

(12A). "goods and services tax"
means any tax on supply of goods, or
services or both except taxes on the supply
of
the
alcoholic
liquor
for
human
consumption."

21. Consequently, the Parliament
also enacted the Central GST Act, 2017.
The State legislature, on its part, enacted
the UPGST Act, 2017. Also, by Act
No.18 of 2017, the Parliament substituted
Section 2(d) of the Central Sales Tax Act,
1956. The original and the substituted
texts of Section 2(d) of that Act, read as
below:

Unamended
Section 2(d)
Section 2(d) as substituted
Section 2(d) as
substituted
(d) "goods" means -
(i) petroleum crude;
(ii) high speed diesel;
(iii) motor spirit (commonly known as
petrol);
(iv) natural gas;
(v) aviation turbine fuel; and
(vi)
alcoholic
liquor
for
human
consumption

22. Last, the impugned Notification
No. KA.NI-2-1793 dated 17.12.2019,
reads as below:

Uttar Pradesh Shasan

 Sansthagat Vitta, Kar Evam
Nibandhan Anubhag-2

In pursuance of the provisions
of clause (3) of Article 348 of the
Constitution, the Governor is pleased to
order the publication of the following
English
Translation
of
Government
Notificaton
no.
KA.NI-2-1793/XI29(134)/17-U.P. Act-5-2008-Order-(80)-
2019, dated 17 December, 2019;

NOTIFICATION

No.-KA.NI-2-1793/XI29(134)/17-U.P.Act-5-2008-Order-(80)-
2019

Lucknow
:
Dated
:
17
December, 2019

WHEREAS the State Government is
satisfied that it is expedient so to do in
public interest;

NOW, THEREFORE, In exercise
of the powers under sub-section (4) of
section 4 read with section 74 of the Uttar
Pradesh Value Added Tax Act, 2008 (U.P.
Act no.5 of 2008), the Governor is pleased
to make with effect from 09. December,
752 INDIAN LAW REPORTS ALLAHABAD SERIES
2019,
the
following
amendment
in
Schedule-IV to the said Act:-

Amendment

In the aforesaid Schedule, after
serial no.1 the following serial and entries
relating there to shall column-wise be
inserted, namely:-

S. No.
Name and Description
of goods
Point of
Tax
Rate of
Tax %
1
2
3
4
1-A
Any non GST alcohol,
when sold for use in
the
process
of
manufacture
of
alcoholic liquor for
human
consumption
against a certificate
issued
by
the
Commissioner of State
Excise, Uttar Pradesh
or
by
the
officer
authorised by him in
this regard.
M or I
5%

23. It has been vehemently urged by
Sri Sinha, before the introduction of the
101st
Constitution
Amendment,
the
competence of the State legislatures to
impose duties of excise on industrial
alcohol (i.e. non-potable alcohol), came up
for consideration before a seven-Judge
Constitution Bench of the Supreme Court,
in Synthetics and Chemicals Ltd. & Ors.
Vs. State of U.P. & Ors., (1990) 1 SCC
109. Relying, both on the majority opinion,
as also the concurring opinion, it has been
urged, the legislative competence of the
States (to levy duties of excise) was
confined to "alcoholic liquors for human
consumption" - as an existing commodity,
on the date of that levy being imposed. The
argument-denatured spirit can also be
transformed to "alcoholic liquors for human
consumption", and therefore be amenable
to duties of excise, by the State legislatures,
was specifically rejected. Ethyl Alcohol
(95%) (also known as Rectified Spirit) i.e.
industrial alcohol, was opined to be not-fit
for human consumption. The range of
alcohol in potable alcohol i.e. "alcoholic
liquors for human consumption" was also
opined to be 19% - 43%. The conclusions
reached in that decision as recorded in
paras 54, 86 and 88 (majority view) and
para 101 (concurring view) of the report,
read as below:

"54. We have no doubt that the
framers of the Constitution when they used
the expression ''alcoholic liquor for human
consumption' they meant at that time and
still the expression means that liquor which
as it is is consumable in the sense capable
of being taken by human beings as such as
beverage of drinks. Hence, the expression
under Entry 84, List I must be understood
in that light. We were taken through
various dictionary and other meanings and
also invited to the process of manufacture
of alcohol in order to induce us to accept
the position that denatured spirit can also
be
by
appropriate
cultivation
or
application or admixture with water or
with others, be transformed into ''alcoholic
liquor for human consumption' and as such
transformation would not entail any
process of manufacture as such. There will
not be any organic or fundamental change
in this transformation, we were told. We
are, however, unable to enter into this
examination.
Constitutional
provisions
specially dealing with the delimitation of
powers in a federal polity must be
understood in a broad commonsense point
of view as understood by common people
for whom the Constitution is made. In
terminology, as understood by the framers
of the Constitution, and also as viewed at
the relevant time of its interpretation, it is
not
possible
to
proceed
otherwise;
alcoholic or intoxicating liquors must be
understood as these are, not what these are
10 All. M/s Jain Distillery Pvt. Ltd., Bijnor Vs. State of U.P. & Ors.
753
capable of or able to become. It is also not
possible to accept the submission that vend
fee in U.P. is a pre-Constitution imposition
and would not be subject to Article 245 of
the Constitution. The present extent of
imposition of vend fee is not a preConstitution imposition, as we noticed from
the change of rate from time to time."

86. The position with regard to
the control of alcohol industry has
undergone material and significant change
after the amendment of 1956 to the IDR
Act. After the amendment, the State is left
with only the following powers to legislate
in respect of alcohol:

(a) It may pass any legislation in
the nature of prohibition of potable liquor
referable to Entry 6 of List II and
regulating powers.

(b) It may lay down regulations to
ensure that non-potable alcohol is not
diverted and misused as a substitute for
potable alcohol.

(c) The State may charge excise
duty on potable alcohol and sales tax under
Entry 52 of List II. However, sales tax
cannot be charged on industrial alcohol in
the present case, because under the Ethyl
Alcohol (Price Control) Orders, sales tax
cannot be charged by the State on
industrial alcohol.

(d) However, in case State is
rendering any service, as distinct from its
claim of so-called grant of privilege, it may
charge fees based on quid pro quo. See in
this connection, the observations of Indian
Mica case [(1971) 2 SCC 236 : 1971 Supp
SCR 319 : AIR 1971 SC 1182] .

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 impost so
far as potable alcohol as commonly
understood is concerned. It will also not
affect any imposition of levy on industrial
alcohol fee where there are circumstances
to establish that there was quid pro quo for
the fee sought to be imposed. This will not
affect any regulating measure as such.

101. Under these circumstances
therefore it is clear that the State
legislature had no authority to levy duty or
tax on alcohol which is not for human
consumption as that could only be levied by
the Centre."

24. Then, in State of U.P. & Ors. Vs.
Modi Distillery & Ors., (1995) 5 SCC
753, an issue had arisen as to competence
of the State legislature to impose duties of
excise on (i) wastage of IMFL, exported
outside the State, (ii) wastage of high
strength spirit, during transportation from
the distillery to warehouse and (iii)
obscuration. Upon consideration of the
State's submission in that regard, it was
held as below:

"10. What the State seeks to levy
excise duty upon in the Group ''B' cases is
the wastage of liquor after distillation, but
before 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 alcoholic
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 empowered to levy
excise duty on the raw material or input
that is in the process of being made into
alcoholic liquor for human consumption."
754 INDIAN LAW REPORTS ALLAHABAD SERIES

25. Yet, a contrary view was taken by
a two-Judge bench decision of the Supreme
Court in Bihar Distillery & Anr. Vs.
Union of India & Ors., (1997) 2 SCC 727,
upon a different reading of the aforesaid
Constitution bench decision of the Supreme
Court in Synthetics and Chemicals Ltd.
& Ors. Vs. State of U.P. & Ors. (supra). It
was observed as below:

"10. A reading of the above
entries would immediately disclose that
Entry 51 in List II and Entry 84 in List I
compliment each other. Both provide for
duties of excise but while the States are
empowered to levy duties of excise on
(a)alcoholic
liquors
for
human
consumption and (b) opium, Indian hemp
and narcotics manufactured or produced in
the State and countervailing duties at the
same or lower rates on similar goods
manufactured or produced elsewhere in
India [but excluding medicinal and toilet
preparation containing alcohol or any
substance included in sub-para (b) of this
Entry], the Union is empowered to levy
duties of excise on tobacco and other goods
manufactured or produced in India except
(a)
alcoholic
liquors
for
human
consumption and (b) opium, Indian hemp
and other narcotic including drugs and
narcotics.
Medicinal
and
toilet
preparations containing alcohol or any
substance included in sub-para (b) which
are excluded from Entry 51 in List II are
expressly included in this entry. For our
purposes,
the
relevant
expression
is
"alcoholic liquors for human consumption"
which is included in Entry 51 in List II and
excluded from Entry 84 in List I. The words
employed denote that there may be
alcoholic
liquors
meant
for
human
consumption as well as for other purposes.
Now coming to Entry 8 in List II, it does
not use the expression "alcoholic liquors
for human consumption". It employs the
expression "intoxicating liquors" which
expression is, of course, not qualified by
words "for human consumption". This is for
the obvious reason that the very word
"intoxicating"
signifies
"for
human
consumption". Entry 8, it is necessary to
emphasize,
places
all
aspects
of
intoxicating liquors within the State's
sphere;
production,
manufacture,
possession, transport, purchase and sale of
intoxicating liquors is placed within the
exclusive domain of the States.