# THE STATE OF JHARKHAND & ORS v. M/S AJANTA BOTTLERS & BLENDERS PVT. LTD

- **Citation:** [2019] 8 S.C.R. 1071
- **Court:** Supreme Court of India
- **Decided:** 2019-07-02
- **Case number:** Civil Appeal No. 5138 of 2019
- **Bench:** A. M. Khanwilkar, Ajay Rastogi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-state-of-jharkhand-ors-v-m-s-ajanta-bottlers-blenders-pvt-ltd-34048
- **Pages:** 24

## Headnote

Jharkhand Excise Act, 1915 - s.90 - Revenue Board
notification dated 06.11.2012 - r.106 (Tha) - Levy of import fee on
rectified spirit - The Board of Revenue in exercise of power conferred
u/s.90 of the Act inserted the Rule 106 (Tha) and levied fee on the
import of rectified spirit by notification dated 06.11.2012 - Writ
Petition - High Court held that the State had no legislative
competence to levy tax/fee on the import of rectified spirit, as it is a
non-potable liquor i.e. alcohol not fit for human consumption -
Appellant-State contended that import fee was not on rectified spirit
in its raw form as such, but on pure alcoholic liter 'LPL' in the form
of potable liquor - On appeal, held: On perusal of the impugned
provision as a whole, it follows that the substance of the provision
is to levy charges on the product Indian Made Foreign Liquor (IMFL)
produced or manufactured by use of imported rectified spirit - In
that sense, the levy is not on the input (imported rectified spirit) of
the final product as such but is on the manufactured or produced
product being potable alcohol palatable to human consumption -
For the purposes of computing the levy, the yardstick of Rs.6 LPL
on the total quantity of imported rectified spirit utilized for production
of IMFL is reckoned - Thus, the impost is not on the imported
rectified spirit as such but only on the produced foreign liquor before
it is bottled for sale in the wholesale or retail market, as the case
may be - It is a case of legislation in respect of potable alcohol, the
State is competent to legislate in that regard and levy charges-be it
for regulating the same or impost for parting with its rights regarding
manufacture, storage, export, sale and possession thereof.
Jharkhand Excise Act, 1915 - s.90 - Revenue Board
notification dated 06.11.2012 - r.106 (Tha) - Nature of tax or excise
duty - The Board of Revenue u/s.90 of the Act chose to levy fee on
 [2019] 8 S.C.R. 1071
1071
A
B
C
D
E
F
G
H
1072
SUPREME COURT REPORTS
[2019] 8 S.C.R.
the import of rectified spirit by notification dated 06.11.2012 -
Appellant-State contended that the levy of charges or impost is
neither in the nature of a tax nor excise duty - Held: There is merit
in the contention of appellant-State that the impost is neither in the
nature of a tax nor excise duty but it is towards the charges by
whatever name, for regulating the production of potable liquor to
preserve public health and morality including for parting with its
rights or privileges regarding manufacture, supply or sale of potable
liquor or intoxicating liquor and to regulate the use of imported
rectified spirit for production and sale of potable liquor - In such a
case, the State need bear no quid pro quo to the services rendered to
the licencee for production of foreign liquor (IMFA).
Allowing the appeal, the Court
HELD : 1. The Rule 106 (Tha) noted in the notification
dated 06.11.2012, makes it amply clear that the levy or impost
fructifies only upon completion of distillation process (in two
stages-first from rectified spirit to Extra Neutral Alcohol (ENA)
and then from ENA to Indian Made Foreign Liquor (IMFL)) and
in particular converting into a final product "IMFL". The
collection of impost is, however, deferred until the bottling of
that product. In other words, the levy is not at the stage of import
of rectified spirit within the State; nor at the stage of initial
distillation thereof to ENA and not until the product IMFL is
ready for bottling as such. Thus, the levy under the impugned
rule ripens or fructifies only after the original raw material
(imported rectified spirit) has undergone distillation process at
two different stages and transmute and mutate into an intoxicant
or potable alcohol palatable to human consumption, but its
(impost) collection is effected just before bottling it in that form
(potable liquor). Indeed, the levy predicated in this rule is on the
total quantity of imported rectified spirit utilised for mutat

## Text

_Characters 0–39,753 of 52,767. This is a partial read: ask again with offset=39753 for what follows._

A
B
C
D
E
F
G
H
1071
THE STATE OF JHARKHAND & ORS.
v.
M/S AJANTA BOTTLERS & BLENDERS PVT. LTD.
(Civil Appeal No. 5138 of 2019)
JULY 02, 2019
[A. M. KHANWILKAR AND AJAY RASTOGI, JJ.]
Jharkhand Excise Act, 1915 - s.90 - Revenue Board
notification dated 06.11.2012 - r.106 (Tha) - Levy of import fee on
rectified spirit - The Board of Revenue in exercise of power conferred
u/s.90 of the Act inserted the Rule 106 (Tha) and levied fee on the
import of rectified spirit by notification dated 06.11.2012 - Writ
Petition - High Court held that the State had no legislative
competence to levy tax/fee on the import of rectified spirit, as it is a
non-potable liquor i.e. alcohol not fit for human consumption -
Appellant-State contended that import fee was not on rectified spirit
in its raw form as such, but on pure alcoholic liter 'LPL' in the form
of potable liquor - On appeal, held: On perusal of the impugned
provision as a whole, it follows that the substance of the provision
is to levy charges on the product Indian Made Foreign Liquor (IMFL)
produced or manufactured by use of imported rectified spirit - In
that sense, the levy is not on the input (imported rectified spirit) of
the final product as such but is on the manufactured or produced
product being potable alcohol palatable to human consumption -
For the purposes of computing the levy, the yardstick of Rs.6 LPL
on the total quantity of imported rectified spirit utilized for production
of IMFL is reckoned - Thus, the impost is not on the imported
rectified spirit as such but only on the produced foreign liquor before
it is bottled for sale in the wholesale or retail market, as the case
may be - It is a case of legislation in respect of potable alcohol, the
State is competent to legislate in that regard and levy charges-be it
for regulating the same or impost for parting with its rights regarding
manufacture, storage, export, sale and possession thereof.
Jharkhand Excise Act, 1915 - s.90 - Revenue Board
notification dated 06.11.2012 - r.106 (Tha) - Nature of tax or excise
duty - The Board of Revenue u/s.90 of the Act chose to levy fee on
 [2019] 8 S.C.R. 1071
1071
A
B
C
D
E
F
G
H
1072
SUPREME COURT REPORTS
[2019] 8 S.C.R.
the import of rectified spirit by notification dated 06.11.2012 -
Appellant-State contended that the levy of charges or impost is
neither in the nature of a tax nor excise duty - Held: There is merit
in the contention of appellant-State that the impost is neither in the
nature of a tax nor excise duty but it is towards the charges by
whatever name, for regulating the production of potable liquor to
preserve public health and morality including for parting with its
rights or privileges regarding manufacture, supply or sale of potable
liquor or intoxicating liquor and to regulate the use of imported
rectified spirit for production and sale of potable liquor - In such a
case, the State need bear no quid pro quo to the services rendered to
the licencee for production of foreign liquor (IMFA).
Allowing the appeal, the Court
HELD : 1. The Rule 106 (Tha) noted in the notification
dated 06.11.2012, makes it amply clear that the levy or impost
fructifies only upon completion of distillation process (in two
stages-first from rectified spirit to Extra Neutral Alcohol (ENA)
and then from ENA to Indian Made Foreign Liquor (IMFL)) and
in particular converting into a final product "IMFL". The
collection of impost is, however, deferred until the bottling of
that product. In other words, the levy is not at the stage of import
of rectified spirit within the State; nor at the stage of initial
distillation thereof to ENA and not until the product IMFL is
ready for bottling as such. Thus, the levy under the impugned
rule ripens or fructifies only after the original raw material
(imported rectified spirit) has undergone distillation process at
two different stages and transmute and mutate into an intoxicant
or potable alcohol palatable to human consumption, but its
(impost) collection is effected just before bottling it in that form
(potable liquor). Indeed, the levy predicated in this rule is on the
total quantity of imported rectified spirit utilised for mutating it
in the form of IMFL, a new produce. The last part of the rule
stipulates the quantum of charges to be levied on such utilized
imported rectified spirit for production of the foreign liquor. For
that limited purpose, the quantity of imported rectified spirit
utilized in the production of potable liquor, is reckoned.
[Para 10] [1086-D-H; 1087-A]
A
B
C
D
E
F
G
H
1073
2. Reading the impugned provision as a whole and line by
line or word by word in this perspective, it must follow that the
substance of the provision is to levy charges on the product IMFL
produced or manufactured by use of imported rectified spirit. In
that sense, the levy is not on the input (imported rectified spirit)
of the final product as such but is on the manufactured or produced
product being potable alcohol palatable to human consumption.
For the purposes of computing the levy, the yardstick of Rs.6
per LPL on the total quantity of imported rectified spirit utilized
for production of IMFL is reckoned. Thus, the impost is not on
the imported rectified spirit as such but only on the produced
foreign liquor before it is bottled for sale in the wholesale or
retail market, as the case may be. If so understood, the whole
edifice of the argument of respondents regarding the
interpretation of the impugned rule must collapse. For, the
challenge to the impugned rule is on the assumption that it permits
the competent authority to levy charges on the imported rectified
spirit and not fit for human consumption but which has the potency
of being used for producing intoxicants or potable liquor though
exclusively meant for industrial purposes. Once that assumption
is discounted or disregarded, nothing more survives for
consideration. This Court says so because, it is well established
that the State may pass any legislation in the nature of prohibition
of potable liquor referable to Entry 6 and 8 of List II and may also
laydown regulations to ensure that non-potable alcohol is not
diverted and misused as a substitute for potable alcohol. Had it
been the case of levy on non-potable alcohol (imported rectified
spirit) per se, only then the question about the competency of the
State Legislature or the justness of the levy on the doctrine of
quid pro quo may become relevant. However, if it is a case of
legislation in respect of potable alcohol, as has been noted by
this Court hitherto, the State would be competent to legislate in
that regard and levy charges - be it for regulating the same or
impost for parting with its rights regarding manufacture, storage,
export, sale and possession thereof. [Para 11] [1087-B-G]
3. The next question is whether the levy is in the nature of
tax or excise duty. If it is a case of excise duty on potable liquor
THE STATE OF JHARKHAND & ORS. v. M/S AJANTA BOTTLERS &
BLENDERS PVT. LTD.
A
B
C
D
E
F
G
H
1074
SUPREME COURT REPORTS
[2019] 8 S.C.R.
produced by use of imported rectified spirit, the State has
jurisdiction to legislate in respect of duty on the production or
manufacture of such goods produced or manufactured within the
State. In the present case, there is merit in the submissions of
the appellant State that the impost is neither in the nature of a
tax nor excise duty but it is towards the charges by whatever
name, for regulating the production of potable liquor to preserve
public health and morality including for parting with its rights or
privileges regarding manufacture, supply or sale of potable liquor
or intoxicating liquor and to regulate the use of imported rectified
spirit for production and sale of potable liquor. In such a case,
the State need bear no quid pro quo to the services rendered to
the licencee for production of foreign liquor (IMFA). [Para 14]
[1092-F-G; 1093-A]
4. The fact that the manufacturer-respondent has already
obtained requisite licences for import of rectified spirit and
production of foreign liquor (IMFA) on payment of fixed rates
does not mean that the State has surrendered all facets of its
rights in respect of every form of activity in relation to potable
liquor - its manufacture, storage, export, import, sale and
possession. The amended provision is an enabling provision
authorising the State to levy charges or impost for ceding its one
or more of the activity in respect of foreign liquor (IMFL)
produced by use of imported rectified spirit. Such impost can be
in addition to the general power of the State to issue licence on
payment of fees for production and sale of potable liquor. As
observed in Har Shankar case, the State need bear no quid pro
quo to the services rendered to the licensees of producer of
foreign liquor. [Para 15] [1093-B-D]
Har Shankar and Ors. v. The Dy. Excise and Taxation
Commissioner and Ors. (1975) 1 SCC 737 : [1975] 3
SCR 254 - followed.
Deccan Sugar & Abkari Co. Ltd. v. Commissioner of
Excise, A.P. (2004) 1 SCC 243 - relied on.
State of U.P. & Ors. v. Vam Organic Chemicals Ltd. and
Ors. (2004) 1 SCC 225 : [2003] 4 Suppl. SCR 957 ;
Synthetics and Chemicals Ltd. and Ors. v. State of U.P.
A
B
C
D
E
F
G
H
1075
and Ors. (1990) 1 SCC 109 : [1989] 1 Suppl. SCR
623 - referred to.
Case Law Reference
[1975] 3 SCR 254
followed
Para 12
(2004) 1 SCC 243
relied on
Para 13
[2003] 4 Suppl. SCR 957
referred to
Para 16
[1989] 1 Suppl. SCR 623
referred to
Para 16
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5138
of 2019.
From the Judgment and Order dated 25.07.2013 of the High Court
of Jharkhand in Writ Petition (T) No. 7499 of 2012.
Tapesh Kumar Singh, Kumar Anurag Singh, Aditya Pratap Singh,
Advs. for the Appellants.
Rakesh Dwivedi, Sr. Adv., Satyabir Bharti, Arun K. Sinha, Rakesh
Singh, Sansriti Pathak, Eklavya Dwivedi, Siddharth Iyer, Advs. for the
Respondent.
The Judgment of the Court was delivered by
A. M. KHANWILKAR, J. 1. Leave granted.
2. This appeal takes exception to the impugned judgment and order
of the High Court of Jharkhand at Ranchi in Writ Petition (T) No.7499
of 2012 dated 25th July, 2013, whereby the writ petition filed by the
respondent to assail the notification dated 6th November, 2012, as published
in the official gazette on 10th November, 2012, issued by the Board of
Revenue, Jharkhand in exercise of powers conferred under Section 90
of the Jharkhand Excise Act, 1915 came to be allowed on the ground
that the State had no legislative competence to levy tax/fee on the import
of rectified spirit, as it is a non-potable liquor i.e. alcohol not fit for human
consumption. Additionally, the High Court opined that the appellant-State
had failed to justify the impugned levy on rectified spirit on the basis of
services provided by the State in lieu thereof or being in the nature of
quid pro quo. The original notification is in Hindi, the same reads thus:
THE STATE OF JHARKHAND & ORS. v. M/S AJANTA BOTTLERS &
BLENDERS PVT. LTD.
A
B
C
D
E
F
G
H
1076
SUPREME COURT REPORTS
[2019] 8 S.C.R.
"ANNEXURE-3
>kj[k.M xtV
vlk/kkj.k vad
>kj[k.M ljdkj }kjk izdkf"kr
la[;k 680
19 dkfÙkZd] 1934 "kdkCn
jkaph] "kfuokj 10 uoEcj] 2012
jktLo i'kZn
vf/klwpuk
8 uoEcj] 2012
la[;k&1@uhfr&40&21@2012&926@jk0i0&>kj[k.M
mRikn vf/kfu;e 1915 1⁄4vf/fu;e&2] 19151⁄2 dh /kkjk&90 }kjk iznRr
"kfDr;ksa dk iz;ksx djrs gq,] jktLo i'kZn] >kj[k.M] i'kZn vf/klwpuk
la[;k&23&137&2] fnukad 29 vizSy] 1919 ds vUrxZr cukbZ xbZ fu;ekoyh
fu;e&106 1⁄4V1⁄2 ds ckn ,d u;k fu;e&106 1⁄4B1⁄2 fuEu izdkj tksM+rh gS%&
fu;e&106 1⁄4B1⁄2 %&^^vf/klwpuk la[;k&470 ,Q- fnukad 15
tuojh] 1915 ds dafMdk&3 ds "kh'kZ ^fons"kh "kjkc^ dk mi "kh'kZ 1⁄4d1⁄2 ds
vUrxZr mn~?kksf'kr fons"kh "kjkc ftldk fofuekZ.k mRikn vf/kfu;e dh
/kkjk&2 1⁄4151⁄2 (iii) ds vuq:i fd;k tk,xk ds mRiknu gsrq vk;kfrr
lq'ko@la"kksf/kr lq'ko] ftldk mi;ksx loZizFke iqujklou fof/k ls bZ-
,u-,- ds fofuekZ.k esa fd;k tk,xk] ds fons"kh efnjk esa is; iz;kstukFkZ
ifjorZu ds le; ijUrq efnjk ds cksrycanh ds iwoZ] bl mn~ns"; ls vk;kr
dh x;h lq'ko@la"kksf/kr lq'ko dh dqy ek=k ij 6@& : izfr ,y-ihyhVj dh nj ls vk;kr "kqYd tek fd;k tk,xkA**
;g vf/klwpuk jktdh; xtV esa izdk"ku dh frfFk ls izHkkoh gksXkkA
la[;k&1@uhfr&40&21@2012&927@jk-i-&>kj[k.M mRikn
vf/kfu;e] 1915 1⁄4vf/kfu;e&2] 19151⁄2 dh /kkjk&90 }kjk iznRr "kfDr;ksa
A
B
C
D
E
F
G
H
1077
dk iz;ksx djrs gq,] jktLo i'kZn] >kj[k.M] i'kZnh; vf/klwpuk
la[;k&23&137&2] fnukad 29 vizSy] 1919 ds vUrxZr cukbZ xbZ fu;ekoyh
fu;e&106 1⁄4B1⁄2 ds ckn ,d u;k fu;e&106 1⁄4M1⁄2 fuEu izdkj tksM+rh gS%&
fu;e&1061⁄4M1⁄2 %& ^>kj[k.M jkT; esa ns"kh efnjk@elkysnkj
ns"kh efnjk ds is; iz;kstukFkZ mRiknu ds mn~ns"; ls] vk;kfrr lq"ko@
la"kksf/kr lq'ko ds ns"kh efnjk ,oa elkysnkj ns"kh efnjk esa ifjorZu ds
le; ijUrq efnjk ds cksrycanh vFkok lSpsfVax iwoZ] of.kZr mn~ns"; ls]
vk;kr dh xbZ lq'ko@la"kksf/kr lq'ko dh dqy ek=k ij 0-25 :- 1⁄4iPphl
iSlk1⁄2 izfr cYd yhVj dh nj ls vk;kr "kqYd tek fd;k tk,xkA**
;g vf/klwpuk jktdh; xtV esa izdk"ku dh frfFk ls izHkkoh gksxkA
la[;k&1@uhfr&40&21@2012&928@jk-i-&>kj[k.M mRikn
vf/kfu;e] 1915 1⁄4vf/kfu;e&2] 19151⁄2 dh /kkjk&90 }kjk iznRr "kfDr;ksa
dk iz;ksx djrs gq,] jktLo i'kZn] >kj[k.M] i'kZnh; vf/klwpuk
la[;k&23&137&2] fnukad 29 vizSy] 1919 ds }kjk cukbZ xbZ fu;ekoyh
ds vUrxZr vf/klwfpr vf/klwpuk la[;k&1@uhfr&10&33@ 2008&583]
fnukad 15 ebZ] 2008 }kjk cuk;s x;s fu;e&1061⁄4t1⁄2 esa fuEu izdkj
la"kks/ku djrh gS%&
fu;e&1061⁄4t1⁄2 %& ^^>kj[k.M jkT; ds ckgj fdlh Hkh LFkku@{ks= ls
lq'ko@la"kksf/kr lq'ko@bZ-,u-,- dk] is; iz;kstukFkZ vk;kr fd;s tkus
ij] vk;kr dh tkusokyh ek=k ij 0-25 :- 1⁄4iPphl iSlk1⁄2 izfr cYd
yhVj dh nj ls ikjd "kqYd 1⁄4ijfeV Qh1⁄2 >kj[k.M jkT; esa ns; gksxkA**
;g vf/klwpuk jktdh; xtV esa izdk"ku dh frfFk ls izHkkoh gksxkA
jktLo i'kZn] >kj[k.M ds vkns"kkuqlkj]
1⁄4g-@&1⁄2 vLi'V]
mi lfpo]
jktLo i'kZn] >kj[k.M] jkaphA**
THE STATE OF JHARKHAND & ORS. v. M/S AJANTA BOTTLERS &
BLENDERS PVT. LTD. [A. M. KHANWILKAR, J.]
A
B
C
D
E
F
G
H
1078
SUPREME COURT REPORTS
[2019] 8 S.C.R.
Free translation thereof has been filed by the appellant as annexure
P-2. However, during the hearing as some doubt was raised about the
accuracy of annexure P-2, we thought it appropriate to get the document
(original in Hindi) translated from the official translator of this Court.
That translated version, reads thus:
"Translated version of Gazette by the Official Translator of the
Supreme Court.
ANNEXURE -3
 THE
JHARKHAND GAZETTE
EXTRAORDINARY
PUBLISHED BY THE GOVERNMENT OF JHARKHAND
No. 680
19 Kartik, 1934 Shakabd
Ranchi, Saturday, 10th November 2012
REVENUE BOARD
Notification
6th November 2012
No.1/ Policy-40-21/2012-928/ Ra. Pa.- In exercise of the power
conferred by section 90 of Jharkhand Excise Act 1915 (Act-2 1915), the
Revenue Board, Jharkhand makes the following addition of new rule in
Rule 106 (Tha) after Rules Rule 106 (Ta) in Notification No. 23-137-2
dated 29th April 1919.
Rule 106 (Tha): Foreign Liquor under sub-head (d) of head 'Foreign
Liquor' in Para-3 of Notification No. 470 F. dated 15 January 1919,
which manufacturing shall be done in accordance with section-2 (15)(iii)
of Excise Act, for its manufacturing, the imported spirit/ rectified spirit,
which shall be first used for manufacturing of E.N.A. through repeated
distillation, for foreign liquor beverage (at the time of conversion), but
before bottling of liquor, for this purpose Import fee shall be deposited at
the rate of Rs. 6/- per L.P. liter on the total quantity of imported spirit/
rectified spirit."
This notification shall come into force on the date of its publication
in the official gazette.
No.1/Policy-40-21/2012-927/Ra.Pa.- In exercise of the power
conferred by Section 90 of Jharkhand Excise Act, 1915 (Act 2, 1915),
A
B
C
D
E
F
G
H
1079
Board of Revenue, Jharkhand makes the addition of new Rule - 106(Da)
after Rule 106(Tha) of the Rules prepared under Board Notification
No.23-137-2 dated 29th April, 1919
Rule 106(Da):- With the purpose of manufacturing of country liquor/
spiced country liquor beverage in the State of Jharkhand, at the time of
conversion in imported alcohol/rectified country spirit and spiced country
liquor, but before bottling and storage of liquor, with the described purpose,
the import fee shall be deposited at the rate of Re.0.25 (Twenty Five
Paise) per Bulk Litre on the total amount of imported spirit/rectified
spirit.
This notification shall come into force on the date of its publication
in the Official Gazette.
No.1/Policy-40-21/2012-928/Ra.Pa. - In Exercise of the power
conferred by Section 90 of Jharkhand Excise Act, 1915 (Act 2, 1915),
the Board of Revenue, Jharkhand, makes amendment in the Rule 106
(Ja) made vide notified notification No.1/Policy-10-32/2008-583, dated
15th May 2008 in the Rules made vide Board Notification No.23-137-2
dated 29 April 1919:-
Rule 106(Ja) :- On the import of spirit/rectified spirit/ENA beverage
from any place/area outside the state of Jharkhand, the permit fee at the
rate of Re.0.25 (Twenty Five Paisa) per Bulk Litre will be payable on
the imported quantity in the State of Jharkhand.
This notification shall come into force on the date of its publication
in the official gazette.
By the order of Board of Revenue, Jharkhand
Sd/-illegible
Deputy Secretary,"
3. As aforesaid, the High Court accepted the challenge to the
above-mentioned notification for the reasons noted hitherto. The relevant
discussion in the impugned judgment in that behalf, reads thus:
"13. The State under List-II is empowered to levy fee under Entry
66 in respect of any of the matters in the list but not including fees
taken in any Court. Entry 66 read with entry 8 of List II therefore
provides competence to the State to levy fee in respect of
intoxicating liquor i.e. alcoholic liquor fit for human consumption
i.e. to say on the production, manufacture, possession, transport,
THE STATE OF JHARKHAND & ORS. v. M/S AJANTA BOTTLERS &
BLENDERS PVT. LTD. [A. M. KHANWILKAR, J.]
A
B
C
D
E
F
G
H
1080
SUPREME COURT REPORTS
[2019] 8 S.C.R.
purchase and sale of intoxicating liquor. The present levy seeks
to levy fee on the import of rectified spirit to be utilized for
the purpose of, firstly for manufacture of ENA through redistillation process and then for manufacture of IMFL.
Rectified spirit is not fit for human consumption and it therefore
does not come within the meaning of intoxicating liquor as contained
in Entry 8 of List II. Levy on the import of rectified spirit is not a
fee on intoxicating liquor i.e. fit for human consumption. By the
impugned notification, the Board of Revenue in exercise
of power conferred under section 90 of the Excise Act, 1915
has chosen to levy fee on the import of rectified spirit which
is used for manufacture of ENA through re-distillation
process and then for the purpose of manufacture of IMFL
at the time before bottling @ Rs. 6.00 per LP Litre. Industrial
alcohol/non-potable spirit i.e. rectified spirit being not alcoholic
liquor fit for human consumption, cannot be the subject matter of
any regulation or control by the State under Entry 8, 51 and 66 of
List II of Seventh Schedule of the Constitution. The State has
the power to levy fees under the garb of grant of privilege
from those who deal in liquor or alcohol fit for human
consumption i.e. potable liquor as distinct from non-potable
liquor or alcoholic liquor unfit for human consumption.
Under Entry 51 of List-II, State has been empowered to levy
excise duty on alcoholic liquor fit for human consumption
manufactured or produced in the State and countervailing duty at
the same rate or lower rates on similar goods manufactured or
produced elsewhere in India. Even under the instant Entry, the
rectified spirit which is non potable liquor, does not come within
the meaning of alcoholic liquor fit for human consumption on which
the State can levy excise duty under Entry 51 of List-II. The
levy of import fees on rectified spirit therefore by the State
Legislature before bottling of IMFL by shifting the event
of taxation, cannot be held to be justified as in pith and
substance, the levy is on import of rectified spirit i.e. nonpotable liquor i.e. alcohol not fit for human consumption.
Levy of fee on non-potable liquor i.e. unfit for human consumption
or industrial alcohol is permissible under Entry 52 of List-I of
Seventh Schedule of the Constitution. Under Entry 84 of List-I,
A
B
C
D
E
F
G
H
1081
excise duty on tobacco and other goods manufactured or produced
in India can be levied except on alcoholic liquor for human
consumption; opium, Indian hemp and other narcotic drugs and
narcotics. In the wake of such clear demarcation of legislative
fields between Union and State Legislature, the impugned
notification levying import fees on rectified spirit i.e. non potable
liquor or alcoholic liquor unfit for human consumption by applying
the rule of pith and substance, 18 cannot come within the legislative
competence of the State Legislature. The impugned levy
therefore is beyond the legislative competence of the State
Legislature and consequentially also beyond the rule
making power of the Board of Revenue."
(emphasis supplied)
And again................
"16. The respondent State sought to justify the levy as a regulatory
measure for supervision and control of potable liquor to protect
public health and morality. However, there are no materials
brought on record by the respondent State to justify that
any services in lieu thereof are provided in the nature of
quid pro quo to justify the imposition of such a levy. The
petitioner is already having various licences granted by the Excise
Department, Government of Jharkhand in Form- 19, 19(B), 20,
25 and 28(A) prescribed by the Board of Revenue and is paying
the licence fee for grant of such licences. Under Form-19 a licence
for compounding and blending of foreign liquor is given. In Form19(B), petitioner has been granted licence for the manufacture of
foreign liquor / beer as also for the sale of foreign liquor / beer
through licencee distributors as also to import or transport the
same under bond. The petitioner has a licence for bottling of potable
foreign liquor under Form-20 for which it pays fees in advance of
Rs. 50,000/- for the year. In Form-25 it has been granted licence
to manufacture denatured spirit at its distillery / warehouse. The
petitioner also has a licence under Form-28(A) to manufacture
spirit in distillery not used in the manufacture of potable liquor for
which it also pays a licence fees. It is the contention of the petitioner
that it is paying establishment charges on the posting of excise
official at its premises. Therefore, the respondent State have
THE STATE OF JHARKHAND & ORS. v. M/S AJANTA BOTTLERS &
BLENDERS PVT. LTD. [A. M. KHANWILKAR, J.]
A
B
C
D
E
F
G
H
1082
SUPREME COURT REPORTS
[2019] 8 S.C.R.
not been able to justify the impugned levy on rectified spirit
on the basis of services provided in lieu thereof. Besides
this, the petitioner has been paying licence fee for issuance
of licence under different forms in the nature of a regulatory
fee. The impugned levy therefore, is not justifiable on this
account as well.
17. In these circumstances, levy of import fee on rectified spirit
which is impermissible for the State Legislature, also has the effect
of impeding the inter-State trade and commerce as guaranteed
under Article 301 of the Constitution of India. At the same time, it
is within the exclusive legislative competence of Parliament to
levy any duty or tax on rectified spirit i.e. industrial alcohol. Such
action therefore, is in teeth of the Article 301 of the Constitution
of India.
18. In view of the aforesaid reasons and discussions and in view
of the settled law laid down by the judgments of the Hon'ble
Supreme Court referred to herein above, the notification dated
10th November 2012 issued by the Board of Revenue, Jharkhand
in exercise of powers conferred under section 90 of the Jharkhand
Excise Act, 1915, cannot be sustained in law and it is accordingly
quashed. Consequentially, the demand raised vide notice dated
24th November 2012 (Annexure-4) for deposit of import fees on
rectified spirit, is also quashed. Petitioner shall be entitled to refund
of any such import fees deposited under the impugned notification.
Writ petition is accordingly allowed."
(emphasis supplied)
The correctness of the view so taken by the High Court is the
subject matter of challenge in this appeal, at the instance of the State. In
defending the notification before the High Court, the appellant-State had
asserted that the rule inserted by the subject notification being Rule 106
(Tha), is an impost and is merely described as an import fee. Because, it
is reckoned on the basis of quantity of pure alcohol content of rectified
spirit (which is known as "London Proof Liter"), imported for the purposes
of manufacture of potable Foreign Liquor after the process of
compounding, blending and reduction of strength of spirit from over proof
strength to under proof strength is complete. Further, the unit for charging
import fee is London Proof Liter (for short, "LPL") because, it does not
A
B
C
D
E
F
G
H
1083
change even after the spirit has undergone through the process of
compounding, blending & reduction of strength. Indisputably, nothing
can be nor will be charged in advance, so long as the imported rectified
spirit is non-potable and till it is in the form of raw material. In other
words, nothing is charged on industrial alcohol. Thus, it is neither a violation
of provisions of the Constitution nor is it an arbitrary use of power under
Section 90(7) by the Board of Revenue who was competent to issue the
same towards levy of any kind of fee on potable liquor. In substance, the
stand of the appellant-State is that the stated import fee is not on rectified
spirit in its raw form as such, but on pure alcoholic liter "LPL" in the
form of potable liquor. Further, it is a regulatory fee only for supervision
and control of production of potable liquor to protect public health and
morality. It was further asserted that no right inheres in any person for
doing business in intoxicants. That right exclusively belongs to the State.
Resultantly, it is open to the State to part with those rights for a
consideration on conditions as may be deemed appropriate. There is no
need for the State to establish commensurate services rendered by it to
apply the doctrine of quid pro quo, in respect of impost of any kind of
fee on potable liquors.
4. The High Court, however, was not impressed by the stand taken
by the State and proceeded to answer the matters in issue against the
State for reasons afore-quoted, in the extracted portion of the impugned
judgment.
5. The appellant-State has approached this Court to assail the
view so taken by the High Court. More or less, the State has reiterated
its stand as was taken before the High Court. In that, the charge in
terms of the impugned Rule 106(Tha) to the licensees was neither in the
nature of a tax nor excise duty. The impost is a normal incidence of a
trading or business transaction in respect of the rights exclusively inhering
in the State - with regard to production and manufacture of intoxicating
liquor covered by Entry 8 of list II of the Seventh Schedule of the
Constitution of India. The levy is, essentially, to regulate and ensure that
the imported rectified spirit is not diverted and misused as a substitute
for potable alcohol. It is open to the State to deal in intoxicants its
manufacture, possession, sale, transport, import, export, consumption on
premises of hotel and restaurants etc. Further, the State has exclusive
rights and privileges of manufacturing and selling liquor. It is urged that
the approach of the High Court is completely wrong and against the
settled legal position.
THE STATE OF JHARKHAND & ORS. v. M/S AJANTA BOTTLERS &
BLENDERS PVT. LTD. [A. M. KHANWILKAR, J.]
A
B
C
D
E
F
G
H
1084
SUPREME COURT REPORTS
[2019] 8 S.C.R.
6. Per contra, the respondents have supported the conclusions
reached by the High Court and would contend that a close reading of
Rule 106(Tha) clearly indicates that it purports to levy "import fee" on
imported rectified spirit, used for production of Indian Made Foreign
Liquor (for short, "IMFL") manufactured in the respondent factory
under a valid licence for import and also to manufacture of the product
(IMFL). It is urged that the provision regarding collection of the fee
after the rectified spirit has been used to first produce ENA and then
potable liquor, would not alter the character of the levy being impost on
the imported rectified spirit. The State is not competent to legislate on
imported industrial liquor or levy any charge or tax thereon as such. The
postponement of realization of charges predicated in the impugned rule
would not alter the efficacy of the rule, providing for levy of import fee
on rectified spirit. Relying on the decisions of this Court it was urged
that rectified spirit is highly intoxicating and cannot be consumed by
humans. It is industrial alcohol on which the State is not competent to
legislate or levy taxes in the garb of duty or fee. The imported rectified
spirit, in that form, would not attract excise duty. That can primarily be
imposed on the happening of production or manufacture of goods
produced or manufactured within the State. It is then urged that the
respondent is engaged in production of "IMFL" for which it has obtained
all essential licences prescribed by the Board of Revenue on payment of
licensing fees for grant of such licenses such as "Form 19" for
compounding and blending of foreign liquor, Form19-B for manufacture
of foreign liquor/beer as also for the sale of foreign liquor/beer through
licensee distributors as also to import or transport the same, Form 20 for
bottling of potable foreign liquor, Form 25 for manufacture denatured
spirit at its distillery/ warehouse, Form 28(A) for manufacture of spirit in
distillery not used in the manufacture of potable liquor. In that view of
the matter, it is not open to the State to levy impugned charges in the
garb of import duty, or excise duty, as the case may be, on the imported
rectified spirit, for production of "IMFL". The respondent prays that the
appeal be dismissed being devoid of merits and the decision of the High
Court be affirmed.
7. We have heard learned counsel for the parties. Additionally,
they have filed written submissions.
8. The seminal issue to be answered in this appeal is about the
purport of the notification dated 6th November, 2010 as published on 10th
A
B
C
D
E
F
G
H
1085
November, 2012 and whether it is in the nature of legislation by the State
on the subject of industrial alcohol. Alcohol can generally be classified
into the following categories:
"I. Isopropyl alcohol (or IPA or isopropanol) is a
compound with the chemical formula CH3CHOHCH3.
It is a colourless, flammable chemical compound with a
strong odour. As an isopropyl group linked to a hydroxyl
group, it is the simplest example of a secondary alcohol,
where the alcohol carbon atom is attached to two other
carbon atoms. If consumed, Isopropanol is converted
into acetone in the liver, which makes it extremely toxic.
Often used for disinfecting skin an antiseptic.
II. Methyl Alcohol (or Methanol): Chemical Formula -
CH3OH: Not for human consumption. If consumed,
can cause blindness and death. Methanol acquired the
name wood alcohol because it was once produced
chiefly by the destructive distillation of wood. Today,
methanol is mainly produced industrially by
hydrogenation of carbon monoxide.
III. Ethyl alcohol, (also known as Ethanol and abbreviated
as EtOH), is a colourless, volatile, and flammable liquid
that is soluable in water. Its chemical formula is C2H6O,
or can be written as C2H5OH or CH3CH2OH. It has
one methyl (-CH3) group, one methylene (-CH2
-) group,
and one hydroxyl (-OH-) group."
The first two categories are poisonous, toxic and fatal for human
consumption, rendering its use only for industrial purposes. It is stated
that Isopropanol and methanol, because of their inherent chemical
properties, cannot be purified and used for the production of 'intoxicating
liquor' or 'potable liquor' by adopting 'physical means' like decantation,
filtration, redistillation, fractional distillation etc. The third category namely,
Ethyl Alcohol or Ethanol (in India is usually produced from molasses
derived from sugarcane) in its concentrated form and it is also known as
"Rectified Spirit" and its strength measured in LPL signifies the strength
of alcohol by volume, 13 parts of which weigh exactly equal to 12 parts
of water at 51 degrees Fahrenheit.
THE STATE OF JHARKHAND & ORS. v. M/S AJANTA BOTTLERS &
BLENDERS PVT. LTD. [A. M. KHANWILKAR, J.]
A
B
C
D
E
F
G
H
1086
SUPREME COURT REPORTS
[2019] 8 S.C.R.
9. Be that as it may, rectified spirit after it undergoes certain
'physical changes' by adopting 'physical means' like re-distillation,
rectification (repeated or fractional distillation) to remove impurities, it
becomes purer and is known as Extra Neutral Alcohol (ENA). Thereafter,
by addition and mixing of colouring and flavouring agents (compounding),
as well as after dilution with water, ENA is left for maturation, to be
bottled and used as 'intoxicating liquor' or 'potable liquor' known as
Indian Made Foreign Liquor (IMFL). Whereas the country liquor, also
known as 'Desi Sharab' is prepared from rectified spirit or low grade
ENA having alcohol content below 40% (as decided by different State
Governments) which may be coloured (by caramel) and may be spiced
too. Notably, the chemical composition of Ethyl alcohol or Ethanol
(C2H6O or C2H5OH or CH3CH2OH) remains the same in the entire
process, though addition of colouring and flavouring agents makes it a
mild concoction/mixture/solution (in chemical parlance a solution of
alcohol is known as 'tincture') which renders it more palatable to human
consumption.
10. We have adverted to the above-mentioned process, noted in
the written submissions filed by the appellant, so as to give proper
interpretation to the impugned notification and the subject rules, in
particular Rule 106(Tha). English version of the said rule noted in the
notification (as translated by the official translator of this Court
reproduced in paragraph 2 above), in our opinion, makes it amply clear
that the levy or impost fructifies only upon completion of distillation process
(in two stages- first from rectified spirit to ENA and then from ENA to
IMFL) and in particular converting into a final product "IMFL". The
collection of impost is, however, deferred until the bottling of that product.
In other words, the levy is not at the stage of import of rectified spirit
within the State; nor at the stage of initial distillation thereof to Extra
Neutral Alcohol (ENA) and not until the product IMFL is ready for
bottling as such. Thus, the levy under the impugned rule ripens or fructifies
only after the original raw material (imported rectified spirit) has
undergone distillation process at two different stages and transmute and
mutate into an intoxicant or potable alcohol palatable to human
consumption, but its (impost) collection is effected just before bottling it
in that form (potable liquor). Indeed, the levy predicated in this rule is on
the total quantity of imported rectified spirit utilised for mutating it in the
A
B
C
D
E
F
G
H
1087
form of IMFL, a new produce. The last part of the rule stipulates the
quantum of charges to be levied on such utilized imported rectified spirit
for production of the foreign liquor. For that limited purpose, the quantity
of imported rectified spirit utilized in the production of potable liquor, is
reckoned.
11. Reading the impugned provision as a whole and line by line or
word by word in this perspective, it must follow that the substance of the
provision is to levy charges on the product IMFL produced or
manufactured by use of imported rectified spirit. In that sense, the levy
is not on the input (imported rectified spirit) of the final product as such
but is on the manufactured or produced product being potable alcohol
palatable to human consumption. For the purposes of computing the
levy, the yardstick of Rs.6 per LPL on the total quantity of imported
rectified spirit utilized for production of IMFL is reckoned. Thus, the
impost is not on the imported rectified spirit as such but only on the
produced foreign liquor before it is bottled for sale in the wholesale or
retail market, as the case may be. If so understood, the whole edifice of
the argument of respondents regarding the interpretation of the impugned
rule must collapse. For, the challenge to the impugned rule is on the
assumption that it permits the competent authority to levy charges on
the imported rectified spirit and not fit for human consumption but which
has the potency of being used for producing intoxicants or potable liquor
though exclusively meant for industrial purposes. Once that assumption
is discounted or disregarded, nothing more survives for consideration.
We say so because, it is well established that the State may pass any
legislation in the nature of prohibition of potable liquor referable to Entry
6 and 8 of List II and may also laydown regulations to ensure that nonpotable alcohol is not diverted and misused as a substitute for potable
alcohol. Had it been the case of levy on non-potable alcohol (imported
rectified spirit) per se, only then the question about the competency of
the State Legislature or the justness of the levy on the doctrine of quid
pro quo may become relevant. However, if it is a case of legislation in
respect of potable alcohol, as has been noted by us hitherto, the State
would be competent to legislate in that regard and levy charges - be it
for regulating the same or impost for parting with its rights regarding
manufacture, storage, export, sale and possession thereof.
THE STATE OF JHARKHAND & ORS. v. M/S AJANTA BOTTLERS &
BLENDERS PVT. LTD. [A. M. KHANWILKAR, J.]
A
B
C
D
E
F
G
H
1088
SUPREME COURT REPORTS
[2019] 8 S.C.R.
12. We may usefully advert to the Constitution Bench decision
(Five Judges) in Har Shankar and Ors. Vs. The Dy. Excise and
Taxation Commissioner and Ors.1, paragraph Nos.53 to 59, which
read thus:
"53. In our opinion, the true position governing dealings in
intoxicants is as stated and reflected in the Constitution Bench
decisions of this Court in Balsara case2, Cooverjee case3,
Kidwai case4, Nagendra Nath case5, Amar Chakraborty case6
and the R.M.D.C. case7, as interpreted in Harinarayan Jaiswal
case8 and Nashirwar case9. There is no fundamental right to do
trade or business in intoxicants. The State, under its regulatory
powers, has the right to prohibit absolutely every form of
activity in relation to intoxicants - its manufacture, storage,
export, import, sale and possession. In all their
manifestations, these rights are vested in the State and
indeed without such vesting there can be no effective
regulation of various forms of activities in relation to
intoxicants. In American Jurisprudence, Vol. 30 it is stated
that while engaging in liquor traffic is not inherently unlawful,
nevertheless it is a privilege and not a right, subject to governmental
control (p. 538). This power of control is an incident of the
society's right to self-protection and it rests upon the right
of the State to care for the health, morals and welfare of the
people. Liquor traffic is a source of pauperism and crime
(pp. 539, 540, 541).
54. It was unnecessary in Krishna Kumar Narula case10 to
examine the question from this broader point of view, as the only
contention bearing on the constitutional validity of the provision
impugned therein was not permitted to be raised as it was not
argued in the High Court.