Sabyasachi Mukharji, J.@mdashThe petitioner in this case is engaged in the manufacture and sale of medicinal preparations containing alcohol
having the chemical formulae C2H5OH. For the manufacture of these medicinal preparations the petitioner Company contends that it has to
consume heavy quantities of alcohol in the form of rectified spirit which is used in different stages. In the primary stage the crushed medicinal herbs
and other drugs are put in the liquid alcohol to extract active principles present in the said medicinal herbs. According to the petitioner, this is an
intermediate stage or semi-manufactured stage and the products so obtained are not ''Medicinal Preparations'' as denned in sub-section (g) of
section 2 of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 being Act XVI of 1955. The petitioner further states that after their
extractions they are added to and mixed up in solution with chemicals to make final medicinal preparations which are sold in the market under
different proprietory names. The petitioner company has been holding L-2 licence granted by the Government of Bengal (now West Bengal) and
later they were in possession of another additional licence L-1 for manufacture of medicinal preparations containing alcohol of ''In Bond'' granted
by the same government. The petitioner further states that on the strength of these two licences the petitioner purchased rectified spirit from
different distilleries and warehouses. The Government of West Bengal collected excise duties on ""medicinal preparations"" containing alcohol
manufactured in the petitioner''s factory with the said alcohol. The petitioner further submits that these are defined in subsection 7 of section 2 of
the Bengal Excise Act, 1909 (Act V of 1909) as ""Excisable articles"" and ""medicinal preparations containing alcohols"". The petitioner contends that
the levy and realisation of duties on these medicinal preparations by the Government of West Bengal were illegal and without any jurisdiction.
According to the petitioner, the State Government has no such power in view of Entry 84 of the List I of the Sevneth Schedule in the Constitution
of India. The petitioner states that Entry No. 51 of the List II of the Seventh Schedule to the Constitution of India excluded the jurisdiction of the
State Government to levy and collect excise duties on Medicinal Preparations containing alcohol. The effect, according to the petitioner, of the
enactment of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (Act No. XVI of 1955) by the Parliament read with Rule 143
framed under the Act was that all state enactments and rules framed thereunder were repealed and the State Governments were completely
prohibited from levying and collecting excise duties on Medicinal Preparations containing alcohol. Inspite of the same according to the petitioner,
the Government of West Bengal continued to levy and collect excise duties on the plea that the Semi-manufactured or intermediate products which
are not covered by the said Act are liable to excise duties in accordance with the provisions of the Bengal Excise Act, 1909. As a result of section
64 of the Finance Act, 1964 (Act V of 1964) the excise duties on Medicinal Preparations containing alcohol were enhanced to 10% ad valorem
from the rates fixed by Section 3 of the Act XVI of 1955 and for the purpose of assessment levy and collection, by the said section of Act V of
1964, the section 4 of the Salt and Excise Act 1944 (Act I of 1964) was made applicable. The petitioner states that the L-1 and L-2 licences
which had been granted by the Government of West Bengal were revalidated by the Act XVI of 1955. According to the petitioner, by virtue of
sub-section (b) of Section 2 of the Act XVI of 1955 read with Article 268 of the Constitution of India, the State Government while assessing
levying and collecting excise duties in accordance with the said Act should always collect them in accordance with these provisions. According to
the petitioner, by virtue of section 4 of the Act I of 1944, namely the Salt and Excise Act, 1944, the articles of like kind and quality must be
dutiable and must have selling value in the market or capable of being sold in the market and the semi-manufactured goods in the process of
manufacture have neither any market value nor are they capable of being sold in the market. The petitioner further states that when the Semi-
manufactured goods or intermediate products are added in solutions to make the final products, the excise duties are again assessed, levied and
collected on the final product at the rate of ten percent ad valorem, as a result, according to the petitioner, the petitioner is subjected to the double
taxation on the very same products. The petitioner further states that on or about 26th July 1968 when the petitioner surrendered L-2 licence and
commenced manufacturing with duty paid alcohols under L-1 licence, the excise duty was assessed, levied and collected by the Government of
West Bengal at the time of their sales from the warehouses. According to the petitioner, when the final medicinal products are made the duty so
paid is deducted from the total ad-valorem duty payable on such products and section B of Chapter IV of the Rules framed under Act XVI of
1955 does not provide for any such procedure. Further more, the Bengal Excise Act, 1909, according to the petitioner, does not provide for levy
and collection of excise duties on behalf of another Government and in view of the provisions of Article 265 of the Constitution of India mere legal
authority was not sufficient but there must be procedure laid down for the levy and collection of taxes. According to the petitioner the Bengal
Excise Act, 1909 does not provide for levy or collection of excise duties, on behalf of another government.
2. The main grievance of the petitioner in this application is that a sum of Rs. 70,360.30 has been illegally realised from the petitioner on
intermediate products in violation of the Act XVI of 1955. The petitioner claims refund of the same. The next grievance of the petitioner is that for
the purpose of propaganda and publicity of the Medicinal Preparations containing alcohol the same are distributed by salesman free of cost. These
do not have any market value nor are these capable of being sold in the market. Further more, there are wastages, breakages of the products
which have also no market value. But the petitioner have been forced to pay duties on Physicians'' free sample and upto 28th March, 1969, this
comes to about Rs. 16,150.80 p. The petitioner contends that such realisation of the duties by the respondents was illegal and improper, and the
petitioner is entitled to refund of the same. The third grievance of the petitioner is on the ground that as ''Establishment Charges'' an amount of Rs.
23,441.56 p. was realised by the Government. The L-1 licence is for the Bonded Laboratory. In the said licence the petitioner company used to
bring in the rectified spirit inside the Bonded Laboratory situated in the factory premises. The Government of West Bengal was realising from the
petitioner the salary and wages, house rent etc. of the staff who had been posted at the Bonded Laboratory inside the factory premises. These
were realised by the Government us ''Establishment Charges'', but according to the petitioner, the rules framed under the Act XVI of 1955 do not
provide for any such realisation. On this point the petitioner contends that the action of the government is illegal and it has unlawfully realised as
''Establishment Charges'' Rs. 23,441.56 p. and the petitioner claims direction for the refund of the same. According to the petitioner, the
Commissioner of Excise, Government of West Bengal and the employees under him, in order to retaliate for the demand of the petitioner for the
refund of the illegal collection, mentioned hereinbefore, began a thorough examination of the stocks maintained by the petitioner-company, and
being unable to find discrepancies anywhere stopped supply of rectified spirit which was essential for the manufacture of the medicinal preparations
containing alcohol and this was done in contravention of Rule 18 framed under Act XVI of 1955. On the 10th March, 1970, the petitioner-
company served a lawyer''s notice and on the 13th March, 1970 by a letter dated 13th March, 1970, the respondent No. 2 asked the petitioner to
show cause, threatening cancellation of licence and imposing penal duties and it was directed that the petitioner should pay the duties of Rs.
48,797-86. The petitioner thereupon moved this Court under Article 226 of the Constitution. On 25th March, 1970, and obtained a rule nisi. In
this application the petitioner claims writ in the nature of mandamus against the respondents asking them to refund all the amounts on account of the
illegal assessments, levy, and collection of excise duties on goods which are not provided for in the Act XVI of 1955 and collection of other
charges made in violation of the provisions of the Constitution of India. this Court issued a rule nisi and directed that upon the petitioner furnishing
the security for the amount claimed by the letter dated 13th of March, 1970 the respondents would be restrained from interfering in any manner
with the manufacture and sale of the products of the petitioner-company, mentioned in the petition.
3. Therefore three points or questions require consideration in this case, namely--(a) whether realisation of duty by the State of West Bengal on
what the petitioner calls the intermediary products was legal and valid, (b) whether administrative or establishment charges have been properly or
validly realised by the Government and (c) thirdly, whether duty was payable on what the petitioner''s describe as physician''s samples or
breakages. So far as the administrative or establishment charges are concerned the case of State of West Bengal is that the petitioner had in
addition to L-2 licence from the 1st April, 1964 to 31st July, 1969 a further licence under L-1 as well as a licence in Form 28B to establish a
private warehouse and under that licence under rule 22 of the consolidated Rules made u/s 86 of the Bengal Excise Act, 1909 was liable to pay to
Govt. a monthly fee equivalent to the cost of officers and establishment employed at the said private warehouse. This was one of the points
decided by a decision of B.N. Banerji, J. in the case of (1) Indian Research Institute Private Ltd. v. Commissioner of Excise, West Bengal on
November, 17th, 1965. On the basis of the decision of the Supreme Court in the case of (2) Hyderabad Chemical and Pharmaceutical Works
Ltd. etc. Vs. State of Andhra Pradesh and Others, it was held by B.N. Banerji, J. in the aforesaid case that so much of the Bengal Excise Act and
the rule as related to storage and use of alcohol in the manufactory of the petitioner stood repealed and the petitioner was not bound to take out
any licence under the Bengal Act or to pay any charges thereunder. The petitioner is, therefore, entitled to refund of the sums paid on account of
establishment charges after the coming into operation of the Central Act, that is to say, 1st of April, 1957 to the date of this application. The
petitioner has claimed a particular sum of money, namely Rs. 23,441-56. The petitioner is entitled to have an account of the amount paid on
account of the ''Establishment Charges'' under the Bengal Act after 1st of April, 1957 and to a refund of the same. I direct accordingly. The
respondent, has on the other hand, claimed a further sum from the petitioner on this account of Establishment Charges under the licence under the
Bengal Act in Form No. 28B. The respondent is not entitled to the same. I must observe however that this direction of mine is following the
decision of B.N. Banerji, J. referred to hereinbefore. No argument was advanced before me as to the correctness or otherwise of the said decision
and for the purpose of this application, sitting as I am singly, I merely follow the said judgment. I understand the said judgment is under appeal. I
need not express my personal views on this aspect of the matter.
4. The next question that requires consideration in this case is whether the petitioner is entitled to refund of Rs. 70,360-30 on account of what is
alleged to be intermediate products. After the coming into operation of the Constitution in view of the provisions of Article 277 thereof and the
enactment of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 the position is that the Excise Acts of the various States under which
duty was being levied on medicinal and toilet preparations containing alcohol must be deemed to have been repealed in so far as they applied to
such medicinal and toilet preparations. This position has also explained in the decision of (3) M.B.S. Oushadaylaya v. Union of India, AIR (1963)
S.C. 622. But prior to the enactment of the aforesaid Act in view of the provisions of Article 277 and Article 268 and in view of the provisions of
the Bengal Excise Act, 1909 the State Government had the power and authority to levy and also to collect duties of excise in respect of medicinal
preparations containing alcohol. The case of the respondent as made out in the affidavit of Somendra Mohan Mukherjee is that since the coming
into operation of the said Central Act on 1st of April, 1957, the State Government has been collecting excise duties on medicinal preparations
containing alcohol in conformity with the provisions of the same Act, as it had the authority to do so under Articles 268 and 277 of the
Constitution. The Finance Act, of 1964 introduced a new rate of taxation and medicinal preparations containing alcohol which were not capable of
being consumed as alcohol beverages were subject to duty in the manner indicated in the taxing schedule of the said Finance Act which have been
set out in paragraph 9, sub-paragraph (a) of the affidavit of the respondent. No excise duty, according to the respondent has been realised in
contravention of the said Central Act. The main grievance of the petitioner seems to be that there has been taxation on what is called intermediate
or semi manufactured products. Section 6 of the Medicinal and Toilet Preparations Duties Act, 1955 provides that no person shall engage in the
production or manufacture inter alia of any medicinal preparations containing alcohol except under the authority and in accordance with the terms
and conditions of a licence granted under the said Act in such form as may be prescribed and Rule 9 of the rules made under the said Act provides
that no medicinal preparation containing alcohol shall be removed from any place where it is manufactured, whether for consumption or for
manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid. The Central Rules also
prescribed two kinds of licences, namely, licence in Form--L-1 and Licence in Form L-2. Licence in Form L-1 authorises the manufacture of
medicinal preparations containing alcohol in a bonded manufactory, that is to say, with alcohol on which duty of excise was leviable under any law
for the time being in force and has not been paid, subject, however, to the payment of duties of excise prescribed on such preparations by the
schedule to the Central Act in accordance with the provisions of rule 9 of the Central Act. Licence in Form L-2, authorises the manufacture of the
said preparations in a non-bonded manufactory, that is to say, with alcohol on which the specific duties prescribed in respect of the said
preparations have already been paid in accordance with the provision of Rule 49 of the said Central Rules and subject to the payment of further
duty, if any, prescribed upon such preparations by the said Central Act in accordance with the provision of Rule 9 of the Central Rules. The
petitioner had a licence in Form L-2 from 1st of April, 1957. It has been categorically denied that any such semi manufactured goods or medicine
have been subject to tax. If alcohol is added in the manufacture of a thing which is known as medicine, the fact that the further product is mixed to
something else to produce another medicinal product does not make the first stage an intermediatory stage in the manufacture of medicinal
preparations, as contemplated by the Act and the Rules. It has to be borne in mind that duty under the Excise Act is on manufacture and not on
sale. Actual sale therefore is immaterial. The manufacture, however, must be of the medicinal preparations, as defined in 2 (g) of Act XVI of 1955.
Reliance may be placed for this proposition on the decision of the Supreme Court in the case of (4) South Bihar Sugar Mills Ltd., etc. Vs. Union
of India (UOI) and Others, . Manufacture again implies a change, but every change in the raw material is not manufacture. It must bring into being
something known in the market according to its ordinary dictionary meaning. If in the process a thing ordinarily known in the market as a thing or a
good or a preparation is brought into being, the fact that it is an intermediatory process in the ultimate preparation of some other medicinal product,
would not also make any difference. Reliance for this may be placed on the observations of the Supreme Court in the case of (5) Union of India v.
Delhi Cloth and General Mills, AIR 1963, SC 790. In order to attract duty all that is required is that there should be manufacture of medicinal
preparations and it should contain alcohol. If these two conditions are fulfilled, then duty is attracted and if these two conditions are fulfilled at an
intermediate stage, that makes no difference to the taxability. From that point of view in certain cases multipoint taxation is permissible and have
been contemplated by the scheme of the Central Act. The Central Act by section 4 permits rebate in certain cases in order to avoid the
consequences of multipoint taxation. In this connection reliance may be placed on the observations of the Supreme Court in the case of (6)
Baidyanath Ayurved Bhavan v. Excise Commissioner, U.P., (1971) S.C. 378. Judged from the aforesaid stand point the petitioner, in my opinion,
has not been able to establish in this Court that any semi-manufactured goods has been subjected to taxation, it may be that the final product of the
petitioner was subject to double taxation, as the petitioner contends, but until suitable amendment of the rules is made, giving the petitioner rebate
for the same for which the State Government has written to the Centre, the petitioner would be liable to pay the taxes. In this connection it may be
noted that in the paragraph 3 of the petition it has been stated that in the primary stage the ""crushed medicinal herbs and other drugs"" are put in the
liquid alcohol to attract active principles in the said medicinal herbs. Therefore on the statement of the petitioner it is clear that alcohol is added to
medicinal herbs"" and ""other drugs"". There is nothing to indicate that these medicinal herbs and drugs are not medicinal preparations in accordance
with the definition of Section 2(g) of the Act. On the other hand the correspondence annexed to the affidavit in opposition indicate that the
petitioner all along proceeded on the basis that there are medicinal preparations, I am, therefore, unable to accept the grievance of the petitioner
that a sum of Rs. 70,360.30 had been illegally realised on intermediate products in violation of the Act XVI of 1955. On the other hand the case of
the respondents is that the petitioner is liable to pay a further sum about which notice has been given which is the subject-matter of the challenge in
this application.
5. So far as the liability of the petitioner on the physician''s free sample or breakages, are concerned, the Act does not permit any rebate or
relaxation of taxability if on manufacture duty is attracted whether these goods are sold actually or are used as samples. Therefore it is also not
possible to accept the grievance of the petitioner that physician''s free sample and breakages should be exempted from duty unless the Act and the
Rules are amended.
6. I am also unable to accept the contention of the petitioner that there is no sanction for the procedure for realisation of the dues under the Central
Act by the State Government. Article 268 of the Constitution read with Article 277, the Central Act XVI of 1955 read with rules made
thereunder, the Bengal Excise Act, 1909 and the rules for the licence read in conjunction, in my opinion authorise such a procedure. In the
premises it appears that only except in respect of ''Establishment or Administrative Charges'' the petitioner is entitled to a refund; the other claims
and grievances made by the petitioner can not succeed. I, therefore, direct that an account should be taken of the Establishment or Administration
Charges realised from the petitioner from 1st of April, 1957 and that amount should be deducted from the liability of the petitioner to the
government under the Central Act which the State Government is entitled and competent to enforce and realise. After such an account is taken, the
petitioner will be liable to pay the balance to the respondents and the letter dated 13th of March, 1970 and 12th of March, 1970 annexed to the
petition, should not be given effect to, without carrying out the aforesaid direction, but subject to the claim of the petitioner for the refund of the
Establishment and Administrative Charges, the petitioner would be liable to pay other amount due to the respondents on account of the Excise
Duty and the respondents would be entitled to take such in action as they are entitled under the law as indicated in the letters dated 12th and 13th
March, 1970. The rule succeeds only to that limited extent. The rest of the prayers are rejected. Let a writ in the nature of mandamus issue
directing the respondents Nos. 1 to 3 to take an account of the Administrative Charges or Establishment Charges realised from the petitioner from
1st of April, 1957 and claim the dues from the petitioner and take action under the Act XVI of 1955, after giving the petitioner credit for the said
Administrative Charges, realised by the Government in accordance with law. There will be no order as to costs of this application. The rule against
respondent No. 4 discharged without any order as to costs.