Aparesh Kumar Singh, J.@mdashThis writ petition has been preferred with a prayer to declare the Rule 106 (tha) of the Rules framed by the
Board of Revenue contained in the notification dated 10th November 2012 in exercise of powers conferred u/s 90 of the Jharkhand Excise Act,
1915 as ultra vires being beyond the rule making power of the Board of Revenue under Articles 265 of the Constitution of India read with Entry-8
and Entry 51 of List-II in the Seventh Schedule of the Constitution of India. By the said rule, it has been directed that a sum of Rs. 6.00 per LP
Litre shall be levied as import fees on import of rectified spirit imported firstly for manufacture of Extra Neutral Alcohol (ENA) through re-
distillation process and then for manufacture of Indian made foreign liquor (IMFL). The petitioner has also prayed for quashing of the demand
notice dated 24th November 2012 (Annexure-4) by which it has been directed to deposit import fees amounting to Rs. 8,29,911.60 on rectified
spirit import and stored at distillery prior to 10th November 2012. Consequential prayer has also been made for refund of the import fees as also
restraining the respondents from taking any action for realization of the import fees @ Rs. 6.00 per LP Litre on rectified spirit imported for the
purposes of manufacture of ENA for its further conversion and manufacture of foreign liquor. According to the petitioner, it is a company
incorporated under the provisions of Companies Act, 1956 and it is engaged in the manufacture of Extra Neutral Alcohol (ENA) through re-
distillation process and denatured spirit from rectified spirit and Indian made foreign liquor (hereinafter to be referred as ''IMFL) from ENA under
a licence granted by Excise Department, Government of Jharkhand in Form-19, 19(B), 20, 25 and 28(A) prescribed by the Board of Revenue u/s
38 of the Excise Act, 1915. Copies of the licence are enclosed as Annexure-1 series. It is the case of the petitioner that denatured spirit and IMFL
so manufactured is sold in the State and outside on payment of applicable excise duty, VAT as per the rates prescribed. For the purpose of
manufacture and sale of IMFL, the petitioner either imports rectified spirit which is converted into ENA after undertaking the due process of
manufacture or directly imports ENA from other distilleries. Both raw materials i.e. the rectified spirit and ENA are the spirit of over proof strength
and are non-potable liquor. The rectified spirit received from other distilleries is meant to undergo the process of re-distillation under licence
granted in Form-28A which is licence for manufacture of spirit for use in the manufacture of potable liquor from which ENA is manufactured. After
ENA is manufactured, it is compounded and blended for manufacture of IMFL. The aforesaid activities of compounding and blending are
undertaken under the cover of licence in Form-19 of the Act in terms of rule 34 of the Rules. After ENA undergoes the process of compounding
and blending, IMFL is manufactured which is bottled under the cover of licence in Form-20 of the Act. After the IMFL is bottled, it is kept in
store room under double lock, one of the keys is kept in the custody of the Excise Officer posted at the distillery. The quantity of IMFL kept in the
store room is under bond meaning thereby that no duty is paid on the same and a bond is executed by the petitioner for such amount as fixed by
the Excise Commissioner. For the aforesaid purposes, petitioner holds licence in Form-19B which is a licence to deposit or keep IMFL so
manufactured in a warehouse under bond. After pre-payment of duty and other applicable fees like export pass fee, etc., IMFL is transferred to
another warehouse in Form-19C of the Act which licence is not held by the petitioner but it is held by the brand owner of the IMFL. Certain
quantity of rectified spirit received from distilleries is denatured and rendered permanently unfit for human consumption and sold for industrial use
under the licence held in Form-25. Thus, according to the petitioner, it is the holder of composite licence i.e. licence for manufacture of ENA and
denatured spirit which is unfit for human consumption and IMFL which is potable liquor.
2. Learned counsel appearing on behalf of the petitioner, has submitted that the Act of 1915 is a pre-Constitution Act enacted in the province of
Bihar & Orissa relating to import, export, transport, manufacture, possession and sale of certain kinds of liquor and intoxicating drugs. The Act of
1915 has also been adopted by the State of Jharkhand after bifurcation of the parent State of Bihar. Section 2(6a) provides for excisable article
which means (a) alcoholic liquor for human consumption or (b) for intoxicating drugs. Sub-section 6(a) of section 2 provides for excise duty and
countervailing duty which means any such excise duty or countervailing duty, as the case may be, as is mentioned in Entry 51 of List II in the
Seventh Schedule of the Constitution. In order to advance his submission, learned counsel for the petitioner has referred to the definitions of
excisable article u/s 2(6), excise duty and countervailing duty u/s 2(6a), excise revenue u/s 2(9), definition of import, intoxicant liquor, spirit,
manufacture as defined under different sub-section of section-2. For better appreciation, definitions of the aforesaid relevant expressions referred
to above, are quoted hereunder.
2. Definitions.- In this Act, unless there is anything repugnant in the subject or context.-
(6)""excisable article"" means-
(a) any alcoholic liquor for human consumption; or
(b) any intoxicating drug;
(6a) ""excise duty"" and ""countervailing duty"" means any such excise duty, or countervailing duty, as the case may be, as is mentioned in Entry 51 of
List II in the Seventh Schedule of the Constitution;
(9) ""Excise-revenue"" means revenue derived or derivable from any duty, fee, tax, payment (other than a fine imposed by a Criminal Court) or
confiscation imposed or ordered under this Act or any other law for the time being in force relating to liquor or intoxicating drugs;
(12) ""import"" except the phrase ""import into India"" means to bring into the State otherwise than across a customs frontier as defined by Central
Government;
(12a) ""intoxicant"" means-
(i) any liquor, or
(ii) any substance from which liquor may be distilled and which is declared by the State Government by notification in the official Gazettee to be an
intoxicant for the purpose of this Act, or
(iii) intoxicating drug, or
(iv) medicinal preparation as defined under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955.
(14) ""Liquor"" includes all liquids consisting of or containing alcohol, such as spirits of wine, spirit, wine, fermented tari, pachwai and bear, and also
unfermented tari, and also any other substance which the State Government may, by notification, declare to be liquor for the purposes of this Act;
(15) ""manufacture"" includes-
(i) every process, whether natural or artificial, by which any intoxicant is produced or prepared (including the tapping of tari-producing trees and
the drawing of tari from trees),
(ii) redistillation,
(iii) every process for the rectification, flavouring, blending or colouring of liquor, or for the reduction of liquor for sale;
(19) ""spirit"" means any liquor containing alcohol obtained by distillation whether it is denatured or not;
3. According to the learned counsel for the petitioner, Board of Revenue has been conferred power u/s 90 of the Act to make rules inter-alia to
carry out the objects of the Act for regulating the manufacturing, supply or storage of any intoxicant; bottling of liquor for the purposes of sale; for
fixing the strength, price or quantity in excess of or below which an intoxicant shall not be supplied or sold; for regulating the deposit of any
intoxicant in a warehouse established, authorized or continued under this Act and the removal of any intoxicant from any such warehouse or from
any distillery or brewery; for prescribing the scale of fees or the manner of fixing the fees payable in respect of any exclusive privilege granted u/s
22 or any licence, permit or pass granted under this Act. It also provides for making rules for the purposes of licence for storing of any intoxicant
and for prescribing the restrictions under which or the conditions on which any licence, permit or pass may be granted. These rules were framed
earlier on 29th April 1919 by the Board of Revenue and are known as ''Rules framed by the Board of Revenue u/s 90''.
4. According to the petitioner, spirit is defined u/s 2(19), liquor u/s 2(14) and intoxicant u/s 2(12a). These definitions cover any liquid consisting of
or containing alcohol obtained by distillation and even covers denatured spirit. Rectified spirit or ENA which are spirits obtained by distillation are
66% to 70% v/v of over proof strength alcohol is not potable and is not bought and sold in the market as potable liquor. It is used as a raw
material for blending to manufacture IMFL and as such, it is not an excisable article within the meaning of section 2(6) of the Act which provides
that excisable articles are meant for alcoholic liquor for human consumption which contains 19% to 43% v/v of alcohol. These standards are laid
down as per ISI specification. Counsel for the petitioner further submits that sections 9 and 10 of the Act provides for restriction of import or
export or transport of intoxicant which activities cannot be carried out without permission of the State Government and for which any duty has
been paid or has been executed for the payment thereof. Section 12 of the Act also provides for pass for import, export or transport. In the
aforesaid background of the provisions of the Excise Act, 1915, learned counsel for the petitioner submits that the legislature of the State is
empowered under Article 245 and 246(2) of the Constitution to make laws in respect of any of the matter enumerated in List-II of the Seventh
Schedule of the Constitution, while the Parliament has the exclusive jurisdiction to make laws in respect of the matter enumerated in List-I of
Seventh Schedule of the Constitution. For the purposes of the challenge to the impugned provisions in the present writ application, learned counsel
for the petitioner submits that the reference to Entry-52, 84 and 97 of List-I and Entry-8, 51 and 66 of the List-II of Seventh Schedule of the
Constitution are relevant and necessary.
5. Earlier, the Board of Revenue had framed certain rules in exercise of powers u/s 90 of the Act for levy of fees for import and/transport of
rectified spirit, denatured spirit and ENA. Sub-Rule 106(cha) and 106(chha) of Rule 106 was incorporated through notification dated 15th May
2008. The aforesaid rules were amended by notification dated 10th November 2012 whereunder Rule 106(Ua) and 106(ta) were incorporated
for levy of transport pass fees and export pass fees. By the impugned notification dated 10th November 2012, Rule 106(Thha) has been
incorporated providing for levy of import fees @Rs. 6.00 per LP Litre upon import of rectified spirit for manufacture of ENA through redistillation
process for the purposes of its conversion into foreign liquor. The instant rule 106 (Thha) has been challenged by the writ petition on the following
grounds.
(A) that the impugned rule is ultra vires the Constitution of India as well as power conferred on the Board of Revenue u/s 90 of the Jharkhand
Excise Act. According to the petitioner, the said levy is beyond the legislative competence of the State as well as the Board of Revenue.
(B) that the impugned levy is a colourable excise of power on the part of the Board of Revenue as the same is not permissible under the relevant
Entries 8 of List-II of Seventh Schedule of the Constitution of India. In sum and substance, the levy on import of rectified spirit is a levy on the
manufacture of ENA through re-distillation process of such rectified spirit which is within the legislative field of Union under Entry 52 and 84 of
List-I of Seventh Schedule of the Constitution of India. The word ''intoxicant'' referred to in Entry-8 of List-II of Seventh Schedule of the
Constitution has been held to be potable liquor fit for human consumption. It cannot be levied on alcoholic liquor unfit for human consumption i.e.
non-potable liquor having over proof strength of 66% to 70% of v/v.
(C) that the levy of fees @ Rs. 6.00 Per LP Litre is in essence a tax as there is no quid pro quo i.e. no services are provided in lieu of such levy of
fee.
(D) that the impugned Rules are violative of Article 301 of the Constitution of India as it restricts inter State trade and commerce and is
confiscatory in nature.
6. In support of the aforesaid contentions, learned counsel for the petitioner has relied upon a judgment rendered by the Hon''ble Supreme Court
of India in the case of Synthetics and Chemicals Ltd. and Others Vs. State of U.P. and Others, . As per the learned counsel for the petitioner, the
intoxicating liquor and intoxicant has been held to mean liquor which is fit for human consumption. Therefore, the State has no authority to levy duty
or tax on alcohol which is not fit for human consumption. In the instant case, there is no element of quid pro quo. Learned counsel has also relied
upon the judgment rendered in the case of State of U.P. and Others Vs. Modi Distillery and Others, . According to the learned counsel, in the said
case, the Hon''ble Supreme Court has gone to the extent of holding that levy of excise duty on high strength spirit of 80% to 85% from distillery to
warehouse is beyond the competence of the State Legislature. So also, pipeline wastage of IMFL during the process of manufacture before
dilution is not leviable to excise duty by the State Legislature and the same is beyond its competence. It was found that the State sought to levy
excise duty upon raw material or input still in the process of being rendered fit for consumption by human beings. It is not empowered to do so.
Learned counsel has also relied upon a judgment of the Hon''ble Supreme Court in the case of Mohan Meakin Ltd. Vs. State of H.P. and Others,
in support of his contention that the State''s power to impose compensatory tax and fee is limited as envisaged under Article 304(b) of the
Constitution of India. In the instant case, there is no element of quid pro quo and neither the same is in the nature of compensatory tax. Therefore,
the impugned levy amounts to restricting free trade and commerce under Article 301 of the Constitution of India where the State''s power is
limited. According to the petitioner, it is paying all the establishment charges for the posting of Excise Officials at the premises of the petitioner and
therefore, the impugned levy cannot be justified on that account. Learned counsel for the petitioner has also relied upon the judgment of the
Hon''ble Supreme Court in the case of Welfare Assocn. A.R.P., Maharashtra and Another Vs. Ranjit P. Gohil and Others, . Relying upon para-42
of the aforesaid judgment, it is submitted that the impugned levy is disguised and covert attempt to exercise powers over a field on which the State
Legislature is not having any competence. Therefore, such disguised use of power would amount to colourable exercise of power. To test the true
nature and character of the legislation, investigation by the Court should be directed towards examining (I) the effect of legislation and (ii) its object,
purpose or design. However, while doing so, the Court cannot enter into investigating the motive which induced the legislature to exercise its
power. In the wake of such submission advanced on behalf of the petitioner, learned counsel submits that simply, levying the impugned fee on the
import of rectified spirit imported firstly for manufacture of ENA through re-distillation process and then for manufacture of IMFL before its
bottling, cannot justify the impugned levy on the subject which is beyond the legislative competence of the State Legislature. Merely by shifting the
event of taxation till the time of bottling of IMFL, cannot confer jurisdiction upon the State Legislature to levy the import fees on rectified spirit
which is not within a domain of the State Legislature. The impugned levy is therefore bad in law and is fit to be quashed.
7. Learned AAG Mr. Ajit Kumar, appearing on behalf of the State, has supported the impugned levy. According to the learned counsel, rule
106(tha) aims to charge the impugned levy in the name of import fee on the quantity of pure alcoholic content of rectified spirit imported for the
purpose of manufacture of potable foreign liquor only after the process of compounding, blending and reduction of strength. The impugned levy
empowers the Excise Authorities to charge import fee @ Rs. 6.00 per LP Litre on the quantity of pure alcoholic content present in spirit imported
for the purpose of manufacturing foreign liquor and nothing is charged in advance so long as imported spirit is non potable and till it is in the form of
raw material. Therefore, nothing is charged on industrial alcohol and it does not violate any provision of the Constitution, nor is there any arbitrary
exercise of powers u/s 90(7) by the Member, Board of Revenue. The import fee is payable only after the spirit is converted into potable alcohol.
The fee is not on industrial use of rectified spirit. It is further submitted that the impugned import fee is regulatory fee only for supervision and
control of production of potable liquor to protect public health and morality. The State Legislature has the exclusive power to legislate on potable
alcohol and u/s 90(7) of the Excise Act, the Board of Revenue has been authorized to prescribe scale of fee payable in respect of any exclusive
privilege granted u/s 22 of the Act or in respect of the storage of any intoxicant. The impugned fee has been imposed on foreign liquor (intoxicant)
as defined in section 2(12a). Counsel for the respondent State further submits that the petitioner holds a licence under Form-28A along with other
licences in Excise Form Nos. 19, 20, 19B, 19C of Jharkhand Excise Act. All these licences are being possessed by the petitioner to manufacture
potable foreign liquor and to trade in IMFL. Nowhere the petitioner is having any licence which is being used for any other industrial purpose.
Therefore, the sole object of the petitioner to import rectified spirit is to manufacture foreign liquor and trade into it. It is well within the ambit of the
State Government to charge any regulatory fee for protection of public health and morality so that citizens of the State are protected from harmful
and dangerous character of the liquor. The word ''fees'' is not used in the technical sense of expression in Excise Acts or Rules made thereunder.
Therefore, the element of quid pro quo is not applicable in the case of charging any kind of fee on potable liquor. Learned counsel further submits
that in such circumstances, the impugned rule does not impede inter-State trade as fee is being charged on potable liquor and is not hit by Article
301 of the Constitution. Learned counsel for the State has tried to submit that the judgment in the case of Synthetic & Chemicals Ltd. (Supra) has
been referred to the larger Bench. However, learned counsel fairly submits that the same has been referred on a different question and not on the
issue which are relevant in the instant case.
8. Learned counsel for the petitioner in the rejoinder has once again reiterated his contention. According to him, simply by shifting the event of
taxation to the point before the stage of bottling of IMFL manufactured by the petitioner, the impugned levy which is basically levied on the import
of rectified spirit, cannot be sustained in law as the State Legislature does not have the legislative competence to tax on import of rectified spirit.
Learned counsel in support of his contention, relied upon Annexure-6 series being notings obtained under the Right to Information Act to show that
the impugned levy on import of rectified spirit is meant for raising revenue and notified only on the basis of an audit objection. Therefore, it is a
colourable exercise of power by the State and delegatee, the Board of Revenue without having any legislative competence to do so. Learned
counsel has relied upon the judgment rendered by the Constitution Bench of the Hon''ble Supreme Court in the case of The State of West Bengal
Vs. Kesoram Industries Ltd. and Others, Para-33 thereof. He submits that the Constitution Bench in the said judgment has held that the measure
employed for assessing a tax must not be confused with the nature of the tax. A tax has two elements, first, the person, thing or activity on which
the tax is imposed, and second, the amount of tax. The amount may be measured in many ways; but a distinction between the subject matter of a
tax and the standard by which amount of tax is measured must not be lost sight of. These are described respectively as the subject of a tax and the
measure of a tax. The nature of mechanism by which tax is to be assessed is not decisive of the essential characteristic of the particular tax
charged, though it may throw light on the general character of the tax. Therefore, the State simply by shifting the event of taxation at the point of
bottling of IMFL on a nature or activity i.e. import of rectified spirit, which is not within the legislative domain of the State Legislature, cannot justify
the impugned levy. He has also relied upon a judgment rendered by the Apex Court in the case of Godfrey Phillips India Ltd. and Another Vs.
State of U.P. and Others, para-45 and 47 in support of his aforesaid contention.
9. We have heard learned counsel for the parties at length and gone through the impugned notification as well as relevant materials on record, as
also the judgment relied upon by the rival parties.
10. In order to appreciate the present issue, it is important to first refer to the relevant Entries of Seventh Schedule of the Constitution of India
which provide the legislative fields to the respective Union and State Legislature to enact laws in respect of them. For the aforesaid purpose,
Entries-52, 84 and 97 of List-I and Entries 8, 51 and 66 of the List-II of Seventh Schedule of the Constitution of India are worth consideration
and are quoted hereunder:
Seventh Schedule
List I-Union List
52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest.
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 sub-paragraph (b) of this entry.
97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.
List II-State List
8. Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors.
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 hemp and other narcotic drugs and narcotic, but not including medicinal and toilet preparations containing alcohol or any
substance included in sub-paragraph (b) of this entry.
66. Fees in respect of any of the matters in this List, but not including fees taken in any court.
The Union Legislature is empowered to enact laws in respect of levy of 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 drugs and narcotics, but including
medicinal and toilet preparations containing alcohol or any substance included in sub-para (b) of this entry. On the other hand, Entry 8 of List-II in
Seventh Schedule of the Constitution provides for legislative field on which the State Legislature can make laws in respect of intoxicating liquors
that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors. Entry 51 of List II provides for levy of
duty of excise on the following goods manufactured or produced in the State and countervailing duty on the same or lower rates on similar goods
manufactured or produced elsewhere in India; (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and
narcotics; but not including medicinal and toilet preparations containing alcohol or any substance included in sub-para (b) of this entry.
11. The expression ''intoxicant'' as defined in Section 2(12a) of the Excise Act, 1915 is to be construed as meaning alcoholic liquor fit for human
consumption. The aforesaid expression has been interpreted by the seven judges Constitution Bench of Hon''ble Supreme Court in the case of
Synthetic & Chemicals (Supra). The opinion of the Hon''ble Supreme Court contained in para-73 and 74 is quoted hereunder.
73. It was further observed at p. 163 of the report as follows: (SCC p. 732, para 12)
It is constitutionally impermissible for any State Government to collect any amount which is not strictly of the nature of a fee in the guise of a fee. If
in the guise of a fee the legislation imposes a tax it is for the court on scrutiny of the scheme of the levy to determine its real character. If on a true
analysis of the provisions levying the amount, the court comes to the conclusion that it is, in fact, in the nature of a tax and not a fee, its validity can
be justified only by bringing it under any one of the entries in List II of the Seventh Schedule to the Constitution under which the State can levy a
tax.
74. It has to be borne in mind that by common standards ethyl alcohol (which has 95 per cent) is an industrial alcohol and is not fit for human
consumption. The petitioners and the appellants were manufacturing ethyl alcohol (95 per cent) (also known as rectified spirit) which is an industrial
alcohol. ISI specification has divided ethyl alcohol (as known in the trade) into several kinds of alcohol. Beverage and industrial alcohols are clearly
and differently treated. Rectified spirit for industrial purposes is defined as ""spirit purified by distillation having a strength not less than 95 per cent of
volume by ethyl alcohol"". Dictionaries and technical books would show that rectified spirit (95 per cent) is an industrial alcohol and is not potable
as such. It appears, therefore, that industrial alcohol which is ethyl alcohol (95 per cent) by itself is not only non-potable but is highly toxic. The
range of spirits of potable alcohol is from country spirit to whisky and the ethyl alcohol content varies between 19 to about 43 per cent. These
standards are according to the ISI specifications. In other words, ethyl alcohol (95 per cent) is not alcoholic liquor for human consumption but can
be used as raw material input after processing and substantial dilution in the production of whisky, gin, country liquor, etc. In many decisions, it was
held that rectified spirit is not alcohol fit for human consumption. Reference may be made in this connection to Delhi Cloth and General Mills Co.
Ltd. v. Excise Commissioner, U.P. Allahabad. In this connection, it is important to bear in mind the actual provision of Entry 8 of List II. Entry 8 of
List II cannot support a tax. The above entry contains the words ""intoxicating liquor"". The meaning of the expression ""intoxicating liquor"" has been
rightly interpreted by the Bombay High Court in the Balsara case. The decision of the Bombay High Court is reported in Nusserwanji Balsara v.
State of Bombay. In that light, perhaps, the observations of Fazl Ali, J. in Balsara case requires consideration. It appears that in the light of the new
experience and development, it is necessary to state that ""intoxicating liquor"" must mean liquor which is consumable by human being as it is and as
such when the word ""liquor"" was used by Fazl Ali, J., they did not have the awareness of full use of alcohol as industrial alcohol. It is true that
alcohol was used for industrial purposes then also, but the full potentiality of that user was not then comprehended or understood. With the
passage of time, meanings do not change but new experiences give new colour to the meaning. In Har Shankar case, a bench of five judges have
surveyed the previous authorities. That case dealt with the auction of the right to sell potable liquor. The position laid down in that case was that the
State had the exclusive privilege or right of manufacturing and selling liquor and it had the power to hold public auctions for granting the right or
privilege to sell liquor and that traditionally intoxicating liquors were the subject matters of State monopoly and that there was no fundamental right
in a citizen to carry on trade or business in liquor. All the authorities from Cooverji Barucha case to Har Shankar case dealt with the problems or
disputes arising in connection with the sale, auction, licensing or use of potable liquor.
12. 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, 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 re-distillation
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 u/s 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.
non-potable 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, 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, 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.
13. In this context, it is also useful to quote opinion of the Hon''ble Supreme Court as contained in para-33 of the Constitution Bench Judgment in
the case of State of W.B. Versus Kesoram Industries Ltd.(Supra).
33. We now proceed to enter a deeper dimension in the field of tax legislation by considering the problem of devising the measure of taxation. This
aspect has been dealt with in detail in Union of India v. Bombay Tyre International Ltd. Tracing the principles from the leading authority of A
Reference under the Govt. of Ireland Act, 1920 and Section 3 of the Finance Act (Northern Ireland), 1934, Re passing through Ralla Ram v.
Province of East Punjab and treading through the law as it has developed through judicial pronouncements one after the other, this Court has made
subtle observations therein. It has been long recognised that the measure employed for assessing a tax must not be confused with the nature of the
tax. A tax has two elements: first, the person, thing or activity on which the tax is imposed, and second, the amount of tax. The amount may be
measured in many ways; but a distinction between the subject-matter of a tax and the standard by which the amount of tax is measured must not
be lost sight of. These are described respectively as the subject of a tax and the measure of a tax. It is true that the standard adopted as a measure
of the levy may be indicative of the nature of the tax, but it does not necessarily determine it. The nature of the mechanism by which the tax is to be
assessed is not decisive of the essential characteristic of the particular tax charged, though it may throw light on the general character of the tax.
14. The subject of taxation on rectified spirit does not fall within the field of State Legislature and the nature of mechanism by which tax is to be
assessed is not decisive of the essential characteristic of the tax charged. The State while levying the tax on the subject of import of rectified spirit,
has only shifted the event of taxation which cannot justify the imposition of levy as the same is not within the domain of the State Legislature. The
opinion of the Hon''ble Supreme at para-45 and 47 in the case of Godfrey Phillips India Ltd. And Another (Supra) is apposite, to be quoted
hereunder:
45. This view has also been reiterated in Hoechst Pharmaceuticals Ltd. v. State of Bihar (SCC pp. 92-93, paras 75 & 76)
A scrutiny of Lists I and II of the Seventh Schedule would show that there is no overlapping anywhere in the taxing power and the Constitution
gives independent sources of taxation to the Union and the States. Following the scheme of the Government of India Act, 1935, the Constitution
has made the taxing power of the Union and of the States mutually exclusive and thus avoided the difficulties which have arisen in some other
Federal Constitutions from overlapping powers of taxation. ... Thus, in our Constitution, a conflict of the taxing power of the Union and of the
States cannot arise.
47. Classically, a tax is seen as composed of two elements: the person, thing or activity on which the tax is imposed and the incidence of tax. Thus
every tax may be levied on an object or an event of taxation. The distinction between the two may not, ultimately, be material in the context of the
Indian Constitution as we will find later. But for the time being we may note that both these elements are distinct from the incidence of taxation. For
example, the tax may be imposed on goods on the event of their manufacture, sales, import, etc. The law imposing the tax may also prescribe the
incidence or the manner in which the burden of the tax would fall on any person and would take within itself the amount and measure of tax. The
importance of this distinction lies in the fact that in India, the first two have been given a constitutional status, whereas the incidence of tax would be
a matter of statutory detail. The incidence of tax would be relevant in construing whether a tax is a direct or an indirect one. But it would be
irrelevant in determining the subject-matter of the tax. (See Chhotabhai Jethabhai Patel & Co. v. Union of India.)
15. 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 Form-19(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 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.
16. 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. 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 u/s 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.
