PETITIONER:
M/S MOHAN MEAKIN LTD.
Vs.
RESPONDENT:
EXCISE & TAXATION COMMISSIONER,HIMACHAL PRADESH & ORS.
DATE OF JUDGMENT: 27/11/1996
BENCH:
K. RAMASWAMY, G.T. NANAVATI
ACT
HEADNOTE
JUDGMENT
ORDER
This appeal by special leave arises from the Judgment of the Division Bench of the Himachal Pradesh High Court, made on July 2, 1980 in Writ Petition No.121/79. The question is: at what stage the beer is exigible to duty under the Punjab Excise Act, 1914 (1 of 1914) (for short, the ‘Act’). The Division Bench upholding Rule 10(3.4) of the Rules made under Section 58 of the Act read with Section 59 of Punjab Breweries Rules, 1932 (for short, the ‘Rules), came to the conclusion that it is exigible to duty at the stage when it is in fermentation, i.e., wort in terms of Rule 10(3.4). Calling that decision in question, this appeal came to be filed.
With a view to appreciate correctness of the view taken and having heard the learned counsel for the parties, it is necessary to look into the relevant provisions of the Act and the Rules. Chapter I, Section 3 of the Act defines various words and phrases in the Act. Section 3(1) defines "Bear" to include ale, porter, stout, and all other fermented liquors made from malt. "Liquor" has been defined under Section 3(14) of the Act to mean "intoxicating liquor and included all liquid consisting of or containing alcohol; also any substance which the State Government may by notification declare, to be liquor for the purpose of this Act". "Excisable article" has been defined in Section 3(6) to mean any alcoholic liquor for human consumption; or any intoxicating drug. "Excise duty" and "counervailing duty" as defined in Section 3(6-b) would mean any such excise duty or countervailing duty, as the case may be, as is mentioned in Entry 51 of List-II of the Seventh Schedule to the Constitution. "Intoxicant" under Section 3(12-a) means any liquor or intoxicating drug as has been defined in Section 3(16) to include every process, whether natural or artificial by which any intoxicant is produced or prepared, and also redistillation, and every process for the rectification, reduction, flavouring, blending or colouring of liquor. "Place" has been defined under Section 3(17) to include a building, shop, tent and closure, booth, vehicle, vessel, boat and raft. "Spirit" has been defined in Section 3(19) to mean any liquor containing alcohol obtained by distillation, whether denatured or not. Section 31 of the Act is the charging provision which envisages that an excise duty, or a countervailing duty, as the case may be, at such rate or rates as the State Government shall direct, may be imposed, either generally or for any specified local area, on any excisable article from the distillery, brewery etc. and provides that no intoxicant shall be removed from any distillery, brewery, warehouse, or other place of storage established, or licensed under the Act, unless the duty, if any, payable under Chapter V has been paid or a bond has been executed for the payment thereof. Chapter V deals with the levy of the duties and fees; the details of which are not material for the purpose of this case. As stated earlier, in this case the levy of excise duty was sought to be made at the stage when the manufacturing of the beer was at wort stage. The question is; whether the levy of excise duty, on bear when it was in the process of manufacture is correct? The levy of excise duty is on alcoholic liquor for human consumption, manufacture or production. At what stage bear is exigible to duty is the question. The process of manufacture of bear is described as under:
"The first stage brewing process is
the feeding of Malt and adjuncts
into a vessel known as Mash Tun.
There it is mixed with hot water
and maintained at certain
temperature. The objective of this
process is to convert the straches
of the malt into fermentable sugar.
The extract is drawn from the Mash
Tun and boiled with the addition of
hops for one to two hours after
which it is contrifuged, cooled and
received in the receiving wats. At
this stage, it is called "Wort" and
contains only fermentable sugers
and no alcohol. After this it is
transferred to the formentation
tanks where Yeast is added and
primary fermentation is carried out
at controlled temperature. After
attenuation (Diminution of density
of "Wort" resulting from its
fermentation) is reached for
fermented wort is centrifuged and
transferred to the storage vats for
secondary fermentation. After
secondary fermentation is over in
the storage vats, is filtered
twice-first through the rough
filter press and then through the
fine filter press and received in
the bottling tanks. it is in
bottling tanks that the loss of the
Carbon Dioxide Gas is made up and
bulk beer is drawn for bottling. It
is filed into the bottled and then
last process of pasteurisation is
carried out to make it ready for
packing and marketing. Till and
liquor is removed from the vats and
undergoes the fermentation process
as mentioned above the presence of
alcohol is nil."
Excisable article would mean any alcoholic liquor for human consumption or any intoxicating drug. The levy or impost of excise duty would be only on alcoholic liquor for human consumption or for being produced in the brewery. Beer would mean fermented liquor from malt, when it is potable or in consumable condition as beverage. It is seen that the levy is in terms of entry 51 of List II of the Seventh Schedule which envisages that duties of excise on the 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.
As to when liquor becomes exigible to duty was considered by this Court in Synthetics and Chemicals Ltd. vs. State of U.P. [(1990) 1 SCC 109]. Therein, this Court had considered the question by a Bench of seven Judges, at various stages thus:
"We have no doubt that the framers
of the Constitution when they used
the expression ‘alcoholic liquor
for human consumption’ they meant
at that time and still the
expression means that liquor which
as it is consumable in the sense
capable of being taken by human
beings as such as beverage or
drink. Hence, the expression under
Entry 84, List I must be understood
in that light. We were taken
through various dictionary and
other meanings and also invited to
the process of manufacture of
alcohol in order to induce us to
accept the position that denatured
spirit can also be by appropriate
cultivation or application or
admixture with water or with
others, be transformed into
‘alcoholic liquor for human
consumption’ and as such
transformation would not entail any
process of manufacture as such.
There will not be any organic or
fundamental change in this
transformation, we were told. We
are, however, unable to enter into
this examination. Constitutional
provision specially dealing with
the delimitation or powers in a
federal plity must be understood by
common people for whom the
Constitution is made. In
terminology, as understood by the
framers of the Constitution, and
also as viewed at the relevant time
of its interpretation, it is not
possible to proceed otherwise;
alcoholic or intoxicating liquors
must be understood as these are,
not what these are, not what these
are not what these are, not what
these are capable of or able to
become. It is also not possible to
accept the submission that vend fee
in U.P. in a pre-Constitution
imposition and would not be subject
to Article 245 of the Constitution.
The present extent of imposition of
vend fee is not a pre-Constitution
imposition, as we noticed from the
change of rate from time to time.
On behalf of the State of
Maharashtra Mr. Dholakia submitted
that the first issue is whether
Entry 8 in List II of the Seventh
Schedule of the Constitution,
covers alcohol unfit for human
consumption. The second issue,
according to him is whether
assuming that the entry does not
include alcohol unfit for human
consumption, its scope in that
respect is curtailed because of
item 26 of the Schedule to the IDR
Act, 1951. The third issue,
according to him, is, whether
having regard to Entry 51 in List
II, the State can (a) impose
regulations by creating economic
disincentives for consumption of
drinkable alcohol, and (b)
prevention of misuse of non-
drinkable alcohol for consumption.
Only in two cases the question of
industrial alcohol had come up for
consideration before this Court.
One is the present decision which
is under challenge and the other is
the decision in Indian Mica and
Micanite Industries Ltd. case. In
the latter case, in spite of the
earlier judgments including Barucha
case, denatured spirit required for
the manufacture of micanite was not
regarded as being within the
exclusive privilege of the State.
It appears that in that decision at
p.321 of the report (SCC p.238), it
was specifically held that the
power of taxation with regard to
alcoholic liquor not fit for human
consumption, was within the
legislative competence of central
legislature. The impost by the
State was held to be justifiable
only if it was a fee thereby
impliedly and clearly denying any
consideration or price for any
privilege. For the first time, in
the Synthetics & Chemical ltd. case
the concept of exclusive privilege
was introduced into the area of
industrial alcohol not fit for
human consumption.
Having regard to the principles of
interpretation and the
constitutional provisions, in the
light of the language used and
having considered the impost and
the composition of industrial
alcohol, and the legislative
practice of this country, we are of
the opinion that the impost in
question cannot be justified as
State imposts as these have been
done. We have examined the
different provisions. These seek to
levy imposition in their pith and
substance not as incidental or as
merely disincentaxing provision
permitting these in the lists in
the field of industrial alcohol for
the State to legislate.
Under these circumstances,
therefore, it is clear that the
State legislature had no authority
to levy duty or tax on alcohol
which is not for human consumption
as that could only be levied by the
Centre.
This Court further considered this question by a bench of three Judges in State of U.P. vs. Modi Distillery & Ors. [(1995) 5 SCC 753]. The facts therein are in paragraphs 6 and this Court has held in paragraphs 9, 10 and 11 thus:
"It is convenient now to note the
judgment of a Bench of seven
learned Judges of this Court in
Synthetics and Chemicals Ltd. vs.
State of U.P. [)1990) 1 SCC 109].
This Court stated that it had no
doubt that the framers of the
Constitution, when they used the
expression "alcoholic liquors for
human consumption", meant, and the
expression still means, that liquor
which, as it is, is consumable in
the sense that it is capable of
being taken by human beings as such
as a beverage or drink. Alcoholic
or intoxicating liquors had to be
understood as they were, not what
they were capable of or able to
become. Entry 51 of List II was the
counterpart of Entry 84 of List I.
it authorised the State to impose
duties of excise on alcoholic
liquors for human consumption
manufactured or produced in the
State. It was clear that all duties
of excise save and except the items
specifically excepted in Entry 84
of List I were generally within the
taxing power of the Central
Legislature. The State Legislature
had limited power to impose excise
duties. That power was
circumscribed under Entry 51 of
List II. It had to be borne in mind
that, by common standards, ethyl
alcohol (which 95 per cent
strength) was an industrial alcohol
and was not fir for human
consumption. The ISI specifications
had divided ethyl alcohol (as known
in the trade) into several kinds of
alcohol. Beverages and industrial
alcohols were clearly and
differently treated. Rectified
spirit for industrial purposes was
defined as spirit purified by
distillation having a strength not
less than 95 per cent by volume of
ethyl alcohol. Dictionaries and
technical books showed that
rectified spirit (95 per cent) was
an industrial alcohol and not
potable as such. It appeared,
therefore, that industrial alcohol,
which was ethyl alcohol (95 per
cent), by itself was not only non-
potable but was highly toxic. The
range of potable alcohol varied
from country spirit to whisky and
the ethyl alcohol content thereof
varied between 19 to about 43 per
cent, according to the ISI
specifications. In other words,
ethyl alcohol (95 per cent) was not
an alcoholic liquor for human
consumption but could be used as a
raw material or input, after
processing and substantial
dilution, in the production of
whisky, gin, country liquor, etc.
In the light of experience and
development, it was necessary to
state that "intoxicating liquor"
meant only that liquor which was
consumable by human being as it
was.
What the State seeks to levy excise
duty upon in the Group ‘B’ cases is
the wastage of liquor after
distillation, but before dilution;
and , in the Group ‘D’ cases, the
pipeline loss of liquor during the
process of manufacture, before
dilution. It is clear, therefore,
that what the State seeks to levy
excise duty upon is not alcoholic
liquor for human consumption by
human beings. The State is not
empowered to levy excise duty on
the raw material or input that is
in the process of being made into
alcoholic liquor for human
consumption.
That the measure of excise duty
upon alcoholic liquor for human
consumption is the alcoholic
strength thereof does not make any
difference in this behalf, it is
only the alcoholic strength of the
final product which is relevant."
It is, thus, clear that the range of potable alcohol varies between country spirit to whisky and the ethyl alcohol. The alcoholic strength of each excisable article and its percentage varies as per the ISI specifications but intoxicating liquor necessarily means only that liquor which was consumable by human beings as it was. The state of levying excise duty upon alcoholic liquor arises when excisable article is brought to the stage of human consumption with the requisite alcoholic strength thereof. It is only the final product which is relevant.
Thus, the final product of the beer is relevant excisable article exigible to duty under Section 31 of the Act when it passes through fine ilter press and received in the bottling tank. The question is: at what stage the duty is liable to be paid? Section 23 specifically envisages that until the payment of duty is made or bond is executed in that behalf as per the procedure and acceptance by the Financial Commissioner, the finished product, namely, the beer in this case, shall not be removed from the place at which finished product was stored either in a warehouse within factory premises or precinct or permitted place of usage. Under these circumstances, the point at which excise duty is exigible to duty is the time when the finished product, i.e., bear was received in bottling tank or the finished product is removed from the place of storage or warehouse etc.
The appeal is, therefore, allowed and the respondents are entitled to collect the excise duty as per the rates specified by the Government in exercise of the power in Chapter V of the Act from the appellant when the appellant removed beer from the place of storage/warehouse etc. In other words, it is the place of storage, with reference to which duty is liable to be paid, as envisaged under Section 23 of the Act read with the Rule made by the Government. If there is any ambiguity in the Rules made by the Government, it may be open to them to regulate the process of manufacture and check the percentage of the quantity obtained in the process of manufacture but that does not make them exigible to duty while beer is in the process of manufacture. However, as stated earlier, it is exigible to duty only when it becomes finished product and is sought to be removed from the place of storage.
The appeal is accordingly allowed. No costs.