State has no power to levy Excise Duty on wastage of liquor after distillation: Supreme Court

The Supreme Court on Thursday reiterated that the State has no power to levy excise duty on wastage of alcohol after distillation [State of Orissa vs Utkal Distilleries]..A Bench of Justices L Nageswara Rao and BR Gavai referring to the seven-judge Constitution Bench judgment of the top court in Synthetics and Chemicals Ltd and others vs State of UP and three-judge Bench decision in State of UP and others vs. Modi Distillery and others held that the State is empowered to levy excise duty on alcoholic liquor that is only for human consumption..“This Court held that the State has no power to levy excise duty on wastage of liquor after distillation,” the judgment said..By way of background, a license was granted to the respondent-company by the State of Odisha for the purpose of manufacturing, bottling, blending and reduction of Indian Made Foreign Liquor (IMFL)..As required under the license, the respondent had installed one ENA column to purify the rectified spirit to be used in the manufacturing of IMFL. It was the case of the respondent-company that the manufacturing process resulted in generation of certain weak spirit, which was not potable.The State had also allowed for 2 per cent wastage. The sample of wastage generated in the manufacturing process was sent for examination to the State Drugs Testing and Research Laboratory, Odisha, which found it unfit for human consumption.However, the State government sent multiple demand notices to the respondent company calling upon it to pay excise duty on the weak spirit, which was more than the two per cent allowable wastage. The company approached the Orissa High Court and contended that the State government has no authority to impose excise duty on the weak spirit. The High Cour stayed the demand notices of the State government, leading to the present appeal before the Supreme Court..The Supreme Court reiterated that the Court had held Constitution makers distributed the term ‘alcohol liquor’ into two heads, viz., (a) for human consumption; and (b) other than for human consumption.“It has been held that the alcoholic liquors, which are for human consumption, are put in Entry 51 List II authorizing the State Legislature to levy tax on them, whereas alcoholic liquors other than for human consumption have been left to the Central Legislature under Entry 84 for levy of duty of excise. It has been held that what has been excluded in Entry 84 has specifically been put within the authority of the State for purposes of taxation," the Court noted. It also adverted to a Constitution Bench decision of the Supreme Court in Synthetics and Chemicals Ltd. and others vs. State of UP which held that the State legislature has no authority to levy duty or tax on alcohol, which is not for human consumption as that could be levied only by the Central government..The Bench examined the Section 27(1) of the erstwhile Bihar and Orissa Excise Act of 1915 that stated that the State’s power to impose duty on import, export, transport and manufacture is only in respect of any excisable articles imported, exported, transported and manufactured.“‘Excisable article’ has been defined to be any alcoholic liquor for human consumption or any intoxicating drug. It is thus clear that even under the relevant statute, the State has power to levy excise duty only in respect of the alcoholic liquor for human consumption,” the Supreme Court observed. It, therefore, dismissed the appeal by the State..[Read Judgment]