No Acts & Articles mentioned in this case
1
AFR
Court No. 3
Case :- WRIT TAX No. - 378 of 2021
Petitioner :- M/S Jain Distillery Private Limited
Respondent :- State Of U.P. And 5 Others
Counsel for Petitioner :- Nishant Mishra, Tanmay Sadh
Counsel for Respondent :- C.S.C.,A.S.G.I., Dhananjay Awasthi,
Satendra Kumar Upadhyay
With
Case :- WRIT TAX No. - 369 of 2021
Petitioner :- M/S Mohit Petrochemicals Private Limited
Respondent :- State Of U.P. And 5 Others
Counsel for Petitioner :- Nishant Mishra, Tanmay Sadh
Counsel for Respondent :- C.S.C.,A.S.G.I., Dhananjay Awasthi,
Satendra Kumar Upadhyay
With
Case :- WRIT TAX No. - 370 of 2021
Petitioner :- M/S Mohit Petrochemicals Private Limited
Respondent :- State Of U.P. And 5 Others
Counsel for Petitioner :- Nishant Mishra, Tanmay Sadh
Counsel for Respondent :- C.S.C.,A.S.G.I., Anupama Parashar,
Dhananjay Awasthi
With
Case :- WRIT TAX No. - 383 of 2021
Petitioner :- M/S Mohit Petrochemicals Private Limited
Respondent :- State Of U.P. And 5 Others
Counsel for Petitioner :- Nishant Mishra, Tanmay Sadh, Yashonidhi
Shukla
Counsel for Respondent :- C.S.C.,A.S.G.I.,Krishna Agarawal, Ravi
Prakash Singh
With
Case :- WRIT TAX No. - 371 of 2021
Petitioner :- M/S Jain Distillery Private Limited
Respondent :- State Of U.P. And 5 Others
Counsel for Petitioner :- Nishant Mishra, Tanmay Sadh
Counsel for Respondent :- C.S.C.,A.S.G.I., Anupama Parashar,
Dhananjay Awasthi
With
Case :- WRIT TAX No. - 364 of 2021
2
Petitioner :- M/S SVP Industries Limited
Respondent :- State Of U.P. And 4 Others
Counsel for Petitioner :- Suresh Kumar Maurya, Pawan Shri Agarwal
With
Case :- WRIT TAX No. - 451 of 2021
Petitioner :- M/S Dcm Shriram Limited
Respondent :- State Of U.P. And 4 Others
Counsel for Petitioner :- Suresh Kumar Maurya, Pawan Shri Agarwal
Counsel for Respondent :- C.S.C.,A.S.G.I., Ashok Singh, Gopal Verma
With
Case :- WRIT TAX No. - 355 of 2020
Petitioner :- U.P. Sugar Mills Association Through Its Secretary General
Mr. Deepak Guptara And Another
Respondent :- State Of U.P. Through Its Principal Secretary And 2 Others
Counsel for Petitioner :- Rahul Agarwal, Priya Agrawal
Counsel for Respondent :- C.S.C.,A.S.G.I.
And
Case :- WRIT TAX No. - 385 of 2021
Petitioner :- M/S Jain Distillery Private Limited
Respondent :- State Of U.P. And 5 Others
Counsel for Petitioner :- Tanmay Sadh, Nishant Mishra
Counsel for Respondent :- C.S.C., A.S.G.I., Dhananjay Awasthi
Hon'ble Naheed Ara Moonis, J.
Hon'ble Saumitra Dayal Singh, J.
1.Heard Shri Navin Sinha, learned Senior Advocate, assisted by Shri
Nishant Mishra, learned counsel for the petitioner in Writ Tax Nos. 378 of
2021 and 383 of 2021; Shri Nishant Mishra in Writ Tax Nos. 369 of 2021,
370 of 2021, 371 of 2021 and 385 of 2021; Shri Rahul Agarwal, learned
counsel for the petitioner in Writ Tax No. 355 of 2020; Shri Pawan Shri
Agarwal, learned counsel for the petitioner in Writ Tax Nos. 364 of 2021 and
451 of 2021; Shri Manish Goel, learned Additional Advocate General
assisted by Shri Apurva Hajela and Shri A.C. Tripathi, learned Standing
Counsel, for the State.
2. In Writ Tax No. 378 of 2021, the petitioner has sought relief in the
nature of a declaration that the State legislature (of Uttar Pradesh) lost its
3
legislative competence to impose or levy tax on sale of Extra Neutral
Alcohol (in short, 'ENA'), after enactment of the 101
st
Constitution
Amendment, with effect from 01.07.2017 – as a direct consequence of the
enactment of Article 246A read with Article 366 (12-A) of the Constitution
of India, read with the substituted Entry 54 of List II of the Seventh
Schedule, to the Constitution of India. Further relief has been sought, to seek
quashing of the Notification No. KA.NI-2-1793 dated 17 December 2019,
issued under Section 74 read with Section 4(4) of the Uttar Pradesh Value
Added Tax Act, 2008 (in short, UPVAT Act), whereby Schedule entry 1-A
was added to the pre-existing Schedule IV (below entry 1), of the UPVAT
Act, to impose tax on sale of ENA, at the rate 5 percent, at the point of
Manufacturer or Importer, w.e.f. 09.12.2019. Challenge has also been raised
to the Circular/letters dated 10.06.2021 and 11.06.2021 issued by the
Additional Commissioner Grade-I, Commercial Tax, directing the
subordinate authority to charge and collect UPVAT on ENA used in the
manufacture of “alcoholic liquor for human consumption”. Next, purely
alternatively, adjustment of the GST levied and paid on ENA and Special
Denatured Spirit (in short, 'SDS'), has been sought, against the UPVAT
liability imposed by the State, on the above described commodities. By way
of an amendment (allowed), challenge has also been raised to the assessment
order dated 30.06.2021, for the A.Y. 2017-18 (U.P. & Central) (01.07.2017
to 31.03.2018), whereby UPVAT & Central Sales Tax has been assessed on
ENA, treating that commodity to be covered under entry 1 of Schedule IV of
the UPVAT Act.
3.In Writ Tax No. 369 of 2021, besides the challenge raised to the
legislative competence and the Notification dated 17.12.2019 (as above),
challenge has also been raised to the assessment notice dated 08.06.2021,
issued against that petitioner, for A.Y. 2019-20, as also Circular/letters dated
10.06.2021 and 11.06.2021 (as above).
4. Similarly, in Writ Tax No 370 of 2021, besides the challenge raised to
the legislative competence (as above), challenge has been raised to the
4
assessment notice dated 15.06.2021 issued to that petitioner, for A.Y. 2017-
18 (01.07.2017 to 31.03.2018); the assessment order dated 30.06.2021
passed under Section 29 of the UPVAT Act, for A.Y. 2017-18 (01.07.2017 to
31.03.2018) and; the Circular/letters dated 10.06.2021 and 11.06.2021 (as
above).
5.In Writ Tax No. 383 of 2021, besides the challenge raised to the
legislative competence (as above) and the Notification dated 17.12.2019,
challenge has also been raised to the assessment notice dated 21.06.2021
issued under Section 28 of UPVAT Act, for A.Y. 2018-19 (U.P.) and, the
Circular/letters dated 10.06.2021 and 11.06.2021 (as above).
6.In Writ Tax No. 371 of 2021, besides the challenge raised to the
legislative competence and Notification dated 17.12.2019 (as above),
challenge has also been raised to the assessment notice dated 08.06.2021
issued under Section 28 of the UPVAT Act, for A.Y. 2019-20 and the
Circular/letters dated 10.06.2021 and 11.06.2021 (as above).
7.In Writ Tax No. 364 of 2021, besides the challenge to the legislative
competence (as above), challenge has also been raised to two assessment
notices, both dated 11.06.2021, issued under Section 29 of the UPVAT Act
and the Central Sales Tax Act, seeking to impose tax under the UPVAT Act
as also the Central Sales Tax Act, for A.Y. 2017-18 (01.07.2017 to
31.03.2018) (UP & Central).
8.In Writ Tax No. 451 of 2021, besides the challenge to the legislative
competence and the Notification dated 17.12.2019 (as above), challenge has
also been raised to two assessment notices, both dated 07.07.2021, one
issued under Section 28 of the UPVAT Act and the other under Section 9 (2)
Central Sales Tax Act, for A.Y. 2019-2020.
9. Writ Tax No. 355 of 2020 has been filed by the U.P. Sugar Mills
Association seeking to challenge the legislative competence of the State to
levy UPVAT on sales of ENA and Rectified Spirit, used to manufacture
“alcoholic liquor for human consumption”. A further challenge has been
5
raised to the Notification dated 17.12.2019 (as above).
10.In Writ Tax No. 385 of 2021, besides the challenge raised to the
legislative competence and Notification dated 17.12.2019 (as above),
challenge has also been raised to the assessment notice dated 21.06.2021
issued under Section 28 of the UPVAT Act, for A.Y. 2018-19 as also
Circular/letters dated 10.06.2021 and 11.06.2021 (as above).
11.Since identical facts are involved in all the above writ petitions and
challenge raised is also identical, we have heard these petitions together.
Basic/essential facts, common to all the writ petitions, are extracted below.
12.According to the petitioners ENA, both denatured and un-denatured as
also SDS fall under the heading 2207 of the First Schedule to the Customs
Tariff Act, 1975. ENA, is concentrated Ethyl Alcohol (Ethanol) having
alcohol content about 95 percent. Similarly, SDS is spirit or neutral alcohol
used for industrial purposes only. According to the petitioners, they
manufacture and sell ENA, both to distilleries that manufacture “alcoholic
liquor for human consumption” and to chemical and other industries. Owing
to high alcohol content (above 95 percent), both ENA and SDS are unfit for
human consumption. Prior to the 101
st
Constitution amendment and, in light
of Article 246 of the Constitution read with Entry 54 of List II (as those
provisions then existed), the State legislature had the legislative competence
to enact laws to impose tax on sale or purchase of any goods other than
newspapers, subject however, to the provisions of Entry 92A of List I. Also,
in view of Article 246 of the Constitution read with Entry 51 of List II of the
Seventh Schedule, the State Government had the legislative competence to
enact laws to impose duties of excise on goods manufactured or produced in
the State, being (i) alcoholic liquors for human consumption and (ii) opium,
Indian hemp etc.
13.On the other hand, in view of Article 246 read with Entry 92, the
Parliament had the legislative competence to enact laws, to impose tax on
sale or purchase of newspapers and on advertisements published therein.
6
Similarly, by virtue of Article 246 read with Entry 84 of List I of the Seventh
Schedule, the Parliament had the legislative competence to enact laws to
impose duties of excise on tobacco and other goods manufactured or
produced in India, except (i) alcoholic liquors for human consumption and
(ii) opium, Indian hemp etc.
14.It is an admitted case between the parties, prior to the introduction of
101
st
Constitution Amendment, various State legislatures had made laws to
impose tax on sale and to levy duties of excise on “alcoholic liquors for
human consumption”. Insofar as the Parliament is concerned, prior to the
aforesaid amendment, it had enacted laws imposing duties of excise on
manufacture of alcohol - not for human consumption, including ENA and
SDS.
15.In the State of Uttar Pradesh, there pre-existed, the United Provinces
Sales of Motor Spirit, Diesel Oil and Alcohol Taxation Act, 1939
(hereinafter referred to as the 'United Provinces Act'). Under Section 2 (aaaa)
of that Act, the term 'alcohol' was defined as Ethyl Alcohol not being
“alcoholic liquor for human consumption”. It included, Rectified Spirit,
Denatured Spirit and Absolute Alcohol. Under Section 3(c) of the said Act,
there existed a provision to levy tax, at the point of first purchase of
'alcohol', at the prescribed rate.
16.With time, under Section 4(1)(c) read with Schedule IV to the UPVAT
Act, tax became payable on the sale of goods specified in the said Schedule,
(including 'alcohol' as defined under the United Provinces Act), at the rate
32.5 percent. For ready reference, Entry No.1 of Schedule IV to the UPVAT
Act, is quoted below:
Sl NoName and description of goodsPoint of TaxRate of Tax
%
1.Spirits and Spirituous Liquors of all
kinds including Alcohol, as defined
under the United Provinces Sales of
Motor Spirit, Diesel Oil and Alcohol
Taxation Act, 1939, but excluding
country liquors
M or I 32.5%
7
Also, under Section 7(c) of the UPVAT Act, the State Government was
delegated a power, to not levy UPVAT on such sale or purchase or, sale or
purchase of such goods by such class of dealers, as may be specified in the
Notification issued by it, in that regard. In exercise of that power, the State
Government issued Notification No. KA.NI-2-14/XI dated 10.01.2008. It
reads:
“WHEREAS the State Government is satisfied that it is
expedient so to do in public interest.
Now, Therefore, in exercise of the powers under clause (c) of
Section 7 read with Section 74 of the Uttar Pradesh Value Added Tax
Ordinance, 2007 [U.P. Ordinance no. 37 of 2007], the Governor is
pleased to direct, that no tax shall be payable under the said Ordinance
with effect from January 01, 2008, on the sale or purchase of country
liquor and spirit and spirituous liquors of all kinds including methyl
alcohol in Uttar Pradesh by manufacturer or importer dealer subject to
the condition that a certificate prescribed by the Commissioner of
Commercial Taxes, Uttar Pradesh is submitted by the concerned dealer
with the return of the tax period before the assessing authority to the
effect that consideration fee or excise duty payable under the United
Provinces Excise Act, 1910 or the United Provinces Sales of Motor
Spirit, Diesel Oil and Alcohol Taxation Act, 1939, as the case may be,
has been paid.”
17.Thus, UPVAT did not apply to the goods specified in Entry No.1 to
Schedule IV of the UPVAT Act, if the Manufacturer or the Importer dealer
had paid excise duty under the United Provinces Act and, he had been issued
the prescribed certificate, by the Commissioner of Commercial Tax, Uttar
Pradesh, in that regard. That Notification was later amended by Notification
No. KA.NI-2-879/XI dated 26.03.2008. Thereby, the words 'including
methyl alcohol' were substituted with the words 'excluding methyl Alcohol'.
Also, the words 'manufacture or importer dealer' were substituted with the
word 'dealer'. The words 'consideration fee or excise duty' were replaced by–
'consideration fee, excise duty, fees or purchase tax'.
18.It would be fruitful for our discussion to extract the unamended and
amended taxation Entries of List I and List II (as amended by the 101
st
Constitution Amendment), as have also been extensively referred to by the
learned counsel for the parties. A comparative chart showing relevant Entries
before and after that amendment read as under:
List II, Seventh Schedule, Constitution of India
8
Unamended Entries of List II (State List)Entries as Amended
8. Intoxicating liquors, that is to say, the
production, manufacture, possession,
transport, purchase and sale of intoxicating
liquors.
Same as before
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 narcotics,
but not including medicinal and toilet
preparations containing alcohol or any
substance included in sub-paragraph (b) of
this entry.
Same as before
54. Taxes on the sale or purchase of goods
other than newspapers, subject to the
provisions of entry 92A of List I.
54. Taxes on the sale of
petroleum crude, high speed
diesel, motor spirit (commonly
known as petrol), natural gas,
aviation turbine fuel and
alcoholic liquor for huma
consumption, but not including
sale in the course of inter-State
trade or commerce or sale in
the course of international
trade or commerce of such
goods.
List I, Seventh Schedule, Constitution of India
Unamended Entries of List I (Union List)Entries as Amended/Inserted
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.
84. Duties of excise on the
following goods manufactured
or produced in India, namely: –
(a) petroleum crude;
(b) high speed diesel;
(c) motor spirit (commonly
known as petrol);
(d) natural gas;
(e) aviation turbine fuel; and
(f) tobacco and tobacco
products.
92. Taxes on the sale or purchase of
newspapers and on advertisements
published therein.
Omitted
92A. Did not exist 92A. Taxes on the sale or
purchase of goods other than
newspapers, where such sale or
9
purchase takes place in the
course of inter-State trade or
commerce.
(Inserted )
19.Also, by the 101
st
Constitution amendment, Article 246A was first
enacted, as below:
“246A.Special provision with respect to goods and services
tax.– (1) Notwithstanding anything contained in articles 246 and 254,
Parliament, and, subject to clause(2), the Legislature every State, have
power to make laws with respect to goods and services tax imposed by
the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to goods
and services tax where the supply of goods, or of services, or both takes
place in the course of inter-State trade or commerce.
Explanation.– The provisions of this article, shall, in respect of goods
and services tax refer to in clause(5) of Article 279-A, take effect from
the date recommended by the Goods and Services Tax Council. ”
20.Further, Article 366 (12A) introduced simultaneously, reads thus:
“366. Definitions - In this Constitution, unless the context otherwise
requires, the following expressions have the meanings hereby
respectively assigned to them, that is to say-
(12A). “goods and services tax” means any tax on supply of goods, or
services or both except taxes on the supply of the alcoholic liquor for
human consumption.”
21.Consequently, the Parliament also enacted the Central GST Act, 2017.
The State legislature, on its part, enacted the UPGST Act, 2017. Also, by Act
No.18 of 2017, the Parliament substituted Section 2(d) of the Central Sales
Tax Act, 1956. The original and the substituted texts of Section 2(d) of that
Act, read as below:
Unamended Section 2(d)Section 2(d) as substituted
(d) “goods” includes all materials,
articles, commodities and all other
kinds of movable property, but does
not include newspapers, actionable
claims, stocks, shares and securities;
(d) “goods” means –
(i) petroleum crude;
(ii) high speed diesel;
(iii) motor spirit (commonly
known as petrol);
(iv) natural gas;
(v) aviation turbine fuel; and
(vi) alcoholic liquor for human
consumption
10
22.Last, the impugned Notification No. KA.NI-2-1793 dated 17.12.2019,
reads as below:
Uttar Pradesh Shasan
Sansthagat Vitta, Kar Evam Nibandhan Anubhag-2
In pursuance of the provisions of clause (3) of Article 348 of the
Constitution, the Governor is pleased to order the publication of the
following English Translation of Government Notificaton no. KA.NI-2-
1793/XI-29(134)/17-U.P. Act-5-2008-Order-(80)-2019, dated 17
December, 2019;
NOTIFICATION
No.-KA.NI-2-1793/XI-29(134)/17-U.P.Act-5-2008-Order-
(80)-2019
Lucknow : Dated : 17 December, 2019
WHEREAS the State Government is satisfied that it is expedient so to
do in public interest;
NOW, THEREFORE, In exercise of the powers under sub-section (4) of
section 4 read with section 74 of the Uttar Pradesh Value Added Tax Act,
2008 (U.P. Act no.5 of 2008), the Governor is pleased to make with effect
from 09. December, 2019, the following amendment in Schedule-IV to
the said Act:-
Amendment
In the aforesaid Schedule, after serial no.1 the following serial and entries
relating there to shall column-wise be inserted, namely:-
S. No.Name and Description of goodsPoint of TaxRate of Tax %
1 2 3 4
1-AAny non GST alcohol, when sold
for use in the process of
manufacture of alcoholic liquor
for human consumption against a
certificate issued by the
Commissioner of State Excise,
Uttar Pradesh or by the officer
authorised by him in this regard.
M or I 5%
23.It has been vehemently urged by Sri Sinha, before the introduction of
the 101
st
Constitution Amendment, the competence of the State legislatures
to impose duties of excise on industrial alcohol (i.e. non-potable alcohol),
came up for consideration before a seven-Judge Constitution Bench of the
Supreme Court, in Synthetics and Chemicals Ltd. & Ors. Vs. State
of U.P. & Ors., (1990) 1 SCC 109. Relying, both on the majority
opinion, as also the concurring opinion, it has been urged, the legislative
competence of the States (to levy duties of excise) was confined to
“alcoholic liquors for human consumption” - as an existing commodity, on
11
the date of that levy being imposed. The argument-denatured spirit can also
be transformed to “alcoholic liquors for human consumption”, and therefore
be amenable to duties of excise, by the State legislatures, was specifically
rejected. Ethyl Alcohol (95%) (also known as Rectified Spirit) i.e. industrial
alcohol, was opined to be not-fit for human consumption. The range of
alcohol in potable alcohol i.e. “alcoholic liquors for human consumption”
was also opined to be 19% - 43%. The conclusions reached in that decision
as recorded in paras 54, 86 and 88 (majority view) and para 101 (concurring
view) of the report, read as below:
“54. 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 is consumable in the sense capable of being taken by human beings
as such as beverage of drinks. 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
provisions specially dealing with the delimitation of powers in a federal
polity must be understood in a broad commonsense point of view as
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 capable of or able to become. It is also
not possible to accept the submission that vend fee in U.P. is 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.”
86. The position with regard to the control of alcohol industry has
undergone material and significant change after the amendment of 1956
to the IDR Act. After the amendment, the State is left with only the
following powers to legislate in respect of alcohol:
(a) It may pass any legislation in the nature of prohibition of
potable liquor referable to Entry 6 of List II and regulating powers.
(b) It may lay down regulations to ensure that non-potable alcohol
is not diverted and misused as a substitute for potable alcohol.
(c) The State may charge excise duty on potable alcohol and sales
tax under Entry 52 of List II. However, sales tax cannot be charged
12
on industrial alcohol in the present case, because under the Ethyl
Alcohol (Price Control) Orders, sales tax cannot be charged by the
State on industrial alcohol.
(d) However, in case State is rendering any service, as distinct from
its claim of so-called grant of privilege, it may charge fees based
on quid pro quo. See in this connection, the observations of Indian
Mica case [(1971) 2 SCC 236 : 1971 Supp SCR 319 : AIR 1971 SC
1182] .
88. On an analysis of the aforesaid decisions and practice, we are
clearly of the opinion that in respect of industrial alcohol the States are
not authorised to impose the impost they have purported to do. In that
view of the matter, the contentions of the petitioners must succeed and
such impositions and imposts must go as being invalid in law so far as
industrial alcohol is concerned. We make it clear that this will not
affect any impost so far as potable alcohol as commonly understood is
concerned. It will also not affect any imposition of levy on industrial
alcohol fee where there are circumstances to establish that there was
quid pro quo for the fee sought to be imposed. This will not affect any
regulating measure as such.
101. 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.”
24.Then, in State of U.P. & Ors. Vs. Modi Distillery & Ors.,
(1995) 5 SCC 753, an issue had arisen as to competence of the State
legislature to impose duties of excise on (i) wastage of IMFL, exported
outside the State, (ii) wastage of high strength spirit, during transportation
from the distillery to warehouse and (iii) obscuration. Upon consideration of
the State's submission in that regard, it was held as below:
“10. 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 but the raw material or
input still in process of being rendered fit for 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.”
25.Yet, a contrary view was taken by a two-Judge bench decision of the
Supreme Court in Bihar Distillery & Anr. Vs. Union of India &
Ors., (1997) 2 SCC 727, upon a different reading of the aforesaid
Constitution bench decision of the Supreme Court in Synthetics and
Chemicals Ltd. & Ors. Vs. State of U.P. & Ors. (supra). It was
13
observed as below:
“10. A reading of the above entries would immediately disclose that
Entry 51 in List II and Entry 84 in List I compliment each other. Both
provide for duties of excise but while the States are empowered to levy
duties of excise on (a)alcoholic liquors for human consumption and (b)
opium, Indian hemp and narcotics manufactured or produced in the State
and countervailing duties at the same or lower rates on similar goods
manufactured or produced elsewhere in India [but excluding medicinal
and toilet preparation containing alcohol or any substance included in
sub-para (b) of this Entry], the Union is empowered to levy 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 including drugs and narcotics. Medicinal
and toilet preparations containing alcohol or any substance included in
sub-para (b) which are excluded from Entry 51 in List II are expressly
included in this entry. For our purposes, the relevant expression is
“alcoholic liquors for human consumption” which is included in Entry
51 in List II and excluded from Entry 84 in List I. The words employed
denote that there may be alcoholic liquors meant for human consumption
as well as for other purposes. Now coming to Entry 8 in List II, it does
not use the expression “alcoholic liquors for human consumption”. It
employs the expression “intoxicating liquors” which expression is, of
course, not qualified by words “for human consumption”. This is for the
obvious reason that the very word “intoxicating” signifies “for human
consumption”. Entry 8, it is necessary to emphasize, places all aspects of
intoxicating liquors within the State's sphere; production, manufacture,
possession, transport, purchase and sale of intoxicating liquors is placed
within the exclusive domain of the States. Entry 6, which inter alia
speaks of “public health” is relevant only for the reason that it furnishes
a ground for prohibiting consumption of intoxicating liquors. Coming to
Entry 33 in List III, the language of clause (a) thereof is significant.
Even though control of certain industries may have been taken over by
the Union by virtue of a declaration made by Parliament in terms of
Entry 52 in List I, yet the “trade, commerce in, and the production,
supply and distribution of the products” of such industry is placed in the
concurrent field, which in the present context means that though the
control of alcohol industry is taken over by the Union, trade, commerce
in and the production, supply and distribution of the products of alcohol
industry can be regulated both by the Union and the States subject, of
course, to Article 254. It also means, as will be explained later, that
insofar as the field is not occupied by the laws made by the Union, the
States are free to legislate.
11. In the matter of industries mentioned in List II, Entry 24 in List II is
in the nature of general entry. It speaks of industries but is made
expressly subject to Entries 7 and 52 of List I. By making a declaration
in terms of Entry 52 in List I in Section 2 of the IDR Act, Parliament has
taken control of the several industries mentioned in the Schedule to the
Act. The States have been denuded of their power to legislate with
respect to those industries on that account. It has, however, been held by
a three-Judge Bench of this Court in State of A.P. v.McDowell & Co.
[(1996) 3 SCC 709] that Entry 52 overrides only Entry 24 in List II and
no other Entry in List II. It has been held that Entry 8 is not overridden
or overborne in any manner by Entry 52 — which means that so far as
intoxicating liquors are concerned, they are within the exclusive sphere
of the States. We may pause at this stage and append a clarification
14
which has become necessary in the light of certain words occurring in
para 85 of the judgment of Sabyasachi Mukharji, J. in Synthetics
[ Whenever we refer to “Synthetics” hereafter, it would mean the
judgment of the seven-Judge Constitution Bench reported in (1990) 1
SCC 109.] . At the inception of para 85 of the said judgment, the
following statement occurs: (SCC p. 157)
“After the 1956 amendment to the IDR Act bringing alcohol
industries (under fermentation industries) as Item 26 of the First
Schedule to IDR Act the control of this industry has vested
exclusively in the Union. Thereafter, licences to manufacture
both potable and non-potable alcohol is vested in the Central
Government. Distilleries are manufacturing alcohol under the
Central licences under the IDR Act. No privilege for
manufacture even if one existed, has been transferred to the
distilleries by the State.”
12. It is obvious that the words “both potable and” occur here as a result
of some accidental or typographical error. The entire preceding
discussion in the judgment repeatedly affirms that so far as potable
alcohols are concerned, they are governed by Entry 8 and are within the
exclusive domain of the States. The aforesaid words cannot fit in with
the said repeatedly affirmed reasoning. We are, therefore, of the opinion
that the said passage cannot be understood as holding that even in
respect of the industries engaged in the manufacture or production of
potable liquors, the control is vested in the Union by virtue of Item 26 of
the First Schedule to the IDR Act. In view of the express language of
Entry 8 — as has been clearly explained in McDowell [(1996) 3 SCC
709] — so far as potable liquors are concerned, their manufacture,
production, possession, transport, purchase and sale is within the
exclusive domain of the States and the Union of India has no say in the
matter. For a similar clarification with respect to the power of the State
to levy sales tax on industrial alcohol, reference may be had to State of
U.P. v. Synthetics and Chemicals Ltd. [(1991) 4 SCC 139].”
26.That decision sought to recognize the competence of the State
legislatures, to levy duties of excise on Rectified Spirit, if used to
manufacture potable alcohol. Later, the correctness of that view was doubted
by another two-Judge bench of the Supreme Court in Deccan Sugar &
Abkari Co. Ltd. Vs. Commissioner of Excise, A.P., (1998) 3
SCC 272. Upon that reference made, a three-Judge bench of the Supreme
Court, in Deccan Sugar & Abkari Co. Ltd. Vs. Commissioner of
Excise, A.P., and connected matters, (2004) 1 SCC 243 again
reiterated the earlier ratio of the Constitution bench decision of the Supreme
Court, in Synthetic and Chemicals Limited (supra), as followed by a
three-Judge bench decision in State of U.P. Vs. Modi Distillery,
(1995) 5 SCC 753. Thus, it was held :
15
“2. It is settled by the decision of this Court in Synthetics and Chemicals
Ltd. v. State of U.P., (1990) 1 SCC 109 that the State Legislature has no
jurisdiction to levy any excise duty on rectified spirit. The State can levy
excise duty only on potable liquor fit for human consumption and as
rectified spirit does not fall under that category the State Legislature
cannot impose any excise duty. The decision in Synthetics and Chemicals
Ltd. v. State of U.P. has been followed in State of U.P. v. Modi Distillery,
(1995) 5 SCC 753 where certain wastage of ethyl alcohol was sought to
be taxed. This Court following the decision in Synthetics and Chemicals
Ltd. came to the conclusion that this cannot be done.”
27.That confirmed position in law, was reiterated by a two- Judge bench
decision of the Supreme Court in State of U.P. & Ors. Vs. VAM
Organic Chemicals Ltd. & Ors., (2004) 1 SCC 225. Therein, it was
opined as below:
“22. Article 246 gives to Parliament exclusive power to make laws with
respect to the matters enumerated in List I of the Seventh Schedule. Entry
84 of List I and Entry 51 of List II were construed by this Court in
Synthetics case[(1990) 1 SCC 109 : 1989 Supp (1) SCR 623] to hold that
Parliament alone has the exclusive power to legislate and levy excise tax
in respect of industrial alcohol. It is unnecessary to refer to the law with
regard to the comparative competence of the Union and the States with
regard to levy of excise, regulation and control of industrial alcohol prior
to the decision of the Constitution Bench in Synthetics[(1990) 1 SCC 109
: 1989 Supp (1) SCR 623] . Whatever the law was earlier, the decision in
Synthetics [(1990) 1 SCC 109 : 1989 Supp (1) SCR 623] now holds the
field. In that decision the State's power to levy excise duty was held to be
limited by Entry 51 to tax on alcoholic liquors for human consumption. It
was also held that Section 2 of the Industries (Development and
Regulation) Act, 1951 as well as Serial No. 26 of the First Schedule to
that Act covered the whole field on industrial alcohol and its products.
Therefore, since the coming into force of the IDR Act on 8-5-1952 the
State Legislatures are constitutionally incompetent to levy any tax on
industrial alcohol.
23. The principle was succinctly reiterated in State of U.P. v. Modi
Distillery[(1995) 5 SCC 753] where it was said that the State's power to
levy excise duty was limited to alcoholic liquor for human consumption
and
that the framers of the Constitution, when they used the
expression “alcohol 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. … Dictionaries
and technical books showed that rectified spirit (95 per cent) was
an industrial alcohol and not potable as such. … Therefore even
if ethyl alcohol (95 per cent) could be used as a raw material or
input, after processing and substantial dilution, in the production
of whisky, gin, country liquor etc. nevertheless, it was not
“intoxicating liquor” which expression meant only that liquor
which was consumable by human beings as it was.
(emphasis supplied)
16
Thus the State cannot legislate on industrial alcohol despite the fact that
such industrial alcohol has the potential to be used to manufacture
alcoholic liquor.”
28.Thus, though denuded of any power to enact a law to levy a duty of
excise on alcohol-not for human consumption, the State legislatures were
conceded the legislative competence to enact regulatory laws, to prevent
diversion of industrial alcohol, to manufacture alcohol for human
consumption.
29.Reliance has also been placed on another decision of the Supreme
Court in State of Jharkhand & Ors. Vs. Ajanta Bottlers and
Blenders Private Ltd., (2019) 7 SCC 545 to emphasize - the levy or
impost of duties of excise may fructify only upon completion of the
distillation process and not earlier. Hence ENA, prior to its transformation
into “alcoholic liquor for human consumption”, could not be subjected to a
duty of excise by the State legislature. Once transformed, there exists no
ENA. Relevant to our discussion, the contents of para 11 of that report read
as below: -
“11. We have adverted to the abovementioned 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 para 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
form of IMFL, a new produce. The last part of the rule stipulates the
quantum of charges to be levied on such utilised imported rectified spirit
for production of the foreign liquor. For that limited purpose, the quantity
of imported rectified spirit utilised in the production of potable liquor, is
reckoned.”
17
30.Then, relying on the decision of the Supreme Court in Synthetics
and Chemicals Limited (supra) and another Constitution bench decision
of the Supreme Court in M.P.V. Sundararamier & Co. Vs. State of
A.P. & Ors., AIR 1958 SC 468 as also the decision of the Supreme
Court in State of Mysore & Ors. Vs. D. Cawasji & Company &
Ors., (1970) 3 SCC 710 , it has been submitted, the legislative
competence to enact a law imposing tax, cannot be derived from a general
entry, falling under either of the three Lists of the Seventh Schedule, to the
Constitution of India. Such competence must be derived under a specific
taxing entry alone. Therefore, according to learned senior counsel for the
petitioner, there is no applicability of Entry 8 of List II of the Seventh
Schedule, to the Constitution and that general Entry cannot be referred to or
relied upon to enact a law to impose tax on the sale or purchase of ENA.
31.As a fact, in the background law above noted, relying on the pleadings
made in the writ petition and the reply furnished in the counter affidavit, it
has been submitted, undoubtedly, ENA is not an “alcoholic liquor for human
consumption”. Second, there is no denial that GST was paid on ENA, with
effect from 01.07.2017. Read in conjunction to the first submission
advanced by learned Senior Counsel for the petitioners (as to lack of
legislative competence of the State legislature to impose UPVAT on ENA),
its delegate, the State Government could not have issued the impugned
Notification dated 17.12.2019 and thus colourably or artificially created a
commodity by describing it “non-GST alcohol”. Merely because ENA may
be used to manufacture another commodity namely, “alcoholic liquor for
human consumption”, no new commodity can come into existence, either on
a notional or deemed basis nor, it (ENA) can ever be described as a non-GST
alcohol, only to impose tax thereon.
32.In any case, GST being levied under authority of law, and therefore
paid on ENA, the levy of UPVAT on ENA, created by the impugned
Notification is invalid and wholly unenforceable. Sale of ENA may not be
made taxable under the UPVAT Act - on the basis of an artificial distinction
18
drawn relying on the words - “for use in the process of manufacture of…”
That line of reasoning was specifically disapproved by the Supreme Court in
State of U.P. & Ors. Vs. VAM Organic Chemicals Ltd. & Ors.,
(2004) 1 SCC 225 and in State of Jharkhand & Ors. Vs. Ajanta
Bottlers and Blenders Private Ltd. (supra), applying the ratio of the
seven-Judge Constitution bench decision of the Supreme Court in
Synthetics and Chemicals Limited (supra).
33.Insofar as GST has been levied and paid on ENA and it has not
undergone any change, either physical or chemical or as to its commercial
identity, (in presenti), there arises no legislative competence with the State
legislature to impose tax on that commodity because it may eventually be
used to manufacture a commodity that may be “alcoholic liquor for human
consumption”, that would be taxable under Entry 54 of List II of the Seventh
Schedule, to the Constitution of India. The commodity (ENA) would remain
outside the purview of that taxing entry, as substituted by the 101
st
Constitution Amendment.
34.Relying on Article 246A read with Article 366 (12A) of the
Constitution of India, it has been further submitted, insofar as taxes on
supply of goods/commodities are concerned, upon the 101
st
Constitution
amendment, besides “alcoholic liquor for human consumption”, all other
goods or commodities may remain under the GST regime. Therefore, in any
case, UPVAT may never be imposed on ENA as it is alcohol not-for human
consumption, and therefore necessarily included under the GST regime. That
intent of the Constitution of India was acknowledged and statutorily
incorporated, by virtue of Section 174(1)(i) of the UPGST Act. It repealed
UPVAT Act, 2008 except with respect to laws-to tax goods included under
Entry 54 of List II of the Seventh Schedule, to the Constitution of India i.e.,
with respect to the six commodities (including alcoholic liquor for human
consumption), specified under that legislative entry.
35.Thus, of all alcohols, only “alcoholic liquor for human consumption”
may be subjected to UPVAT. Correspondingly, the Parliament has
19
substituted Section 2(d) of the Central Sales Tax Act, 1956 to include
“alcoholic liquor for human consumption”, in the definition of 'goods' but it
has purposely left out ENA and other alcoholic liquors, not for human
consumption, from the ambit of taxation of 'goods' under that Act. For the
self-same reason, the Parliament has substituted Entry 84 of List I of the
Seventh Schedule, to the Constitution of India, to save to itself, the
legislative competence to levy duties of excise only on the same
commodities finding mention in Entry 54 of List II of the Seventh Schedule,
to the Constitution of India, besides tobacco & tobacco products but except,
“alcoholic liquor for human consumption”. Therefore, the impugned
Notification dated 17.12.2019 is beyond the legislative competence of the
State Legislature, besides being otherwise invalid, as noted above.
36.Last, it has been submitted, once the State had levied, charged and
collected GST on ENA, at the rate of 9 percent, it cannot subject the same
sale transaction (of that commodity), to further tax, on the basis of the
aforesaid artificial distinction attempted to be made. In fact, if the contention
of the State were to be accepted, it would make the State liable to refund the
GST on ENA being excess tax suffered by that commodity, under the GST
regime.
37.Shri Rahul Agarwal learned counsel for the petitioner in Writ Tax No.
355 of 2020 has adopted the submissions advanced by Shri Sinha. He
vehemently urged, besides the admission made by the State in the counter
affidavit filed in Writ Tax No. 364 of 2021, it is beyond the pale of doubt,
whether ENA is not “alcoholic liquor for human consumption”. It is
industrial alcohol. To that end, he has extensively referred to and relied upon
another decision of the Supreme Court in State of Jharkhand & Ors.
Vs. Ajanta Bottlers and Blenders Private Ltd. (supra). In that case,
the dispute was to the legislative competence of the State of Jharkhand to
levy tax/fee on the import of Rectified Spirit. That challenge had been raised
on the premise; Rectified Spirit was not potable liquor, i.e., it was not an
alcohol fit for human consumption. While dealing with that issue, the
20
Supreme Court considered the exact nature of industrial alcohol. Paragraphs
9 and 10 of that report, read as under:
“9. The seminal issue to be answered in this appeal is about the purport of
the Notification dated 6-11-2010 as published on 10-11-2012 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
soluble 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.
10. 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
21
concoction/mixture/solution (in chemical parlance a solution of alcohol is
known as “tincture”) which renders it more palatable to human
consumption.”
38.Shri Agarwal would therefore submit, in law it cannot be disputed,
Extra Neutral Alcohol (ENA) is nothing but Rectified Spirit that has
undergone certain physical changes, by adopting physical means like re-
distillation and rectification to remove impurities. Through that process, it
becomes purer and is therefore known as ENA. If at all, it is rendered more
unfit for human consumption on account of the purity of its alcohol content
being enhanced. To manufacture alcohol for human consumption, further
processes including addition and mixing of colouring and flavouring agents
(compounding), as well as dilution with water must be applied. The
concoction is then left for maturation, to be bottled and used as an
‘intoxicating liquor’ or ‘potable liquor’ known as Indian Made Foreign
Liquor (IMFL) etc. All throughout, such processes, the chemical
composition of Ethyl alcohol or Ethanol remains the same, yet ENA as such
can never be called or classified as “alcoholic liquor for human
consumption”.
39.Shri Pawan Shree Agarwal learned counsel for some of the other
petitioners has adopted the submissions advanced by Shri Sinha and Shri
Rahul Agarwal. He further emphasized, by virtue of Section 174 (1)(i) of the
UPGST Act, 2017, the UPVAT Act, 2008 was repealed in toto, except with
respect to the goods specified under Entry 54 of List II of the Seventh
Schedule, to the Constitution of India. That legislative field, became limited
(for our discussion) to the commodity “alcoholic liquor for human
consumption” upon enactment of the 101
st
Constitution amendment.
Therefore, besides the general legislative incompetence arising upon the
amendments made to the Constitution of India, there is a total absence of
any parent legislation, as may allow any delegated legislation to arise or
exist, to tax sale of any other goods.
40.Then, he has further emphasized, the Constitution recognizes a clear
distinction between the taxing entries and the general entries, each of which
22
creates a field of legislation on which the respective legislative body may
enact laws. A general legislative Entry such as Entry 8 of List II of the
Seventh Schedule, to the Constitution of India may never come in aid of the
State legislature, to enact a law imposing a tax. Reliance has been placed on
a 3-Judge bench decision of the Supreme Court in Hoechst
Pharmaceuticals Ltd. & Ors. Vs. State of Bihar & Ors., (1983)
4 SCC 45. To the same effect, reliance has been placed on another decision
of the Supreme Court in Southern Pharmaceuticals and Chemicals,
Trichur & Ors. Vs. State of Kerala & Ors., (1981) 4 SCC 391.
41.Raising challenge to the Notification dated 17.12.2019, it has been
further submitted, the Schedule entry 1-A, thus introduced to Schedule IV of
the UPVAT Act is with respect to “non-GST alcohol” only. That phrase or
commodity has not been defined either under the UPVAT Act or under the
Rules framed or, the Notification issued thereunder. Plainly, in the context of
the language of Article 366 (12A) of the Constitution, “non-GST alcohol”
refers to “alcoholic liquor for human consumption”. That ENA is not.
Reference has also been made to paragraph 35 of the counter affidavit filed
in Writ Tax No. 364 of 2021. It has been submitted, there is no quarrel raised
by the State that the commodity ENA is not covered under any of the six
items enumerated under amended Entry 54 of List II of the Seventh
Schedule, to the Constitution of India. In conjunction to the above, reference
has been made to the contents of paragraph 17 of that counter affidavit to
submit, undisputedly, ENA is only a raw material used to manufacture
alcoholic beverage. It contains over 95 percent alcohol by volume. Adopting
the submission advanced by Shri Sinha, it has further been submitted,
considering unequivocal pronouncements made by the Supreme Court–in
Synthetics and Chemicals Ltd. (supra), the said commodity ENA is
not an alcoholic liquor for human consumption and, that it can never be.
42.Shri Manish Goel, learned Additional Advocate General has stoutly
defended the levy of UPVAT on ENA, under the UPVAT Act. He would
submit, prior to issuance of the impugned Notification dated 17.12.2019, the
23
commodity ENA suffered UPVAT at the rate of 32.5 percent. However, by
virtue of the impugned Notification and introduction of the new entry 1-A,
to Schedule IV to the UPVAT Act, the said commodity became taxable at a
lower rate of tax, being 5 percent, with effect from 09.12.2019. Thus, the
State Government has reduced the rate of tax on ENA. Hence, there can be
no quarrel to the same. As to the identity of ENA, the learned AAG has also
referred in extenso, to the discussion made by the Supreme Court in State
of Jharkhand & Ors. Vs. Ajanta Bottlers and Blenders Private
Ltd. (supra). He would, however, contend, it does not lead to the conclusion
– ENA falls outside the competence of the State legislature to impose tax on
its sale. Here, he would rely on another three-Judge bench decision of the
Supreme Court in State of Bihar & Ors. Vs. Shree Baidyanath
Ayurved Bhawan (P) Ltd. & Ors., (2005) 2 SCC 762. In that case,
a question had arisen, to the legislative competence of the State legislature to
redefine the word 'intoxicant' appearing in Section 2(12-a) of the Bihar and
Orissa Excise Act, 1915, to include therein - medicinal and toilet
preparations containing alcohol, as defined under the Medicinal and Toilet
Preparations (Excise Duties) Act, 1955. Referring its earlier decision in the
case of Bihar Distillery & Anr. Vs. Union of India & Ors. (supra),
it had been reasoned, Rectified Spirit is produced in a distillery licenced by
the State Government. The cancellation of registration/licence had been
resisted by that distillery. That dispute travelled to the High Court and then
to the Supreme Court. While dealing with that issue, the Supreme Court
observed as under:
“22. In the case of Bihar Distillery v. Union of India [(1997) 2 SCC
727] a distillery was established. It sold rectified spirit produced by it.
The distillery got its licence from the State Government up to the year
1991-92 under the Bihar Act. In 1992 the department proposed to cancel
the licence. The distillery objected on the ground that it was
manufacturing rectified spirit which came within the exclusive province
of the Central Government. With this contention the distillery
approached this Court. After noticing the relevant entries in the Seventh
Schedule to the Constitution this Court took the view that Entry 84 in
List I and Entry 51 in List II complemented each other. Both provide for
duties of excise. But while the States are empowered to levy duties of
excise on alcoholic liquor for human consumption and on opium and
narcotic products in the State but excluding medicinal and toilet
preparations containing alcohol, the Union is empowered to levy excise
24
duty on tobacco and other goods, except alcoholic liquor for human
consumption. This Court further held that Entry 8 of List II covers all
aspects of intoxicating liquors within the State; it covers production,
manufacture, possession, transport, purchase and sale. Entry 6 speaks of
public health. It furnishes a ground of prohibiting consumption of
intoxicating liquor. On reading Entries 6, 8 and 51 in List II, this Court
held that so far as potable alcohols are concerned, they are squarely
covered by Entry 8. They are within the exclusive domain of the State. It
was further held that rectified spirit was an industrial alcohol. The State
has no power whatsoever to legislate in relation to industrial alcohol.
However, the Court observed that in many cases the rectified spirit was
an ingredient for intoxicating liquor or alcoholic liquor for human
consumption. Hence, so long as alcoholic preparation can be diverted to
human consumption, the States shall have the power to legislate as also
to impose taxes on such diversion. This is also the ratio of the judgment
of this Court in the case of Vam Organic Chemicals Ltd. v. State of U.P.
[(1997) 2 SCC 715].”
43.Placing heavy reliance on the aforesaid law laid down by the Supreme
Court, it has been submitted, Entry 8 of List II of the Seventh Schedule, to
the Constitution of India is wide enough to take within its amplitude and
cover, any law to impose tax on sale of ENA if that intoxicating liquor may
be diverted to human consumption.
44.To clarify his submission further, the learned AAG would insist, ENA
is not Rectified Spirit but only an 'intoxicating liquor'. Intoxicating liquor
includes both “alcoholic liquor for human consumption” and alcoholic liquor
not for human consumption. Therefore, the State legislature has the
legislative competence to enact laws under Entry 8 of List II of the Seventh
Schedule, to the Constitution of India with respect to 'intoxicating liquor'.
There is no warrant to limit or restrict that legislative field to “alcoholic
liquor for human consumption” alone. To do that, would be to read into the
legislative field a restriction that plainly does not exist. In that regard,
reliance has been placed on the decision of the Supreme Court in Bihar
Distillery & Anr. Vs. Union of India & Ors. (supra), wherein the
law laid down by the Constitution Bench of the Supreme Court, in the case
of Synthetics and Chemicals Ltd. & Ors. (supra) was considered and,
in the submission of the learned AAG, an exception thereto had been carved
out. Relevant to our discussions, paragraphs 10, 11 and 12 of the aforesaid
report have been noted above.
25
45.Reliance has also been placed on another decision of the Supreme
Court in VAM Organic Chemicals Ltd. & Anr. Vs. State of U.P.
& Ors., (1997) 2 SCC 715, wherein the Supreme Court again had the
occasion to consider the law laid down by its earlier seven-Judge
Constitution Bench, in Synthetics and Chemicals Ltd. & Ors. Vs.
State of U.P. & Ors. (supra). According to the learned AAG, the
legislative competence of the State legislature to enact laws on 'intoxicating
liquors' included laws on “alcoholic liquor for human consumption” was
clearly recognised with reference to Entry 8 of List II of the Seventh
Schedule, to the Constitution of India. It was observed thus:
“13. ...The following part of the judgment can be read with profit: (SCR
pp. 681-82: SCC p. 158, para 86)
“The position with regard to the control of alcohol industry has
undergone material and significant change after the amendment of
1956 to the IDR Act. After the amendment, the State is left with
only the following powers to legislate in respect of alcohol:
(a) It may pass any legislation in the nature of prohibition of
potable liquor referable to Entry 6 of List II and regulating
powers.
(b) It may lay down regulations to ensure that non-potable
alcohol is not diverted and misused as a substitute for potable
alcohol.
(c) The State may charge excise duty on potable alcohol and
sales tax under Entry 52 of List II. However, sales tax cannot
be charged on industrial alcohol in the present case, because
under the Ethyl Alcohol (Price Control) Orders, sales tax
cannot be charged by the State on industrial alcohol.
(d) However, in case State is rendering any service, as distinct
from its claim of so-called grant of privilege, it may charge fees
based on quid pro quo. See in this connection, the observations
of Indian Mica case [Indian Mica Micanite Industries v. State
of Bihar, (1971) 2 SCC 236] .”
Denaturation of spirit meant for industrial use is meant to prevent
misuse of non-potable alcohol for human consumption and as such
specifically mentioned by the Court to be within the legislative
competence of the State.”
46.Reference has also been made to paragraphs 14 and 17 of the said
report, which read as under:
“14. It is to be noticed that the States under Entries 8 and 51 of List II
read with Entry 84 of List I have exclusive privilege to legislate on
intoxicating liquor or alcoholic liquor for human consumption. Hence, so
long as any alcoholic preparation can be diverted to human consumption,
26
the States shall have the power to legislate as also to impose taxes etc. In
this view, denaturation of spirit is not only an obligation on the States but
also within the competence of the States to enforce.
17. M/s McDowell & Co., manufacturers of intoxicating liquors
challenged the constitutional validity of the Act by which the Prohibition
Act was amended to include Section 7-A. One of the grounds of challenge
was lack of legislative competence in view of Entry 26 in the First
Schedule of the IDR Act which according to the writ petitioners, vested
the control of alcohol industries exclusively in the Union and denuded the
State Legislature of its power to licence or regulate the manufacture of
liquor. This submission was based on the fact that fermentation industries
were included in the Schedule of the IDR Act and hence the State was
denuded of its power to licence and regulate manufacture of liquor. Entry
26 reads “Fermentation Industries; (1) Alcohol, (2) other products of
fermentation industries”. It was argued that after the amendment the
control and regulation of such industries and their product fell within the
exclusive province of the Union and hence the State lost its competence to
grant, refuse or renew the licences. After an analysis of all the relevant
provisions of the law the Court concluded as under:
“(W)e must first carve out the respective fields of Entry 24 and Entry
8 in List II. Entry 24 is a general entry relating to industries whereas
Entry 8 is a specific and special entry relating inter alia to industries
engaged in production and manufacture of intoxicating liquors.
Applying the well-known rule of interpretation applicable to such a
situation (special excludes the general), we must hold that the
industries engaged in production and manufacture of intoxicating
liquors do not fall within Entry 24 but do fall within Entry 8. This
was the position at the commencement of the Constitution and this is
the position today as well. Once this is so, the making of a
declaration by Parliament as contemplated by Entry 52 of List I does
not have the effect of transferring or transplanting, as it may be
called, the industries engaged in production and manufacture of
intoxicating liquors from the State List to Union List. As a matter of
fact, Parliament cannot take over the control of industries engaged in
the production and manufacture of intoxicating liquors by making a
declaration under Entry 52 of List I, since the said entry governs only
Entry 24 in List II but not Entry 8 in List II.”
It was reiterated in the later part of the judgment as under:
“It follows from the above discussion that the power to make a law
with respect to manufacture and production and its prohibition
(among other matters mentioned in Entry 8 in List II) belongs
exclusively to the State Legislatures. Item 26 in the First Schedule to
the IDR Act must be read subject to Entry 8 — and for that matter,
Entry 6 — in List II. So read, the said item does not and cannot deal
with manufacture, production of intoxicating liquors. All the
petitioners before us are engaged in the manufacture of intoxicating
liquors. The State Legislature is, therefore, perfectly competent to
make a law prohibiting their manufacture and production — in
addition to their sale, consumption, possession and transport — with
reference to Entries 8 and 6 in List II of the Seventh Schedule to the
Constitution read with Article 47 thereof.”
47.Last, reference has been made to a Constitution Bench decision of the
27
Supreme Court in Navnit Lal C Javeri Vs. K.K. Sen, Appellate
Assistant Commissioner of Income Tax, Bombay, AIR 1965 SC
1375. In that case, it had been submitted before a five-Judge Constitution
Bench of the Supreme Court, Entry 82 of List I of the Seventh Schedule, to
the Constitution of India, deals with taxes on income other than agricultural
income. In that context, it was observed as under:
“8. In dealing with this point, it is necessary to consider what exactly is the
denotation of the word “income” used in the relevant Entry. It is hardly
necessary to emphasise that the entries in the Lists cannot be read in a
narrow or restricted sense, and as observed by Gwyer, C.J. in United
Provinces v. Atica Begum [(1940) FCR 110] “each general word should be
held to extend to all ancillary or subsidiary matters which can fairly and
reasonably be said to be comprehended in it”. What the entries in the List
purport to do is to confer legislative powers on the respective Legislatures
in respect of areas or fields covered by the said entries; and it is an
elementary rule of construction that the widest possible construction must
be put upon their words. This doctrine does not, however, mean that
Parliament can choose to tax as income an item which in no rational sense
can be regarded as a citizen's income. The item taxed should rationally be
capable of being considered as the income of a citizen. But in considering
the question as to whether a particular item in the hands of a citizen can be
regarded as his income or not, it would be inappropriate to apply the tests
traditionally prescribed by the Income Tax Act as such.”
48.Thus, it has been submitted, the words used in List II of the Seventh
Schedule, to the Constitution of India, should be read widely, to include all
ancillary or subsidiary matters that can fairly and reasonably be included
therein. Applying that principle, undoubtedly, the State legislature can enact
a law with respect to any “intoxicating liquors” with reference to Entry 8 of
List II of the Seventh Schedule, to the Constitution of India, including a law
to impose tax on such “intoxicating liquors”.
49.Having heard learned counsel for the parties and having perused the
record, insofar as the identity of the commodity is concerned, there is no
dispute between the parties. It is Extra Neutral Alcohol (ENA). While the
petitioners contend; the same is alcohol of high purity, above 90%, by
volume, the State does not dispute the same. In its counter affidavit, the
State also makes pleadings to the same effect. Besides the admission made
by the State, it is too late in the day to dispute or deliberate as to the true
character or identity or contents of ENA. Thus, the Supreme Court in the
28
case of State of Jharkhand & Others Vs. Ajanta Bottlers and
Blenders Private Ltd. (supra) had clearly opined - industrial alcohol is
broadly categorised into three categories. The first being Isopropyl alcohol
(or IPA or Isopropanol). It is a compound with chemical formula
CH3CHOHCH3, linked to a hydroxyl group. It is the simplest example of a
secondary alcohol where alcohol carbon is attached to two other carbon
atoms. If consumed, Isopropanol is converted into acetone in the liver,
making it extremely toxic. The second category of industrial alcohol is
Methyl Alcohol or Methanol with chemical formula CH3OH. Its
consumption leads to blindness and death. The third category of industrial
alcohol is Ethyl Alcohol also known as Ethanol having chemical formula
C2H6O which may also be written as C2H5OH or CH3CH2OH.
50.Having thus categorized the three types of industrial alcohols, the
Supreme Court further observed, the first two categories i.e., Isopropyl and
Methyl Alcohol are poisonous, toxic, and fatal for human consumption.
Therefore, they are capable of industrial use only. Further, owing to their
inherent chemical properties, those two categories of alcohol cannot be
purified or used to produce any “intoxicating liquor” or “potable liquor”, for
human consumption. Only the third category of industrial alcohol namely,
Ethyl Alcohol or Ethanol is capable of use to manufacture “intoxicating
liquor” or potable liquor.
51.Also, as accepted in that decision, in its concentrated form, Ethanol is
also known as Rectified Spirit. Such Rectified Spirit upon redistillation,
fractional distillation etc., whereby impurities are removed, is rendered purer
in content. It then, comes to be described as ENA. Insofar as “intoxicating
liquor” is concerned, the Supreme Court clearly observed, it is only by
addition and mixing of colouring and flavouring agents (compounding) as
well as after dilution with water, ENA is left to mature and is bottled.
Thereafter, the “intoxicating liquor” comes into existence whether known as
Indian Made Foreign Liquor (IMFL) or country liquor, by whatever name
called.
52.What emerges from the above is, whether IMFL or country liquor or
29
any other liquor that may qualify as “alcoholic liquor for human
consumption”, it uses ENA as a raw material. ENA, in turn, is derived from
Rectified Spirit. At the same time, “alcoholic liquor for human
consumption” would not arise either if ENA is left to mature for some time
or in certain conditions. Neither its alcoholic content would reduce from the
range 90% - 95 % to 19% - 43% nor it would otherwise render itself fit for
human consumption. In fact, the counter affidavit of the State itself indicates
in no uncertain terms – ENA is not for human consumption. It cannot be
described as “intoxicating liquor”, for that reason, either.
53. In any case, for a commodity to be described as an “alcoholic liquor
for human consumption”, it must be capable or ready to be consumed, in
that state itself-as a beverage, as held by the seven-Judge Constitution bench
of the Supreme Court in Synthetics and Chemicals Ltd. & Ors. Vs.
State of U.P. & Ors. (supra) and as followed by a three-Judge bench of
the Supreme Court in State of U.P. Vs. Modi Distillery (supra). An
alcoholic liquor having 90%-95% content of Ethanol is certainly not that
commodity. Such alcohol is not, and it cannot be marketed for human
consumption. If consumed, it would be unbearably toxic and, therefore,
never fit for human consumption. Thus, it was held by the Constitution
bench of the Supreme Court in Synthetics and Chemicals Ltd. & Ors.
Vs. State of U.P. & Ors. (supra) – “alcoholic liquor for human
consumption” is:
“...that liquor which as it is is consumable in the sense capable of being
taken by human beings as such as beverage of drinks. ...”
54.Though that law emerged in the context of Entry 84 of List I of the
Seventh Schedule, to the Constitution of India (with reference to imposition
of duties of excise) yet, it clearly interprets the term “alcoholic liquor for
human consumption”, as it now appears under Entry 54 of List II of the
Seventh Schedule, to the Constitution of India. The earlier use of the plural
of the word liquor is not material. Applying that law, the Constitution bench
of the Supreme Court could not be persuaded to accept, that denatured spirit,
by appropriate cultivation or application or admixture with water or with
30
other things, be transformed into an “alcoholic liquor for human
consumption”. It concluded, alcoholic or “intoxicant liquor” must be
understood as these are, i.e., in the presenti, and not what these may become
or be capable of or able to become upon application of certain processes etc.
Applying that law, even today, as a commodity, ENA remains an alcohol or
alcoholic liquor not for human consumption, under Entry 54 of List II of the
Seventh Schedule, to the Constitution of India. There is absolutely no room
or licence to give a different meaning to that phrase, as claimed by the
learned AAG.
55.Rectified Spirit, Ethanol or Extra Neutral Alcohol (ENA) having been
opined by the Constitution bench of the Supreme Court (followed, explained
and applied in its later pronouncements), to be not alcoholic liquor for
human consumption and, since there is no material whatsoever to take a
contrary view on facts, it must be emphatically concluded, ENA continues to
fall outside the phrase “alcoholic liquor for human consumption”, as it
appears under Entry 54 of List II of the Seventh Schedule, to the
Constitution of India.
56.We may also recognize, at present the dispute has arisen, not in the
context of pre-existing laws but in the context of change of laws arising from
the 101
st
Constitution Amendment. In the first place, by virtue of Article
246A (1) introduced to the Constitution of India, the Parliament and then,
subject to Clause (2), the State legislatures have the competence to make
laws with respect to goods and service tax. By virtue of Article 366 (12A),
the phrase 'goods and service tax' would always mean, tax on supply of
goods, or services or both, except tax on the supply of the “alcoholic liquor
for human consumption”.
57.Thus, indisputably, tax on all goods and services, except supply of
“alcoholic liquor for human consumption” would fall under the GST regime.
It is that change to the Constitutional scheme that has been given effect - by
substituting the pre-existing Entry 54 of List II of the Seventh Schedule, to
the Constitution of India. Under that pre-existing entry, the State legislatures
were competent to enact laws to tax sale and purchase of all goods, other
31
than the newspapers (subject to Entry 92A of List I). Upon enactment of the
101
st
Constitution Amendment, that power is heavily curtailed (under the
substituted Entry 54 of List II of the Seventh Schedule, to the Constitution of
India), to certain items specified therein namely, petroleum crude, high
speed diesel, motor-spirit/petrol, natural gas, aviation turbine fuel and
“alcoholic liquor for human consumption”. A corresponding change was
made by the Parliament to the definition of the term 'goods', under Section
2(d) of the Central Sales Tax Act, 1956. It was also substituted, to limit the
same to the exact six items, finding mention in the substituted Entry 54 of
List II of the Seventh Schedule, to the Constitution of India.
58.Whether by virtue of Article 366 (12-A) read with Article 246-A of the
Constitution of India or the substituted Entry No. 54 of List II of the Seventh
Schedule, to the Constitution of India, the nuanced distinction, between
those two Constitutional provisions would have no bearing on the
controversy at hand. The State legislature remains denuded of its pre-
existing competence to enact a law to tax sale of alcoholic liquor not for
human consumption, in both contingencies.
59.To take note of all the changes thus made, correspondingly, the
Parliament also amended Entry 84 of List I of the Seventh Schedule, to the
Constitution of India, to limit its power to enact laws, to now impose duties
of excise on only six items, in place of the pre-existing entry that included
all manufactured goods, except “alcoholic liquor for human consumption”
and opium, Indian hemp etc.
60.Thus, both the Parliament and the State legislatures, sacrificed their
pre-existing, respective legislative competence to - enact laws to impose
duties of excise and to tax sales of alcoholic liquors not-for human
consumption, at the high altar of the 101
st
Constitution Amendment, enacted
to consecrate the GST laws. The express intent of that Constitutional change
appears to be one – to tax all alcohols except “alcoholic liquor for human
consumption”, under the GST regime, only. Thus, alcoholic liquor not for
human consumption or industrial alcohol or non-potable alcohol, is subject
to GST laws, only. That Constitutional intent was unequivocally recognized
32
by the State legislature. It resonates in perfect harmony, through the
instrument of incorporation of Section 174(1)(i) to the UPGST Act 2017.
For ready reference, that provision of law reads as below:
“(1) Save as otherwise provided in this Act, on and from the date of
Commencement of this Act.
(i) The Uttar Pradesh Value Added Tax Act- 2008, except in respect
of goods included in the Entry 54 of the State List of the Seventh
Schedule to the Constitution.”
61.Since the State legislature did not attempt to save the UPVAT Act - to
tax alcoholic liquor not for human consumption, two direct consequences
arise. First, a consequence arises of recognition of the change in the
Constitutional scheme, noted above. Second, yet more directly, the State
legislature did not save UPVAT Act to impose tax on any commodity except
“alcoholic liquor for human consumption”. Hence, in any case, after the
enactment of the UPGST Act, 2017 and in absence of any amendment to
Section 174 (1) (i) of that Act, there neither survives nor exists any delegated
power with the State Government, to issue the impugned Notification, to
impose UPVAT on ENA.
62.We cannot help over emphasise the fact that the impugned
Notification seeks to overreach the Constitutional scheme, as amended by
the 101
st
Constitution Amendment. By that Constitution Amendment, the
only surviving legislative field to impose taxes (saved exclusively with the
State legislatures), finds mention in Entry 54 (as substituted). Relevant to
our discussion, it is only with respect to “alcoholic liquor for human
consumption”. Since ENA is not that, the State legislature cannot circumvent
the Constitutional scheme by introducing a tax on its sale, by describing it as
'non-GST alcohol'.
63.That phraseology, used to describe ENA is, in any case, a misnomer. It
is impermissible. By virtue of Article 366(12-A) of the Constitution of India,
'non-GST alcohol' may only be “alcohol for human consumption”. By virtue
of the clear dictum of the Supreme Court in Synthetic and Chemicals
Limited (supra), Modi Distillery (supra), VAM Organic Chemicals
Ltd. (supra) and Ajanta Bottlers and Blenders Private Ltd. (supra),
33
ENA is not fit for human consumption. Hence, for reasons noted above, it
would remain a ‘GST-alcohol’, if such a thing exists. Second, the intended
use to which a commodity may be put, and the character or identity of the
commodity manufactured therefrom, would never be relevant to impose a
differential rate of tax on sale of that commodity, depending upon different
uses, it may be put to. For a tax to be levied on sale of a commodity, its
identity in presenti alone is relevant. As a fact, there exists only one type of
ENA. It may be put to different uses i.e., to manufacture either potable
alcohol or chemicals or other commodities or all or any of them. By looking
at any quantity of ENA, its use may never be predicted or pre-determined.
To subject it to differential rates of tax under the UPVAT Act, depending
solely on the intent of the purchaser (to use it a specified way), may never
qualify as a tax on the sale of the goods. It may transform into another kind
of tax. Third, in any case, the use to which ENA may be put may be relevant
to the legislature to determine the measure or the rate of tax to be suffered by
it, but not to the identity of the taxable commodity. That may be established
based on its form, shape, and commercial identity, by the people who deal in
it. Since ENA is not a 'non-GST' alcohol, the question of measure or rate of
tax thereon (based on its use), is extraneous to the issue at hand.
64.What then survives for our consideration is, whether the State may
ever be able to defend a taxation law or whether the State may ever be able
to enact a taxation law, referable to Entry 8 of List II of the Seventh
Schedule, to the Constitution of India, to impose tax on sale. The UPVAT
Act, 2017 was not a law enacted with reference to Entry 8 of List II of the
Seventh Schedule, to the Constitution of India rather, it was a law referable
only to Entry 54 of List II of the Seventh Schedule, to the Constitution of
India, as it then existed.
65.Even if, in the context of the challenge raised, the answer to the
question - if the State legislature had the competence to enact the UPVAT
Act with reference to the said Entry 8 of List II of the Seventh Schedule, to
the Constitution, must remain - emphatically in the negative. The law with
respect to the scope of legislative entries has been consistently laid down to
34
mean – taxing power is a special/specific legislative power. It may be
exercised with reference to a specific taxing entry. If legislative entries under
the Seventh Schedule to the Constitution of India are treated to be mother
entries, with reference to the laws that may be enacted, a taxation legislation
must be born to a taxing legislative entry alone. It can have no surrogate
mother i.e., a general entry, as has been attempted to be established by the
learned AAG.
66.In M.P.V. Sundararamier & Co. Vs. State of A.P., AIR 1958
SC 468, the Constitution Bench of the Supreme Court held as below:
“(i) …
(ii) Under the constitutional scheme of division of powers under
legislative lists, there are separate entries pertaining to taxation and other
laws. A tax cannot be levied under a general entry.
(iii) A Constitution is an organic document and has to be so treated and
construed.”
67.Similar principle was laid down by the Supreme Court in State of
Mysore & Ors. Vs. D. Cawasji & Company & Ors. (supra). It was
reiterated in Delhi Cloth and General Mills Co. Ltd. Vs. Excise
Commissioner, U.P., Allahabad, 1973 All LJ 629. The principle
thus laid down by the Supreme Court has been consistently applied without
exception. Plainly, Entry 8 of List II of the Seventh Schedule, to the
Constitution reads thus:
“8. Intoxicating liquors, that is to say, the production, manufacture,
possession, transport, purchase and sale of intoxicating liquors.”
68.That Entry only creates a field of legislation by State legislature to
enact any law on intoxicating liquors. The words 'that is to say', restrict and
confine the scope and ambit of those laws - with respect to production,
manufacture, possession, transport, purchase, and sale and matters incidental
or ancillary thereto. It does not grant any legislative competence to the State
legislature to impose a tax on intoxicating liquors. In the oft cited decision of
the four-Judge bench of the Supreme Court in State of T.N. Vs. Pyare
Lal Malhotra, (1976) 1 SCC 834, the meaning of the phrase “that is to
35
say” suffixed to the words “iron and steel” in the then existing Clause (iv) of
Section 14 of the Central Sales Tax Act, 1956, was interpreted as below:
“7. What we have inferred above also appears to us to be the significance
and effect of the use of words “that is to say” in accordance with their
normal connotation and effect. Thus, in Stroud's Judicial Dictionary, 4th
Edn. Vol. 5, at p. 2753, we find:
“That is to say.—(1) ‘That is to say’ is the commencement of an
ancillary clause which explains the meaning of the principal clause.
It has the following properties: (1) it must not be contrary to the
principal clause; (2) it must neither increase nor diminish it; (3) but
where the principal clause is general in terms it may restrict it; see
this explained with many examples, Stukeley v. Butler Hob, 1971.”
The quotation, given above, from Stroud's Judicial Dictionary shows that,
ordinarily, the expression “that is to say” is employed to make clear and fix
the meaning of what is to be explained or defined. Such words are not used,
as a rule, to amplify a meaning while removing a possible doubt for which
purpose the word “includes” is generally employed. In unusual cases,
depending upon the context of the words “that is to say”, this expression
may be followed by illustrative instances. In Megh Raj v. Allah
Rakhia [AIR 1947 PC 72 : 74 IA 12] the words— “that is to say”, with
reference to a general category “land” were held to introduce “the most
general concept” when followed, inter alia, by the words “right in or over
land”. We think that the precise meaning of the word “that is to say” must
vary with the context. Where, as in Megh Raj case, the amplitude of
legislative power to enact provisions with regard to “land” and rights over
it was meant to be indicated, the expression was given a wide scope
because it came after the word “land” and then followed “rights over land”
as an explanation of “land”. Both were wide classes. The object of using
them for subject-matter of legislation, was obviously, to lay down a wide
power to legislate. But, in the context of single point sales tax, subject to
special conditions when imposed on separate categories of specified goods,
the expression was apparently meant to exhaustively enumerate the kinds
of goods in a given list. The purpose of an enumeration in a statute dealing
with sales tax at a single point in a series of sales would, very naturally, be
to indicate the types of goods each of which would constitute a separate
class for a series of sales. Otherwise, the listing itself loses all meaning and
would be without any purpose behind it”.
Similarly, the phrase “that is to say” appearing in Entry 8 of List II of the
Seventh Schedule, to the Constitution of India may never be read to bestow
legislative competence on the State legislatures to enact a law to tax
“intoxicating liqours”. That competence must remain confined to the matters
specified after that phrase, appearing under that Entry or matters ancillary or
incidental thereto, such as regulatory measures.
69.The ratio in the case of Shree Baidyanath Ayurved Bhawan (P)
Ltd. & Ors. (supra), Bihar Distilleries (supra) and VAM Organic
36
(supra), if read as suggested by the learned AAG, it would lead to a conflict
between the seven-Judge Constitution bench decision of the Supreme Court
in Synthetics and Chemicals Ltd. & Ors. Vs. State of U.P. &
Ors. (supra), as explained and followed by three-Judge bench decisions of
the Supreme Court in State of U.P. Vs. Modi Distillery (supra) and
Deccan Sugar & Abkari Co. Ltd. (supra) and the other decisions of
that Court. Therefore, the other decisions may be read, only in the context of
the specific disputes involved therein. In Shree Baidyanath Ayurved
Bhawan (P) Ltd. & Ors. (supra), the dispute was with respect to licence,
regulation, use and possession of alcoholic preparation. In Bihar
Distilleries, the dispute was with respect to cancellation of licence. In
VAM Organic (supra), what was saved was the power to enact regulatory
laws.
70.Even otherwise, once the law stood clarified by the larger/3-judge
Bench decision of the Supreme Court in State of U.P. Vs. Modi
Distillery (supra), there survived no legislative competence to the State
legislature to enact a law, referable to Entry 8 of List II of the Seventh
Schedule, to the Constitution of India, to impose tax on any intoxicating
liquors, with reference to Entry 8 of that List. Therefore, the submission
advanced by the learned AAG to the contrary, cannot be accepted. That
expansive reasoning is impermissible under the existing Constitutional
scheme.
71.The Constitution bench decision of the Supreme Court in Navnit Lal
C Javeri (supra) is of no help to the State. In that case, the issue was not if
the Parliament could enact a law to tax a loan advanced to a shareholder, by
taking recourse to a general entry rather, the issue involved in that case was -
if, while enacting a law to tax income (referable to Entry 82, List I), the
Parliament could enact a law to tax that transaction by treating it as an
income. Here, the issue to be examined is - if in the absence of a taxing
entry, a taxation law may be enacted. Plainly, that ratio is inapplicable to the
facts of this case.
72.Before parting, the State has already charged 9 percent GST on the
37
sale of ENA with effect from 01.07.2017. Thus, if it were to enforce the
impugned Notification dated 17.12.2019, with effect from 09.12.2019, it
necessarily would lead to an admission of collection (without authority of
law) - of GST on ENA, by 4 to 13 percent. We do not see, what useful
purpose the impugned Notification would serve if the argument of the
learned AAG were to be accepted.
73.Consequently, all the writ petitions deserve to be allowed. It is
declared, the State lost its legislative competence to enact laws, to impose
tax on sales of ENA, upon the enactment of the 101
st
Constitution
Amendment. Consequently, and upon considering Section 174(1)(i) of
UPGST Act, 2017, the impugned Notification dated 17.12.2019, insofar as it
seeks to impose UPVAT on ENA, Rectified Spirit and SDS, is ultra vires,
both on account of lack of (i) legislative competence and (ii) valid
delegation. It is therefore quashed. Consequentially, all assessment
Orders/Notices dated 30.06.2021, 21.06.2021, 08.06.2021, 15.06.2021,
11.06.2021, 07.07.2021, the (administrative) Circulars/letters dated
10.06.2021 and 11.06.2021, impugned in these writ petitions, holding
otherwise are also quashed.
74.It is further directed, subject to applicability of the rule against unjust
enrichment, any amount that may have been deposited by the petitioners
(except petitioners claiming under this order, in Writ Tax 355 of 2020), by
way of UPVAT on ENA on or after 01.07.2017, may be refunded to them,
within a period of one month from today.
75.All writ petitions are allowed, as above. No order as to costs.
28.09.2021
AHA
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