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PETITIONER: M/S MOHAN MEAKIN LTD.

       Vs.

RESPONDENT: EXCISE & TAXATION COMMISSIONER,HIMACHAL PRADESH & ORS.

DATE OF JUDGMENT:       27/11/1996

BENCH: K. RAMASWAMY, G.T. NANAVATI

ACT:

HEADNOTE:

JUDGMENT:                          O R D E R      This appeal  by special  leave arises from the Judgment of the  Division Bench  of the  Himachal Pradesh High Court, made on  July  2,  1980  in  Writ  Petition  No.121/79.  The question is:  at what  stage the  beer is  exigible to  duty under the  Punjab Excise  Act, 1914  (1 of 1914) (for short, the ‘Act’). The Division Bench upholding Rule 10(3.4) of the Rules made  under Section 58 of the Act read with Section 59 of Punjab  Breweries Rules,  1932 (for  short, the  ‘Rules), came to  the conclusion  that it  is exigible to duty at the stage when  it is  in fermentation,  i.e., wort  in terms of Rule 10(3.4). Calling that decision in question, this appeal came to be filed.      With a view to appreciate correctness of the view taken and having  heard the learned counsel for the parties, it is necessary to  look into  the relevant  provisions of the Act and the  Rules. Chapter  I, Section  3 of  the  Act  defines various words  and phrases  in the Act. Section 3(1) defines "Bear"  to   include  ale,  porter,  stout,  and  all  other fermented liquors  made from malt. "Liquor" has been defined under Section  3(14) of the Act to mean "intoxicating liquor and included all liquid consisting of or containing alcohol; also  any  substance  which  the  State  Government  may  by notification declare,  to be  liquor for the purpose of this Act". "Excisable  article" has  been defined in Section 3(6) to mean  any alcoholic  liquor for human consumption; or any intoxicating drug. "Excise duty" and "counervailing duty" as defined in Section 3(6-b) would mean any such excise duty or countervailing duty,  as the case may be, as is mentioned in Entry  51   of  List-II  of  the  Seventh  Schedule  to  the Constitution. "Intoxicant"  under Section  3(12-a) means any liquor or  intoxicating drug  as has been defined in Section 3(16)  to   include  every   process,  whether   natural  or artificial by  which any intoxicant is produced or prepared, and  also   redistillation,  and   every  process   for  the rectification, reduction,  flavouring, blending or colouring of liquor.  "Place" has  been defined under Section 3(17) to include a  building, shop, tent and closure, booth, vehicle, vessel, boat  and raft. "Spirit" has been defined in Section 3(19) to  mean any  liquor containing  alcohol  obtained  by

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distillation, whether  denatured or  not. Section  31 of the Act is the charging provision which envisages that an excise duty, or  a countervailing duty, as the case may be, at such rate or  rates as  the State Government shall direct, may be imposed, either  generally or  for any specified local area, on any  excisable article  from the distillery, brewery etc. and provides  that no  intoxicant shall  be removed from any distillery, brewery,  warehouse, or  other place  of storage established, or  licensed under the Act, unless the duty, if any, payable  under Chapter  V has  been paid  or a bond has been executed  for the payment thereof. Chapter V deals with the levy  of the  duties and  fees; the details of which are not material  for  the  purpose  of  this  case.  As  stated earlier, in  this case the levy of excise duty was sought to be made  at the stage when the manufacturing of the beer was at wort  stage. The  question is; whether the levy of excise duty, on  bear when  it was in the process of manufacture is correct? The  levy of excise duty is on alcoholic liquor for human consumption,  manufacture or production. At what stage bear is  exigible to  duty is  the question.  The process of manufacture of bear is described as under:      "The first stage brewing process is      the feeding  of Malt  and  adjuncts      into a  vessel known  as Mash  Tun.      There it  is mixed  with hot  water      and    maintained     at    certain      temperature. The  objective of this      process is  to convert the straches      of the malt into fermentable sugar.      The extract  is drawn from the Mash      Tun and boiled with the addition of      hops for  one to  two  hours  after      which it is contrifuged, cooled and      received in  the receiving wats. At      this stage, it is called "Wort" and      contains  only  fermentable  sugers      and no  alcohol. After  this it  is      transferred  to   the  formentation      tanks  where  Yeast  is  added  and      primary fermentation is carried out      at  controlled  temperature.  After      attenuation (Diminution  of density      of  "Wort"   resulting   from   its      fermentation)   is    reached   for      fermented wort  is centrifuged  and      transferred to the storage vats for      secondary    fermentation.    After      secondary fermentation  is over  in      the  storage   vats,  is   filtered      twice-first   through   the   rough      filter press  and then  through the      fine filter  press and  received in      the  bottling   tanks.  it   is  in      bottling tanks that the loss of the      Carbon Dioxide  Gas is  made up and      bulk beer is drawn for bottling. It      is filed  into the bottled and then      last process  of pasteurisation  is      carried out  to make  it ready  for      packing  and  marketing.  Till  and      liquor is removed from the vats and      undergoes the  fermentation process      as mentioned  above the presence of      alcohol is nil."      Excisable article  would mean  any alcoholic liquor for

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human consumption  or any  intoxicating drug.  The  levy  or impost of  excise duty would be only on alcoholic liquor for human consumption or for being produced in the brewery. Beer would mean fermented liquor from malt, when it is potable or in consumable  condition as  beverage. It  is seen  that the levy is  in terms  of entry  51 of  List II  of the  Seventh Schedule which  envisages that duties of excise on the goods manufactured or  produced in  the State  and  countervailing duties  at   the  same  or  lower  rates  on  similar  goods manufactured or produced elsewhere in India.      As  to   when  liquor  becomes  exigible  to  duty  was considered by  this Court  in Synthetics  and Chemicals Ltd. vs. State  of U.P.  [(1990) 1  SCC 109]. Therein, this Court had considered  the question  by a Bench of seven Judges, at various stages thus:      "We have  no doubt that the framers      of the  Constitution when they used      the  expression  ‘alcoholic  liquor      for human  consumption’ they  meant      at  that   time   and   still   the      expression means  that liquor which      as it  is consumable  in the  sense      capable of  being  taken  by  human      beings  as   such  as  beverage  or      drink. Hence,  the expression under      Entry 84, List I must be understood      in  that   light.  We   were  taken      through  various   dictionary   and      other meanings  and also invited to      the  process   of  manufacture   of      alcohol in  order to  induce us  to      accept the  position that denatured      spirit can  also be  by appropriate      cultivation   or   application   or      admixture  with   water   or   with      others,   be    transformed    into      ‘alcoholic   liquor    for    human      consumption’    and     as     such      transformation would not entail any      process  of  manufacture  as  such.      There will  not be  any organic  or      fundamental    change    in    this      transformation, we  were  told.  We      are, however,  unable to enter into      this  examination.   Constitutional      provision  specially  dealing  with      the delimitation  or  powers  in  a      federal plity must be understood by      common   people    for   whom   the      Constitution    is     made.     In      terminology, as  understood by  the      framers of  the  Constitution,  and      also as viewed at the relevant time      of its  interpretation, it  is  not      possible  to   proceed   otherwise;      alcoholic or  intoxicating  liquors      must be  understood as  these  are,      not what  these are, not what these      are not  what these  are, not  what      these are  capable of  or  able  to      become. It  is also not possible to      accept the submission that vend fee      in  U.P.   in  a   pre-Constitution      imposition and would not be subject      to Article 245 of the Constitution.

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    The present extent of imposition of      vend fee  is not a pre-Constitution      imposition, as  we noticed from the      change of rate from time to time.      On   behalf   of   the   State   of      Maharashtra Mr.  Dholakia submitted      that the  first  issue  is  whether      Entry 8  in List  II of the Seventh      Schedule   of   the   Constitution,      covers  alcohol   unfit  for  human      consumption.  The   second   issue,      according   to   him   is   whether      assuming that  the entry  does  not      include  alcohol  unfit  for  human      consumption,  its   scope  in  that      respect  is  curtailed  because  of      item 26  of the Schedule to the IDR      Act,   1951.   The   third   issue,      according  to   him,  is,   whether      having regard  to Entry  51 in List      II,  the   State  can   (a)  impose      regulations  by  creating  economic      disincentives  for  consumption  of      drinkable    alcohol,    and    (b)      prevention  of   misuse   of   non-      drinkable alcohol for consumption.      Only in  two cases  the question of      industrial alcohol  had come up for      consideration  before  this  Court.      One is  the present  decision which      is under challenge and the other is      the decision  in  Indian  Mica  and      Micanite Industries  Ltd. case.  In      the latter  case, in  spite of  the      earlier judgments including Barucha      case, denatured spirit required for      the manufacture of micanite was not      regarded  as   being   within   the      exclusive privilege  of the  State.      It appears that in that decision at      p.321 of the report (SCC p.238), it      was  specifically   held  that  the      power of  taxation with  regard  to      alcoholic liquor  not fit for human      consumption,   was    within    the      legislative competence  of  central      legislature.  The   impost  by  the      State was  held to  be  justifiable      only  if   it  was  a  fee  thereby      impliedly and  clearly denying  any      consideration  or   price  for  any      privilege. For  the first  time, in      the Synthetics & Chemical ltd. case      the concept  of exclusive privilege      was introduced  into  the  area  of      industrial  alcohol   not  fit  for      human consumption.      Having regard  to the principles of      interpretation       and        the      constitutional provisions,  in  the      light  of  the  language  used  and      having considered  the  impost  and      the   composition   of   industrial      alcohol,   and    the   legislative      practice of this country, we are of

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    the  opinion  that  the  impost  in      question  cannot  be  justified  as      State imposts  as these  have  been      done.   We    have   examined   the      different provisions. These seek to      levy imposition  in their  pith and      substance not  as incidental  or as      merely   disincentaxing   provision      permitting these  in the  lists  in      the field of industrial alcohol for      the State to legislate.      Under     these      circumstances,      therefore, it  is  clear  that  the      State legislature  had no authority      to levy  duty  or  tax  on  alcohol      which is  not for human consumption      as that could only be levied by the      Centre.      This Court  further considered this question by a bench of three  Judges in State of U.P. vs. Modi Distillery & Ors. [(1995) 5  SCC 753].  The facts  therein are in paragraphs 6 and this Court has held in paragraphs 9, 10 and 11 thus:      "It is  convenient now  to note the      judgment  of   a  Bench   of  seven      learned Judges  of  this  Court  in      Synthetics and  Chemicals Ltd.  vs.      State of  U.P. [)1990)  1 SCC 109].      This Court  stated that  it had  no      doubt  that   the  framers  of  the      Constitution, when  they  used  the      expression "alcoholic  liquors  for      human consumption",  meant, and the      expression still means, that liquor      which, as  it is,  is consumable in      the sense  that it  is  capable  of      being taken by human beings as such      as a  beverage or  drink. Alcoholic      or intoxicating  liquors had  to be      understood as  they were,  not what      they were  capable of  or  able  to      become. Entry 51 of List II was the      counterpart of  Entry 84 of List I.      it authorised  the State  to impose      duties  of   excise  on   alcoholic      liquors   for   human   consumption      manufactured  or  produced  in  the      State. It was clear that all duties      of excise save and except the items      specifically excepted  in Entry  84      of List I were generally within the      taxing   power   of   the   Central      Legislature. The  State Legislature      had limited  power to impose excise      duties.     That      power     was      circumscribed  under  Entry  51  of      List II. It had to be borne in mind      that, by  common  standards,  ethyl      alcohol   (which    95   per   cent      strength) was an industrial alcohol      and   was   not   fir   for   human      consumption. The ISI specifications      had divided ethyl alcohol (as known      in the trade) into several kinds of      alcohol. Beverages  and  industrial      alcohols    were     clearly    and

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    differently   treated.    Rectified      spirit for  industrial purposes was      defined  as   spirit  purified   by      distillation having  a strength not      less than  95 per cent by volume of      ethyl  alcohol.   Dictionaries  and      technical   books    showed    that      rectified spirit  (95 per cent) was      an  industrial   alcohol  and   not      potable  as   such.  It   appeared,      therefore, that industrial alcohol,      which was  ethyl  alcohol  (95  per      cent), by  itself was not only non-      potable but  was highly  toxic. The      range  of  potable  alcohol  varied      from country  spirit to  whisky and      the ethyl  alcohol content  thereof      varied between  19 to  about 43 per      cent,   according    to   the   ISI      specifications.  In   other  words,      ethyl alcohol (95 per cent) was not      an  alcoholic   liquor  for   human      consumption but  could be used as a      raw  material   or   input,   after      processing     and      substantial      dilution,  in   the  production  of      whisky, gin,  country liquor,  etc.      In  the  light  of  experience  and      development, it  was  necessary  to      state  that  "intoxicating  liquor"      meant only  that liquor  which  was      consumable by  human  being  as  it      was.      What the State seeks to levy excise      duty upon in the Group ‘B’ cases is      the   wastage   of   liquor   after      distillation, but  before dilution;      and ,  in the  Group ‘D’ cases, the      pipeline loss  of liquor during the      process  of   manufacture,   before      dilution. It  is clear,  therefore,      that what  the State  seeks to levy      excise duty  upon is  not alcoholic      liquor  for  human  consumption  by      human  beings.  The  State  is  not      empowered to  levy excise  duty  on      the raw  material or  input that is      in the  process of  being made into      alcoholic    liquor    for    human      consumption.      That the  measure  of  excise  duty      upon  alcoholic  liquor  for  human      consumption   is    the   alcoholic      strength thereof  does not make any      difference in  this behalf,  it  is      only the  alcoholic strength of the      final product which is relevant."      It is,  thus, clear  that the  range of potable alcohol varies between  country  spirit  to  whisky  and  the  ethyl alcohol. The  alcoholic strength  of each  excisable article and its  percentage varies as per the ISI specifications but intoxicating liquor necessarily means only that liquor which was consumable  by human  beings as  it was.  The  state  of levying  excise  duty  upon  alcoholic  liquor  arises  when excisable  article   is  brought   to  the  stage  of  human

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consumption with  the requisite  alcoholic strength thereof. It is only the final product which is relevant.      Thus,  the  final  product  of  the  beer  is  relevant excisable article  exigible to  duty under Section 31 of the Act when  it passes through fine ilter press and received in the bottling  tank. The  question is: at what stage the duty is liable to be paid? Section 23 specifically envisages that until the  payment of  duty is  made or  bond is executed in that behalf  as per  the procedure  and  acceptance  by  the Financial Commissioner,  the finished  product, namely,  the beer in  this case,  shall not  be removed from the place at which finished  product was  stored either  in  a  warehouse within factory  premises or  precinct or  permitted place of usage. Under  these circumstances, the point at which excise duty is  exigible to  duty is  the time  when  the  finished product, i.e.,  bear was  received in  bottling tank  or the finished product  is removed  from the  place of  storage or warehouse etc.      The appeal  is, therefore,  allowed and the respondents are entitled  to collect  the excise  duty as  per the rates specified by  the Government  in exercise  of the  power  in Chapter V  of the  Act from the appellant when the appellant removed beer  from the  place of  storage/warehouse etc.  In other words,  it is  the place of storage, with reference to which duty  is liable to be paid, as envisaged under Section 23 of  the Act read with the Rule made by the Government. If there is  any ambiguity in the Rules made by the Government, it  may   be  open  to  them  to  regulate  the  process  of manufacture  and   check  the  percentage  of  the  quantity obtained in  the process  of manufacture  but that  does not make them  exigible to  duty while beer is in the process of manufacture. However,  as stated earlier, it is  exigible to duty only  when it becomes finished product and is sought to be removed from the place of storage.       The appeal is accordingly allowed. No costs.