Mohan Meakin Ltd. Vs. Excise & Taxation Commissioner, Himachal Pradesh
& Ors  INSC 1510 (27 November 1996)
O R D
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.
view to appreciate correctness of the view taken and having heard the learned
counsel for the parties, it is necessary to look into the relevant provisions
of the Act and the Rules. Chapter I, Section 3 of the Act defines various words
and phrases in the Act. Section 3(1) defines "Bear" to include ale,
porter, stout, and all other fermented liquors made from malt.
"Liquor" has been defined under Section 3(14) of the Act to mean
"intoxicating liquor and included all liquid consisting of or containing
alcohol; also any substance which the State Government may by notification
declare, to be liquor for the purpose of this Act". "Excisable
article" has been defined in Section 3(6) to mean any alcoholic liquor for
human consumption; or any intoxicating drug. "Excise duty" and "counervailing
duty" as defined in Section 3(6-b) would mean any such excise duty or
countervailing duty, as the case may be, as is mentioned in Entry 51 of List-II
of the Seventh Schedule to the Constitution. "Intoxicant" under
Section 3(12-a) means any liquor or intoxicating drug as has been defined in
Section 3(16) to include every process, whether natural or artificial by which
any intoxicant is produced or prepared, and also redistillation, and every
process for the rectification, reduction, flavouring, blending or colouring of
liquor. "Place" has been defined under Section 3(17) to include a
building, shop, tent and closure, booth, vehicle, vessel, boat and raft.
"Spirit" has been defined in Section 3(19) to mean any liquor
containing alcohol obtained by distillation, whether denatured or not. Section
31 of the Act is the charging provision which envisages that an excise duty, or
a countervailing duty, as the case may be, at such rate or rates as the State
Government shall direct, may be imposed, either generally or for any specified
local area, on any excisable article from the distillery, brewery etc. and
provides that no intoxicant shall be removed from any distillery, brewery,
warehouse, or other place of storage established, or licensed under the Act,
unless the duty, if any, payable under Chapter V has been paid or a bond has
been executed for the payment thereof. Chapter V deals with the levy of the
duties and fees; the details of which are not material for the purpose of this
case. As stated earlier, in this case the levy of excise duty was sought to be
made at the stage when the manufacturing of the beer was at wort stage. The
question is; whether the levy of excise duty, on bear when it was in the
process of manufacture is correct? The levy of excise duty is on alcoholic
liquor for human consumption, manufacture or production. At what stage bear is exigible
to duty is the question. The process of manufacture of bear is described as
first stage brewing process is the feeding of Malt and adjuncts into a vessel
known as Mash Tun.
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.
extract is drawn from the Mash Tun and boiled with the addition of hops for one
to two hours after which it is contrifuged, cooled and received in the
receiving wats. At this stage, it is called "Wort" and contains only
fermentable sugers and no alcohol. After this it is transferred to the formentation
tanks where Yeast is added and primary fermentation is carried out at
controlled temperature. After attenuation (Diminution of density of "Wort"
resulting from its fermentation) is reached for fermented wort is centrifuged
and transferred to the storage vats for secondary fermentation. After secondary
fermentation is over in the storage vats, is filtered twice-first through the
rough filter press and then through the fine filter press and received in the
bottling tanks. it is in bottling tanks that the loss of the Carbon Dioxide Gas
is made up and bulk beer is drawn for bottling. It is filed into the bottled
and then last process of pasteurisation is carried out to make it ready for
packing and marketing. Till and liquor is removed from the vats and undergoes
the fermentation process as mentioned above the presence of alcohol is
nil." Excisable article would mean any alcoholic liquor for human
consumption or any intoxicating drug. The levy or impost of excise duty would
be only on alcoholic liquor for human consumption or for being produced in the
brewery. Beer would mean fermented liquor from malt, when it is potable or in
consumable condition as beverage. It is seen that the levy is in terms of entry
51 of List II of the Seventh Schedule which envisages that duties of excise on
the goods manufactured or produced in the State and countervailing duties at
the same or lower rates on similar goods manufactured or produced elsewhere in India.
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:
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.
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
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
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.
behalf of the State of Maharashtra
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.
in two cases the question of industrial alcohol had come up for consideration
before this Court.
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.
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.
regard to the principles of interpretation and the constitutional provisions,
in the light of the language used and having considered the impost and the
composition of industrial alcohol, and the legislative practice of this
country, we are of the opinion that the impost in question cannot be justified
as State imposts as these have been done. We have examined the different
provisions. These seek to levy imposition in their pith and substance not as
incidental or as merely disincentaxing provision permitting these in the lists
in the field of industrial alcohol for the State to legislate.
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.
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:
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
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.
the State to impose duties of excise on alcoholic liquors for human consumption
manufactured or produced in the State. It was clear that all duties of excise
save and except the items specifically excepted in Entry 84 of List I were
generally within the taxing power of the Central Legislature. The State
Legislature had limited power to impose excise duties. That power was
circumscribed under Entry 51 of List II. It had to be borne in mind that, by
common standards, ethyl alcohol (which 95 per cent strength) was an industrial
alcohol and was not fir for human consumption. The ISI specifications had
divided ethyl alcohol (as known in the trade) into several kinds of alcohol.
Beverages and industrial alcohols were clearly and differently treated.
Rectified spirit for industrial purposes was defined as spirit purified by
distillation having a strength not less than 95 per cent by volume of ethyl
alcohol. Dictionaries and technical books showed that rectified spirit (95 per
cent) was an industrial alcohol and not potable as such. It appeared,
therefore, that industrial alcohol, which was ethyl alcohol (95 per cent), by itself
was not only non- potable but was highly toxic. The range of potable alcohol
varied from country spirit to whisky and the ethyl alcohol content thereof
varied between 19 to about 43 per cent, according to the ISI specifications. In
other words, ethyl alcohol (95 per cent) was not an alcoholic liquor for human
consumption but could be used as a raw material or input, after processing and
substantial dilution, in the production of whisky, gin, country liquor, etc.
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.
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.
the measure of excise duty upon alcoholic liquor for human consumption is the
alcoholic strength thereof does not make any difference in this behalf, it is
only the alcoholic strength of the final product which is relevant." It
is, thus, clear that the range of potable alcohol varies between country spirit
to whisky and the ethyl alcohol. The alcoholic strength of each excisable
article and its percentage varies as per the ISI specifications but
intoxicating liquor necessarily means only that liquor which was consumable by
human beings as it was. The state of levying excise duty upon alcoholic liquor
arises when excisable article is brought to the stage of human consumption with
the requisite alcoholic strength thereof.
only the final product which is relevant.
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.
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.
appeal is accordingly allowed. No costs.