1989 (10) TMI 214 - SC - VAT and Sales Tax

Court rules central legislature has authority over excise duty on industrial alcohol, invalidating state imposts.

Synthetics & Chemicals Ltd., etc. Versus State of UP.

The court ruled that the power to levy excise duty on industrial alcohol rests with the Central Legislature under entry 84 of List I, not with the State ... Right of the States to levy vend fee or duties in respect of industrial alcohol under different legislations in different States Held that:- So far as the present case is concerned the State in exercise of powers under entry 8 of List II and by appropriate law regulate and that regulation could be to prevent the conversion of alcoholic liquors for industrial use into one for human consumption and for purpose of regulation, the regulatory fees only could be justified. In fact, the regulation should be the main purpose, the fee or earning out of it has to be incidental and that is why the learned counsel appearing for the State attempted to use this terminology by saying that the purpose is regulation, the earnings are incidental but frankly conceded that in fact the earnings are substantial. In fact in some of the excise laws in the States they have even used terminology relying on the doctrine of privilege and parting with privilege but it is not necessary for us to go into those questions in greater detail as we are not here concerned with the trade in alcoholic liquors meant for human consumption and, therefore, in view of clear demarcation of authority under various items in the three Lists, entry 8 of List II could not be invoked to justify the levies which have been imposed by the States in respect of alcoholic liquors which are not meant for human consumption. Issues Involved:1. Legislative competence of the State Legislature versus Central Legislature to levy excise duty on industrial alcohol.2. Scope and ambit of entry 8 of List II of the Seventh Schedule to the Constitution.3. Exclusive right or privilege of the State Government in manufacturing, selling, and distributing alcohol, including industrial alcohol.4. Validity of vend fee and other imposts on industrial alcohol under various State legislations.5. Impact of the Industries (Development and Regulation) Act, 1951 (IDR Act) on State legislation regarding industrial alcohol.6. Application of the doctrine of privilege and police powers in the context of alcohol regulation and taxation.Issue-wise Detailed Analysis:1. Legislative Competence of the State Legislature versus Central Legislature:The main question was whether the power to levy excise duty on industrial alcohol was with the State Legislature or the Central Legislature. The court concluded that under entry 84 of List I, the Central Legislature has the power to impose duties of excise on industrial alcohol, while entry 51 of List II grants the State Legislature power to impose duties on alcoholic liquors for human consumption. The court held that industrial alcohol, being non-potable and toxic, falls under the Central Legislature's purview.2. Scope and Ambit of Entry 8 of List II:Entry 8 of List II pertains to 'intoxicating liquors,' which the court interpreted to mean liquors that are consumable by human beings as beverages or drinks. The court clarified that industrial alcohol, which is not fit for human consumption, does not fall within the scope of entry 8. The court emphasized that the term 'intoxicating liquor' must be understood in its common and normal sense, referring to beverages or drinks.3. Exclusive Right or Privilege of the State Government:The court examined whether the State Government has an exclusive right or privilege in manufacturing, selling, and distributing alcohol, including industrial alcohol. The court held that the States do not have an exclusive right to impose imposts on industrial alcohol, as this power is vested in the Central Government under the IDR Act. The court stated that the States cannot claim exclusive rights over industrial alcohol, which is manufactured under Central licenses.4. Validity of Vend Fee and Other Imposts:The court scrutinized the validity of vend fees and other imposts levied by various States on industrial alcohol. It concluded that these imposts are not justified as regulatory fees because they lack the necessary quid pro quo and are primarily revenue-raising measures. The court declared these imposts invalid and unconstitutional, stating that the States cannot impose such levies on industrial alcohol.5. Impact of the IDR Act:The IDR Act, particularly after the 1956 amendment, brought the alcohol industry under the control of the Central Government. The court held that the State legislations imposing imposts on industrial alcohol are unconstitutional as they conflict with the IDR Act. The court emphasized that the Central Government's control over the alcohol industry precludes the States from imposing such levies.6. Doctrine of Privilege and Police Powers:The court addressed the doctrine of privilege, which suggests that the State has the exclusive right to trade in alcohol and can levy fees for parting with this privilege. The court rejected this doctrine in the context of industrial alcohol, stating that it is not applicable under the Indian Constitution. The court also examined the concept of police powers, which allows the State to regulate activities to protect public health and safety. The court acknowledged the State's power to regulate industrial alcohol to prevent its misuse but held that such regulation must be reasonable and not a guise for revenue generation.Conclusion:The court declared the imposts on industrial alcohol by various States as unconstitutional and invalid. It emphasized that the power to levy excise duty on industrial alcohol lies with the Central Legislature under entry 84 of List I, and the States cannot impose such levies. The court also clarified that the States have the power to regulate industrial alcohol to prevent its misuse but cannot use this power to impose revenue-raising imposts. The judgment prospectively invalidated the imposts, allowing no refunds for past collections.