Supreme Court invalidates liquor duty hike, original duty remains valid. No costs awarded.

The Supreme Court partially allowed the appeal, declaring the notification dated March 31, 1961, enhancing the duty on foreign liquor by Rs. 30 per L.P. Gallon, as invalid and unenforceable. The original duty of Rs. 40 per L.P. Gallon, however, remained valid and enforceable. The Court made no order as to costs in both the Supreme Court and the High Court.

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Issues Involved:
1. Legality of the levy of countervailing duty on foreign liquor imported into the State of Orissa.
2. Validity of the enhancement of countervailing duty from Rs. 40 to Rs. 70 per L.P. Gallon.
3. Compliance of the levy with constitutional provisions, specifically Articles 301, 303, 304, and 305.

Issue-wise Detailed Analysis:

1. Legality of the Levy of Countervailing Duty on Foreign Liquor Imported into the State of Orissa:

The appellants, Kalyani Stores, contested the legality of the countervailing duty imposed on foreign liquor imported into Orissa, arguing that such a duty could not be levied in the absence of similar goods being produced within the State. The High Court dismissed this contention, holding that under Entry 51, List II, in Schedule VII of the Constitution, the State Legislature had the power to levy duties of excise on alcoholic liquors for human consumption manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India. The Supreme Court observed that the expression "countervailing duty" means a duty levied on similar articles imported from outside the State with a view to equalize the burden of taxation on articles produced or manufactured within the State and articles imported. The Court clarified that countervailing duties could only be levied if similar goods were actually produced or manufactured in the State on which excise duties were being levied.

2. Validity of the Enhancement of Countervailing Duty from Rs. 40 to Rs. 70 per L.P. Gallon:

The appellants challenged the enhancement of the duty from Rs. 40 to Rs. 70 per L.P. Gallon, arguing that the enhancement was without authority of law and contravened Entry 51, List II, Schedule VII of the Constitution. The Supreme Court held that the Bihar & Orissa Excise Act 2 of 1915, enacted before the Constitution, continued to remain in force by virtue of Article 372 of the Constitution. The Court noted that the duty of Rs. 40 per L.P. Gallon, levied before the Constitution, remained effective until lawfully altered. The notification of March 31, 1961, which enhanced the duty to Rs. 70 per L.P. Gallon, was deemed invalid as it did not comply with the constitutional requirements of Articles 301 and 304. The Court concluded that while the enhancement was invalid, the original duty of Rs. 40 per L.P. Gallon remained valid and enforceable.

3. Compliance of the Levy with Constitutional Provisions (Articles 301, 303, 304, and 305):

The Supreme Court examined the validity of the enhanced levy in light of constitutional provisions. Article 301 declares the freedom of trade, commerce, and intercourse throughout India, subject to other provisions of Part XIII. Article 304 allows the State Legislature to impose taxes on goods imported from other States if similar goods manufactured or produced in the State are subject to the same tax, provided there is no discrimination. The Court found that since no foreign liquor was produced or manufactured in Orissa, the power to legislate under Article 304 was not available, and the restriction on trade under Article 301 remained unfettered. The Court also noted that Article 305 protects existing laws, and the levy of Rs. 40 per L.P. Gallon, being an existing law, was protected under Article 305. The enhancement to Rs. 70 per L.P. Gallon, however, was invalid as it did not comply with the requirements of Article 304.

Conclusion:

The Supreme Court partially allowed the appeal, declaring the notification dated March 31, 1961, enhancing the duty on foreign liquor by Rs. 30 per L.P. Gallon, as invalid and unenforceable. The original duty of Rs. 40 per L.P. Gallon, however, remained valid and enforceable. The Court made no order as to costs in both the Supreme Court and the High Court.

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