2005 (4) TMI 639 - HC - Indian Laws

Court quashes demand notices, ruling state lacks authority to levy excise on rectified spirit

Upper Ganges Sugar and Industries Ltd. Versus State of U.P. and Ors.

The court allowed the writ petition, quashing the demand notices dated 20.5.1995 and 30.5.1995. It held that the State Government lacked the authority to ... - Issues Involved:1. Constitutionality of Sections 4 and 24 of the U.P. Excise Act, 1910.2. Legitimacy of Rule 12 of the U.P. Excise Rules.3. Validity of Notifications No. 6121 and No. 1275 issued by the State Government.4. Legality of the orders dated 20.5.1995 and 30.5.1995 issued by the Excise Commissioner.5. Authority of the State Government to recover duty on rectified spirit.Issue-wise Detailed Analysis:1. Constitutionality of Sections 4 and 24 of the U.P. Excise Act, 1910:The petitioner challenged Sections 4 and 24 of the U.P. Excise Act, 1910, asserting that they were ultra vires the Constitution to the extent they classified rectified spirit as foreign liquor. The court examined the legislative competence of the State to regulate and levy duties on rectified spirit. It was established that the State could regulate the use of alcohol to prevent its misuse as intoxicating liquor but could not impose duties on non-potable alcohol, as affirmed in the Synthetics and Chemicals Ltd. case.2. Legitimacy of Rule 12 of the U.P. Excise Rules:The petitioner contended that Rule 12 of the U.P. Excise Rules was beyond the rule-making power of the State Government under the U.P. Excise Act, 1910. The court referred to the Synthetics and Chemicals Ltd. case, which clarified that the State could regulate the use of alcohol but could not impose duties on industrial alcohol. The court concluded that Rule 12 could not extend the State's power beyond its constitutional limits.3. Validity of Notifications No. 6121 and No. 1275 issued by the State Government:The petitioner sought to declare the notifications issued under Sections 4, 28, and 29 of the U.P. Excise Act as unconstitutional and beyond the jurisdiction of the State Government. The court reiterated the principles from the Synthetics and Chemicals Ltd. case, emphasizing that the State could not impose duties on industrial alcohol. Thus, the notifications were deemed invalid to the extent they imposed such duties.4. Legality of the orders dated 20.5.1995 and 30.5.1995 issued by the Excise Commissioner:The petitioner challenged the orders demanding excise duty on rectified spirit lost in transit due to an accident. The court analyzed several precedents, including Modi Distilleries and Deccan Sugar and Abkari Co. Ltd., which held that the State could not levy excise duty on industrial alcohol. The court found that the demand for duty on transit loss was not justified and quashed the orders.5. Authority of the State Government to recover duty on rectified spirit:The court examined whether the State had the authority to recover duty on rectified spirit, particularly in cases of transit loss. It was established that rectified spirit, being non-potable, could not be subjected to excise duty by the State. The court relied on the Deccan Sugar and Abkari Co. Ltd. case, which explicitly stated that no duty on wastage of rectified spirit could be levied by the State Government. Consequently, the court concluded that the State lacked the legislative competence to demand such duties.Conclusion:The writ petition was allowed, and the impugned demand notices dated 20.5.1995 and 30.5.1995 were quashed. The court reaffirmed that the State Government could not levy excise duty on rectified spirit, as it was not a potable liquor. The judgment underscored the constitutional limitations on the State's power to impose such duties and the necessity of adhering to established legal precedents.