State levy on rectified spirit and transit loss fails where the underlying impost is unconstitutional excise duty.

State competence does not extend to levying excise duty on rectified spirit, treated as industrial alcohol, even if it may later be converted into potable liquor. The governing constitutional position, as reflected in later three-Judge decisions, allows regulation of industrial alcohol to prevent diversion to human consumption but bars a direct excise levy on industrial alcohol itself. A demand described as duty for transit loss could not be sustained as penalty or compensation where its true character remained an unconstitutional excise impost. On that basis, the demand notices were unsustainable and liable to be quashed.

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Issues: Whether the State had legislative competence to levy excise duty, or an amount described as duty, on rectified spirit and transit loss thereof, and whether the impugned demand notices could be sustained.

Analysis: Rectified spirit was treated as industrial alcohol and not as potable liquor for human consumption. The governing constitutional position, as settled by the Supreme Court, is that the State may regulate industrial alcohol to prevent diversion to potable use, but it cannot levy excise duty on industrial alcohol or on rectified spirit merely because it may later be capable of conversion into potable liquor. The demand in question was founded on an amount equal to excise duty under the Excise Manual for transit loss, but its true character remained that of excise duty on rectified spirit. The Court followed the later three-Judge decisions holding that such levy is beyond State competence and that a demand for loss in transit cannot be justified as penalty or compensation when the underlying impost itself is unconstitutional.

Conclusion: The State had no power to levy the demanded duty on rectified spirit or its transit loss, and the impugned demand notices were unsustainable and liable to be quashed.

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