Excise duty on rectified spirit wastage cannot be imposed while it remains non-potable and in storage.
Rectified spirit not fit for human consumption remained outside the State excise domain while it was in storage and had not been cleared for potable use. Because no conversion into alcoholic liquor for human consumption had occurred, the State could not levy excise duty or assess revenue loss on wastage by treating the stored spirit as notional potable liquor. The demand based on potential conversion was therefore unsustainable, and wastage during storage was not liable to State excise duty.
Issues: Whether excise duty or loss of revenue could be levied on wastage of rectified spirit, being industrial alcohol not fit for human consumption, while it remained in storage and had not been cleared for potable use.
Analysis: The levy turned on the constitutional division of legislative power between industrial alcohol and alcoholic liquor for human consumption. Rectified spirit not fit for human consumption remained within the Central domain until it was cleared or removed for conversion into potable liquor. Since the loss occurred while the spirit was still in storage and no conversion or removal for potable purposes had taken place, the State could not treat the wastage as excisable liquor for human consumption or assess duty on a notional basis of possible potable output. The claim for revenue loss under the excise manual could not be applied to such stored rectified spirit.
Conclusion: No excise duty or revenue loss could be levied on the wastage of rectified spirit during storage, and the impugned demand was unsustainable.
Final Conclusion: The challenge succeeded because the State had no authority to levy duty on wastage of rectified spirit not yet brought into the category of alcoholic liquor for human consumption.
Ratio Decidendi: Rectified spirit not fit for human consumption is not liable to State excise duty while it remains in storage, and duty cannot be imposed on its wastage on the basis of a notional conversion into potable liquor.
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