The Supreme Court on Thursday said the state government was only empowered to levy excise duty on alcoholic liquor for human consumption, and it has no power to levy excise on wastage of liquor after distillation.
A bench of Justices L. Nageswara Rao and B.R. Gavai said: “This court held that the state was only empowered to levy excise duty on alcoholic liquor for human consumption. This court held that the state has no power to levy excise duty on wastage of liquor after distillation.”
Referring to the seven-judge Constitution bench judgment in Synthetics and Chemicals Ltd and others vs State of UP and three-judge bench decision in Uttar Pradesh and others vs Modi Distillery, te bench said the Constitution bench had held that the state legislature had no authority to levy duty or tax on alcohol, which is not for human consumption and that could be levied only by the Centre.
Utkal Distilleries Ltd was granted a license by the Odisha government for the purpose of manufacturing, bottling, blending, and reduction of Indian made foreign liquor (IMFL). The company, as required under license, installed an extra natural alcohol (ENA) column to purify the rectified spirit, which is used in the manufacturing of IMFL. The company said during the manufacturing process, a “weak” spirit was generated, which was not potable.
The company sent a sample of this spirit for examination to the State Drugs Testing and Research Laboratory, Odisha, and this declared it unfit for human consumption.
However, the state government sent multiple demand notices to the company asking it to pay excise duty on the weak spirit, which was in excess of two per cent allowable wastage. The Odisha High Court stayed the demand notices issued by the state government, which it challenged in the Supreme Court.
The bench said alcoholic liquors, which are for human consumption, are put in Entry 51 List II authorising the state legislature to levy tax on them, whereas alcoholic liquors other than for human consumption have been left to the Central legislature under Entry 84 for levy of duty of excise.
Dismissing the appeal of the state government, the bench said: “In view of the legal position as settled by the Constitution Bench of this Court in the case of Synthetics and Chemicals Ltd (supra) and the three Judge Bench in the case of Modi Distillery (supra) and the statutory provisions contained in the said Act, we see no reason to interfere with the impugned judgment and order.”