States Cannot Levy Excise Duty On Alcohol Which Is Not Fit For Human Consumption: Supreme Court

The Supreme Court observed that States have power to levy excise duty only in respect of the alcoholic liquor for human consumption.

 Alcoholic liquors other than for human consumption have been left to the Central Legislature for levy of duty of excise, the bench comprising Justices L. Nageswara Rao and BR Gavai noted.

The Orissa High Court, in this case, had set aside demand notice  issued to the writ petitioner Company, calling upon it to pay excise duty on the weak spirit, which was more than 2% allowable wastage.  In appeal, the Apex Court bench noted that the Constitution bench in Synthetics and Chemicals Ltd. and others vs. State of U.P. and others had held that the State Legislature had no authority to levy duty or tax on industrial alcohol, which is not fit for human consumption as that could only be levied by the Centre.

"It could thus be seen that the Constitution Bench has held that the Constitution makers distributed the term 'alcohol liquor' into two heads, viz., (a) for human consumption; and (b) other than for human consumption. It has been held that the alcoholic liquors, which are for human  consumption, are put in Entry 51 List II authorizing 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. It has been held that what has been excluded in Entry 84 has specifically been put within the authority of the State for purposes of taxation. The Constitution Bench clearly held that the State Legislature had no authority to levy duty or tax on alcohol, which is not for human consumption as that could be levied only by the Centre.", the bench observed.

The court also referred to Section 27(1) read with Section 2(6) of the erstwhile Bihar and Orissa Excise Act, 1915, (hereinafter referred to as 'the said Act'), which governed the field at the relevant time.

"Perusal of Section 27(1) of the said Act would reveal that the State's power to impose duty on import, export, transport and manufacture is only in respect of any excisable articles imported, exported, transported and manufactured. 'Excisable article' has been defined to be any alcoholic liquor for human consumption or any intoxicating drug. It is thus clear that even under the relevant statute, the State has 18 power to levy excise duty only in respect of the alcoholic liquor for human consumption", the bench observed while dismissing the appeal.

Case: State of Orissa vs Utkal Distilleries Ltd | CA 5666-­5668 OF 2009 | 3 March 2022

Citation: 2022 LiveLaw (SC) 240

Coram: Justices L. Nageswara Rao and BR Gavai