J&K Distillery Rules | State Can't Levy Excise Duty On Rectified Spirit Unfit For Human Consumption: High Court

“The power which is not provided in the Parent Act could not be made use of by the State by usurping the power of the Parliament. Therefore, when the Parent Act does not provide for any power to the then State to levy Excise Duty on the rectified spirit converted into liquor fit for human consumption, it is beyond the jurisdiction of the State Legislation to make any such Rule. In this view of the matter, the impugned orders passed by the respondents under Rule 108 of the J&K Distillery Rules, 1946, are held to be in clear contravention of the Excise Act”.

The case revolves around a fire incident that occurred on November 18, 1991, at the petitioner's factory. The incident resulted in damage to storage tank No. 4 and the destruction of the spirit it contained. An inquiry was initiated under Rule 108 of the Jammu & Kashmir Distillery Rules, 1946. The report from this inquiry concluded that the spirit's destruction was due to the fire incident, which was beyond the petitioner's control. An audit report recommended further examination by a committee of officers.

A committee was formed, and its findings contradicted the earlier Enquiry Officer's report. This discrepancy led to legal proceedings, with the petitioner challenging the imposition of Excise Duty based on the conclusions drawn from the various reports.

Senior Advocate Pranav Kohli for the petitioner argued that the state lacked the legislative power to impose Excise Duty on spirit not fit for human consumption, as per the Constitution's division of legislative powers between the Union and the State.

In order to ascertain the legislative competence of the state to impose Excise Duty on spirit not fit for human consumption the bench examined the constitutional scheme outlined in the Seventh Schedule, with special emphasis on Entries 84 and 51 of the Union and State Lists respectively and observed that the Parliament had the authority to impose Excise Duty on alcoholic liquor, excluding that intended for human consumption.

Conversely, the state's power to impose such duties was restricted to alcoholic liquor appropriate for human consumption and thus, the imposition of Excise Duty on the presumptive production of liquor from rectified spirit, as sanctioned by Rules 107 and 108, contravened the state's legislative competence, it underscored.

Deliberating on the validity of imposing Excise Duty on presumptive production of liquor through Rules 107 and 108 of the J&K Distillery Rules the bench emphasized that the state's legislative competence did not extend to imposing duties on rectified spirit that was not intended for human consumption.

“There is no concept of presumptive production under Section 17 of the Excise Act. Section 25(o) of the Excise Act is referable only to the method, manner and mode of recovery pertaining to Excise revenue and not to the mode and manner of imposition of Excise Duty and that too on presumptive production of spirit from raw material”, Justice Kazmi highlighted.

Reaffirming that the Constitution's framework took precedence over any rules or regulations created by the state the court emphasised that these rules could not grant the state the power to impose duties beyond what was constitutionally granted.

The bench added

“…it becomes quite axiomatic that the power which is not provided in the Parent Act could not be made use of by the State by usurping the power of the Parliament. Therefore, when the Parent Act does not provide for any power to the then State to levy Excise Duty on the rectified spirit converted into liquor fit for human consumption, it is beyond the jurisdiction of the State Legislation to make any such Rule”.

Based on these considerations the bench while quashing the impugned orders and demand notices, clarified that Rules 107 and 108 would remain applicable as long as they did not conflict with constitutional principles or provisions of the Excise Act.

Case Title: Gupta Modern Breweries Vs State of J&K

Citation: 2023 LiveLaw (JKL) 231

Counsel For Petitioner: Mr. Pranav Kohli, Sr. Advocate with Mr. Rahul Sharma, Advocate

Counsel For respondents: Mr. K.D.S. Kotwal, Dy. AG.

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