The Jammu and Kashmir High Court has recently ruled that the State does not
possess the requisite legislative competence to impose Excise Duty on rectified
spirit not suitable for human consumption as per Rules 107 and 108 of the
Jammu & Kashmir Distillery Rules.
Justice Moksha Khajuria Kazmi interpreted the Jammu and Kashmir Excise Act to
allow Excise Duty only on spirits that had passed certain production and
distillation stages and were fit for human consumption.
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.
