Income Tax Appellate Tribunal - Kolkata
Varas International (P) Ltd. vs Asstt. Cit on 20 July, 2007
ORDER
N.L. Dash, J.M.
1. In pursuance to the direction of the Hon'ble Apex Court in Civil Appeal Nos. 8667-8668 of 1997 arising out of Income Tax Reference Nos. 97 of 1994 & 160 of 1992 in R.A. Nos. 1036/C of 1992& 259/C of 1991, these two appeals were taken up for hearing on 23-4-2007, 4-5-2007 and 21-5-2007. The Learned Senior Advocate for the revenue was asked to file rebuttal in regard to documents filed by the assessee's counsel within 10 days i.e., on or before 14-5-2007 but he prayed for one months more time to file the same. Till 21-5-2007, i.e., the 3rd date of hearing, nothing has been filed. As such we proceeded to pass the order assuming that the revenue does not have anything to file further and dictated the order on 9-7-2007 after waiting for about more than a month. Even till today, i.e., signing of the order, nothing has been filed from the side of the revenue.
2. These two appeals pertaining to assessment years 1984-85 and 1985-86 were earlier heard and disposed of by the Tribunal in favour of the assessee vide Orders dated 15-3-1991 and 17-8-1992 respectively. In the Civil Appeals decided by the Hon'ble Supreme Court for these two years, the Hon'ble Supreme Court vide its order dated 2-3-2006 (decision in CIT v. Varas International (P) Ltd. (2006) 284 ITR 801 (SC) has set aside the decisions of the Hon'ble Calcutta High Court and that of the Tribunal and remanded p. the matter back to the Tribunal.
3. The facts relating to the controversy raised in the instant appeals and leading to the remand back of matters to the Tribunal are that the assessee-company who is engaged in the business of manufacturing and bottling of country liquor, had imported spirit from outside the West Bengal. In terms of Rule 6 of the West Bengal (Manufacture of Country Spirit in labelled and capsuled Bottles) Rules, 1979 (hereinafter referred to as the "Rules") issued in exercise of the powers conferred by Section 86 of the Bengal Excise Act, 1909, a fee is payable by the manufacturer of country spirit for the privilege of manufacture of the same and a further additional fee is payable on the import of spirits.
The assessee-company debited Rs. 2,78,465 and Rs. 1,63,000 in respect of fee payable to the Government of West Bengal, Excise Directorate in its accounts for the assessment year 1984-1985 and assessment year 1985-86 respectively under the nomenclature "Excise Duty" and carried the same in its liability side as the payment was outstanding due to filing of a writ petition before the Hon'ble High Court, Calcutta, who granted a stay order. The assessing officer invoked the provisions of Section 43B in both these years and disallowed the deduction claimed.
3.1 The assessee preferred appeals before the Commissioner (Appeals) for both the years. The Commissioner (Appeals) held that as per the Concise Oxford Dictionary, the word "duty" means payment to public revenue, inter alia, on import, export, manufacture or sale of goods and since the levy was on spirit imported from outside West Bengal, the "additional fee" payable was nothing but duty. He held that the mischief of Section 43B was applicable to the assessee's case and dismissed the appeals of the assessee.
3.2 Aggrieved, the assessee preferred appeals before the Tribunal. Before the Tribunal it was submitted that in terms of Rule 2, nobody shall undertake manufacture of country spirit in labelled and capsuled bottles unless he is a grantee of exclusive privilege and as per Rule 6, a specified fee is payable for such privilege. Thereafter, two fold submissions were made.
3.3 Firstly, it was argued relying upon the judgment of the Hon'ble Calcutta High Court in the case of P.H. Avari v. State of Bengal MR 1958 Cal 203 that there is distinction between a tax and the fee. "Tax" is levied as part of a common burden and "fee" is the payment for a special benefit or privilege. It was further argued that the privilege and specified fee does not assume the character of "fee" as contemplated under Section 43B.
3.4 Secondly, it was submitted that even otherwise, the provisions of Section 43B were not applicable to the claim of the assessee for the reason that the word "fee" was included in Section 43B with effect from 1-4-1989,while assessee's cases related to assessment years 1984-85 and 1985-86.
The Tribunal allowed the appeals of the assessee holding that the privilege and specified fee as mentioned in Rules 2 and 6 of the Excise Rules cannot be construed as fee used in Section 43B, the word "fee" was not there in Section 43B before 1-4-1989 and that "fee" was neither tax nor duty and the same cannot be disallowed by invoking the provisions of Section 43B.
3.5 References were preferred against both the orders of the IT AT before the Hon'ble High Court, Calcutta by the revenue. Before the Hon'ble High Court the following three questions of law were referred for its opinion by the Tribunal
(a) Whether, on the facts and in the circumstances of the case and on a correct interpretation of the amendment made by the Finance Act, 1988 to the Section 43B(a) of the Income Tax Act, 1961 which has been explained as clarificatory of legislative intention by the Explanatory notes issued by the Government, the Tribunal was justified in law in not holding that the said amendment will be retrospective in its application?
(b) Whether on the facts and in the circumstances of the case and on. a correct Interpretation of Section 2(10) of the Bengal Excise Act, 1909 by applying the principles of "Ejusdem Generis" the Tribunal was justified in law in not holding that the privileged and specified fee as mentioned in rules 2 and 6 of the Excise Rules cannot be construed as the fee used in Section 43B(a) of the Income Tax Act, 1961?
(c) Whether prejudice to question Nos. (l) and (2) above, whether onthe facts and in the circumstances of the case and a correct interpretation of the Income-tax Law and the State Excise Law, the Tribunal was justified in law in holding that the fees payable by the assessee was not excise duty and thereby deleting the addition made in the assessment in this regard?
The Hon'ble High Court answered the last two questions in favour of the assessee and held that though the levy was described as fee but in fact it was neither a fee nor a duty nor a tax nor a cess inasmuch as it is received by the Government for parting with its exclusive right to manufacture. As the question Nos. 2 and 3 were answered against the revenue, the Hon'ble High Court declined to answer question No. 1 relating to the retrospectivity of amendment in Section 4313(a).
3.6 The department being aggrieved filed appeals before the Hon'ble Supreme Court. Before the Hon'ble Supreme Court, it was initially argued on behalf of the department that the amount payable on the import of spirit was a fee and it was submitted that the amendment made in Section 43B with effect from 1-4-1989 incorporating the word "fee" be construed as retrospective in nature. At this instance, the division bench of the Hon'ble Supreme Court was of the opinion that the issue should be heard by a Bench of five learned Judges on the question whether the decision of the three Learned Judges and two Learned Judges in the following cases needed reconsideration
(a) CIT v. Poddar Cement (P) Ltd. .
(b) Allied Motors (P) Ltd. v. CIT .
(c) Suwalal Anandilal Jain v. CIT
(d) Brij Mohan Das Laxman Das v. CIT .
3.7 When the matter came up before the Learned Constitution Bench of the Hon'ble Supreme Court on 2-2-2006, the Learned Bench was of the opinion that the issue did not need any reconsideration. Accordingly,, the matter was remanded back to the Learned Division Bench for disposal on merits. At the time of hearing before the Learned Division Bench, the Learned Additional Solicitor General appearing on behalf o f the revenue submitted before the Hon'ble Court that the levy in question was in fact a countervailing duty and the State Government was competent under Entry 51 of List II to levy excise duty and countervailing duty and the word "duty" under Section 43B before its amendment would cover both the duties. Hon'ble Supreme Court after hearing the parties finally set aside the decision of the High Court and the Tribunal and remanded the matter back to the Tribunal for the purpose of deciding the issue with the following observations:
We find that the order of the Commissioner (Appeals) is not very clear on this aspect. As far as the Tribunal is concerned, it is true that the submission of the department was that the levy was neither a fee or excise duty. However, we note that Rule 6 under which the levy is imposed on the import of spirit is contained in the rules which are described as Excise Rules. Additionally we find that in the grounds of appeal before this Court it has been submitted that the levy was a duty and the duty would include payment of public revenue levied on the import, export, manufacture or sale and that the additional fee was nothing but duty and Section 43B of the Income Tax Act, 1961 was fee on any sum payable by the assessee by way of tax or duty under any law for the time being in force. In any event the Tribunal certainly erred in not dealing with the contention relating to the levy being an excise duty. The High Court also erred in holding that even an excise duty or other duty imposable by virtue of entry-51 of List II would be covered by the principle that the amount levied under that Entry should also be treated as a price or consideration for the purposes of the grant of privilege with regard to the manufacture of alcohol. Having said this, we are of the view that the respondent's grievance that the issue has not been squarely raised either before the Tribunal and the reference application is strictly speaking correct.
Nevertheless granting the benefit of the doubt to the department that what was intended to be argued was that it was a countervailing duty, we cannot shut out what is a pure question of law from consideration. However, we feel that an opportunity should be granted to the respondent of meeting this case fairly. Accordingly, we set aside the decision of the High Court as well as the Tribunal and remand the matters back to the Tribunal for the purposes of deciding this issue alone. We make it clear that we have not decided the issue on merits in any manner whatsoever and it will be open to the parties to raise whatever points on this issue before the Tribunal as they may be advised and they may be entitled in law.
4. Learned Senior Standing counsel Mr. D.K. Som appeared before us on behalf of the revenue. At the outset, we may mention that both the parties agreed that some confusion had occurred with regard to the facts of the case both at the Tribunal and the High Court stage. The judgments of the Tribunal and the Hon'ble High Court were rendered on the basis that the levy in question was for the exclusive privilege of manufacturing country spirit, whereas the levy in question was on the import of spirit from outside the West Bengal in terms of Rule 6 of the West Bengal (Manufacture of Country Spirit in labelled and capsuled Bottles) Rules, 1979.
5. Mr. Som, the Learned Senior counsel respectfully submitted that the assessee-company does not own a distillery and is engaged in the bottling of country liquor after importing the same from outside the West Bengal. He invited our attention to Section 43B and submitted that the provision was inserted by the Finance Act, 1983, with effect from 1-4-1984 and has enacted a deeming fiction whereby certain expenses can be allowed only on payment basis even if allowable under the Act on accrual basis in keeping with the Mercantile system followed by an assessee. Earlier the term "cess or fee, by whatever name called" was not there in Section 43B.
It has been incorporated with effect from 1-4-1989, but the term "tax, duty" is there right from inception. He then took us to Entry 51 of List II of the Seventh Schedule to the Article 246 of the Constitution of India and submitted that under the said Entry the State Government is competent to impose countervailing duties on the alcoholic liquors manufactured elsewhere in India but imported into the State. He then submitted that the "additional fee" imposed under Rule 6 is nothing but the countervailing duty falling under the legislative competence of the State Government under the aforesaid Entry of the Constitution of India.
6. The Learned Senior Counsel for the revenue took us through the provisions of the Bengal Excise Act, 1909, copy of which is filed in the paper-book. He submitted that as per Section 2(7d), "excise duty" and "countervailing duty" mean any such excise duty or countervailing duty, as the case may be as is mentioned in Entry 51 of List II in the Seventh Schedule to the Constitution. "Excisable Article" as per the said Act means any liquor for human consumption or any intoxicating drug. According to Section 2(12), 'import' means to bring to West Bengal otherwise than across a custom frontier as defined by the Central Government. As per Section 2(19), "spirit" means any liquor containing alcohol obtained by distillation, whether it is denatured, or not. learned Counsel drawing our attention to Section 27 submitted that the State Government has power under it to impose excise duty/countervailing duty on any "excisable article" imported as defined under the Act.
6. (a) The Learned Senior Counsel also took us to the various Notifications issued by the Government of West Bengal, department of Excise framing rules called the West Bengal Excise (Manufacture of Country Spirit in labelled and capsuled Bottles) Rules, 1979 in exercise of the power conferred by Section 86 of the Bengal Excise Act, 1909. The Notification dated 23-3-1979 vide Rule 2 enjoined upon a person not to undertake manufacture of country spirit in labelled and capsuled bottles unless he is grantee of exclusive privilege of supply by wholesale of country spirit in labelled and capsuled bottles. As per Rule 6, the manufacture shall pay a fee of two paise for the privilege of manufacture of country spirit. A further Notification was issued on 12-2-1981, inserting after Rule 6 the following 6(1) The Licensee for the sale by wholesale of country spirit is labelled and capsuled bottles who does not distil spirit in a distillery shall also pay an additional fee of 60 (sixty) paise per bulk litre of rectified spirit when this spirit is allotted to be directly imported by him from a distillery in any other State or Union territory and when he does not also obtain at the same lime supply of country spirit in bulk from a holder of a license in West Bengal Excise Form No. 25, for manufacture of country spirit in labelled and capsuled bottles under the license held by him.
6. (b) The Learned Senior Counsel Mr. Som submitted that the aforesaid prescribed fee of 60 paise was reduced to 50 paise for each bulk litre of spirits imported from outside the state for the bottling plant situated within the Metropolitan Area of Calcutta.
7. The Learned Senior Counsel Mr. Som further submitted that the aforesaid Rules as amended makes a clear distinction between privilege of manufacturing country spirit on the one hand and the additional fee for the importation of the country spirit from outside West Bengal for the purpose of use of country spirit for selling by wholesale. The Tribunal in the first round of proceedings held as a fact-finding authority in its order for the assessment year 1985-86 that the assessee does not own distillery and therefore, it is obliged to import spirit or alcohol from outside the State of West Bengal. Thus, according to Mr. Som, the Learned Senior Standing Counsel, the countervailing/duty additional fees imposed under the Bengal Excise Act on the import of spirit is nothing but "duty" and the additional fees payable by the assessee-company but not paid in the relevant years is hit by the mischief of the provisions of Section 43B. In the written submissions filed, he relied upon a judgment of the Hon'ble Supreme Court in Kandelwal Metal & Engg. Work v. UOI , a three judge Bench judgment where the Hon'ble Supreme Court while considering Section 3(1) of the Customs Tariff Act, 1975, inter alia, observed that additional duty partakes of the same character as the Customs Duty since it is in addition to the Duty. Reliance was also placed upon a constitution Bench judgment Kalyani Stores v. State of Orissa holding that countervailing duty in Entry 51 of the List II of the seventh schedule of the constitution meant a duty levied on alcoholic liquor imported into the state.
8. The Learned Senior Counsel drew our attention to the observation of the Hon'ble Supreme Court in the instant case that "the High Court also erred in holding that even an excise duty or other duty imposable by virtue of Entry 51 of List II would be covered by the principle that the amount levied under that Entry should also be treated as a price or consideration for the purpose of the grant of privilege with regard to the manufacture of alcohol". He submitted that from the above observation of the Hon'ble Supreme Court, it is evident that the import in question is not a price for the privilege of making alcohol.
8.(a) The Learned Senior Counsel finally submitted that the Hon'ble Supreme Court has remanded the matter back to the Tribunal for the limited purpose of considering whether the levy in question is a countervailing duty in terms of Entry 51 of List II to the Seventh Schedule of the Constitution. In the said eventuality the claim of deduction made by the assessee would not be allowable as per Section 43B of the Act. He submitted that in the facts and circumstances and the legal position, it should be held that the "additional fee" is nothing but countervailing duty as envisaged in Entry 51.
9. On the other hand, the learned Counsel appearing for the assessee Mr. Subash Agarwal agreed with all the legal contentions taken by the Learned Senior Counsel appearing for the revenue. He also agreed that the limited issue before the Tribunal is whether the levy in question is in fact a countervailing duty which is within the competence of the State Government to levy under Entry 51 of List II of the Seventh Schedule to the Constitution of India.
He submitted that the most important aspect relevant to the issue under consideration is the item that was imported from outside the state on which the levy was imposed. He submitted that the assessee had imported "rectified spirit" from outside the State of West Bengal. This fact becomes clear on perusal of the relevant rules framed under the Bengal Excise Act, 1909. He submitted that the original rules were framed vide Notification dated 23-3-1979 issued by the Government of West Bengal, department of Excise in exercise of power conferred by the Bengal Excise Act, 1909.
9. (a) As per Rule 6, a manufacturer was liable to pay a fee of two paise per bottle for the privilege of manufacture of country spirit. This rule is not relevant in the instant case as the impugned levy is not, admittedly, on the manufacture.
9. (b) He submitted that the aforesaid Rule 6 was amended by the Notification dated 12-2-1981 and Rule 6(1) to Rule 6(3) were inserted after Rule 6. As per these rules, an additional fee of 60 paise per bulk litre was imposed on the import of "rectified spirit". Thus, it is apparent that the levjf of additional fee is on the import of "rectified spirit" and not on any other item.
9. (c) He further submitted that as per Article 245 of the Constitution of India, the Legislature of any State has exclusive power to make laws with respect to any of the matters enumerated in List II in the Seventh Schedule (known as the State list). As per entry 51 of List II, levy of excise duty and/or countervailing duty can be imposed only on the following two categories of items
(a) alcoholic liquors for human consumption.
(b) opium, Indian hemp and other narcotic drugs and narcotics.
9. (d) The learned Counsel submitted that "rectified spirit" is not figuring in any of the items listed in the entry 51 of the aforesaid list II. Therefore, the levy of excise/countervailing duty on the "rectified spirit" is beyond the legislative competence of the State Government. Learned Counsel further submitted that the Bengal Excise Act, 1909 has been enacted keeping in mind the abovementioned constitutional provision. Section 27 of the said Act empowers the State Government to impose duty on anjr excisable article imported. Section 2(7) defines "excisable article" as (a) any liquor for human consumption or (b) any intoxicating drug (further defined in Section 2(13)). Thus, "rectified spirit" is conspicuous by its absence even in the Bengal Excise Act for the purpose of levy of duty/countervailing duty.
9. (e) The learned Counsel further submitted that because of the above-mentioned constitutional and the legislative bar, the levy on import of rectified spirit has been imposed in the form of fees/additional fees and not as excise/countervailing duty in the rules framed under the Bengal Excise Act, 1909.
9. (f) He submitted that the Hon'ble Supreme Court in the case of Synthetics & Chemicals Ltd. v. State of Uttar Pradesh , a five member bench judgment, held that the framers of the constitution when they used the expression "alcoholic liquor for human consumption" meant that liquor which as it is consumable in the sense capable of being taken by human being as such as beverage of drinks. Analyzing list I item 84 and list II item 51, the Hon'ble court held that the expressions used in the constitution has to be understood in common and normal sense. It is immaterial that the industrial alcohol can be transformed and made capable of human consumption. Finally, the court held that in respect of industrial alcohol the states are not authorised to impose the impost they have purported to do.
9. (g) The learned Counsel relied upon another three-Bench judgment in the case of Deccan Sugar & Abkari Co. Ltd. v. Commissioner of Excise (2004)1 SCC 243 (SC), where the Hon'ble Supreme Court following the aforesaid judgment in the case of Synthetics & Chemicals Ltd. (supra) held that the State can levy excise duty only on potable liquor fit for human consumption and as "rectified spirit" does not fall under that category, the State Legislature cannot impose any excise duty.
10. We heard both the counsels at length, we have carefully gone through the material on record and the paper book filed. We have also carefully gone through the judgment of the Hon'ble Supreme Court remanding the matter back to our file. We agree with the contention of both the counsels that the Hon'ble Supreme Court has remanded a very limited issue for our consideration viz, whether the levy in question in the instant case is a countervailing duty in terms of Entry 51 of List II to the Seventh Schedule to the Constitution. If that is so, needless to say, the word "duty" appearing in Section 43B before its amendment would cover the same and the assessee's claim for deduction on accrual basis would stand dismissed.
11. In the course of hearing, we asked the learned Counsel appearing for the assessee-company to produce some direct evidences to prove his contention that the item imported from outside West Bengal was "rectified spirit". The learned Counsel filed a bunch of papers containing some correspondences with the Excise Directorate, Government of West Bengal and the letters issued by them demanding the outstanding fee. At this stage, the Learned Senior Counsel for the revenue raised an objection submitting that it is too late in the day for the assessee to produce "additional evidences" before the Tribunal, more so, when the authenticity of the documents have not been proved.
12. We do not agree with the Learned Senior Counsel Mr. Som. Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 specifically provides that the Tribunal may requisition any document or examine any witness or ask for any affidavit to be filed to enable it to pass orders or for any other substantial cause. We may mention here that the instant case is facing protracted litigation in the form of remand back to us after the lis went upto the stage of the Hon'ble Supreme Court simply because the correct facts were not submitted before the Tribunal in the earlier proceedings by the parties. Even during assessment proceedings before the assessing officer and the Commissioner (Appeals) the correct fact could not come to light.
We cannot decide a case/issue with the blinkers on. As the highest fact finding body, it is our bounden duty to ascertain the correct facts. Only then substantive justice can be rendered to the parties. Needless to say, the correct facts were not ascertained and lapses are there on both sides, the assessee as well as the revenue in our considered view. On examination of documents placed before the Bench by the assessee in pursuance to the query made by us as it appears from the aforesaid paras that it is vital to decide the issue in question as directed by the Hon'ble Apex Court, we could not persuade ourselves with the opposition and objection raised by the Learned Senior counsel that these are new documents. These are documents which are required in deciding the crux of the issue on which the edifice of the case stands and it has come a long way. The Hon'ble Apex Court has directed us to go to the root as the last fact-finding authority. In that event it becomes our pertinent and bounden duty to abide by the direction of the Hon'ble Apex Court. At the same time, keeping "Natural Justice" in view, we directed the revenue to rebut the evidences of the assessee with sworn affidavit and place further material evidences in order to facilitate the Bench to discharge its duties properly. We allowed more than one month's time. Needless to say, they could not comply as per our direction till date. As such, we had to proceed to dispose of the matter-without allowing it to continue as protracted litigation in accordance with the direction of the Hon'ble Apex Court. We rejected the revenue's objection in limine and admitted the documents filed on behalf of the assessee. However, we directed the revenue to verify the authenticity of the documents from the excise authorities and report the outcome within ten days in the form of an affidavit if the documents submitted are found to be in genuine. A letter dated 14-5-2007 has been filed by the revenue authorities in the registry informing that a letter dated 11 -5-2007 has been written to the Excise Commissioner but the required information can be available only after a month.
13. At the time of writing this order, more than a month's time has elapsed but no further information has been received. We cannot wait perpetually. In the circumstances, we have no option but to proceed on the basis of the documents filed on behalf of the assessee.
14. We find that the Government of West Bengal, Excise Directorate has written a letter No. 6C-141/92-93/2726E dated 13-12-1999 addressed to the assessee-company demanding the payment of fee for the import of rectified spirit. For the sake of clarity, we reproduce the contents of the said letter hereunder Government of West Bengal Excise Directorate 32, B.B. Ganguly Street, Calcutta-12 No. : 6C-141/92-93/2726E Dated: 13-12-1999 From : The Excise Commissioner, West Bengal.
To:
M/s. Varas International (P.) Ltd., Calcutta Sub.: Payment of fee for the import of Rectified Spirit during the period from 13-2-1981 to 6-3-1987 following withdrawal of Writ Petition No. 3168(w) of 1983 filed before the Hon'ble High Court, Calcutta by them.
Gentlemen, It has been stated in their Letter No. VS-Cal-3/246 dated 4-9-1998 that they have withdrawn the above writ petition filed by them challenging Notification No. 615-Ex dated 5-5-1981 regarding imposition of fee on imported rectified spirit by them.
On scrutiny of Register 76 and Profit and Loss Account maintained by them for the period from 13-2-1981 to 6-3-1987, it appears that they have not paid fee as below in terms of the above notification due to an interim order of injunction passed by the Hon'ble court in the above Rule. Now consequent upon withdrawal of the Writ Petition, they are requested to deposit the amount as below in the credit of the Collector of the District under Treasury Challan at the earliest, and produce the attested photo-copy of the receipted treasury Challan through the Collector to this Directorate for taking further action in the matter.
(a) Quantity of imported Yours faithfully,
Rectified Spirit for which no fee (S.K. Gupta)
has been deposited in terms of Excise Commissioner,
G.O. No. 615-Ex dated 5-5-1981- West Bengal.
12,77,444. 3B.L.
(b) Amount of fee payable on the quantity as above - Rs. 6,38,722.15
From the above, it is clear that the assessee has imported "Rectified Spirit" which was later on converted into country liquor in the bottling plant of the assessee company.
15. Let us now examine the contents of Entry 51 of List II, commonly known as the State List. As per the Article 246 of the Constitution, the Legislature of any State has exclusive power to make laws with respect of the matters enumerated in List II of the Seventh Schedule. The contents of Entry 51 are given hereunder:
Duties of Excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates or similar goods manufactured or produced elsewhere in India:
(a) alcoholic liquors for human consumption
(b) opium, Indian hemp and other narcotic drugs and narcotics, but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.
From the above, it can be clearly seen that countervailing duty can be imposed only on alcoholic liquors for human consumption and not on "rectified spirit". The Hon'ble Supreme Court in a five member Bench judgment in the case of Synthetics & Chemicals Ltd. (supra) held that the expressions used in the Constitution has to be understood in common and normal sense. Thus "consumption" of alcohol used in the Constitution in the List I of Item 84 and List II of Item 51 is in the context of direct physical intake by human beings and not utilization in manufacturing process. The Hon'ble Supreme Court held at page 1956, para 87 as follows:
On an analysis of the aforesaid decisions and practice, we are clearly of the opinion that in respect of industrial alcohol the States are not authorized to impose the impost they have purported to do. In the view of the matter, the contentions of the petitioner must succeed and such impositions and imposts must go as being invalid in law so far as industrial alcohol is concerned. We make it clear that this will not affect any impost so far as potable alcohol as commonly understood is concerned. It will also not affect any imposition of levy on industrial alcohol fee where there are circumstances to establish that there was quid pro quo for the fee sought to be imposed. This will not affect any regulating measure as such.
16. Following the above case, Hon'ble Supreme Court in a three bench judgment in the case of Deccan Sugar & Abkari & Co. Ltd. (supra) a judgment which is direct on the levy imposed on the import of rectified spirit, has held as under:
It is settled by the decision of this Court in Synthetics and Chemicak Ltd. v. State of U.P. that the State Legislature has no jurisdiction to levy any excise duty on rectified spirit. The State can levy excise duty only on potable liquor fit for human consumption and as rectified spirit does not fall under that category the State Legislature cannot impose any excise duty. The decision in Synthetics & Chemicals Ltd. v. State of U.P. has been followed in State of U.P. Modi Distillery where certain wastage of ethyl alcohol was sought to be taxed. This Court following the decision in Synthetics and Chemicals Ltd. came to the conclusion that this cannot be done.
17. In view of the above discussion, we hold that the levy in question in the instant case is anything but not countervailing duty/excise duty as per entry 51 of list of II to the Seventh Schedule to the Constitution of India. We, therefore, hold that rigours of Section 43B are not applicable to the unpaid additional fee and the assessee is entitled to claim deduction of the additional fee payable in both the years in question.
18. In the result, both the appeals of the assessee are allowed.