Jharkhand Excise Act: Supreme Court Upholds State’s Right to Levy Import Fee on Rectified Spirit

The Supreme Court of India, in a landmark judgment delivered on July 2, 2019, ruled on the validity of an import fee levied on rectified spirit by the State of Jharkhand. The case involved the appeal by the State of Jharkhand against the decision of the High Court of Jharkhand, which had struck down the notification imposing the import fee. The judgment sheds light on the legislative competence of the State in matters related to excise duties and the regulation of alcohol used for human consumption.

This legal battle was initiated by M/S Ajanta Bottlers & Blenders Pvt. Ltd., which challenged the imposition of an import fee on rectified spirit under a notification issued by the Board of Revenue, Jharkhand. The primary contention was that rectified spirit is a non-potable form of alcohol, and as such, the State lacked the legislative authority to impose an import fee on it. The High Court ruled in favor of the respondent, holding that the levy was unconstitutional and beyond the powers of the State Legislature.

However, the Supreme Court overturned the High Court’s ruling, upholding the validity of the notification. The judgment clarified the nature of the levy and reaffirmed the State’s competence in regulating and imposing fees related to potable liquor. This decision has significant implications for the excise laws in India and delineates the extent of the State’s powers in matters concerning alcohol regulation.

Background of the Case

The dispute centered around a notification issued on November 6, 2012, by the Board of Revenue, Jharkhand. The notification imposed an import fee of Rs. 6 per L.P. liter on rectified spirit used for manufacturing Indian Made Foreign Liquor (IMFL). The respondent, M/S Ajanta Bottlers & Blenders Pvt. Ltd., filed a writ petition before the High Court of Jharkhand, challenging the notification on the following grounds:

Rectified spirit is not potable alcohol and falls outside the scope of State taxation.
The import fee was not justified as there was no corresponding service provided by the State.
The levy impeded interstate trade and commerce, violating Article 301 of the Constitution.

The High Court ruled in favor of the respondent, holding that the State lacked the legislative competence to levy the import fee. It quashed the notification and directed the State to refund any amount collected under the levy.

Supreme Court’s Observations

The Supreme Court analyzed the nature of the levy and the constitutional provisions governing excise duties and alcohol regulation. The key findings of the Court were as follows:

1. Nature of the Levy: The Court clarified that the import fee was not levied on rectified spirit in its raw form. Instead, it was imposed only when rectified spirit was converted into Extra Neutral Alcohol (ENA) and subsequently used for manufacturing IMFL. The levy was thus applicable only to potable liquor.

2. Legislative Competence of the State: The Court ruled that the State has exclusive rights over the manufacture and sale of intoxicating liquor. Under Entry 8 of List II of the Seventh Schedule of the Constitution, the State can regulate alcohol fit for human consumption. Since the levy was imposed only when rectified spirit was converted into IMFL, it fell within the State’s legislative domain.

3. Regulatory Fee vs. Excise Duty: The Supreme Court held that the import fee was a regulatory charge rather than an excise duty. The fee was imposed to regulate the use of rectified spirit and prevent its diversion for unauthorized purposes. Since the State has exclusive rights over the manufacture and sale of potable liquor, it can charge a fee for granting licenses and regulating the industry.

4. Quid Pro Quo Not Required: The respondent argued that the fee was invalid because the State did not provide any corresponding services. However, the Court held that a regulatory fee does not require a direct quid pro quo. The State has the authority to charge a fee for controlling and supervising the liquor industry, and such a charge need not be linked to specific services.

5. Interstate Trade and Commerce: The respondent contended that the levy violated Article 301 of the Constitution, which guarantees the freedom of trade and commerce across state borders. The Supreme Court rejected this argument, holding that the fee was imposed as part of the regulatory framework governing potable liquor and did not amount to an unreasonable restriction on trade.

Key Arguments of the Parties

Arguments by the Petitioner (State of Jharkhand):

The import fee was levied only when rectified spirit was converted into potable liquor, making it a valid regulatory charge under State law.
The levy was necessary to regulate the liquor industry and prevent the diversion of industrial alcohol for unauthorized use.
The fee was imposed as part of the State’s exclusive rights over the manufacture and sale of intoxicating liquor.
There was no requirement to establish a direct quid pro quo for a regulatory fee.

Arguments by the Respondent (M/S Ajanta Bottlers & Blenders Pvt. Ltd.):

Rectified spirit is industrial alcohol and does not fall within the State’s legislative competence.
The levy was unconstitutional as the State failed to justify it with corresponding services.
The fee imposed an unreasonable restriction on interstate trade and commerce.
The State had already collected various fees under existing licensing provisions, making the additional import fee redundant and excessive.

Final Verdict

The Supreme Court upheld the State’s authority to impose the import fee and set aside the High Court’s judgment. The Court ruled that:

The import fee was valid as it was imposed only when rectified spirit was converted into IMFL.
The State had the legislative competence to regulate potable liquor and impose a regulatory charge.
The fee was not an excise duty but a permissible regulatory charge.
The levy did not violate the freedom of trade and commerce.
There was no requirement for a direct quid pro quo in a regulatory framework.

Conclusion

This judgment clarifies the legal position regarding the taxation and regulation of alcohol in India. It reaffirms the State’s authority over the manufacture and sale of potable liquor and upholds the validity of regulatory fees imposed in this context. The ruling also highlights the distinction between excise duties and regulatory charges, ensuring that States can effectively regulate the liquor industry without overstepping their constitutional limits.

Petitioner Name: The State of Jharkhand & Ors..
Respondent Name: M/S Ajanta Bottlers & Blenders Pvt. Ltd..
Judgment By: Justice A.M. Khanwilkar, Justice Ajay Rastogi.
Place Of Incident: Jharkhand.
Judgment Date: 02-07-2019.

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Download Judgment: The State of Jharkha vs MS Ajanta Bottlers Supreme Court of India Judgment Dated 02-07-2019.pdf

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