Jain Distillery Private Limited Vs State of U.P. (Allahabad High Court)
Relying on Article 246A read with Article 366 (12A) of the Constitution of India, it has been further submitted, insofar as taxes on supply of goods/commodities are concerned, upon the 101 st Constitution amendment, besides “alcoholic liquor for human consumption”, all other goods or commodities may remain under the GST regime. Therefore, in any case, UPVAT may never be imposed on ENA as it is alcohol not-for human consumption, and therefore necessarily included under the GST regime. That intent of the Constitution of India was acknowledged and statutorily incorporated, by virtue of Section 174(1)(i) of the UPGST Act. It repealed UPVAT Act, 2008 except with respect to laws-to tax goods included under Entry 54 of List II of the Seventh Schedule, to the Constitution of India i.e., with respect to the six commodities (including alcoholic liquor for human consumption), specified under that legislative entry.
Thus, of all alcohols, only “alcoholic liquor for human consumption” may be subjected to UPVAT. Correspondingly, the Parliament has substituted Section 2(d) of the Central Sales Tax Act, 1956 to include “alcoholic liquor for human consumption”, in the definition of ‘goods’ but it has purposely left out ENA and other alcoholic liquors, not for human consumption, from the ambit of taxation of ‘goods’ under that Act. For the self-same reason, the Parliament has substituted Entry 84 of List I of the Seventh Schedule, to the Constitution of India, to save to itself, the legislative competence to levy duties of excise only on the same commodities finding mention in Entry 54 of List II of the Seventh Schedule, to the Constitution of India, besides tobacco & tobacco products but except, “alcoholic liquor for human consumption”. Therefore, the impugned Notification dated 17.12.2019 is beyond the legislative competence of the State Legislature, besides being otherwise invalid, as noted above.
Last, it has been submitted, once the State had levied, charged and collected GST on ENA, at the rate of 9 percent, it cannot subject the same sale transaction (of that commodity), to further tax, on the basis of the aforesaid artificial distinction attempted to be made. In fact, if the contention of the State were to be accepted, it would make the State liable to refund the GST on ENA being excess tax suffered by that commodity, under the GST regime.
Extra Neutral Alcohol (ENA) is nothing but Rectified Spirit that has undergone certain physical changes, by adopting physical means like redistillation and rectification to remove impurities. Through that process, it becomes purer and is therefore known as ENA. If at all, it is rendered more unfit for human consumption on account of the purity of its alcohol content being enhanced. To manufacture alcohol for human consumption, further processes including addition and mixing of colouring and flavouring agents (compounding), as well as dilution with water must be applied. The concoction is then left for maturation, to be bottled and used as an ‘intoxicating liquor’ or ‘potable liquor’ known as Indian Made Foreign Liquor (IMFL) etc. All throughout, such processes, the chemical composition of Ethyl alcohol or Ethanol remains the same, yet ENA as such can never be called or classified as “alcoholic liquor for human consumption”.
It is declared, the State lost its legislative competence to enact laws, to impose tax on sales of ENA, upon the enactment of the 101st Constitution Amendment. Consequently, and upon considering Section 174(1)(i) of UPGST Act, 2017, the impugned Notification dated 17.12.2019, insofar as it seeks to impose UPVAT on ENA, Rectified Spirit and SDS, is ultra vires, both on account of lack of (i) legislative competence and (ii) valid delegation. It is therefore quashed. Consequentially, all assessment Orders/Notices dated 30.06.2021, 21.06.2021, 08.06.2021, 15.06.2021, 11.06.2021, 07.07.2021, the (administrative) Circulars/letters dated 10.06.2021 and 11.06.2021, impugned in these writ petitions, holding otherwise are also quashed.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Shri Navin Sinha, learned Senior Advocate, assisted by Shri Nishant Mishra, learned counsel for the petitioner in Writ Tax Nos. 378 of 2021 and 383 of 2021; Shri Nishant Mishra in Writ Tax Nos. 369 of 2021, 370 of 2021, 371 of 2021 and 385 of 2021; Shri Rahul Agarwal, learned counsel for the petitioner in Writ Tax No. 355 of 2020; Shri Pawan Shri Agarwal, learned counsel for the petitioner in Writ Tax Nos. 364 of 2021 and 451 of 2021; Shri Manish Goel, learned Additional Advocate General assisted by Shri Apurva Hajela and Shri A.C. Tripathi, learned Standing Counsel, for the State.
2. In Writ Tax No. 378 of 2021, the petitioner has sought relief in the nature of a declaration that the State legislature (of Uttar Pradesh) lost its legislative competence to impose or levy tax on sale of Extra Neutral Alcohol (in short, ‘ENA’), after enactment of the 101st Constitution Amendment, with effect from 01.07.2017 – as a direct consequence of the enactment of Article 246A read with Article 366 (12-A) of the Constitution of India, read with the substituted Entry 54 of List II of the Seventh Schedule, to the Constitution of India. Further relief has been sought, to seek quashing of the Notification No. KA.NI-2-1793 dated 17 December 2019, issued under Section 74 read with Section 4(4) of the Uttar Pradesh Value Added Tax Act, 2008 (in short, UPVAT Act), whereby Schedule entry 1-A was added to the pre-existing Schedule IV (below entry 1), of the UPVAT Act, to impose tax on sale of ENA, at the rate 5 percent, at the point of Manufacturer or Importer, w.e.f. 09.12.2019. Challenge has also been raised to the Circular/letters dated 10.06.2021 and 11.06.2021 issued by the Additional Commissioner Grade-I, Commercial Tax, directing the subordinate authority to charge and collect UPVAT on ENA used in the manufacture of “alcoholic liquor for human consumption”. Next, purely alternatively, adjustment of the GST levied and paid on ENA and Special Denatured Spirit (in short, ‘SDS’), has been sought, against the UPVAT liability imposed by the State, on the above described commodities. By way of an amendment (allowed), challenge has also been raised to the assessment order dated 30.06.2021, for the A.Y. 2017-18 (U.P. & Central) (01.07.2017 to 31.03.2018), whereby UPVAT & Central Sales Tax has been assessed on ENA, treating that commodity to be covered under entry 1 of Schedule IV of the UPVAT Act.
3. In Writ Tax No. 369 of 2021, besides the challenge raised to the legislative competence and the Notification dated 17.12.2019 (as above), challenge has also been raised to the assessment notice dated 08.06.2021, issued against that petitioner, for A.Y. 2019-20, as also Circular/letters dated 10.06.2021 and 11.06.2021 (as above).
4. Similarly, in Writ Tax No 370 of 2021, besides the challenge raised to the legislative competence (as above), challenge has been raised to the assessment notice dated 15.06.2021 issued to that petitioner, for A.Y. 201718 (01.07.2017 to 31.03.2018); the assessment order dated 30.06.2021 passed under Section 29 of the UPVAT Act, for A.Y. 2017-18 (01.07.2017 to 31.03.2018) and; the Circular/letters dated 10.06.2021 and 11.06.2021 (as above).
5. In Writ Tax No. 383 of 2021, besides the challenge raised to the legislative competence (as above) and the Notification dated 17.12.2019, challenge has also been raised to the assessment notice dated 21.06.2021 issued under Section 28 of UPVAT Act, for A.Y. 2018-19 (U.P.) and, the Circular/letters dated 10.06.2021 and 11.06.2021 (as above).
6. In Writ Tax No. 371 of 2021, besides the challenge raised to the legislative competence and Notification dated 17.12.2019 (as above), challenge has also been raised to the assessment notice dated 08.06.2021 issued under Section 28 of the UPVAT Act, for A.Y. 2019-20 and the Circular/letters dated 10.06.2021 and 11.06.2021 (as above).
7. In Writ Tax No. 364 of 2021, besides the challenge to the legislative competence (as above), challenge has also been raised to two assessment notices, both dated 11.06.2021, issued under Section 29 of the UPVAT Act and the Central Sales Tax Act, seeking to impose tax under the UPVAT Act as also the Central Sales Tax Act, for A.Y. 2017-18 (01.07.2017 to 31.03.2018) (UP & Central).
8. In Writ Tax No. 451 of 2021, besides the challenge to the legislative competence and the Notification dated 17.12.2019 (as above), challenge has also been raised to two assessment notices, both dated 07.07.2021, one issued under Section 28 of the UPVAT Act and the other under Section 9 (2) Central Sales Tax Act, for A.Y. 2019-2020.
9. Writ Tax No. 355 of 2020 has been filed by the U.P. Sugar Mills Association seeking to challenge the legislative competence of the State to levy UPVAT on sales of ENA and Rectified Spirit, used to manufacture “alcoholic liquor for human consumption”. A further challenge has been raised to the Notification dated 17.12.2019 (as above).
10. In Writ Tax No. 385 of 2021, besides the challenge raised to the legislative competence and Notification dated 17.12.2019 (as above), challenge has also been raised to the assessment notice dated 21.06.2021 issued under Section 28 of the UPVAT Act, for A.Y. 2018-19 as also Circular/letters dated 10.06.2021 and 11.06.2021 (as above).
11. Since identical facts are involved in all the above writ petitions and challenge raised is also identical, we have heard these petitions together. Basic/essential facts, common to all the writ petitions, are extracted below.
12. According to the petitioners ENA, both denatured and un-denatured as also SDS fall under the heading 2207 of the First Schedule to the Customs Tariff Act, 1975. ENA, is concentrated Ethyl Alcohol (Ethanol) having alcohol content about 95 percent. Similarly, SDS is spirit or neutral alcohol used for industrial purposes only. According to the petitioners, they manufacture and sell ENA, both to distilleries that manufacture “alcoholic liquor for human consumption” and to chemical and other industries. Owing to high alcohol content (above 95 percent), both ENA and SDS are unfit for human consumption. Prior to the 101st Constitution amendment and, in light of Article 246 of the Constitution read with Entry 54 of List II (as those provisions then existed), the State legislature had the legislative competence to enact laws to impose tax on sale or purchase of any goods other than newspapers, subject however, to the provisions of Entry 92A of List I. Also, in view of Article 246 of the Constitution read with Entry 51 of List II of the Seventh Schedule, the State Government had the legislative competence to enact laws to impose duties of excise on goods manufactured or produced in the State, being (i) alcoholic liquors for human consumption and (ii) opium, Indian hemp etc.
13. On the other hand, in view of Article 246 read with Entry 92, the Parliament had the legislative competence to enact laws, to impose tax on sale or purchase of newspapers and on advertisements published therein.
Similarly, by virtue of Article 246 read with Entry 84 of List I of the Seventh Schedule, the Parliament had the legislative competence to enact laws to impose duties of excise on tobacco and other goods manufactured or produced in India, except (i) alcoholic liquors for human consumption and (ii) opium, Indian hemp etc.
14. It is an admitted case between the parties, prior to the introduction of 101st Constitution Amendment, various State legislatures had made laws to impose tax on sale and to levy duties of excise on “alcoholic liquors for human consumption”. Insofar as the Parliament is concerned, prior to the aforesaid amendment, it had enacted laws imposing duties of excise on manufacture of alcohol – not for human consumption, including ENA and SDS.
15. In the State of Uttar Pradesh, there pre-existed, the United Provinces Sales of Motor Spirit, Diesel Oil and Alcohol Taxation Act, 1939 (hereinafter referred to as the ‘United Provinces Act’). Under Section 2 (aaaa) of that Act, the term ‘alcohol’ was defined as Ethyl Alcohol not being “alcoholic liquor for human consumption”. It included, Rectified Spirit, Denatured Spirit and Absolute Alcohol. Under Section 3(c) of the said Act, there existed a provision to levy tax, at the point of first purchase of ‘alcohol’, at the prescribed rate.
16. With time, under Section 4(1)(c) read with Schedule IV to the UPVAT Act, tax became payable on the sale of goods specified in the said Schedule, (including ‘alcohol’ as defined under the United Provinces Act), at the rate 32.5 percent. For ready reference, Entry No.1 of Schedule IV to the UPVAT Act, is quoted below:
