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State of Orissa and Others vs M/S Utkal Distilleries Ltd.

Civil Appeal · 2022 INSC 256Decided 3 Mar 2022
Civil Appeal Nos. 5666-5668 of 2009
L. Nageswara Rao · B.R. Gavai

Background

Utkal Distilleries held a license to manufacture Indian Made Foreign Liquor (IMFL) from rectified spirit in Orissa and had installed a special purification column that, during processing, generated some non-potable "weak spirit" wastage. The State's Excise authorities issued demand notices seeking excise duty on this wastage, but the Orissa High Court quashed those notices, ruling the State had no power to tax spirit that was never meant for human consumption. The State appealed to the Supreme Court.

Decision Breakdown

The Supreme Court relied on binding precedent: a Constitution Bench ruling in Synthetics and Chemicals Ltd. and a three-judge bench ruling in State of U.P. vs. Modi Distillery, which had settled that the Constitution splits "alcoholic liquor" into two categories: liquor for human consumption, which States can tax, and industrial alcohol not for human consumption, which only the Union government can tax. Since the wastage generated during re-distillation was raw, non-potable spirit still in the process of being made into IMFL, and not yet liquor fit for human consumption, the State had no legal authority to levy excise duty on it. Reading the applicable Bihar and Orissa Excise Act, 1915, the Court confirmed the State's excise power was confined to "excisable articles," defined as liquor for human consumption. Finding no error in the High Court's reasoning, the Supreme Court dismissed the State's appeals.

Lesson Learnt

A State government's power to tax alcohol is constitutionally limited to liquor meant for human consumption. It cannot levy excise duty on intermediate wastage or raw spirit still being processed, since taxing power over non-potable industrial alcohol rests exclusively with the Union.

Official source (sci.gov.in)View Judgment (PDF)

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