Apoorv Gupta Lm Assignment 212109

LM Assignment Apoorv Gupta 212109 Section B

STATEMENT OF ISSUES 

What is the scope of „excise‟?

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Whether bottling amounts to manufacture.

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Whether bottling is production.

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Whether the state government has jurisdiction to issue notifications regarding excise tax.

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Whether there has been imposition of excise tax.

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Whether retrospective taxation is valid.

SHORT CONCLUSION 

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The scope of „excise‟ deals with the issue of the extent of excise duty and the areas covered by it. Whether bottling amounts to manufacture: the issue is dealt with by looking into the  provisions of the Bengal Excise Act, 1909 and interpreting it along the lines of a Supreme Court decision. Whether bottling amounts to production: the issue has been dealt with looking the concept of production established by various case laws over the years. Under the provisions of the Bengal Act, the statement government has been given power to issue notifications. There has been no imposition of a new tax. Had it been the case, it would not have been valid. There is no bar to retrospective taxation unless extreme hardships are caused or there is no jurisdiction to legislate.

STATEMENT OF FACTS

The finance ministry of West Bengal issues a notification charging excise duty with retrospective effect on packaging and branding of alcohol from January 1, 2011 at the rates of Rs. 2 for a  bottle costing less than Rs. 100 and Rs. 5 for a bottling costing equal to or more than Rs. 100. Aggrieved by this, M/s. Clint-Leone-Morricone Pvt. Ltd. (CLMP) who had set up a rum bottling  plant in West Bengal which started its operation for packaging it under a brand name from December 1, 2011, has asked for an opinion.

DISCUSSION I.

The Scope of ‘Excise’  1

Excise duty is levied on manufacture or production of goods.  It is not a tax on sales of goods but 2 3 upon goods.   The taxable event for the purpose of excise duty is manufacture or production. 4 Though the term has been given a wider meaning in other parts of the world,   in India courts have refused to interpret it in the light of these foreign precedents and have restricted the scope 5 of excise to production and manufacture. Therefore, in the present case, the term „excise‟ shall mean a duty imposed only on the  production and manufacture of goods and shall not include any tax imposed on sales, service, etc. No opinion shall be expressed over the competence of the state government in matters other than imposition of excise duty retrospectively on bottling of an alcoholic beverage. II.

Bottli ng Amounts to M anuf actur e 

The states have the power to impose duty of excise on the production or manufacture of 6 alcoholic liquors fit for human consumption.  The Bengal Excise Act, 1909, successfully adapted 7 8  post independence , conforming and deriving its sanctity from the entr y  lays down the definition of “manufacture” in section 2(15) which includesa) every process, whether natural or artificial, by which any intoxicant is produced or  prepared (including the tapping of tari-producing trees and the drawing of tari from trees), b) re-distillation, and c) every process for the rectification, flavouring, blending, or colouring of liquor, or for the reduction of liquor for sale; Section 13 of the said act specifies: License required for manufacture-

a) No intoxicant shall be manufactured, …. d) no liquor shall be bottled for sale, …. 1

 M. P. Jain, Indian Constitution Law, vol 1 (6th edn, LexisNexis Butterworths Wadhwa 2010) 831. Governor General v Province of Madras  (1943) 49 CWN 381 (PC). 3  Jiyajeroo Cotton Mills v State of M.P. AIR 1963 SC 414. 4  Jain (n 1) 832. 5  ibid. 6  The Constitution of India, 1949, Schedule VII, List II, Entry 51. 7  The Indian Independence (Adaption of Bengal and Punjab Acts) Order, 1948; The Adaption of Laws Order, 1950. 8  The Constitution of India, 1949, Schedule VII, List II, Entry 51. 2

The abovementioned provisions, in past, have been interpreted to cover bottling under manufacture.  In Sir Shadi Lal Distillery & Chemical Works, Mansurpur, U.P. and Anr. v State 9 of U.P. and Ors. where the hon‟ble Supreme Court was called upon to interpret similar  provision of the Uttar Pradesh Excise Act, 1910, the court concluded that bottling of liquor 10 amounts to manufacture.  The corresponding sections of the Uttar Pradesh act are as follows: Section 3(19): "Manufacture" - "Manufacture" includes every process whether natural of artificial, by which any intoxicant is produced or prepared, and also re-distillation and every process for the rectification, flavouring, blending or colouring of liquor; Section 17: Manufacture of intoxicant prohibited except under the provision of this Act (1) (a) No intoxicant shall be manufactured;….

(d) no liquor shall be bottled for sale ; and …. 11

The court in Shadi lal in turn, had relied on  Khoday Distilleries Ltd. v. State of Karnataka , where the Supreme Court while interpreting similar sections of the Karnataka Excise Act, 1965 held that manufacturing covers all activities which regulate the activity of manufacture, distribution and sale of liquor. Therefore, in the light of the two Supreme Court cases deciding on near identical provisions, the Bengal Excise Act, 1909 shall be interpreted to include bottling under the purview of manufacturing. III.

In Arguendo, Bottli ng is Production 

The term „production‟ requires application of human labour or skill in some form or the other to the make a material, even though it may be a natural product like coal, so as to make it fit for 12 human consumption.  It has a wider scope contemplating some expenditure of human skill for 13  bringing the goods into a condition where they would attract duty. The concept doesn‟t require transformation of raw materials into completely different products and expects some application 14 of processes to turn it into something fit for human con sumption. In the present case, the bottling of rum amounts to production. The stage of bottling is the one 15 where alcoholic liquors are made fit for human consumption.  It is this stage where either by

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 (1998) 8 SCC 428.  See also Baramati Grape Industries Ltd. and Ors. v The State of Maharashtra and Ors. 1997 (3) BomCR 190. 11  AIR 1996 SC 911. 12  Empire Industries Limited & Ors. Etc. v Union of I ndia & Ors. Etc. 1985 SCALE (1)1269. 13  ibid. 14  ibid. 15  Mohan Meakin Ltd. v Excise & Taxation Commissioner, Himachal Pradesh & ors. (1997) 2 SCC 193. 10

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dilution  or by bottled pasteurization  the liquor is made fit for human consumption by getting the appropriate alcohol content. Therefore, the process in question shall be termed as production. IV.

Th e State Gover nment has Jur isdiction t o i ssue Notif ication s regardin g Ex cise Tax 

The parent statute for the notification “Excise Taxation of Packaging of Alcohol Rules 2012”, i.e. The Bengal Excise Act, 1909 has provisions which empower the state government to formulate rules and regulations relating to various provisions of the parent statute and notify them. Such notifications issued under a parent statute by the permitted body/individual have a 18  binding authority.   To establish the jurisdiction of the government, the following relevant  provisions of the act have to be taken into consideration: Section 2(4): “excisable article:-

a) any liquor fit for human consumption…. Section 2(15): “manufacture”-

a) every process, whether natural or artificial, by which any intoxicant is produced or  prepared (including the tapping of tari-producing trees and the drawing of tari from trees), b) re-distillation, and c) every process for the rectification, flavouring, blending, or colouring of liquor, or for the reduction of liquor for sale; Section 13: License required for manufacture-

a) No intoxicant shall be manufactured, …. d) no liquor shall be bottled for sale , ….

Section 15: The Excise Commissioner may-

a) subject to any restrictions imposed by the state government, establish, or authorise the establishment of, distilleries or breweries, in which liquor may be manufactured under a licence granted under section 13; ……

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Synthetics and Chemicals Ltd. v. State of U.P. AIR 1990 SC 1927.  Mohan (n 15). 18  M/S. Ranadey Micronutrients v Collector Of Central Excise 1996 (16) RLT 501. 17

Section 27: (1) An excise duty or a countervailing duty, as the case may be, at such rate or rates as the State Government may direct, may be imposed, either generally or for any  specified local area, on….  f) any excisable article manufactured in any distillery or brewery licensed, established, authorised or continued under this Act.

The following points can be drawn from the abovementioned sections after a conjoined reading: 

Excisable article is liquor which is fit for human consumption.

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Manufacture is making of liquor which is fit for human consumption.

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Therefore, manufacturing is making of an excisable article.

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As has already been established, bottling is manufacturing.

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Therefore, bottling is manufacture of an excisable article for which a license is required under Section 13. And an excise duty can be charged upon the same at a rate which the government may direct in exercise of its power und er section 27 of the Bengal Excise Act, 1909.

Hence, in the present case as well, Rum is liquor fit for human consumption. Bottling it under a license amounts to manufacture of an excisable good upon which the government can charge excise duty at a rate specified by it in the notification. Moreover, the statement government has further been given powers under section 86 to make rules specifically regarding bottling of liquors. And even if bottling is considered as production, a license is required for the same under section 13 and if read collectively with section 86 and entry 51 of list II, the same is taxable and within the power of the statement government to issue notifications regarding its guidelines. Therefore, such issue of notifications by the government is within its jurisdiction and is not ultra vires of the parent statute. V.

’   of E xcise Tax  Th er e has been no ‘ I MPOSITION 

In the present case, no new tax has been imposed by the government. The excise tax on bottling had been imposed long back by the parent statute. What the government notification has done is to specify the rates at which it will be assessed, i.e. Rs. 2 for a bottle costing less than Rs.100 and Rs. 5 for a bottle costing equal to or more than Rs. 100 and for what period. This notification is supported by a parent statute imposing the tax. The notification has not imposed the tax. Had there been no parent statute, then the imposition of tax by the state government would have  been unconstitutional as the same cannot be done by an executive order of the state in the 19 exercise of the power under article 162 of the Constitution of India.  There has to be a validly

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CIT v Mc. Dowell & Co. Ltd. (2009) 10 SCC 755.

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enacted statute by the legislature to impose a tax.  But guidelines regarding its assessment can  be issued later by the authorized body which is what has happened in the present case. VI.

Th e Competence to make Retrospective legislation 

There is no bar to retrospective taxation in the Indian constitution unless and until it is unduly 21 oppressive and confiscatory so as to be violative of articles 14 and 19 of the Constitution. 22 Unlike penal statutes, it is not curtailed by the application of article 20 of the constitution.  But Competence to make a law for a past period on a subject depends upon the present competence 23 to legislate on that subject.  And therefore, a statute made with retrospective effect without any 24  jurisdiction is unreasonable within the meaning of article 19 is liable to be struck down. In the present case there is nothing to suggest that the notification is unjustly oppressive or confiscatory in nature as to be violative of the fundamental rights. Also it may be so that the retrospective operation may operate harshly in some cases, but that would not itself invalidate 25 the demand.  Moreover, there is a very strong presumption of constitutionality which only the 26 strongest of evidences can displace.   There is nothing to invalidate the demand or rebut the  presumption. Mere hardship in making the payment cannot be a ground for invalidating the demand.

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 Jain (n 1) 95.  R.C. Tobacco (P.) Ltd. v Union of India (2005) 7 SCC 725, para 20-22. 22  G. P. Singh, Principles of Statutory Interpretation (13th edn, LexisNexis Butterworths Wadhwa 2012). 23  A. Hajee Abdul Shukoor & Co. v. State of Madras AIR 1964 SC 1729, 1735, para 33. 24  Himmatlal v State of M.P. AIR 1954 SC 403. 25  Epari Chinna Krishna Moorthy vs. State of Orissa 1964 SCR (7) 185. 26  R.K. Garg vs. Union of India (1981) 4 SCC 675. 21

CONCLUSION

The issues in the problem are mostly inclined towards the state. The presence of a parent statute saves the action of the state government from being illegal. There has been not imposition of a new tax but notification of guidelines for an existing one. Had there been no such statute, the notification would have been unconstitutional and violative of article 265 of the constitution which states that there can be no taxation without a legislative affirmation to the effect. The parent statute deals with a variety of issues in detail and a harmonious construction of its  provisions reveals that it is within the competence of the state government to issue notifications and formulate rules regarding imposition of excise duties at varied rates. The interpretation of the  provisions in the light of precedents also tells that bottling is a part of manufacturing. Since there is nothing in the case to challenge retrospectivity, if the case is taken to a court of law, the action would most probably fail.