apoorv gupta lm assignment 212109

8/11/2019 Apoorv Gupta Lm Assignment 212109

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LM AssignmentApoorv Gupta

212109

Section B



STATEMENT OF ISSUES

What is the scope of „excise‟ ? Whether bottling amounts to manufacture. Whether bottling is production.

Whether the state government has jurisdiction to issue notifications regarding excise tax. Whether there has been imposition of excise tax. Whether retrospective taxation is valid.



SHORT CONCLUSION

The scope of „excise‟ deals with the issue of the extent of excise duty and the areascovered 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 SupremeCourt decision.

Whether bottling amounts to production: the issue has been dealt with looking theconcept of production established by various case laws over the years.

Under the provisions of the Bengal Act, the statement government has been given powerto issue notifications.

There has been no imposition of a new tax. Had it been the case, it would not have beenvalid.

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 retrospectiveeffect 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 fromDecember 1, 2011, has asked for an opinion.



DISCUSSION

I. The Scope of ‘Excise’

Excise duty is levied on manufacture or production of goods. 1 It is not a tax on sales of goods but

upon goods.2

The taxable event for the purpose of excise duty is manufacture or production.3

Though the term has been given a wider meaning in other parts of the world, 4 in India courtshave refused to interpret it in the light of these foreign precedents and have restricted the scopeof excise to production and manufacture. 5

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 otherthan imposition of excise duty retrospectively on bottling of an alcoholic beverage.

II. Bottli ng Amounts to M anufactur e

The states have the power to impose duty of excise on the production or manufacture ofalcoholic liquors fit for human consumption. 6 The Bengal Excise Act, 1909, successfully adapted

post independence 7, conforming and deriving its sanctity from the entry 8 lays down the definitionof “manufacture” in section 2(15) which includes-

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 fromtrees),

b) re-distillation, and

c) every process for the rectification, flavouring, blending, or colouring of liquor, or forthe 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) 831.2 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.



The abovementioned provisions, in past, have been interpreted to cover bottling undermanufacture. In Sir Shadi Lal Distillery & Chemical Works, Mansurpur, U.P. and Anr. v Stateof U.P. and Ors. 9 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 liquoramounts to manufacture. 10 The corresponding sections of the Uttar Pradesh act are as follows:

Section 3(19): "Manufacture" - "Manufacture" includes every process whether natural ofartificial, by which any intoxicant is produced or prepared, and also re-distillation andevery 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 ….

The court in Shadi lal in turn, had relied on Khoday Distilleries Ltd. v. State of Karnataka 11 ,where the Supreme Court while interpreting similar sections of the Karnataka Excise Act, 1965held 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, theBengal Excise Act, 1909 shall be interpreted to include bottling under the purview ofmanufacturing.

III. In Arguendo, Bottli ng is Production

The term „production‟ requires application of human labour or skill in some form or the other tothe make a material, even though it may be a natural product like coal, so as to make it fit forhuman consumption. 12 It has a wider scope contemplating some expenditure of human skill for

bringing the goods into a condition where they would attract duty. 13 The concept doesn‟t requiretransformation of raw materials into completely different products and expects some applicationof processes to turn it into something fit for human consumption. 14

In the present case, the bottling of rum amounts to production. The stage of bottling is the onewhere alcoholic liquors are made fit for human consumption. 15 It is this stage where either by

9 (1998) 8 SCC 428.10 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 India & 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.



dilution 16 or by bottled pasteurization 17 the liquor is made fit for human consumption by gettingthe appropriate alcohol content. Therefore, the process in question shall be termed as production.

IV. The State Government has Jur isdiction to i ssue Notif ications regardin g Excise 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 toformulate rules and regulations relating to various provisions of the parent statute and notifythem. Such notifications issued under a parent statute by the permitted body/individual have a

binding authority. 18 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 fromtrees),

b) re-distillation, and

c) every process for the rectification, flavouring, blending, or colouring of liquor, or forthe 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 theestablishment of, distilleries or breweries, in which liquor may be manufactured under a

licence granted under section 13; ……

16 Synthetics and Chemicals Ltd. v. State of U.P. AIR 1990 SC 1927.17 Mohan (n 15).18 M/S. Ranadey Micronutrients v Collector Of Central Excise 1996 (16) RLT 501.



Section 27: (1) An excise duty or a countervailing duty, as the case may be, at such rateor 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. Manufacture is making of liquor which is fit for human consumption. Therefore, manufacturing is making of an excisable article. As has already been established, bottling is manufacturing. 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 thegovernment may direct in exercise of its power under section 27 of the Bengal ExciseAct, 1909.

Hence, in the present case as well, Rum is liquor fit for human consumption. Bottling it under alicense amounts to manufacture of an excisable good upon which the government can chargeexcise duty at a rate specified by it in the notification.

Moreover, the statement government has further been given powers under section 86 to makerules 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 andentry 51 of list II, the same is taxable and within the power of the statement government to issuenotifications regarding its guidelines. Therefore, such issue of notifications by the government iswithin its jurisdiction and is not ultra vires of the parent statute.

V. There has been no ‘ IMPOSITION ’ of E xcise Tax

In the present case, no new tax has been imposed by the government. The excise tax on bottlinghad been imposed long back by the parent statute. What the government notification has done isto specify the rates at which it will be assessed, i.e. Rs. 2 for a bottle costing less than Rs.100 andRs. 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 theexercise of the power under article 162 of the Constitution of India. 19 There has to be a validly

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



enacted statute by the legislature to impose a tax. 20 But guidelines regarding its assessment can be issued later by the authorized body which is what has happened in the present case.

VI. The Competence to make Retrospective legislat ion

There is no bar to retrospective taxation in the Indian constitution unless and until it is undulyoppressive and confiscatory so as to be violative of articles 14 and 19 of the Constitution. 21 Unlike penal statutes, it is not curtailed by the application of article 20 of the constitution. 22 ButCompetence to make a law for a past period on a subject depends upon the present competenceto legislate on that subject. 23 And therefore, a statute made with retrospective effect without any

jurisdiction is unreasonable within the meaning of article 19 is liable to be struck down. 24

In the present case there is nothing to suggest that the notification is unjustly oppressive orconfiscatory in nature as to be violative of the fundamental rights. Also it may be so that theretrospective operation may operate harshly in some cases, but that would not itself invalidate

the demand.25

Moreover, there is a very strong presumption of constitutionality which only thestrongest of evidences can displace. 26 There is nothing to invalidate the demand or rebut the presumption. Mere hardship in making the payment cannot be a ground for invalidating thedemand.

20 Jain (n 1) 95.21 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.



CONCLUSION

The issues in the problem are mostly inclined towards the state. The presence of a parent statutesaves the action of the state government from being illegal. There has been not imposition of anew 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 constitutionwhich 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 notificationsand 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 oflaw, the action would most probably fail.

apoorv gupta lm assignment 212109

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