P/35/2021-ADC(RC AND M)-CCT-CTD

VAT High Court Cases

Uttar Pradesh Value Added Tax Act, 2008 - Legislative competence of State legislature to levy tax on sale of Extra Neutral Alcohol (ENA) after enactment of the 101st Constitution Amendment w.e.f 01.07.2017 - Petitions seek quashing of the Notification issued under Section 74 r/w Section 4(4) of the UPVAT Act, 2008 to impose tax on sale of ENA - Challenge to the Dept Circular directing the authorities to charge and collect VAT on ENA used in the manufacture of “alcoholic liquor for human consumption” - challenge to the assessment order 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 – Entry 8 of List II of the Seventh Schedule to the Constitution of India – meaning of term “alcoholic liquor for human consumption” - HELD – Rectified Spirit, Ethanol or Extra Neutral Alcohol (ENA) having been opined by the Constitution bench of the Supreme Court to be not alcoholic liquor for human consumption and, since there is no material to take a contrary view on facts, it must be concluded that ENA continues to fall outside the phrase “alcoholic liquor for human consumption”, as it appears under Entry 54 of List II of the Seventh Schedule to the Constitution - by virtue of Article 246A (1) to the Constitution of India, the Parliament and State legislatures have the competence to make laws with respect to goods and service tax - By virtue of Article 366(12A), the phrase 'goods and service tax' would always mean, tax on supply of goods, or services or both, except tax on the supply of the “alcoholic liquor for human consumption” - Thus, tax on all goods and services, except supply of “alcoholic liquor for human consumption” would fall under the GST regime - Whether by virtue of Article 366 (12-A) read with Article 246-A of the Constitution of India or the substituted Entry No. 54 of List II of the Seventh Schedule to the Constitution of India, those two Constitutional provisions would have no bearing on the controversy at hand as the State legislature remains denuded of its pre-existing competence to enact a law to tax sale of alcoholic liquor not for human consumption - alcoholic liquor not for human consumption or industrial alcohol or non-potable alcohol, is subject to GST laws only - after the enactment of the UPGST Act, 2017 and in absence of any amendment to Section 174 (1)(i) of that Act, there neither survives nor exists any delegated power with the State Government, to issue the impugned Notification, to impose VAT on ENA - the impugned Notification seeks to overreach the Constitutional scheme, as amended by the 101st Constitution Amendment - It is declared that the State lost its legislative competence to enact laws, to impose tax on sales of ENA, upon the enactment of the 101st Constitution Amendment - 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 legislative competence and valid delegation. It is therefore quashed. Consequentially, all assessment Orders and Notices are also quashed – the assessee writ petitions are allowed - Though that law emerged in the context of Entry 84 of List I of the Seventh Schedule, to the Constitution of India (with reference to imposition of duties of excise) yet, it clearly interprets the term “alcoholic liquor for human consumption”, as it now appears under Entry 54 of List II of the Seventh Schedule, to the Constitution of India. The earlier use of the plural of the word liquor is not material. Applying that law, the Constitution bench of the Supreme Court could not be persuaded to accept, that denatured spirit, by appropriate cultivation or application or admixture with water or with other things, be transformed into an “alcoholic liquor for human consumption”. It concluded, alcoholic or “intoxicant liquor” must be understood as these are, i.e., in the presenti, and not what these may become or be capable of or able to become upon application of certain processes etc. Applying that law, even today, as a commodity, ENA remains an alcohol or alcoholic liquor not for human consumption, under Entry 54 of List II of the Seventh Schedule, to the Constitution of India. There is absolutely no room or licence to give a different meaning to that phrase, as claimed by the learned AAG - Whether IMFL or country liquor or any other liquor that may qualify as “alcoholic liquor for human consumption”, it uses ENA as a raw material. ENA, in turn, is derived from Rectified Spirit. At the same time, “alcoholic liquor for human consumption” would not arise either if ENA is left to mature for some time or in certain conditions. Neither its alcoholic content would reduce from the range 90% - 95 % to 19% - 43% nor it would otherwise render itself fit for human consumption. In fact, the counter affidavit of the State itself indicates in no uncertain terms – ENA is not for human consumption. It cannot be described as “intoxicating liquor”, for that reason, either - Meaning of term “alcoholic liquor for human consumption” - for a commodity to be described as an “alcoholic liquor for human consumption”, it must be capable or ready to be consumed, in that state itself-as a beverage, as held by the seven-Judge Constitution bench of the Supreme Court in Synthetics and Chemicals Ltd. & Ors. Vs. State of U.P. & Ors. and as followed by a three-Judge bench of the Supreme Court in State of U.P. Vs. Modi Distillery. An alcoholic liquor having 90%-95% content of Ethanol is certainly not that commodity. Such alcohol is not, and it cannot be marketed for human consumption. If consumed, it would be unbearably toxic and, therefore, never fit for human consumption. Thus, it was held by the Constitution bench of the Supreme Court in Synthetics and Chemicals Ltd. & Ors. Vs. State of U.P. & Ors. “alcoholic liquor for human consumption” is that liquor which as it is is consumable in the sense capable of being taken by human beings as such as beverage of drinks - For a tax to be levied on sale of a commodity, its identity in presenti alone is relevant. As a fact, there exists only one type of ENA. It may be put to different uses i.e., to manufacture either potable alcohol or chemicals or other commodities or all or any of them. By looking at any quantity of ENA, its use may never be predicted or pre-determined. To subject it to differential rates of tax under the UPVAT Act, depending solely on the intent of the purchaser (to use it a specified way), may never qualify as a tax on the sale of the goods. It may transform into another kind of tax. Third, in any case, the use to which ENA may be put may be relevant to the legislature to determine the measure or the rate of tax to be suffered by it, but not to the identity of the taxable commodity. That may be established based on its form, shape, and commercial identity, by the people who deal in it. Since ENA is not a 'non-GST' alcohol, the question of measure or rate of tax thereon (based on its use), is extraneous to the issue at hand - The Entry 8 of List II of the Seventh Schedule to the Constitution only creates a field of legislation by State legislature to enact any law on intoxicating liquors. The words 'that is to say', restrict and confine the scope and ambit of those laws - with respect to production, manufacture, possession, transport, purchase, and sale and matters incidental or ancillary thereto. It does not grant any legislative competence to the State legislature to impose a tax on intoxicating liquors - Similarly, the phrase “that is to say” appearing in Entry 8 of List II of the Seventh Schedule, to the Constitution of India may never be read to bestow legislative competence on the State legislatures to enact a law to tax “intoxicating liqours”. That competence must remain confined to the matters specified after that phrase, appearing under that Entry or matters ancillary or incidental thereto, such

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