Holding

Excise duty on beer becomes exigible only when the finished product is received in the bottling tank or removed from storage, not at the wort (fermentation) stage.

Summary

Mohan Meakin Ltd. appealed against the Himachal Pradesh Excise and Taxation Commissioner challenging the High Court’s view that excise duty on beer became payable at the wort (fermentation) stage under Rule 10(3.4) of the Punjab Breweries Rules. The Supreme Court examined the definitions of “excisable article”, “intoxicating liquor” and the relevant provisions of the Punjab Excise Act, 1914, particularly Sections 23 and 31, and held that duty is chargeable only when the final product – beer – attains the consumable alcoholic strength and is received in the bottling tank or removed from storage. The Court rejected the view that duty could be levied at the fermentation stage and affirmed that the point of exigibility is the finished product stage. Consequently, the appeal was allowed and the respondents were entitled to collect excise duty as per the rates specified when the beer is removed from storage. No costs were awarded.

Issues considered

At what stage of beer manufacture does excise duty become exigible under the Punjab Excise Act, 1914?
Whether Rule 10(3.4) of the Punjab Breweries Rules, which imposes duty at the wort stage, is consistent with the Act.
How the terms “excisable article” and “intoxicating liquor” should be interpreted for the purpose of levy of excise duty.

Legislation cited

Punjab Breweries Rules, 1932s. 10(3.4)
Punjab Excise Act, 1914s. 23, s. 3, s. 31

Subjects

excise dutybeermanufacturing stagePunjab Excise ActSection 31Section 23final productbottling tankintoxicating liquorexcisable article

Judgment

A MIS MOHAN MEAKIN LTD.
v.
EXCISE AND TAXATION COMMISSIONER,
HIMACHAL PRADESH AND ORS.

NOVEMBER 27, 1996
B
[K. RAMASWAMY AND G.T. NANAVATI, JJ.]

Punjab Excise Act, 1914: Sections 3, 23 and 31

C Punjab Breweries Rules, 1932 : Rule JO (3.4)

Excise duty-Beer-Exigibility to excise duty-Relevant stage of-High
Court held that it was exigible to duty at the stage when it is in fem1entation
i.e. wort in terms of Rule 10(3.4)--Appeal against decision of High
Court-Held, the range of potable alcohol varies between country spirit to
D whisky and the ethyl alcohof-The alcoholic strength of each excisable article
and its percentage varies as per the ISi specifications but intoxicating liquor
necessllli/y means only that liquor which was consumable by human beings
as it was-The state of levying excise duty upon alcoholic liquor arises when
excisable article is brought to the stage of human consumption with the
E requisite alcoholic strength thereof-It is only the final product which is
relevant-Thus the final product of the beer is relevant excisable article
exigible to duty under Section 31 of the Act when it passes through fine ilter
press and received in the bottling tanlc-Section 23 specifically envisages that
.until the payment of duty is made or bond is executed in that behalf as per
the procedufe and acceptance by the Financial Commissioner, the finished
F product, namely the beer in this case, shall not be removed from the place at
which finished product was stored either in a warehouse within factory
premises or precinct or permitted place of usage-{fnder these circumstances,
the point at which excise duty is exigible to duty is the time when the finished
· product, i.e. beer was received in bottling tank or the finished product is
G removed from the place of storage or warehouse etc.
Synthetics and Chemicals Ltd. v. State of U.P., [1990] 1 SCC 109 and
State of UP. v. Modi Distillery & Ors., [1995] 5 SCC 753, followed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2457 of
H 1980.
258
MOHAN MEAKIN LID. v. EXCISE AND TAXATION COMNR., H.P. 259

From the Judgment and Order dated 2.7.80 of the Himachal Pradesh A
High Court in W.P. No. 121 of 1979.

Soli J. Sorabjee, Ravinder Narain, Rajan Narain, Ms. Amrita Mitra,
Amit Bansal and Pankaj Kalra for the Appellants.

T. Sridharan and Shiv Pujan Singh for the Respondents. B

The following Order of the Court was delivered :

This appeal by special leave arises from the Judgment of the Division
Bench of the Himachal Pradesh High Court, made on July 2, 1980 in Writ
Petition No. 121/79. The question is : at what stage the beer is exigible to C
duty under the Punjab Excise Act, 1914 (1 of 1914) (for short, the 'Act').
The Division Bench upholding Rule 10(3.4) of the Rules made under
Section 58 of the Act read with Section 59 of Punjab Breweries Rules, 1932
(for short, the 'Rules'), came to the conclusion that it is exigible to duty at
the stage when it is in fermentation, i.e., wort in terms of Rule 10(3.4). D
Calling that decision in question, this appeal came to be filed.

With a view to appreciate correctness of the view taken and having
heard the learned counsel for the parties, it is necessary to look into the
relevant provisions of the Act and the Rules. Chapter I, Section 3 of the
Act defines various words and phrases in the Act. Section 3(1) defmes E
"Bear" to include ale, porter, stout, and all other fermented liquors made
from malt. 'Liquor" has been defined under Section 3(14) of the Act to
mean 'intoxicating liquor and includes all liquid consisting of or containing
alcohol; also any substance which the State Government may by notifica-
tion declare, to be liquor for the purpose of this Act". "Excisable article" F
has been defined in Section 3(6) to mean any alcoholic liquor for human
consumption; or any intoxicating drug. "Excise duty" and "countervailing
duty" as defmed in Section 3(6-b) would mean any such excise duty or
countervailing duty, as the case may be, as is mentioned in Entry 51 of
List-II of the Seventh Schedule to the Constitution. "Intoxicant' under
Section 3(12-a) means any liquor or intoxicating drug as has·been defined G
in Section 3(16) to include every process, whether natural or artificial by
which any intoxicant is produced or prepared, and also redistillation, and
every process for the rectification, reduction, flavouring, blending or
colouring of liquor. 'Place' has been defmed under Section 3(17) to include
a building, shop, tent and closure, booth, vehicle, vessel, boat and raft. H
260 _SUPREME COURT REPORTS (1996] SUPP. 9 S.C.R.

A "Spirit has been defined in Section 3(19) to mean any liquor containing
alcohol obtained by distillation, whether denatured or not. Section 31 of
the Act is the charging provision which envisages that an excise duty, 0r a
countervailing duty, as the case may be, at such rate or rates as the State
government shall direct, may be imposed, either generally or for any
specified local area, on any excisable article. Section 23 of the Act
B prescribes removal of the excisable article from the distillery, brewery etc.
and provides that no intoxicant shall be removed from any distillery,
brewery, warehouse, or other place of storage established, or licensed
under the Act, unless the duty, if any, payable under Chapter V has been
paid or a bond has been executed for the payment thereof. Chapter V deals
C with the levy of the duties and fees; the details of which are not material
for the purpose of this case. As stated earlier, in this case the levy of excise
duty was sought to be made at the stage when the manufacturing of the
beer was at wort stage. The question is: whether the levy of excise duty, on
beer when it was in the presence of manufacture is correct? The levy of
D excise duty is on alcoholic liquor for human consumption, manufacture or
production. At what stage beer is exigible to duty is the question. The
process of manufacture of beer is described as under :

"The first stage brewing process is the feeding of Malt and adjuncts
into a vessel known as Mash Tun. There it is mixed with hot water
E and maintained at certain temperature. The objective of this
process is to convert the straches of the malt into fermentable
sugar.

The extract is drawn from the Mash Tun and boiled with the
F addition of hops for one to two hours after which it is contrifuged,
cooled and received in the receiving wats. At this stage, it is called
"Wort" and contains only fermentable sugars and no alcohol. After
this it is transferred to the fermentation tanks where Yeast is added
and primary fermentation is carried out at controlled temperature.
After attenuation (Diminution of density of "Wort" resulting from
G its fermentation) is reached for fermented wort is centrifuged and
transferred to the storage vats for secondary fermentation. After
secondary fermentation is over in the storage vats, it is filtered
twice-first through the rough filter press and then through the fine
filter press and received in the bottling tanks. It is in bottling tanks
H that the loss of the Carbon Dioxide Gas is made up and bulk beer
MOHAN MEAKIN LTD. v. EXCISE AND TAXATION COMNR, HP. 261

I is drawn for bottling. It is filed into the bottles and then last process A

~
'' of pasteurisation is carried out to make it ready for packing and
marketing. Till the liquor is removed from the vats and undergoes
·!· the fermentation process as mentioned above the presence of
alcohol is nil."

Excisable article would mean any alcoholic liquor for human con-
B
sumption or any intoxicating drug. The levy or impost of excise duty would
be only on alcoholic liquor for human consumption or for being produced
in the brewery. Beer would mean fermented liquor from malt, when it is
potable or in consumable condition as breverage. It is seen that the levy is
in terms of entry 51 of List II of the Seventh Schedule which envisages that c
duties of excise on the goods manufactured or produced in the State and
countervailing duties at the same or lower rates on similar goods manufac-
tured or produced elsewhere in India.

As to when liquor becomes exigible to duty was considered by this
D
Court in Sy1tthetics and Chemicals Ltd. v. State of U.P., [1990] 1 SCC 109.
Therein, this Court had considered the question, by a Bench of seven
Judges, at various stages thus :

"We have no doubt that the framers of the Constitution when they
used the expression 'alcoholic liquor for human consumption' they E
meant at that time and still the expression means that liquor which
as it is consumable in the sense capable of being taken by human
beings as such as beverage or drink. Hence, the expression under
Entry 84, List I must be understood in that light. We were taken
through various dictionary and· other meanings and also invited to F
the process of manufacture of alcohol in order to induce us to
accept the position that denatured spirit, can also be by ap-
propriate cultivation or application or admixture with water or with
others, be transformed into 'alcoholic liquor for human
consumption' and as such transformation would not entail any
process of manufacture as such. There will not be any organic or G
fundamental change in this transformation, we were told. We are,
however, unable to enter into this examination. Constitutional
provisions specially dealing with the delimitation of powers in a
federal plity mnst be understood in a broad common sense point

L
l
of view as understood by common people for whom the Constitu- H

'
J.62 SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.

A tion is made. In terminology, as understood by the framers of the
Constitution, and also as viewed at the relevant time of its inter- .
pretation, it is not possible to proceed otherwise; alcoholic or
intoxicating liquors must be understood as these are, not what
these are, not what these are capable of or able to become. It is
also not possible to accept the submission that vend fee in U.P. is
B a pre- Constitution imposition and· would not be subject to Article
245 of the Constitution. The present extent of imposition of vend
fee is not a pre-Constitution imposition, as we noticed from the
change of rate from time to time.

c On behalf of the State of Maharashtra Mr. Dholakia submitted
that the first issue is whether Entry 8 in List II of the Seventh
Schedule of the Constitution, covers alcohol unfit for human con-
sumption. The second issue, according to him is whether assuming
that the entry does not include alcohol unfit for human consump-
tion, its scope in that respect is curtailed because of item 26 of the
D Schedule to !DR Act, 1951. The third issue, according to him, is
whether having regard to Entry 51 in List II, the State can (a)
impose regulations by creating economic disincentives for con-
sumption of drinkable alcohol, and (b) prevention of misuse of
non-drinkable alcohol for consumption.
E
Only in two cases, the question of industrial alcohol had come up
for consideration before this Court. One is the present decision
which is under challenge and the other is the decision in Indian
Mica and Micanite Industries Ltd. case. In the latter case, in spite
F of the earlier judgments including Barucha case, denatured spirit
required for the manufacture of niicanite was not regarded as
being within the exclusive privilege of the State. It appears that in
that decision at p. 321 of the report (SCC p. 238}, it was specifically
held that the power of taxation with regard to alcoholic liquor not
fit for human consumption, was within the legislative competence
G of central legislature. The impost by the State was held to be
justifiable only if it was a fee thereby impliedly and clearly denying
any consideration or price for any privilege. For the first time, in
. the Synthetics & Chemical Ltd. case the concept of exclusive
privilege was introduced into the area of industrial alcohol not fit
H for human consumption.
MOHANMEAKINLlD. v. EXCISEANDTAXATIONCOMNR., H.P. 263

Having regard to the principles of interpretation and the constitu- A
tional provisions, in the light of the language used and having
considered. the impost and the composition of industrial alcohol,
and the legislative practice of this country, we are of the opinion
that the impost in question cannot be justified as State imposts as
these have been done. We have examined the different provisions.
B
These seek to levy imposition in their pith and substance not as
incidental or as merely disincentaxing provision permitting these
in the lists in the field of industrial alcohol for the State to legislate.

Under these circumstanGes, therefore, it is clear that the State
legislature had no authority to levy duty or tax on alcohol which is C
not for human consumption as that could only be levied by the
Centre. ·

This Court further considered this questinn by a Bench of three
Judges in State of U.P. v. Modi Distil/e1y & Ors., i 1995] 5 SCC 753. The D
facts therein are in paragraphs 6 and this Court has held in paragraphs 9,
10 and 11 thus :

"It is convenient now to note the judgment of a Bench of seven
learned Judges of this Court in Synthetics and Chemicals Ltd. v.State
of U.P. [1990] 1 SCC 109. This Court stated that it had no doubt E
that the framers of the Constitution, when they used the expression
"alcoholic liquors for human consumption", meant, and the expres-
sion still means, that liquor which, as it is, is consumable in the
sense that it is capable of being taken by human beings as such as
a beverage or drink. Alcoholic or intoxicating liquors had to be F
understood as they were, not what they were capable of or able to
become. Entry 51 of List II was the counterpart of Entry 84 of List
I. It authorised the State to impose duties of excise on alcoholic
liquors for human consumption manufactured or produced in the
State. It. was clear that all duties of excise save and except the items G
specifically excepted in Entry 84 of List I were generally within the
taxing power of the Central Legislature. The State Legislature had
limited power to impose excise duties. That power was cir-
cumscribed under Entry 51 of List II. It had to be borne in mind
that, by common standards ethyl alcohol (with 95 percent strength)
was an industrial alcohol and was not fit for human consumption. H
264 SUPREME COURT REPORTS [1996) SUPP. 9 S.C.R.

A The ISi specifications had divided ethyl alcohol (as known in the
trade) into several kinds of alcohol. Beverages and industrial
alcohols were clearly and differently treated. Rectified spirit for
industrial purposes ·was defined as spirit purified l!J' distillation
having a strength rrot less than 95 per cent by volume of ethyl
alcohol. Dictionaries and technical books showed that rectified
B
. spirit (95 per cent) was an industrial alcohol and not potable as
such. It appeared, therefore, that industrial alcohol, which was
ethyl alcohol (95 per cent), by itself was not only non-potable but
was highly toxic. The range of potable alcohol varied from country
spirit to whisky and the ethyl alcohol content thereof varied be-
c tween 19 to about 43 per cent, according to the ISi specifications.
In other words, ethyl alcohol (95 per cent) was not an alcoholic
liquor for human consumption but could be used as a raw material
or input, after processing and substantial dilution, in the produc-
tion of whisky, gin, country liquor, etc. In the light of experience
and development, it was necessary to state that "intoxicating liquor"
D
meant only that liquor which was consumable by human being as
it was.

What the State seeks to levy excise duty upon the Group 'B' cases
is the wastage of liquor after distillation, but different dilution; and,
E in the Group 'D' cases, the pipeline loss of liquor during the
process of manufacture, before dilution. it is clear, therefore, that
what the State seeks to levy excise duty upon is not alcoholic liquor
for human consumption by human beings. The State is not em-
powered jo levy excise duty on the raw material or input that is in
the process of being made into alcoholic liquor for human con-
F
sumption.

That the measure of excise duty upon alcoholic liquor for human
consumption is the alcoholic strength thereof does not make any
difference in this behalf. It is only the alcoholic strength of the
G final product which is relevant."

It is, thus, clear that range of potable alcohol varies between country
spirit to whisky and the ethyl alcohol. The alcoholic strength of each
excisable article and its percentage varies as per the ISi specifications but
H intoxicating liquor necessarily means only that liquor which was con-
MOHAN MEAKIN LTD. v. EXOSEANDTAXATION COMNR., H.P. 265

sumable by human beings as it was. The state of levying excise duty upon A
alcoholic liquor arises when excisable article is brought to the stage of
human consumption with the requisite alcoholic strength thereof. It is only
the fmal product which is relevant.

Thus, the final product of the beer is relevant excisable article
exigible to duty under Section 31 of the Act when it passes through fine B
ilter press and received in the bottling tank. The question is : at what stage
the duty is liable to be paid? Section 23 specifically envisages that until the
payment of duty is made or bond is executed in that behalf as per the
procedure and acceptance by the Financial Commissioner, the finished
product, namely, the beer in this case, shall not be removed from the place c
at which finished product was stored either in a warehouse within factory
premises or precinct or permitted place of usage. Under these circumstan-
ces, the point at which excise duty is exigible to duty is the time when the
finished product, i.e., bear was received in bottling tank or the finished
product is removed from the place of storage or warehouse etc.
D
The appeal is, therefore, allowed and respondents are entitled to
collect the excise duty as per the rates specified by the Government in
exercise of the power of Chapter V of the Act from the appellant when
the appellant removed beer from the place of storage/warehouse etc. In
other words, it is the place of storage, with reference to which duty is liable E
to be paid, as envisaged under Section 23 of the Act read with the Rules
made by the Government. If there is any ambiguity in the Rules made by
the Government, it may be open to them to regulate the process of
manufacture and check the percentage of the quantity obtained in the
process of manufacture but that does not make them exigible to duty while
beer is in the process of manufacture. However, as stated earlier, it is F
exigible to duty only when it becomes finished product and is sought to be
removed from the place of storage.

The appeal is accordingly allowed. No costs.

T.N.A. AJ>peal allowed. G