RAJESHWARI ENTERPRISES Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) In these writ petitions presented by the petitioners who are excise contractors and who are successful bidders in the excise auction and have purchased the right to vend arrack, from the Government, the question of law which arises for consideration is: Whether arrack is not a product of manufacture ? And if not," whether it is competent for the state legislature to make a law providing for levy of excise duty on arrack?

(2.) The facts of the case, and the relevant provisions of the Act and the Rules framed thereunder are as follow: Section 2(19) of the Karnataka Excise Act ("the Act" for short) defines the word "manufacture". It reads:

(3.) The plea of the petitioners in the writ petitions is as under: Rectified spirit was not an alcoholic liquor meant for human consumption. Therefore, under entry 51 it was not competent for the legislature to levy excise duty on the manufacture of rectified spirit. This point is covered by a Division Bench judgment of this Court in the case of State of Karnataka v. Abdul Salam W.A. No. 1097/1980, dated 30-6-1982. When the State Government was prevented from levying excise duty on rectified spirit, Schedule-A to the Rules were amended on 24-6-1983, whereby rectified spirit and alcohol of the strength of London proof were made liable for excise duty at the rate prescribed in the Schedule. While the rectified spirit is not meant for human consumption, the rectified spirit of London proof is fit for human consumption. The strength of the rectified spirit of London proof is 60 to 65 under proof and if it is reduced below 25 under proof, it becomes potable liquor. If specially treated water is added to it and it is allowed to mature for 15 days, it becomes arrack. The prescribed condition is that the arrack must be 35 under proof or below it. Arrack is nothing but London proof rectified spirit with the addition of specially treated water and allowed to mature for 15 days. Therefore, it cannot be said that arrack is manufactured. As the arrack is not a product of manufacture, there was no competance for the State Legislature to levy excise duty. If the definition of the word "manufacture" given in Section 2(19) were to be understood as wide enough to include the preparation of arrack from rectified spirit of London proof, then the definition itself is beyond the competance of the legislature for under entry 51 of the State List, it is competent for the legislature to levy excise duty on manufacture of liquor for human consumption, and, therefore, the Legislature cannot widen the definition in order to cover an item which is not a product of manufacture. In support of the contention that the arrack was not a product of manufacture, the learned Counsel for the petitioners relied on the following decisions: