IN THE HIGH COURT OF KARNATAKA AT BENGALURU ON THE 16TH DAY OF JANUARY, 2019 BEFORE THE HON'BLE MR. JUSTICE RAVI MALIMATH AND THE HON’BLE MR. JUSTICE MOHAMMAD NAWAZ WRIT APPEAL NO.256 OF 2006 AND WRIT APPEAL NO.4363 OF 2011 (T-KST) IN WRIT APPEAL NO.256 OF 2006:
BETWEEN:
M/S. BRINDAVAN ALCOHOL AND ALLIED CHEMICALS PRIVATE LIMITED, HAVING ITS REGISTERED OFFICE AT NO.99, BALAGOLA INDUSTRIAL ESTATE, MYSURU, REPRESENTED BY ITS DIRECTOR, MR. B. A. LAKSHMAN, MAJOR. ... APPELLANT (BY SRI M. THIRUMALESH, ADVOCATE) AND:
1. THE COMMISSIONER OF COMMERCIAL TAXES COMMERCIAL TAX OFFICES COMPLEX, GANDHINAGAR, BENGALURU-560 009.
2. STATE OF KARNATAKA BY ITS FINANCE SECRETARY, VIDHANA SOUDHA, BENGALURU-560 001. ... RESPONDENTS (BY SRI VIKRAM HUILGOL, HIGH COURT GOVERNMENT PLEADER) IN WRIT APPEAL NO.4363 OF 2011:
BETWEEN:
M/S. BRINDAVAN ALCOHOL AND ALLIED CHEMICALS PRIVATE LIMITED, HAVING ITS REGISTERED OFFICE AT NO.99, BALAGOLA INDUSTRIAL ESTATE, MYSURU, REPRESENTED BY ITS DIRECTOR, MR. B. A. LAKSHMAN, MAJOR. ... APPELLANT (BY SRI M. THIRUMALESH, ADVOCATE) AND:
1. STATE OF KARNATAKA BY ITS CHIEF SECRETARY, VIDHANA SOUDHA, BENGALURU-560 001.
2. STATE OF KARNATAKA BY ITS FINANCE SECRETARY, M. S. BUILDING, BENGALURU-560 001.
3. THE COMMISSIONER OF COMMERCIAL TAXES COMMERCIAL TAX OFFICES COMPLEX, GANDHINAGAR, BENGALURU-560 009. ... RESPONDENTS (BY SRI VIKRAM HUILGOL, HIGH COURT GOVERNMENT PLEADER) THESE WRIT APPEALS ARE FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER PASSED IN WRIT PETITION NOS.22098 OF 2002 AND 51456 OF 2003 DATED 29.11.2005.
***** THESE WRIT APPEALS COMING ON FOR HEARING THIS DAY, RAVI MALIMATH, J., DELIVERED THE FOLLOWING:
JUDGMENT The case of the petitioner is that it is a manufacturer of ascetic acid and other products. The petitioner purchases ethyl alcohol, also known as rectified spirit, from various dealers. That ethyl alcohol attracts tax at the rate of 10% and rectified spirit at 20% on purchases. That the petitioner has been purchasing ethyl alcohol from 1997-1998 onwards. He has been paying the tax at the rate of 20% on the said commodity. Therefore, the petitioner addressed a letter to the respondent – the Commissioner of Commercial Tax Department, stating that ethyl alcohol and rectified spirit are one and the same composition and therefore the tax paid in excess of 10% requires to be refunded. Nothing came of it. Thereafter, the instant writ petition was filed seeking for a declaration that the respondent has no authority to collect the tax amount at 20% on rectified spirit since the rectified spirit and ethyl alcohol are one and the same and sought for the following reliefs:-
“(a) declaring that the respondent has no authority to collect tax more than 10% on the purchase of Ethyl Alcohol of 95% v/v with chemical formula C2H5OH as Ethyl Alcohol and Rectified spirit are one and the same;
(aa) declare that the entries made by the second respondent in Second Schedule Part @ Item 12(ii) for rectified spirit and Item 12(iii) for Ethyl Alcohol under the Karnataka Sales Tax Act, 1957 as unconstitutional, illegal and violative of Article 14 of the Constitution of India and strike down the same.
(ab) declaring that the Entry 12 of Part S of II Schedule under Section 5(3)(A) of the Karnataka Sales Tax Act introduced by Act 15 of 1988 with effect from 1.4.1988 as unconstitutional and ultra vires the powers of the State Legislature and strike down the same so far as petitioner is concerned.
(b) direct the respondent to refund the excess tax of 10% collected on purchase of Ethyl Alcohol for industrial purpose made by the petitioner from various dealers as per the Statement under the originals of Annexures A and G from the year 1997-98 up-to date;
(c) issue a direction directing the respondent to pay interest on the said 10% dues from the respective dates of payment at the rate of 24% per annum;
(d) And pass such other orders as this Hon’ble Court might deem meet in the interests of justice.”
The relief sought for in writ petition No.54156 of 2003 reads as under:-
“(a) declaring that the Entry 12 of Part S of II Schedule under Section 5(3)(A) of the Karnataka Sales Act introduced by Act 15 of 1988 with effect from 1.4.1988 as unconstitutional and ultra vires the powers of the State Legislature and strike down the same so far petitioner is concerned.
(b) Issue a writ of mandamus to the Government of Karnataka and its concerned Departments, the respondents herein, to refund all taxes collected by the respondents from the petitioner from the date of its manufacturing activity in the year 1997 as detailed in Annexure-B with interest at 24% per annum and pass such other orders as this Hon’ble Court deem met in the interests of justice.”
The respondent - State entered appearance and filed their statement of objections. They contend that ethyl alcohol and rectified spirit are two different commodities. That rectified spirit is ultimately used for the purpose of production of alcohol which is a consumable. That ethyl alcohol is used for other purposes. Therefore, there is a difference between ethyl alcohol and rectified spirit. Therefore, there are different rates of tax for the two different commodities. They also primarily contended that the petitioner has no locus-standi to question the same. On contest, the learned Single Judge even while coming to the prima facie conclusion that the petitioner has no locus- standi to question the same, nonetheless without going into the merits of the petition, by relying on various Judgments of the Supreme Court as referred to therein, came to the view that the State was justified in imposing the differential rate of tax for the two commodities. For purposes of tax, ethyl alcohol and rectified spirit cannot be considered as one and the same commodity. Therefore, the writ petitions were dismissed. Hence, the present appeals.
2. Sri M.Thirumalesh, learned counsel for the appellant restricts his arguments so far as the differential rate of tax is concerned. He contends that ethyl alcohol and rectified spirit are one and the same commodity. Rectified spirit cannot be taxed at 20%, whereas ethyl alcohol being taxed at 10%. He submits that he is not a manufacturer of alcohol for human consumption. That he manufactures alcohol produces which are used for food preservatives. Therefore, the distinction would apply to him since he is not a manufacturer of alcohol fit for human consumption. Hence, he is entitled for a refund of 10% of the tax. The same is disputed by the learned Government Advocate by placing reliance on the statement of objections. He pleads that both the commodities are different. Therefore, there is a differential rate of tax. Under these circumstances, no interference is called for.
3. Heard learned counsels. The primary contention of the appellant is that ethyl alcohol and rectified spirit are one and the same. In support of his case he relies on the Judgment of the Hon'ble Supreme Court in the case of SYNTHETIC CHEMICALS vs. STATE OF U.P reported in 1990 SC 1927 with reference to para-73.
Therein the Hon'ble Supreme Court held that by common standards ethyl alcohol is not fit for human consumption. That the petitioners therein were manufacturing ethyl alcohol wherein it is also stated that ethyl alcohol is also known as rectified spirit. It is also stated that rectified spirit for industrial purpose is defined as “spirit purified by distillation having a strength of not less than 95% of volume by ethyl alcohol”. Therefore, it is contended that the ethyl alcohol and rectified spirit are one and the same.
4. Having considered the said paragraph in detail, we do not opine that such a conclusion could be drawn. The reference that rectified spirit is an industrial alcohol and is not potable as such does not lead to the conclusion, that rectified spirit and ethyl alcohol are one and the same. Even though the learned counsel persuades us to take such a view, we are not inclined to accept such a contention. Therefore, to arrive at a conclusion on a question of fact that ethyl alcohol and rectified spirit are one and the same has not been stated by the Hon'ble Supreme Court in the aforesaid Judgment. Therefore, we find that the said Judgment cannot be of any avail to the appellant.
5. In para-3 of the statement of objections it is indicated that ethyl alcohol is used as an intermediate material in the manufacture of other organic compounds. That the said commodity is found at Entry 12(ii) of Part “S” of the II Schedule which therefore attracts 10% as the rate of sales tax.
6. However, rectified spirit is ultimately used in alcoholic beverages for human consumption. Therefore, this commodity is mentioned in Entry 12(ii) of Part “S” of the II Schedule and attracts tax at the rate of 20%. Therefore, it is contended that when rectified spirit is ultimately used to create two different commodities which is fit for human consumption therefore 20% tax is levied. On the other hand, ethyl alcohol is used as an intermediate material in the manufacture of other commodities and therefore attracts a lower rate of tax at 10%. This we find to be acceptable. It cannot be said that the differential rate of tax made by the State is perverse. Specific reasons have been assigned as to why the tax on rectified spirit is at much higher rate than that of ethyl alcohol. The reasons have been substantiated through their affidavit. We are of the view that the reasons assigned for the different rate of tax is completely justified by the respondent - State. Under these circumstances, we do not find any ground to interfere with the order passed by the learned Single Judge.
For the aforesaid reasons, the appeals being devoid of merit, are dismissed.
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JUDGE JUDGE rsk/-