JUDGMENT D. M. Chandrashekhar, J. - The petitioners are distillers manufacturing alcoholic liquors and rectified spirit. In these petitions under Article 226 of the Constitutions, they have challenged the levy of the duty under the nomenclature export duty on Indian made foreign liquors, country spirits, beer and rectified spirits levied at the point of export from Uttar Pradesh to other States and Union Territories in India. The petitioners have also prayed for quashing the notifications issued by the Government of Uttar Pradesh under Ss. 28 and 29 of the U.P. Excise Act, 1910, (hereinafter referred to as the Act) levying such duty on such liquors and rectified spirit exported from Uttar Pradesh to other States and Union Territories.
2. The petitioners case is briefly as follows : Before the commencement of the Constitution, the State of Uttar Pradesh was levying a duty on export of Indian made foreign liquors country spirit and beer at very low rates. This duty was levied to meet the expenditure on supervision and control of export of liquors. Even after the commencement of the Constitution, the rates of export duty continued to be the same except that such rates were expressed in decimal coinage. The Government has by stages increased the rates of export duty enormously. Such increase in the rates of export duty has seriously affected the petitioners trade in exporting alcoholic liquors. The present rates of export duty cannot be justified as fee because the State Government does not render any service to the petitioners in return for such export duty. Besides export duty, the petitioners required to pay a duty on manufacture of liquors called the still head duty, which is payable before issue of such liquors from their distilleries. The payment of still head duty is governed by Rules 152 and 153 of the U.P. Excise Rules. Neither the Constitution nor the Act empowers imposition of export duty on liquors and rectified spirit. If export duty is allowed to be charged by this State, the same liquors will be taxed twice over. Export duty on liquors is also violative of Article 301 of the Constitution inasmuch at it impedes free flow of trade and commerce in such liquors. In accordance with the decision taken at the Conference of Finance Members of Various Provinces held in the year 1923 excise duty on liquors should follow consumption and can be charged only by the respective States in which liquors are consumed. If export duty is allowed to be charged on such liquors, there would be levy of excise duty on them twice over and this would be manifestly illegal.
3. In the counter affidavit filed on behalf of the State levy of export duty on liquors is sought to be justified as follows : The petitioners are not required to pay to this State still head duty upon liquors which exported by them to other States and Union Territories. Upon liquors so exported they have to pay excise duty under the nomenclature of export duty. Excise duty in the form of still head duty is payable by the petitioner only on such quantities of liquors which are issued by them for consumption within this State. Under Entry No. 51 of List II of the Seventh Schedule to the Constitution, this State has competence to levy excise duty on liquors which are manufactured or produced in this State Since liquors exported to other States and Union Territories by the petitioners are admittedly manufactured or produced in this State, it (this State) can validly levy excise duty on them at any convenient stage after such manufacture and this state has been levying on such liquors which are exported to other States and Union Territories, excise duty under the nomenclature of export duty. What is charged by the importing States and Union Territories on such liquors is countervailing duty the levy of which is permissible under Entry No. 51 of List ii of the Seventh Schedule to the constitution. So far as this State (Uttar Pradesh) is concerned, it is charging excise duty only once in the form of export duty on liquors so exported. Such levy of excise duty under the nomenclature of export duty, is not in any manner violative of Article 301 of the constitution. It is not true that after the enhancement of the rates of export duty on liquors under the impugned notifications there has been any decrease in the export of liquors from this State.
4. Three important questions that arise for determination in these petition, are these :
(i) Whether the State of Uttar Pradesh can levy export duty on rectified spirit.
(ii) Whether the levy of export duty on liquors is warranted by the provisions of the Constitution and the U.P. Excise Act, and
(iii) Whether the levy of export duty is violative of Articles 301 of the Constitution.
5. In Delhi Cloth and General Mills Co. Ltd. vs. Excise Commissioner U.P. and others a Division Bench of this Court held that rectified spirit is no an article meant for human consumption and hence does not come within the ambit of the word alcoholic liquor for human consumptionoccurring in Entry No. 51 of List II to the Seventh Schedule to the Constitution and that the State Legislature has no competence to impose excise duty on rectified spirit.
In the light of the aforesaid ruling of this Court the levy of export duty on rectified spirit exported from the State of Uttar Pradesh to other State and Union Territories in India, is clearly unsustainable.
6. However, the learned Advocate General who appeared for the State and its Excise authority, submitted that in the aforesaid decision of this Court, the following three aspects of the question of levy of excise duty on rectified spirits, had not been considered. The first according to him was that after certain process, rectified spirit is capable of being rendered fit for human consumption. The second aspect was that even rectified spirit is often misused by may people by drinking it. Lastly, he submitted that the use of rectified spirit for purposes other than drinking is also consumption and that hence this State can levy excise duty on rectified spirit also.
7. We are not impressed by the above arguments of the learned Advocate General Taking the last point first under Entry No. 51 of List 11 of the Seventh Schedule to the Constitution the article on which the State Legislature can levy duty is alcoholic liquor for human consumption and not alcoholic liquor for any kind of consumption. Unless alcoholic liquor is fit for human consumption, no excise duty can be levied by the State Legislature even if such liquor can be consumed otherwise than for human consumption.
8. Likewise it is evident from the language of Entry No. 51 that so long at rectified spirit remains as such and has not been transformed by any process to be potable i.e. fit for human consumption, it in outside the description of alcoholic liquor fit for human consumption and consequently outside the permissible sphere of taxation by the States.
That a few desperate or perverse person drink rectified spirit at great risk to their lives and health does not alter the nature of rectified spirit, namely, that it is unfit for human consumption.
Hence we see no ground that calls for reconsideration of ruling of this Court in Delhi Cloth and General Mills case that this State has no competence to levy excise duty on rectified spirits.
9. We shall now take up the more important question, namely, whether the levy of export duty on Indian made foreign liquors is warranted by the provisions of the Constitution and the Act and the Rules thereunder. We shall briefly set out the relevant provisions of the Constitution and of the Act and the Rules made thereunder.
10. The relevant portion of Entry No. 51 of List II of the Seventh Schedule to the Constitution reads :
"Duties of Excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India -
(a) alcoholic liquors for human consumption.
(b) .......................
Sub-S. (18) of S. 3 of the Act which definess export reads :
"export means to take out of Uttar Pradesh otherwise across customs frontier as defined by the Central Government."
The relevant portion of S. 13 of the Act reads :
"No intoxicant shall be exported or transported unless
(a) The duty, if any imposed under S. 28 or
(b) .............................. has been paid or a bond has been executed for the payment thereof."
Sub-S. (1) of S. 28 of the Act reads :
"28. Duty on excisable articles. - (1) An excise duty or a countervailing duty as the case may be, at such rate or rates as the Local Government shall direct, may be imposed, either generally or for specified local area, on any excisable article -
(a) imposed in accordance with the provisions of S. 2(1); or
(b) exported in accordance with the provisions of S. 13; or
(c) transported; or
(d) manufactured; cultivated or collected under the licence granted under S. 17; or
(e) manufactured in any distillery established, or any distillery or brewery licenced, under S. 18 :
Provided as follows :-
(i) duty shall not be so imposed on any article which has been imported into British India and was liable on such importation to duty under the Indian Tariff Act, 1894, or the Sea Customs Act, 1878.
Explanation - Duty may be imposed under this section at different rates according to the places to which any excisable article is to be removed for consumption, or according to the varying strengths and quality of such article."
S. 29 of the Act provides, inter alia, that subject to such rules as the Excise Commissioner may prescribe to regulate the time, place and manner of payment, excise duty may be levied in the case of excisable articles exported under S. 13, by payment either in the province of export or in the province or territory of import.
11. R. 632 of the Rules provides that export duty shall be levied by pre-payment at the District treasury of the district of export of by credit against the distillers advance duty deposit before the spirit is exported from the distillery, bonded warehouse or wholesale premises of the distiller and that no pass converting the export of any such consignment shall be issued until such duty has been paid.
R. 633 of the Rules provides that any person may export in bond foregin liquor manufactured at a distillery in Uttar Pradesh to any place in India under a pass in form P.D. 25 granted as provides in that rule. That rule further provides that when any person desires to export in bond spirit manufactured at a distillery in Uttar Pradesh, he shall make to the Collector an application which must be accompanied by -
(i) a permit from the Collector, Deputy Commissioner or other officer of the district to which the spirits are to be exported authorising the import of such spirits, and
(ii) a duly executed special bond in form P.D. 16 or a reference to a general bond in form P.D. 15.
R. 634 of the Rule provides that any person may export duty paid foreign liquor manufactured at a distillery in Uttar Pradesh to any place in Indian under a pass in form P.D. 25.
The relevant portions of R. 636 of the Rules read :
"(1) The exporter shall obtain from the importer a permit authorising the importer signed by the Chief Revenue Authority of the importing State or Union Territory or by an officer duly authorised in this behalf.
(2) The permit shall specify. -
(a) the name and address of the person of firm authorised to import,
(b) the description and quantity of the foreign liquor to be imported,
(c) the rate of duty chargeable in the importing State or Union Territory in case the Indian made foreign liquor is imported in State or Union Territory with which the State of Uttar Pradesh has entered into reciprocal arrangements for the adjustment of excise duty by book transfer,
(d) the rate of duty charged in the importing State or Union Territory and the fact that it has been realised in advance in cases of import other than those covered by clause (c).
(3) On receipt of the permit the exporter shall deposit into the treasury;
(a) Export duty on the total quantity of liquor to be exported; and
(b) Where the export is made to a State or Union Territory with which the State of Uttar Pradesh has entered into a reciprocal arrangement for the adjustment of the excise duty by book transfer and the rate of duty in the importing State or Union Territory is higher than that enforced in the State of Uttar Pradesh and that payable in the importing State of Union Territory on the total quantity of liquor to be exported.
(4) On receipt of the permit and the treasury receipt the wholesale vendor shall prepare a pass in Form F.L. 23 in quadruplicate and submit it to the Excise Inspector in charge of the distillery. The Excise Inspector shall after satisfying himself that duty has been correctly realised affix his signature to the pass. The exporter shall then send one copy of the pass to the Collector of the district of export, one copy to the Chief Revenue Authority of the place of import or such other officer as may be authorised in this behalf, one copy to the consignee and shall retain the fourth copy. The treasury receipt, shall always accompany the copy of the pass sent to the Collector of the exporting districts.
(5) ...........
(6) ...........
(7) Should the rate of duty in the importing State be lower than that in force in Uttar Pradesh, exporter shall be entitled to a refund of the difference in duty. If the duty has been prepaid in the State of import at the rate in force at the time of issuing import permit, the exporter shall be entitled to a refund of duty deposited by him in the State of export on verification of the claim by the Excise Inspector Incharge of the distillery on the basis of export passes in Form F.L. 23, duly countersigned by the Chief Revenue Authority of the State or Union Territory of import or the officer appointed in this behalf in token of receipt of the consignment of Indian made foreign liquor."
Rule 637 of the Rules provides that the duty, other than export duty on foreign liquor manufactured at any distillery in Uttar Pradesh and exported therefrom on prepayment of duty to any State or Union Territory of Indian, shall be credited by book transfer to the Government of the importing State or Union Territory after the close of the excise year.
12. The nature of excise duty has been explained in numerous decisions of the Federal Court, the Privy Council and the Supreme Court. Suffice it to refer to the following enunciation by the Supreme Court in R. C. Jall Parsi vs. Union of India, "Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient Stage so long as the character of the impost that it is a Duty on the manufacture or production, is not lost. The method of collection does not effect the essence of the duty, but only related to the machinery of collection for administrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on fair construction of the provisions of a particular Act."
13. In R. C. Jalls cases the cess imposed on coal was empowered to be collected by the Railway Administration by means of a surcharge on freight for carrying coal. Such surcharge was recovered from the consignor if the freight was prepaid at the time of consignment, and from the consignee if the freight was collected at the destination of the consignment. The Supreme Court held that such surcharge was a duty of excise and that the Central Government was legally competent to evolve a suitable machinery for collection of such duty.
14. S. 28 of the Act provides, inter alia, that excise duty may be imposed on any excisable article exported in accordance with the provisions of S. 13 or manufactured in any distillery established or licensed under S. 178. So long as the levy is on manufacture within this State of alcoholic liquors for human consumption, such levy can be made at any convenient stage, whether it be at the stage of manufacture itself or at the stage of export of liquor so manufactured from this State to any other part of India. The mere fact that the duty is levied on such liquors at the stage of its export from this State to any other place in India, does not make the duty any less a duty on manufacture or production of such liquor.
15. Shri S. C. Khare and Shri S. N. Kacker, learned counsel for the petitioners, contended that on liquors manufactured in this State and exported to other States and Union Territories, this State levies not only export duty but also still head duty and that such double levy of excise duty is not warranted by the provisions of the Constitution or of the Act and the Rules thereunder.
16. The learned Advocate General emphatically denied that the Excise authorities of this State have been levying both still head duty and export duty on liquors manufactured in this State and exported to other States and Union Territories. He explained the procedure for the levy of excise duty on such liquors by the Excise authorities of this State. It is briefly as follows :
17. Under Rule 634 a manufacturer of liquors in this State who has paid still head duty on liquors manufactured by him in this State and who desires to export such liquor to other State and Union Territories has to make an application to the Excise authorities along with a permit issued by the appropriate authority of the importing State or Union Territory authorising import of such liquors. Such permit should also specify the rate of countervailing duty chargeable on such liquor by that State or Territory. On a permit for export being issued by the Excise authorities of this State;
(i) the exporter has to pay to this State export duty on liquors intended to be exported, and
(ii) if such export is to a State or Union Territory with which the State of Uttar Pradesh has made reciprocal arrangement for adjustment of excise duty by book transfer, and if the rate of countervailing duty imposed by such State or Union Territory is higher than the rate of still head duty paid on such liquors in this State, the exporter has to pay such difference of duty to the Excise authorities of this State.
Thereafter the Excise authorities of this State will issue a pass in quadruplicate for export of such liquors. After satisfactory proof of such liquors having reached the importing State or Union Territory, the Excise authorities of this State will refund to the exporter the difference between the amount of still head duty which had already been paid to this State on such liquors and the amount of countervailing duty payable on such liquors in the importing State or Union Territory if the latter is lower than the rate of still head duty in this State and the amount of duty in retained by this State will be credited to the importing State or Union Territories by book adjustment after the close of the excise year.
Rule 633 permits a manufacturer of liquors in this State to export such liquors to other States and Union Territories without prepayment of still head duty to this State, if he exports such liquors in bond. For so exporting, he should make a written application to the Collector of the district in which his distillery is situate. Such application must accompany.
(i) a permit from the appropriate authority of the importing State or Union Territory authorising import of liquors; and
(ii) a duly executed special bond in Form P.D. 16 or a reference to a general bond in Form P.D. 15.
The export duty will be levied by prepayment at the Treasury or by credit against the distillers duty deposit. Thereafter the Collector or the Excise Inspector of the exporting district issues a pass in triplicate. On the exporter producing evidence of such liquors having reached the destination State or Union Territory, the Collector of the exporting district shall discharge the bond, provided that none of the conditions of the bond have been infringed. If the exporter fails to produce such evidence or if any of the conditions of the bond have been infringed, the collector of the exporting district shall take necessary steps to recover from the exporter and/or his sureties the penalty due under the bond. The requirement of the exporter executing the bond is to prevent of evasion of payment of still head duty on liquors which are not actually exported outside this State.
18. Thus, it is seen that on liquors exported to other States an Union Territories, only export duty is payable to this State. Even if the exporter has already paid to this State still head duty on such liquor, he will be entitled, on satisfactory proof that such liquors have been so exported, to refund the same or the same will be adjusted towards the countervailing duty payable on such liquors in the importing States or Union Territory. We have no hesitation in rejecting the assertion of Shri Khare and Shri Kacker that on liquor manufactured and exported to other States and Union Territories, this State levies both export duty and still head duty.
19. Even so, Shri Khare and Shri Kacker contended that on liquors manufactured in this State and exported to other States and Union Territories this State has no competence to levy any kind of excise duty and hence even the levy of export duty and hence even the levy of export duty is invalid. In support of their contention they relied on the proceedings of the Conference of Finance Members of the Government of India and of the then British Indian Provinces held in November 1923. The following is the relevant extract from these proceedings :
"9. The chairman proposed that the differences which have arisen in the matters of excise should be settled by the adoption of the general principle that duty should follow consumption, except in the case of small quantities.
Mr. O. Donnel stated that the Government of the United Provinces would be in favour of adopting this general principle but that they would require to be compensated for the expense incurred and the work done by them on behalf of other provinces. Their claim was not to any share of the duty as such, but was an agency claim for a refund of the actual cost of excise administration undertaken on behalf of consuming provinces. It was agreed that the claim was equitable and should be provided for but Mr. Donald pointed out that in Bengal payment for excise services is taken from the distilleries direct. In this way the sale price is correspondingly raised against the province of consumption and with the same result as would be reached by payment of compensation between provinces.
The Whole question was referred for consideration and report to the Conference and report to the Conference to a Committee consisting of Sir Charles Todhunder, Mr. J. Donald, Mr. S. P. O. Donnel, Mr. B. P. Standen.
x x x Excise - The report of the Committee on Excise (Annexure A) was presented and accepted by the Conference."
20. The Report of the Committee on Excise which is Annexure A to Proceedings of the Conference, reads :
"The duty on excisable articles should follow consumption except in the case of small quantities not despatched direct from the distillery or bonded ware house to the consumer. The provinces of manufacture will recover the expenditure involved in manufacture and export through the cost price. There shall be uniform limits of possession without a pass for all liquor made in India other than plain country liquor. It is desirable that when there is a wide difference in duty between two provinces the limits of possession in tracts on the border should be specially reduced. The following means of recovering given covering transport across a provincial border the province of import should be entitled to recover the duty at the rate imposed by it by book transfer from the province of manufacture, or by prepayment to itself or by requiring the excisable articles either to be delivered at a bonded warehouse or to be produced before an excise officer so that duty can be collected from the consignee before it passed into consumption. The tariff rate will be adhered to generally. All variations to be by agreement between provinces. Existing variations to be reconsidered. Arrangements for the execution of bonds to be made in exporting or importing province as may be convenient.
As regards opium, the Government of Indian have admitted that a small profit is made by them on their sales to the provinces. This interferes with the right of the provinces under the Devolution Rules, to the excise duty on opium, and the provinces consider that the Government of India should make no profit on these transactions. The sub-committee would suggest that, with effect from the introduction of commercial accounts at the opium factories steps should be taken to ascertain the cost price of excise opium and that the cost price alone should thereafter be charged to the provinces."
21. Shri Khare and Shri Kacker maintained that the above recommendation of the Committee on Excise was accepted by the Government of India and all the then British Indian Provincial Governments, that since about the year 1923, excise duty on liquors was being levied only by the Province or the State in which such liquors were consumed and that the Province or the State in which such liquors were manufactured was levying only a small fee to recoup the expenditure for issuing permits for their export to the consuming Provinces or States. Learned counsel for the petitioners submitted that the framers of the Constitution were aware of this long standing agreement between the then provinces and that there is nothing in the Constitution to indicate that any departure from this long standing agreement between the Provinces or States in regard to levy of excise duty, should be given a go by and that the manufacturing State and the consuming States should both have the power to levy excise duty, resulting in double taxation of the same liquor by two different States. Learned counsel for the petitioner urged that Entry No. 51 of List II of the Seventh Schedule to the Constitution should be construed in the light of the long standing agreement between the Provinces or States regarding the exercise of the power to levy tax on alcoholic liquors for human consumption.
22. Though the formal deed of agreement between the then British Provinces regarding levy of excise duty on liquors manufactured in one Province and consumed in another Provinces, has not been produced, it seems very likely that such agreement existed between those Provinces. But the question is whether the existence of such agreement is sufficient to cut down the width of the meaning of the words of Entry No. 51 in List II of the Seventh Schedule to the Constitution and to read any limitation into the scope of the legislative competence of the State under that Entry.
The learned Advocate General submitted that in accordance with the well accepted principle of construction of entries in the Legislative Lists in the Constitution, the words of Entry No. 51 in List II of the Seventh Schedule to the Constitution should be given the widest meaning they are capable of and that so construed, there is nothing to show any limitation on the competence of the State in which liquors are manufactured, to levy duty of excise on such liquors even though they may be exported to other States or Union Territories and are not consumed in the State in which they are produced. He maintained that reading Entry No. 51 without any pre-conceived notion as to any limitation imposed by any inter State agreement, it is plain that each State has competence to levy excise duty on alcoholic liquors fir for human consumption manufactured with in that State irrespective of whether such liquors are subsequently consumed in that State or exported outside that State or even destroyed. He contended that the taxable event is complete when liquor in manufactured in this State and that such taxable event attracts levy of tax irrespective of what happens subsequently.
23. Learned counsel for the petitioners have not been able to point out any provision in the Constitution which provides that any inter State agreement shall limit the legislative competence otherwise conferred on the State Legislature under the Constitution. Hence we uphold the contention of the learned Advocate General that the agreement between the then Provinces that excise duty on liquors should be levied only by the Provinces in which they are consumed, cannot affect the validity of the levy of excise duty by the State in which such liquors are manufactured since such State has legislative competence to levy such excise duty under Entry No. 51 of List II of the Seventh Schedule to the Constitution.
24. Shri Khare next contended that the Excise authorities of this State have no authority to collect from the exporter in Uttar Pradesh any countervailing duty imposed by the importing States or Union Territories on liquors imported into them by adjusting the still head duty collected by this State from him towards such countervailing duty and by calling upon him to pay the difference between such countervailing duty of the other State and the still head duty of this State where the former is higher than the latter. Shri Khare maintained that there is no legislative sanction of the U.P. Legislature for the Excise authorities of this State compelling the exporter of liquors in this State to pay the countervailing duty levied by the importing States or Union Territories and that the mere existence of an inter-State arrangement for adjustment of excise duty by book transfer between this State and other States or Union Territories cannot confer any such power on the Excise authorities of this State.
25. The above argument of Shri Khare overlooks the dual character of the U.P. Excise Act, namely that it is not merely a taxing statute but also a regulatory Act, regulating manufacture, transport, export, import, possession and sale of liquors. S. 15 of the Act empowers the State Government to regulate by issue of passes and permits transport, import and export of liquors while regulating export of liquors from this State to other States or Union Territories. This State can, in our opinion, impose reasonable conditions like obtaining permits from the appropriate authority of the importing State or Union Territory and payment of countervailing duty to such importing State or Union Territory or to its authorised agent which may be this State itself. Can it be said that imposition of such conditions does not come within the ambit of regulation of export ?
26. Hence, we are unable to accept the contention of Shri Khare that this State has no authority to adjust the still head duty paid to it by a manufacturer of liquors towards the countervailing duty payable by him to the importing State or Union Territory to which he has exported them and to demand from him payment of the difference between such still head duty and such countervailing duty if the latter is higher or to require proof of payment of the countervailing duty to the importing State or Union Territory.
27. Since we have held that on liquors manufactured in this State and exported to other States and Union Territories, this State levies only export duty not still head duty, the decision of the Supreme Court in The Deputy Commissioner Excise Bangalore vs. M/s. Phipson Co. Ltd., on which strong reliance was placed by learned counsel for the petitioners, is clearly distinguishable on facts. There, what the Supreme Court held was that liquor which is subject to one kind of excise duty, by a State does not become liable for another kind of excise duty by the same State.
28. We shall now consider the contention that the levy of export duty on liquors is violative of Article 301 of the Constitution.
Article 301 provides that subject to the other provisions of Part XIII, trade, commerce and intercourse throughout the territory of India shall be free.
Learned counsel for the petitioners contended that export duty is direct levy on the movement of liquors from this State to other States or Union Territories and that such levy would impede free flow of such liquors and impose restrictions on the freedom of trade, commerce and intercourse between the States and that under Article 302 of the Constitution only Parliament can impose such restrictions but not the State Legislature.
29. The above contention, though attractive at first sight does not bear close scrutiny. As stated earlier, the duty which is levied under nomenclature export duty is really an excise duty on liquor manufactured in this State, but is levied at the stage of export from this State to other States or Union Territories, an excise duty on production though levied for the sake of convenience at the point when such liquors are exported outside this State. As pointed out earlier, the Supreme Court has clearly laid down that excise duty can be levied at any convenient stage so long as it is related to manufacture or production.
30. As explained by Gajendragadkar, J. (as he then was) in Atiabari Tea Co. Ltd. vs. the State of Assam restrictions from freedom which is guaranteed by Article 301 would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade.
In Andhra Sugar Ltd. vs. State of Andhra Pradesh the Supreme Court said that a non-discriminatory tax on goods does not offend Article 301 unless it directly impedes free movement or transport of goods.
31. It is competent for this State to levy still head duty on liquors manufactured in this State but exported to other States and Union Territories at the same rate at which still head duty is levied on liquors manufactured and consumed in this State. If this State had done so, no one could say that such levy of excise duty in the form of still head duty at a uniform rate on liquors consumed in this State as well as on liquors exported to other States would be a discriminatory tax impeding free flow of trade and commerce in such liquors throughout the territory of India. Instead of levying still head duty on liquors manufactured in his State and exported to other States or Union Territories, this State has been levying on such liquors exported excise duty under the nomenclature of export duty at a much lower rate than the rate of still head duty. Hence such lower rate of export duty cannot in our opinion, be regarded as discriminatory levy restricting or impeding free flow of liquor to other States and Union Territories. If anything, levy of export duty at a lower rate, instead of levy of still head duty at a higher rate on liquors exported to other States and Union Territories encourages such export by giving a more favourable treatment to exported liquors compared to liquors consumed within this State.
32. In view of the circumstances that liquor exported from this State are exempted from still head duty, we have no hesitation in rejecting the contention that levy of excise duty under the nomenclatured in this State and exported to other States and Union Territories violated Article 301 or the Constitution.
33. In the result, these petitions succeed only in so far as they impugned levy of export duty on rectified spirit but in other respect these petitions fail. We quash the impugned notifications issued by the State of Uttar Pradesh in so far only as they seek to levy export duty on rectified spirit. We issue a writ restraining the State of Uttar Pradesh and its officers from levying and collecting export duty on rectified spirit exported to other States and Union Territories. We further direct the respondents to refund to the petitioners any amounts collected from them towards export duty on rectified spirit. Except to this limited extent, we dismiss these petitions.
34. The interim orders made in these petitions restraining the respondents from collecting export duty on liquors exported to other States and Union Territories are hereby vacated.
In the circumstance of these petitions we direct the parties to bear their own costs.