Allahabad High Court directs Refund of UPVAT on Extra Neutral Alcohol as State lost its Legislative Competence to Impose Tax [Read Judgment]

Allahabad High Court - UPVAT - Extra Neutral Alcohol - legislative competence - impose tax - Taxscan

The Allahabad High Court directed the refund of Uttar Pradesh Value Added Tax (UPVAT) on Extra Neutral Alcohol (ENA) as the State lost its legislative competence to impose the tax.

As many as 9 petitions were filed seeking relief in the nature of a declaration that the State legislature (of Uttar Pradesh) lost its legislative competence to impose or levy tax on the sale of Extra Neutral Alcohol, after enactment of the 101st Constitution Amendment, with effect from 01.07.2017 – as a direct consequence of the enactment of Article 246A read with Article 366 (12-A) of the Constitution of India, read with the substituted Entry 54 of List II of the Seventh Schedule, to the Constitution of India.

According to the petitioners ENA, both denatured and un-denatured as also SDS fall under the heading 2207 of the First Schedule to the Customs Tariff Act, 1975. ENA is concentrated Ethyl Alcohol (Ethanol) having an alcohol content of about 95 percent. Similarly, SDS is a spirit or neutral alcohol used for industrial purposes only. According to the petitioners, they manufacture and sell ENA, both to distilleries that manufacture “alcoholic liquor for human consumption” and to chemical and other industries. Owing to the high alcohol content (above 95 percent), both ENA and SDS are unfit for human consumption. Prior to the 101st Constitution amendment and, in light of Article 246 of the Constitution read with Entry 54 of List II (as those provisions then existed), the State legislature had the legislative competence to enact laws to impose a tax on sale or purchase of any goods other than newspapers, subject, however, to the provisions of Entry 92A of List I. Also, in view of Article 246 of the Constitution read with Entry 51 of List II of the Seventh Schedule, the State Government had the legislative competence to enact laws to impose duties of excise on goods manufactured or produced in the State, being alcoholic liquors for human consumption and opium, Indian hemp, etc.

On the other hand, in view of Article 246 read with Entry 92, the Parliament had the legislative competence to enact laws, to impose a tax on sale or purchase of newspapers and on advertisements published therein. Similarly, by virtue of Article 246 read with Entry 84 of List I of the Seventh Schedule, the Parliament had the legislative competence to enact laws to impose duties of excise on tobacco and other goods manufactured or produced in India, except alcoholic liquors for human consumption and opium, Indian hemp, etc.

The division bench of Justice Naheed Ara Moonis and Justice Saumitra Dayal Singh declared that the State lost its legislative competence to enact laws, to impose a tax on sales of ENA, upon the enactment of the 101st Constitution Amendment. Consequently, and upon considering Section 174(1)(i) of UPGST Act, 2017, 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. Consequently, all assessment Orders/Notices and the (administrative) Circulars/letters holding otherwise are also quashed.

“It is further directed, subject to the applicability of the rule against unjust enrichment, any amount that may have been deposited by the petitioners (except petitioners claiming under this order, in Writ Tax 355 of 2020), by way of UPVAT on ENA on or after 01.07.2017, maybe refunded to them, within a period of one month from today,” the court said.

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