Facts of the Case

This batch of twenty writ petitions was filed by pharmaceutical and other industrial units operating in the Union Territory of Jammu and Kashmir, including M/S Cadila Pharmaceuticals Ltd., challenging sub-clause (B) of Clause 14 "Excise Duty – Civil" of the Excise Policy 2019-20, promulgated vide SRO 128 dated 25.02.2019. The impugned clause levied excise duty at Rs.10 per litre on rectified spirit, alcohol and denatured spirit imported into the Union Territory for use in medicinal and toiletry preparations, other than in the manufacture of liquor. Some petitioners used the raw material for manufacturing medicinal and toiletry preparations, while others used it for liquor or other non-medicinal products.

Issues Involved

  1. Whether the State/Union Territory had legislative competence to levy excise duty on rectified spirit, alcohol and denatured spirit used in medicinal and toiletry preparations, in light of Entry 84 of the Union List.
  2. Whether such State excise duty, levied on goods also exigible to CGST/IGST under Section 9 of the CGST Act, 2017 and Section 7 of the IGST Act, 2017, amounted to impermissible double taxation.
  3. Whether petitioners using the raw material for purposes other than medicinal and toiletry preparations were liable under the impugned clause.

Petitioner's Arguments

  • The State lacked legislative competence to levy excise duty on rectified spirit used in medicinal and toiletry preparations, since Entry 84 of the Union List vests that power exclusively in Parliament.
  • Since the raw material is already exigible to CGST/IGST under Section 9 of the CGST Act, 2017 and Section 7 of the IGST Act, 2017, levying State excise duty over and above GST amounts to double taxation, which is impermissible in law.
  • The Medicinal and Toilet Preparations (Excise Duties) Act, 1955 stood repealed by Section 174 of the CGST Act, 2017, leaving no continuing power to levy excise on such preparations.

Respondent's Arguments

  • The Jammu and Kashmir Excise Act, 1958 remained intact even after the GST rollout on 07.07.2017, unlike the J&K VAT Act and other State levies, which stood repealed.
  • The impugned clause was framed under Sections 5 and 16 of the State Excise Act, enacted under the State's residuary legislative competence, particularly for the period prior to the abrogation of Article 370.
  • Entry 84 of the Union List governs only goods manufactured or produced in India and does not extend to goods imported into the Union Territory for medicinal or toiletry use, so it does not oust the State's competence.

Court Order / Findings

  • The Court held that the Jammu and Kashmir Excise Act, 1958 was validly enacted under the State's residuary legislative powers and was not itself under challenge; the impugned clause, framed under Sections 5 and 16 of that Act, could not be struck down for want of legislative competence.
  • On double taxation, the Court held that excise duty and GST are legally distinct levies operating on different aspects of economic activity, and legally distinct levies can be charged simultaneously — terming the double-taxation plea "a hollow argument unworthy of acceptance."
  • The Court clarified that the Rs.10/litre levy applies only to rectified spirit, alcohol or denatured spirit imported for use in medicinal and toiletry preparations, and does not extend to raw material imported for the manufacture of liquor or other non-medicinal products.
  • Petitions by units importing the raw material for medicinal and toiletry preparations were dismissed as devoid of merit; petitions by units using the raw material for other purposes, including liquor manufacture, were allowed, holding them not liable to the impugned duty, with respondents directed to verify actual end-use and refund any duty wrongly recovered.

Important Clarification

  • State excise duty and GST (CGST/IGST) are legally distinct levies operating on separate stages of economic activity and can be charged simultaneously on the same goods without offending any bar on double taxation.
  • Where an excise levy is confined by its own text to goods used for a specific purpose, assessees using identical raw material for a different purpose fall outside the levy and are entitled to a refund of any duty wrongly recovered from them.

Sections Involved

  • Central Goods and Services Tax Act, 2017 — Section 9 (levy of CGST) and Section 174 (repeal and saving), invoked to argue double taxation and repeal of the earlier Medicinal and Toilet Preparations (Excise Duties) Act, 1955.
  • Integrated Goods and Services Tax Act, 2017 — Section 7, taxing inter-State supply of rectified spirit, save when used for manufacturing liquor for human consumption.
  • Jammu and Kashmir Excise Act, 1958 — Sections 5 and 16, under which the impugned excise duty on imported rectified spirit was levied.
  • Article 226 of the Constitution of India, 1950 and Entry 84 of the Union List — invoked respectively for the writ remedy and on the question of legislative competence.

Decision – In Favour of

Disposed of with a split outcome. In favour of the Department for petitioners importing rectified spirit/alcohol/denatured spirit for use in medicinal and toiletry preparations — the excise levy was upheld and the double-taxation plea rejected. In favour of the Assessee for petitioners using the same raw material for other purposes, such as liquor manufacture — these units were held not liable to the impugned duty and entitled to a refund of any amount wrongly recovered, subject to verification of actual end-use by the respondents.

Related Case Laws

No directly on-point case notes on the interplay between State excise duty and double taxation under GST are currently published on this site.

Case Details

  • Court: High Court of Jammu and Kashmir and Ladakh at Jammu
  • Case No.: WP(C) No. 3273 of 2019 & Batch (WP(C) Nos. 2257, 2658, 2992, 2993, 3000, 3211, 3361, 3362, 3414, 3448, 3451, 3470, 3479, 3532, 3604, 3664, 3687, 3704, 3858 & 4412 of 2019)
  • CNR: JKHC020062822019
  • Coram: Justice Sanjeev Kumar and Justice Puneet Gupta
  • Reserved On: 18-12-2024
  • Decision Date: 31-12-2024

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