S. Shamsul Hasan, J.:— Entirely an illegal demand by the Excise Department of the Government of Bihar from the petitioner of a huge amount of Rs. 9,00,592/- as loss of revenue has given rise to this application. The stand of the Government being entirely specious is without legal justification.

2. The petitioners carry on business of manufacturing sugar at the factory situated at Narkatiaganj. They have also a distillery manufacturing rectified spirit. Petitioner no. 1, which is a Company, had been granted a licence under section 13 of the Bihar and Orissa Excise Act, 1915 (hereinafter referred to as ‘the Act’) in Form No. 28A for the manufacture of spirit in its distillery for use in the manufacture of chemical and for Industrial, Scientific and other purposes. It may be stated here that petitioner no. 1 is not a licensee for manufacturing and dealing in wholesale trade of country spirit. According to condition no. 1 of the licence, the licensee shall be bound to supply out of his total production of spirit such quantity or quantities to such person, or concerns as the Excise Commissioner may from time to time direct. Under condition no. 7 the licensee shall have to make deposit with the Collector a fixed sum of Rs. 53,000/- either in Government promissory notes or in such other approved form or to execute a mortgage in the prescribed form of the distillery premises etc. as security for the fulfillment of the conditions and for the payment of all sums of money which may become due and owing by the licensee to the Government by way of penalty or otherwise.

3. Petitioner no. 1, it is stated in the writ petition, used to supply rectified spirit to the warehouses in the districts in accordance with the requisitions and/or directions of the Excise authorities. The Excise Superintendent Incharge of the Distillery orders for supply of rectified spirit to the warehouses for which requisition is made by the concerned Excise Officer and the same is supplied to the driver of the truck under cover of appropriate transport pass. The driver concerned transports the goods to the warehouse and after receipt of the goods at the warehouse duplicate copies of the transport pass, duly received at the warehouse concerned indicating the receipt of the rectified spirit, are sent to the Distillery Excise Officer.

4. The transaction that has given rise to the present distillery dispute is based on three passes, which are Annexures A, A/1 and A/2 to the counter affidavit filed on behalf of the respondents. Three trucks loaded with rectified spirit were sent from the factory of the petitioner no. 1 at Narkatiaganj to various places mentioned in those passes. Annexures A and A/1 relate to dispatch of rectified spirit to Hazaribagh Sadar and Annexure A/2 relates to Chas in the district of Dhanbad. It is said that these goods so dispatched did not reach their destination. The goods under Annexure ‘A’ were despatched on 18.11.77; under Annexure A/1 on 5.12.77 and under Annexure A/2, on 14.2.78 In October, 1978, the petitioner no. 1 received a notice dated the 20th October, 1978, from the Commissioner of Excise (respondent no. 2) which states that rectified spirit despatched on the basis of the transport passes Nos. ??? dated 18.11.77, No. 2 dated 5.12.77 to Hazaribagh Warehouse and No. 21 dated 14.2.78 to Chas Warehouse had not reached their destination, resulting in the loss of Rs. 8,62,697/- to the Government by way of duty. This has been revealed by a reference made by the Accountant General, Bihar. It is further stated that section 10 of the Act has been violated since no spirit could be manufactured, sold or despatched without paying duty or executing a bond. Quoting the relevant provision it was also stated that the country spirit could not be transported without a transport pass issued by the Excise Officer posted at the Distillery, watch could be issued after duty was paid or bond was executed. It was further stated that condition no. 7 of the licence relating to execution of the mortgage bond or promissory notes, required to be executed, was not executed. A further sum of Rs. 37,895/- was claimed by way of minimum additional surcharge. In the end of the notice it is also mentioned that the petitioner should show cause as to why its licence should not be suspended for having committed serious irregularity. The said notice is Annexure ‘2’ to the writ petition.

5. The petitioner Company in its reply has stated that the licence had been issued in Form No. 28A and the rectified spirit was duly despatched under the passes issued by the Excise Officer concerned and the petitioner, therefore, was not responsible if it did not reach its destinations nor was the petitioner liable for any loss caused by any accident that might have occurred enroute. Its further stand was that the rectified spirit being unfit for human consumption the petitioner was not required to pay any excise duty nor was such excise duty ever charged. It also asserted that it could not be liable for any claim whatsoever. The reply, which is the basis of the case of the petitioner, is Annexure ‘3’.

6. The petitioners then filed the present writ petition in this Court under Article 226 of the Constitution, which was kept pending because the petition filed by the petitioner-Company before the Commissioner of Excise was pending. The Commissioner of Excise has now disposed of the matter and his order is Annexure ‘7’ to the supplementary affidavit filed on behalf of the petitioner on 17.5.82 All the contentions raised by it before respondent no. 2 have been repelled.

7. The contention of the learned counsel for the State, apart from what is stated in the notice (Annexure ‘2’), was that the petitioner-Company is liable to pay duty on the spirit because rectified spirit by subsequent dilatation becomes potable and thus fit for human consumption and, therefore, duty could be recovered from the petitioner-Company, which is thus liable to compensate the loss caused to the Government due to non-delivery by application of rule 33 of the Rules made by the Board of Revenue under the notification dated the 29th April, 1919, (hereinafter referred to as ‘the Rules’).

8. It is, therefore, essential to examine whether rectified spirit can be subjected to levy of duty under the Act. Excisable article has been defined in section 2(6) of the Act and clause (a) thereof is relevant for the present purpose which is as follows:—

“excisable article means—

(a) any alcoholic liquor for human consumption.

xxxxxx”

9. Liquor is defined in section 2(14) of the Act which “includes all liquids consisting of or containing alcohol, such as spirit of wine, spirit, wine fermented tari pachwai and bear, and also unfermented tari, and also any other substance which the State Government may, by notification, declare to be liquor for the purposes of this Act.” Intoxicant has been defined in section 2(12a) of the Act, which means “any liquor or intoxicating drug”. Section 2(19) defines ‘spirit’ as any liquor containing alcohol obtained by distillation, whether it is denatured or not. Thus, the total effect of the definition of ‘intoxicant’, ‘liquor’ and ‘spirit’, read with the definition of excisable article, means that only a spirit meant for human consumption can be subjected to excise duty.

10. Coming to the averments made in the petition also the petitioners have asserted in paragraph 11 thereof that there is no condition in Form No. 28A that the rectified spirit cannot be removed from the Distillery without payment of duty or execution of tit bond. In paragraph 14 of the writ petition it is clearly stated that no duty under the Act can be and has ever been demanded on the rectified spirit.

11. It is now to be examined if the rectified spirit sold and despatched from the factory of the petitioner-Company is suitable for human consumption. The State has made two very significant statements in the counter affidavit while quoting the Rules. It is stated in paragraph 28 of the counter affidavit that rectified spirit has been defined as (plain) spirit having strength not less than 50 degree over proof. The rectified spirit is sent to the warehouse for human consumption and in fact it is sold for human consumption by mixing water to reduce its strength and as such duty is required to be paid thereon. From this averment it is clear that it is only when the rectified spirit is treated at the warehouse after being received from the manufacturer and given treatment by mixing water, it becomes fit for human consumption, but, when it leaves the manufacturer, it is not fit for human consumption. The statement in paragraph 19 of the counter affidavit that rectified spirit manufactured by petitioner no. 1 is fit for human consumption is, therefore, entirely wrong. It only becomes fit admittedly when it is given separate treatment at the warehouse.

12. Rule 3(b) of the Rules states that distilleries can be of four kinds for (i) supply of spirit; (ii) supply of foreign liquor, (iii) supply of spirit for the manufacture of chemicals, medicated articles etc. or for other industrial purposes; and (iv) any or all of the above purposes combined. Obviously, from this it appears that spirit manufactured under rule 3(b)(i) is not the same as 3(b)(iii) of the Rules. In paragraph 9 of the counter affidavit the State admits that rectified spirit is reduced to the prescribed strength of the country-spirit in the warehouse after it is received from the manufacturer. In paragraph 10 there of no attempt has been made to interpret the words “any other purpose” in Form 28A to mean “for the purpose of manufacture of rectified spirit which is termed as country-spirit after reduction.” It is so apparent that this interpretation is a complete misrepresentation of the real state of affairs, which is that the manufacturer sends out the spirit not for human consumption, which becomes so fit admittedly only after it is accordingly treated in the warehouse. It follows, if I may reiterate, that when the rectified spirit leaves the manufacturer, it is not fit for human consumption and, therefore, no duty can be levied by the State Government in view of the relevant constitutional provision, i.e, entry No. 51 of List II Schedule VII of the Constitution can only be done by the Central Government in view of entry No. 84 of List I.

13. Licences in Form Nos. 27 and 28 are granted under sections 20 and 22 of the Act respectively for the wholesale of country spirit which is undoubtedly for human consumption. In both these forms provision has been made for payment of duty or execution of bond. From the conditions of the licence, Form 28A therefore, it cannot be said that the petitioner Company was required to execute bond and pay any duty.

14. Section 12 of the Act provides that no intoxicant can be imported or transported except under a pass and section 13 provides for licence for manufacture of intoxicant under the authority and subject to the terms and conditions of the licence granted in that behalf by the Collector.

15. I have already set out condition no. 1 and 7 of the form of licence granted to the petitioner under section 13 of the Act. Under condition no. 7(2) of the licence it is provided that cancellation or suspension of the licence can be made for breach, non-performance or non-observance of the conditions of the licence, but, no where it has been stated specifically therein that any duty is to be paid or any bond is to be executed or that the licence is for manufacture of spirit for human consumption, except, of course, that the words ‘other purposes’ have been used.

16. It has been held by various High Courts in India that the spirit not meant for human consumption is not subject to duty. It will be useful to notice the decision in Suneeta Laboratories v. State of Madhya Pradesh (1972 Taxation Law Reports 2058), wherein it has been held that the State Legislature has no right to impose any excise duty on alcohol, which could not be directly used by human beings as a beverage, notwithstanding the fact that by some process alcohol can be turned into an alcoholic liquor. It was further held that it may be that at the stage it is turned into alcoholic liquor, the State Legislature may get an authority to impose excise duty but till that stage is reached, it is only the Parliament that can impose the excise duty. In the above view of the matter it cannot be disputed that pure alcohol or rectified spirit cannot be used by human beings as beverage. This finding has been arrived at after elaborate discussion and I am inclined to accept it as entirely relevant in this case. Similar is the decision in Ajudhia Distillery Rajaka Sahaspur v. State of Uttar Pradesh (1980 Taxition Law Reports 2262). It has also been held in The Sirsilk Limited v. The Distillery Officer, Tiruchirapalli (1979 (2) Madras Law Journal 216) by A. Varadarajan, J. (as he then was) that rectified sprit is not alcoholic liquor for human consumption falling within Entry 51 of List II in Schedule VII of the Constitution of India. It falls within entry 84 of List I of that Schedule and the State Legislature has no power to legislate onit by way of rule 42 of the Madras Distilleries Rules, 1960. I have no hesitation in accepting the ratio of this decision also.

17. It may also be reiterated here that the State has not been able to show that duty has ever been levied on the rectified spirit or bond has ever been taken thereof by the State from the manufacturer of rectified spirit.

18. Learned counsel for the State has attempted to rely on rule 33 of the Rules and on the decision in S.K.G Sugar Ltd. v. The State of Bihar (1980 B.B.C.J 512) to assert its claim as justified. In my view the application of the Said rule and the decision in the S.K.G Sugar Ltd. are both misconceived, since none of the two come to the aid of the State. rule 33 of the Rules has only to be read to repel the interpretation given to it by the counsel for the State. Rule 33, in order to protect the interest of the State, lays down the quantity or permissible wastage by way of leakage or evaporation of spirit that may be deducted from the total quantity of spirit that is transported or exported under bond for calculation of the quantity on which duty may be levied. It merely lays down that no transporter can claim evaporation or leakage, beyond the quantity specified under rule 33. The rule precludes the transporter from raising a plea of unlimited losses due to uncontrolled leakage or evaporation. Even if the leakage is total and evaporation is 100%, the reduction will be only that which is provided in rule 33. In other words, it is merely a protection, assumed by the State to itself, against unscrupulous transporters. This rule means nothing beyond that. It does not create a right in any authority to levy any duly. Secondly, this rule applies only to such transportation or export that is done under the bond. If transportation or export is not done under bond, rule 33 of the Rules has no application whatsoever, as is the case with rectified spirit despatched from the premi as of the petitioner without bond.

19. The State has also relied on an observation in the case of S.K.G Sugar Ltd. (supra), which is as follows:—

“……Even if it be assumed that the spirit containing 95 percent alcohol is not excisable article (about which I am not expressing any opinion) there is no doubt that the spirit is being transported to the Government warehouses for being converted into country spirit which according to the petitioner's case is an excisable article. If there is loss and wastage in the spirit which is transported, there is bound to be lesser realisation of revenue as the quantity of the country spirit produced at the warehouse would be proportionately reduced. In my view, therefore, it is clearly beyond any adventure that the rule in question is regulatory in nature and does not impose any excise duty……”

20. The interpretation put to the above observation is that since rectified spirit became a total loss, the damage could be recovered under the rule even if it is not excisable. This submission gives peculiar twist to the above observation, since, in my view, rule 33 only means this that if a spirit is wasted beyond the prescribed quantity, yet duty has to be paid on the entire quantity, less the prescribed quantity allowed by way of leakage or evaporation. It is further clarified in the above observation itself. The nature of the rule was being examined and it was held as stated above. The matter before the Court in that judgment was the constitutional validity of rule 33 and its validity was upheld. This decision does not endow the Government with a power to levy duty on the rectified spirit not meant for human consumption. It is stated therein that “the said rule does not attempt to impose an excise duty. The purpose of the rule is to prevent perpetration of fraud or deception on the revenue as also to prevent any negligence on the part of the licensee which may ultimately result in the loss of revenue to the State.” The spirit dealt with in that decision was ??? for human consumption and was being transported under bond. In fact, rule 33 only deals with permissible and allowable wastage on which quantity is exempted from payment of duty. It means nothing beyond that.

21. It is also well settled that if an article becomes dutiable at a after stage by becoming fit for human consumption, duty Cannot be levied at the prior stage where it is not fit for human consumption.

22. I have, therefore, no hesitation in holding that the petitioner is not liable to pay any duty whatsoever on the rectified spirit sent out on the basis of the passes issued by the Excise authority.

23. The next question to be examined is whether the petitioner-Company is liable for the loss in transit of the rectified spirit in question and whether this Court could enforce such claim. The petitioner-Company was required in terms of the licence to deliver rectified spirit on the instructions of the Distillery Officer, who would issue pass for delivery thereof to the warehouses. The matter to be examined, therefore, is whether the rectified spirit was really lost and if lost, who would be responsible for such loss aspect of the matter cannot be examined in the present proceeding. It was also submitted that had the rectified spirit reached were house and converted into country liquor it would have earned duty to the State Exchequer, which was lost due non-receipt or the rectified spirit at the warehouse and, therefore, the petitioner-Company is liable to meet that damage. This loss can only be described as fictional and imaginary and the Petitioner-Company could not be in this application subjected to any such liability. The above cited observation in S.K.G Sugar Ltd. (supra could be used (though I am not holding it to be so) to establish a claim against the Company but before a proper forum. The Excise Commissioner, in my view, did not examine this question in an objective and judicious manner but has been swayed away by the eloquence of the State counsel. The claim of the State, therefore, by Annexure ‘2’ has no justification in law. It automatically follows that the order of a week's suspension of the licence as passed by the Commissioner of Excise is also uncalled for and is declared to be entirely without. It gal justification since the petitioner-Company was neither required to pay duty nor to execute a bond.

24. In the result, Annexures ‘2’ and are quashed and the application is allow but, without costs.